Terms of the deal call for Sternlicht's Starwood Property Trust Inc., the nation's largest commercial mortgage REIT, to buy most of LNR for $856 million, while Starwood Capital Group will spend $197 million for LNR's remaining assets. The two Starwoods are also combining to acquire LNR's ownership interests in Auction.com as part of the deal.
The target is owned by Cerberus Capital Management LP's Aozora Bank Ltd., along with iStar Financial Inc., Oaktree Capital Management LP and Vornado Realty Trust.
Miami-based LNR, the one-time investment arm of homebuilder Lennar Corp., is a real estate investment, finance, management and development firm that ranks as one of the largest holders of distressed U.S. commercial real estate debt. Included in the deal is LNR's business servicing a portfolio of more than $131 billion in loans under management and real estate owned.
Starwood in a statement said that the deal would diversify its revenue base and add scale to its operating platform.
"We are delighted to announce this transformative and highly strategic acquisition," Sternlicht, Starwood Property Trust's chairman and CEO, said in a statement. "We expect the combination of LNR's capabilities, Starwood Property Trust's superior access to capital, and both firms' underwriting expertise to result in a long-term and sustainable competitive advantage."
As part of the deal, LNR co-CEOs Tony Cobb and Justin Kennedy are expected to remain in their roles managing LNR as a separate operating unit of Starwood Property.
LNR had troubles navigating the real estate slide. The company in August 2010 completed an out-of-court restructuring that slashed its debt to $425 million, from $1.3 billion, and wiped out existing equity. Cerberus' $550 million investment in the firm was wiped out in that deal, but the private equity firm reclaimed a majority stake in the firm by participating in a $417 million equity infusion along with Vornado, iStar and Oaktree.
Jay Sugarman, chairman of both iStar and LNR, in a statement said the ownership group invested in LNR because "we recognized its significant potential."
IStar said its 24% ownership interest in LNR is expected to generate $220 million in net proceeds after closing, money that will be deployed into new investments.
Citigroup Inc. and Credit Suisse Group are serving as financial advisers to Starwood, with a Sidley Austin LLP team led by Michael Gordon and Scott Freeman providing legal counsel.
Lazard is financial adviser to the sellers of LNR, with a Schulte Roth & Zabel LLP team including John M. Pollack and Alan S. Waldenberg representing LNR and Cerberus.
Sullivan & Cromwell LLP represented LNR's board and Vornado.
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