Lennar subsidiary Rialto Capital Advisors will conductday-to-day management and workout of the portfolios and contributedup to $5 million toward the loan purchase. Lennar indirectlyacquired 40% managing member interests in the limited liabilitycompanies created to hold these loans.

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The FDIC will retain the other 60% equity interest and provide$627 million of non-recourse financing at zero interest for sevenyears. The transactions include approximately 5,500 distressedresidential and commercial real estate loans from 22 failed bankreceiverships.

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"Acquiring and working out distressed real estate loans was alarge and extremely profitable part of our business during the lastmajor real estate down cycle in the early 1990s," Stuart Miller,Lennar president and CEO, stated in a release. He noted that themajor homebuilder, founded in 1954, understands market cycles andpoint-of-entry opportunities, and has been preparing for such aninvestment over the past two years.

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"Our track record of successfully managing the resolution ofdistressed real estate loan portfolios puts us in a unique positionat this point in the cycle," added Rialto CEO Jeffrey Krasnoff. TheFDIC transactions are expected to contribute to Lennar's 2010earnings.

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Only 30% of the loans are commercial, while the rest are widelyresidential and are mostly concentrated in Georgia, Nevada andArizona. Lennar announced last month that it is entering theAtlanta market.

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Analysts following Lennar give the company credit for its pasthistory of capitalizing on market downturns, but warn that thisrecovery could be a lot more difficult. "This is appropriate, butat the same time we think there are long-term risks given theunusually severe nature of this cycle," Nishu Sood of Deutsche Banksaid in a research note.

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