UPDATE 3-Toll Brothers to invest in distressed real estate

* Forms Gibraltar Capital and Asset Management

* Some investments may fall outside core operations

* Shares of Toll down 1.3 pct (Adds company comment, updates share activity)

NEW YORK, July 19 (Reuters) - Toll Brothers Inc (TOL.N) is starting an investment fund to buy up distressed real estate assets, including loan portfolios and land for development, as the luxury homebuilder says it sees opportunities in these areas.

In a move that could take the company outside its core business of homebuilding, Toll said on Monday that it was forming Gibraltar Capital and Asset Management LLC. Toll veterans Roger Brush and Michael LaPat will lead the fund, whose size was not specified.

The company said Brush had experience in distressed acquisitions, while LaPat had spent more than a decade of Toll in mergers and acquisitions, due diligence, valuations and the structuring and financing of complex ventures.

The venture may also help banks and developers work out troubled real estate.

The company successfully invested in distressed assets by buying them from banks and from the government during the last big real estate downturn in the early 1990s, said spokesman Fred Cooper. Toll is still building homes in some of the communities it bought back then.

"That's what (Chief Executive Officer Douglas Yearley) started doing when he came to Toll Brothers," Cooper said. "It's part of our DNA."

Cooper said the company was not allocating a set amount of money for the investments, but would dedicate funds as opportunities arise.

"We believe there are many potential investments arising from the distress in the real estate industry," Yearley said in a statement.

Yearley took over as CEO last month, replacing Bob Toll, who helped start the U.S. luxury homebuilder that bears his name and is best known for its "McMansions."[ID:nN1795724]

The company's move comes soon after the expiration of a popular homebuyer tax credit. Sentiment among homebuilders is at its lowest level in more than a year, according to the National Association of Home Builders. [ID:nN19192732]

(For a graphic of homebuilder sentiment, click link.reuters.com/mys38m)

Shares of Toll were down 1.3 percent in afternoon trading on the New York Stock Exchange, in line with the decline in the S&P homebuilding index .GSPHOME.

Toll is not the first homebuilder to see opportunity in distressed assets.

Rival Lennar Corp (LEN.N) has a subsidiary called Rialto Capital Advisors that invests in portfolios of loans. In February, Lennar completed a transaction with the Federal Deposit Insurance Corp to manage and work out $3 billion in distressed residential and commercial real estate loans.

Lennar said at the time that its understanding of market cycles allowed it to identify "the opportune point of entry" and that it had been incubating Rialto since the market downturn began in 2007. (Reporting by Nick Zieminski; Editing by Maureen Bavdek, Tim Dobbyn and Lisa Von Ahn)