(Reuters) - Blackstone Group’s (BX.N) credit unit has agreed to buy a portfolio of land from Hovnanian Enterprises Inc (HOV.N) in a $125 million deal, enabling the troubled homebuilder to buy other land and capitalize on a improving U.S. housing market.
The deal is the latest sign of investor confidence in the battered residential construction market which has started to show tentative signs of recovery. In May, home prices rose for the third consecutive month while new sales of single-family homes also surged to a two-year high from a year earlier.
Hovnanian, which builds single-family homes, townhouses and condominiums, will have an option to buy back finished lots on a quarterly basis from Blackstone’s GSO Capital Partners unit, the two companies said in a statement.
GSO has already closed deals on six land parcels totaling 620 lots with acquisition and committed future development costs of $65 million. GSO Capital and Hovnanian also plan to identify other land parcels totaling up to an additional $60 million in development costs, the two firms said.
“We firmly believe that the U.S. residential real estate market has bottomed and that Hovnanian is uniquely positioned to capitalize on the recovery,” said Doug Ostrover, founding member and partner of GSO Capital.
Shares of Hovnanian rose as much as 12 percent in morning trade, making it one of the top percentage gainers on the New York Stock Exchange on Friday. The stock is still down more than 60 percent from its 2010 highs.
The company’s losses have mounted as it invested in new land while demand remained low. But the homebuilder posted its first quarterly profit last month in over two years as home deliveries grew, in line with stronger earnings from peers Toll Brothers Inc (TOL.N), D.R. Horton Inc (DHI.N) and Lennar Corp (LEN.N).
Other homebuilders have also been raising money. Beazer Homes USA Inc (BZH.N) plans to offer $75 million of its common stock and Meritage Homes Corp (MTH.N) raised about $80 million earlier this week in a common stock offering.
Blackstone’s credit business, which had $50.8 billion in assets under management as of the end of March, invests in debt assets such as leveraged loans, high-yield bonds and mezzanine financing instruments.
GSO Capital also has funds that invest in special situations such as rescue financing. The Blackstone unit will increase its stake in Hovnanian by exchanging $15 million of its notes for 3.9 million shares of the homebuilder’s Class A common stock.
Reporting by Greg Roumeliotis and Michelle Conlin in New York and Kartick Jagtap in Bangalore