Lennar Corp. (LEN), the third-largest U.S. homebuilder by revenue, expects to close a $650 million private- equity fund for its distressed real estate unit this year and start a second fund in 2012, the Miami-based company said.

Lennar has invested about $500 million in its Rialto Investments division, which purchases commercial real estate loans from banks and regulators, Chief Executive Officer Stuart Miller said today in New York at a UBS AG conference for building industry investors.

“Further investments to the Rialto program are not done with company capital but instead done with targeted capital that’s focused on the opportunities that we’re pursuing,” Miller said. “We expect to expand that program.”

Rialto has accounted for about half of Lennar’s profits at a time when new-home sales are down 80 percent from their peak, Miller said.

Lennar is the most profitable U.S. homebuilder after Reston, Virginia-based NVR Inc. (NVR)

To contact the reporter on this story: John Gittelsohn in Los Angeles atjohngitt@bloomberg.net

By John Gittelsohn - Nov 9, 2011 11:42 AM CT