UPDATE, 1/24/2013, 6:40 p.m. EST: The names of Sullivan & Cromwell attorneys working on the deal have been added to the article’s twelfth paragraph.

Miami-based real estate developer LNR Property, the world’s largest provider of commercial mortgage-backed securities‚ will be sold to real estate mogul Barry Sternlicht’s Starwood Capital Group and Starwood Property Trust Inc. in a cash deal worth $1.05 billion.

LNR is currently owned by multiple investors, including Cerberus Capital Management, iStar Financial, Oaktree Capital Management, and Vornado Realty Trust.

Starwood Capital and Starwood Property, affiliates that are both run by Sternlicht, will each acquire separate aspects of LNR’s portfolio under the terms of the deal announced Thursday. Starwood Property, a real estate investment trust (REIT), will pay $856 million for a package that includes loan servicing businesses in the United States and Europe, as well as various portfolios of commercial mortgage-backed securities. For its part, Starwood Capital has agreed to pay $197 million to acquire LNR’s U.S. commercial property group. The two affiliates will also split control of LNR’s minority interest in real estate auction website Auction.com.

The acquisition of LNR bolsters Starwood Property’s real estate finance services while also expanding its potential investment opportunities, according to the deal announcement. The deal is expected to close in the second quarter, pending regulatory approval.

Sidley Austin is serving as outside counsel to the Starwood side of the deal, led by Chicago-based M&A partner Michael Gordon and New York–based M&A partner Scott Freeman. Sidley Austin has represented Starwood Capital on various transactions since 1995, Gordon says, and the firm also advised the underwriters on the 2009 initial public offering of Starwood Property. Gordon is also currently advising Starwood Capital–run homebuilder Tri Point Homes on its pending IPO, which is expected to raise up to $187 million.

Madison Grose and Ellis Rinaldi serve as co–general counsel for Starwood Capital. Former Simpson Thacher & Bartlett attorney Andrew Sossen is general counsel of Starwood Property.

Sidley’s Gordon tells The Am Law Daily that the deal for LNR involved “a very complicated and lengthy negotiation” that began in May with an auction process run by investment bank Lazard. One complicating matter that helped draw out the process was the number of parties that have an ownership interest in LNR.

“They had five sponsors that all had, kind of, different interests and priorities,” Gordon says. “And, it was very difficult to work out a transaction that was acceptable for everyone.”

He adds that the Starwood group may have presented the most attractive sale option to LNR’s owners because of its ability to divvy up the target’s businesses between Starwood Capital and Starwood Property. Gordon explains that the assets most suited to a REIT’s operations ended up with Starwood Property, while other parts of LNR’s portfolio will be folded into Starwood Capital’s distressed opportunity fund.

“I think that ultimately made us a favored bidder, in that I believe we were one of the only parties that was interested in buying the entire business, as opposed to just pieces of it,” he says.

LNR’s owners have turned to Sullivan & Cromwell as their outside counsel on the sale. As The Am Law Daily has reported in the past, S&C is standing outside counsel to Vornado, representing the trust in a number of transactions. In October, we reported that the firm advised Vornado on its $751 million sale of two malls in New York State to The Macerich Company.

S&C’s team includes M&A partner Alan Sinsheimer, tax partner Eli Jacobson, tax special counsel David Passey, employee compensation partner Matthew Friestedt, finance partner S. Neal McKnight, and finance special counsel John Anselmi. M&A associates Anca Paraian and Ashish Thaker, as well as employee compensation associates Michael Snypes and Allison MacDonald, are also working on the deal.

Schulte Roth & Zabel is also advising both LNR and Cerberus in connection with the sale. Schulte Roth’s team is led by M&A partner John Pollack and tax partner Alan Waldenberg, along with M&A associate Lawrence Natke. Pollack previously advised both LNR and Cerberus in LNR’s 2010 recapitalization, which included Vornado acquiring a 26.2 percent stake in the company.

Meanwhile, another REIT transaction was announced earlier this week. On Tuesday, Cole Credit Property Trust II (CCPT II) and Spirit Realty Capital announced that they will merge to create a REIT with an enterprise value of $7.1 billion. Goodwin Procter is advising CCPT II on that merger, with Ropes & Gray representing the trust’s special committee. Latham & Watkins served as outside counsel to Spirit Realty.