Redwood Trust, a real estate investment trust that specializes in buying and securitizing jumbo mortgages, is set to expand into investor-focused loans thanks to a new deal with 5 Arches.
Under the deal, Redwood Trust is buying 20% of 5 Arches, an originator and asset manager of investor-focused loans, including loans for single-family rental homes, multifamily bridge, and fix-and-flip residential real estate.
As part of the deal, Redwood Trust will have “exclusive” access to 5 Arch’s pipeline of single-family rental loans, which includes up to four properties.
According to information made available to investors, Redwood Trust is paying $10 million in cash for the minority share in 5 Arches.
Additionally, Redwood Trust will have a one-year option to buy the remaining 80% interest in 5 Arches for $40 million.
According to information provided by the companies, 5 Arches has originated more $1.3 billion of business-purpose residential mortgages since being founded in 2012.
In the last few years, the company’s production has increased, climbing from approximately $150 million in 2015 to $470 million in 2017. The company also said that it is off to a “strong start” in 2018 with first quarter originations of more than $175 million.
Christopher Abate, the president of Redwood Trust, said that the company views the acquisition as an important next phase in its trajectory.
“We have admired the 5 Arches platform for some time, and could not think of a better partner to help jumpstart our business-purpose loan initiative,” Abate said.
“The opportunity for us is clear,” Abate added. “Capital needs in this still emergent sector of housing finance continue to rise, and through our partnership with 5 Arches, we have the opportunity to address this demand while creating significant growth potential and accretive investments for our portfolio.”
5 Arches CEO and Co-founder Shawn Miller said that the company views the deal with Redwood as an important development for the company.
“Redwood recognizes the significant value and growth potential of the platform we have built. We look forward to having such a well-established and respected company as our strategic business partner,” Miller said. “This transaction represents a pivotal moment in the evolution of 5 Arches, and together with Redwood, we are poised to take a leadership position in the single-family rental business and continue the accelerated growth of our multifamily and fix-and-flip businesses, respectively.”
