MortgageReal Estate

Redwood Trust buying real estate investment loan originator 5 Arches

REIT acquires remaining 80% of originator

Last year, Redwood Trust, a real estate investment trust that specializes in buying and securitizing jumbo mortgages, grew its real estate investor loan business when it acquired a 20% stake in 5 Arches, an originator and asset manager of investor-focused loans and the parent company of 5 Arch Funding.

As part of the deal, Redwood Trust had the right to purchase the remaining 80% of 5 Arches within one year. And now, Redwood Trust plans to do just that.

Redwood Trust announced Tuesday that it plans to exercise its option and purchase the remainder of 5 Arches for $40 million. The REIT’s payout for its original 20% state was $10 million.

According to Redwood Trust, 5 Arches has originated more than $1.8 billion of loans since its founding in 2012, with its lending focus on single-family rental and bridge loans for single-family and small-balance multifamily properties.

The company has grown its loan production from approximately $150 million in 2015 to approximately $850 million in 2018.

As part of the deal, Redwood Trust had “exclusive” access to 5 Arches’ pipeline of single-family rental loans, which includes up to four properties.

And soon, Redwood Trust will own all of 5 Arches.

“We are pleased to be moving forward with our full acquisition of the 5 Arches platform,” Redwood Trust’s CEO Christopher Abate said.

“Completion of this transaction further accelerates our access into the business-purpose real estate lending space, an area of housing that we believe offers accretive and scalable returns to our shareholders,” Abate added. “We have worked closely with the 5 Arches team for almost a year and believe they represent the right cultural and business fit, and complement our company's core strengths in structuring and investing in housing credit.”

5 Arches CEO and Co-Founder Shawn Miller said that the company is looking forward to being part of Redwood Trust.

“It is with great pleasure and excitement that we complete the transaction with Redwood,” Miller said. “Combining our abilities to source and manage real estate credit with Redwood’s expertise creates a powerful platform to flourish in the ever-changing housing market.”

The companies expect the deal to close in the first quarter of 2019.

[Update: This article is now updated to reflect 5 Arches' status as the parent company for 5 Arch Funding.]

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