There are several types of private lending companies in the United States, each with different business models and capital sources. Some focus on commercial real estate. Some only fund residential fix and flip projects. Others only do multifamily value-add projects. Many now offer long-term loans for rental properties.
Regardless of the loan programs, there are two characteristics of the lenders that are getting acquired:
- Fund loans secured by residential investment properties
- Primary capital model is to sell loans to the institutional secondary market:
- Private equity firms
- Hedge funds
- Real estate investment trusts
- Commercial banks
These institutional loan buyers are the firms which are acquiring private lending companies.
Why are private lenders getting acquired?
The reason for the acquisitions is that private mortgages have performed so well over the past few years with high returns and relatively low risk. Once the institutional loan buyers have experienced a lot of success buying from a private lending firm, an acquisition makes sense because they can have all the loans being originated by the lender, and not have to compete with other secondary market players who also want those loans.
Recent Private Lending Company Acquisitions
The majority of lenders that are being acquired are large operations with loan volumes greater than $500 million. Here are a few examples.
- January 2018: Genesis Capital acquired by Goldman Sachs
- February 2019: 5 Arch Funding acquired by Redwood Trust for $50M
- November 2019: Corevest acquired by Redwood Trust for $490M
- February 2021: Civic Financial Service acquired by Pacific Western Bank
- July 2021: Lima One Capital acquired by MFA Financial
- November 2021: Anchor Loans acquired by Pretium Partners for $1.5B
- April 2022: Riverbend Lending acquired by Redwood Trust
Acquisitions of Small to Mid-Size Private Lenders
It’s not only the large private lending shops that are getting bought out. A mid-size lender in New Jersey was recently acquired by a private equity firm which is not an institutional loan buyer. They want to acquire several more lenders that have a solid operation and annual loan volumes between $50 million and $500 million. Their plan is to efficiently manage multiple lending shops under one roof and eventually obtain the best pricing on loan sales to the secondary market.
We have a relationship with a national private lending firm that is looking to acquire loan originators with a minimum annual loan volume of just $30 million. Their strategy is to leverage smaller origination shops to build up their own volume. And the company being acquired doesn’t have to be a direct lender with a large balance sheet. It could be a brokerage firm that would continue to operate with access to growth capital, warehouse lines, technology, back-office support and more.
How Mergers & Acquisitions Affect the Private Lending Industry
If you’re a real estate investor or a mortgage broker, the acquisitions by large institutional capital firms means you’ll continue to have lots of competitive options for financing real estate deals. Institutional capital is the main reason that private mortgage rates started to drop in 2016, and the acquisitions indicate that much more capital is committed to the space.
If you’re a private lender that doesn’t sell loans to the institutional secondary market, the acquisitions may not affect your business. You’ve likely already felt the competition from the national private lenders over the past several years, and perhaps your business is still prospering regardless.
When the capital markets put a pause on purchasing private mortgages in 2020, many non-institutional lenders were cheering the demise of the Wall Street-backed lenders. However, the recent acquisitions means that your competitors now have much more capital to grow and will likely continue to thrive.
Reach out to us if you operate a private mortgage origination business and have interest in an acquisition of your company.