![]() “Our business platform is focused on our core capital-heavy traditional lending, which involves around 85% of the net capital deployed and generates a high (8% to9%) return on equity (ROE),” Capasse says. “As a lender, we are probably right up the middle of the fairway for non-bank, private debt lenders.”ĭuring the first two years of the pandemic, Ready Capital’s performance underscored its unique business model versus its peer group, Capasse says. “What’s unique about our business model is we have a proprietary scoring system, which scores markets from one to five based on a lot of quantitative data from the most obvious things like CoStar and Moody’s, to more niche data correlated with single family housing,” Capasse says. One of the things that Ready Capital looks for in any transaction is a consistent track record of performance, such as businesses with over a decade of positive outcomes in terms of business execution. Those two sectors account for about 80-90% of our exposure.” Another example is the industrial sector. “We look for sectors that conform to our macroeconomic thesis around the housing of residential units, and other sectors that have a low beta relative to the economic cycle. “As a result, we’ve gravitated toward lower middle market multifamily,” Capasse says. One of the mREIT’s theses since inception has been the chronic housing shortage in the United States, especially affordable and middle-income housing. “These are examples of how we’ve used M&A in a niche manner, and as a corporate financing tool, to grow our capital base to position the company in the number one spot in terms of market share as a non-bank lender in the lower middle market commercial real estate debt space,” Capasse says. That transaction provided an additional product in the form of construction lending, where Ready Capital hadn’t previously been active. Ready Capital sold off the liquid agency mortgage-backed bonds and reinvested in the core commercial lending business.Ī more recent example of a hybrid deal was a merger with private fund Mosaic Real Estate Credit in March 2022. One transaction that was purely capital raising was the acquisition of a subscale residential mREIT, Anworth, in 2020. So, Ready Capital does both strategic and capital raising acquisitions, with a hybrid between the two also a possibility. “Given that REITs have to pay out almost all of their income in the form of dividends, it’s difficult to retain and grow book value, but what’s unique about our model beyond M&A is that we own our own operating companies that originate loans in the form of taxable REIT subsidiaries,” Capasse says. This will catapult Ready Capital to become the fourth largest commercial mREIT with a capital base of $2.8 billion, and the largest non-bank lender to the lower middle market, according to the company. Evolving Though M&Aįast forward to 2023 and the company has successfully completed six M&A transactions, with a seventh slated to close this year as Ready Capital works to finalize a merger with Broadmark Realty. “In 2013, we seeded Ready Capital by converting a Waterfall private fund to a commercial mREIT and subsequently took that vehicle public,” Capasse says. Waterfall saw an opportunity to not only buy non-performing loans, but on the recovery post-GFC, to form a new direct lender that utilized a lot of the data from why the default occurred in the small balance commercial space. At the same time, we were buying and realizing significant returns on the non-performing loans-a function led by my partner Jack Ross (Ready Capital’s president) and I.” “We have a lot of infrastructure around loan workouts and resolved around 6,000 loans. “We bought about $5 billion during that period,” Capasse says. Thomas Capasse, Ready Capital’s CEO and chief investment officer, and co-founder of Waterfall Asset Management, says, “A lot of what we do at the external manager level is invest in opportunistic commercial real estate debt and residential credit.”įollowing the global financial crisis, Waterfall was one of the largest buyers of small balance commercial real estate loans from banks and was looking at ways to sell non-performing assets to improve its capital position. ![]() Ready Capital was founded in 2013 and its external manager, Waterfall Asset Management, is one of the largest standalone structured credit firms globally with about $12 billion of net assets and $20 billion in gross assets. With a strong track record of accretive acquisitions, and a merger expected to close this year, it expects to play a major role in the mREIT space in the years ahead. Ready Capital (NYSE: RC) is a multi-strategy real estate finance company that originates, acquires, finances, and services small to medium balance commercial loans.
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