Redwood Trust Inc. has exercised the company’s option to acquire the remaining 80% interest in 5 Arches, LLC, an originator and asset manager of business-purpose real estate loans. In May 2018, Redwood acquired a 20% minority interest in 5 Arches for $10 million in cash, with a one-year option to purchase all remaining equity in the company.
The incremental consideration for the transaction is $40 million, payable in a mix of cash and Redwood stock. A portion of the remaining consideration is contingent upon 5 Arches achieving certain origination volumes over the next two years.
Founded in 2012 and based in Irvine, California, 5 Arches has originated over $1.8 billion of loans since inception, with a focus on single-family rental and bridge loans for single-family and small-balance multifamily properties. The firm has thoughtfully grown its production from approximately $150 million in 2015 to approximately $850 million in 2018.
- Accelerates access to a growing pipeline of business-purpose real estate loans
- Leverages core competencies in housing credit, product development, and structuring
- Expands opportunities for profitable growth in new markets
- Expected to be accretive to earnings and book value per share
“We are pleased to be moving forward with our full acquisition of the 5 Arches platform. 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,” said Christopher J. Abate, Redwood’s Chief Executive Officer.
Commenting on behalf of 5 Arches, CEO and Co-Founder Shawn Miller remarked, “It is with great pleasure and excitement that we complete the transaction with Redwood.” Miller continued, “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.”
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.”