5 facts about Redwood Trust Investor Day
Redwood Trust (NYSE: RWT) is one of the oldest mortgage-focused real estate investment trusts (REITs). However, while he has a long history in the Mortgage REIT, or mREIT, industry, his Investor Day was devoted to his disruptive vision for the future. Here’s a closer look at five of the most interesting ideas from this event.
1. Redwood sees a huge addressable market
Redwood has spent a lot of time putting into context the overall size of the residential real estate market. MREIT noted that the single-family housing market in the United States is currently worth $ 34 trillion. However, there is only $ 11 trillion in mortgage debt on homes, and that ties into those with $ 9 trillion in equity. That leaves about $ 14 trillion in homes held in cash and an average loan-to-value ratio on current mortgages of 55%.
Redwood noted several opportunities. First, it has a lot of leeway to expand into the large residential mortgage market, even focusing on the smaller jumbo mortgage segment. Plus, he wants a bigger share of the overall residential real estate debt market. This includes a deeper expansion of the commercial lending (BPL) market. These are loans on residential properties for business purposes such as single family rentals (SFR), student housing properties, and repair and turnaround projects. It also includes making more financing options available to investors who buy homes with cash.
Finally, Redwood wants to harness the even greater potential of the home equity market. He noted that American households have more than $ 20 trillion of equity trapped in their homes. He wants to help unlock that equity by providing new products including home equity loans, home equity lines of credit (HELOC) and home equity investments.
2. Redwood Trust has bold goals
Given the huge market opportunity it envisions, Redwood has unveiled equally ambitious goals, which it aims to achieve by 2025:
- Double mortgage banking volumes.
- Double the size of its investment portfolio.
- Retain the taxable profits of the REIT’s subsidiaries to support growth.
- Target 33% faster capital turnaround times (i.e. become more efficient).
- Reduce cost per loan by 50% .sin
These are bold goals and would transform Redwood into a larger, more profitable business.
3. Redwood will continue to be very active on the strategic front
To achieve its strategic vision, Redwood intends to use mergers and acquisitions and other strategic partnerships. The company has a long history of making deals that create new platforms and expand its scale. For example, it acquired 5 Arches for $ 50 million in 2019 to accelerate the growth of its BPL platform. He spurred the expansion of that platform later that year by acquiring CoreVest for $ 490 million. Redwood plans to build on its M&A foundations and close other transactions to scale up its existing platforms and expand into new areas.
4. REIT structure may not support Redwood’s vision
Another thing Redwood noted on its Investor Day is that it will not let the structure of the REIT get in the way of its growth. While the company has made it clear that the structure is working now, it may limit its ambitions in the future as it must comply with IRS guidelines to maintain its tax advantages. However, if the switch to another structure created more shareholder value, the company would.
5. Redwood is betting big on disruptive technology
Redwood formed a strategic venture capital vehicle earlier this year called RWT Horizons. He has invested $ 25 million of capital in the entity, which has already invested in 10 start-ups working on disruptive technologies in real estate and lending.
For example, he invested in Point, a financial technology company that helps homeowners unlock their home equity without taking on more debt. Point allows homeowners to sell a portion of their home equity, giving them debt-free money they can use as they see fit. He then packages those stocks and sells them to investors. This aligns with Redwood’s strategy to tap the home equity market.
Redwood plans to invest even more capital in Horizons to invest in innovative and disruptive technology, seeing the potential to raise it to $ 100 million by the end of next year. This business offers Redwood a lot of upside potential, which makes it unique in the mREIT space.
A unique mREIT with great ambitions
The biggest takeaway from Redwood Trust Investor Day is that she sees a bright future. The REIT sees a huge addressable market opportunity ahead that it is keen to seize. She plans to do more mergers and acquisitions, invest heavily in disruptive technology and even pursue a structural change so that she can capture as much of this market as possible. It’s a bold goal that could pay off big if it succeeds.
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