KKR doubles down on house flipping loans
Private equity firm ramps up investment in Toorak
Investment giants ranging from private equity shops to banks are betting big on house-flipping loans.
Private equity firm KKR increased its investment in New Jersey-based mortgage firm Toorak Capital Partners from $75 million to $250 million. Toorak buys loans from firms like LendingHome and PeerStreet, which issue 12-month, high-yield mortgages for home fix-and-flip projects.
Meanwhile, investment bank Goldman Sachs has also started issuing loans to home flippers. Research firm Nomura estimates that the total issuance of these loans in the U.S. will grow by 25 percent to $15 billion this year, the Wall Street Journal reported.
Flip loans come with interest rates of 8 to 12 percent, which is increasingly appealing to institutional investors as long term interest rates on safer assets like Treasury bonds remain low. Investors are betting that default rates will remain low because a lack of new construction keeps a lid on supply while a growing number of millennials buying their first homes increases demand for renovated properties.
Traditionally fix-and-flip projects were financed by hard-money lenders. “The market has been local lenders, usually not banks, lending inefficiently,” Toorak’s CEO John Beacham told the Journal. That has changed with the rise of firms like LendingHome, which has raised more than $160 million in venture funding. [WSJ] — Konrad Putzier