Redwood Trust is selling off a $241.3 million commercial loan portfolio consisting mainly of mezzanine loans, the sale of which will complete the firm’s exit from the commercial loan business.
The decision comes four months after the firm announced in February that it would discontinue commercial loan originations for CMBS distribution.
Separate from the CMBS business, the firm had originated and held the additional mezzanine loans, but executives hinted in the firm’s Q1 review that it would look to “opportunistically” sell the portfolio.
The company has hired HFF to market and sell the portfolio, whose loans are collateralized by 73 properties located in 26 states, with an average coupon of 9.7 percent and an average remaining term of 5.1 years.
The unpaid principal balance consists of office loans (35.6 percent), multifamily (30.2 percent), hospitality (15.4 percent), retail (10.3 percent), self storage (4.1 percent), industrial (2.5 percent) and manufactured housing (1.8 percent).
Spread throughout the US, 16 assets are in the Southeast, 12 in the Midwest, nine in the Northeast, six in the West, six in the Southwest, four in the Mid-Atlantic, and one asset is comprised of multiple properties in various states.
In its Q1 review the company said its target investments going forward would include “prime jumbo loans, new issue RMBS subordinate securities, credit risk transfer (“CRT”) transactions, and, potentially, legacy RMBS securities issued by third parties.”
Since initiating its commercial loan business in 2010, the company originated more than $2.5 billion of commercial loans, generating more than $50 million of revenues from the sale of loans into CMBS transactions. The commercial mezzanine portfolio had generated approximately $30 million of net interest income during 2015.
But the commercial loan origination activities resulted in a pre-tax loss of approximately $3 million in 2015, or a loss of approximately $2 million on an after-tax basis (including operating expenses of approximately $8 million), based on preliminary full-year 2015 results, CFO Christopher Abate noted in February when announcing the CMBS exit.
“As a result of discontinuing these loan origination activities, we expect to eliminate this earnings drag going forward and free up approximately $100 million of capital for future investments.” he said at the time.