KKR-Backed Toorak Capital Sees Opportunity in This Corner of Real Estate
Updated: Mar 16, 2022
Toorak Capital Partners, a real estate debt investor backed by KKR & Co., is rapidly gaining traction in a corner of the mortgage world where it sees a big opportunity for private capital.
The firm has completed a $350 million sale of bonds backed by residential bridge loans, the largest ever securitized offering for the asset class, according to John Beacham, Toorak’s chief executive officer. Toorak, which buys real estate loans in the U.S. and U.K., increased the size of the bond offering by 40 percent due to strong demand from investors.
“We didn’t have to go out and buy more loans,” Beacham said in a phone interview. “We did change the offering size and added more loans into the securitization.”
Founded in 2016, Toorak has invested $3 billion in more than 10,000 loans across 47 U.S. states and the U.K. Beacham said that each month an average of about 500 families are moving into properties financed by Toorak.
“This is our third bond offering,” he said. “We issued our first bond offering last year in August.”
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In May 2018, Toorak announced that alternative asset manager KKR had increased its investment in the firm to $250 million, from an initial $75 million contributed in 2016. The real estate loan investor has received a total $550 million of capital commitments from KKR, Beacham said, adding that members of Toorak’s management team also have a stake in the Summit, New Jersey-based business.
The volume of loans that Toorak has purchased has roughly tripled from the $1 billion the firm said it had bought at the time of the May 2018 announcement.
These are “investor purpose loans,” Beacham said. The financing helps investors buy and renovate residential properties before either selling them, or leasing them out and refinancing the loans at a lower cost over a longer term, he explained. Toorak acquires the loans after they are originated.
“It’s very similar to how Fannie Mae operates in the residential mortgage world,” Beacham said. “There’s a big role for private capital to come in.”
The firm’s securitized bond deals have attracted money managers such as mutual funds and pension plans as well as insurance companies, according to Beacham. Toorak owns a bigger portion of its securitized deals than required by regulators, he said, holding 10 percent of its $350 million offering.
The deal had three pieces, with the largest and most senior portion of the bonds paying 3.75 percent, according to Beacham. “It’s relatively attractive pricing versus other asset classes that are out there,” he said.
In the mortgage world, securitized deals are typically backed by a static pool of loans. That type of structure doesn’t make sense for Toorak because its loans are paid off within a year on average, Beacham explained. To accommodate the “very short-term” nature of its bridge loans, the firm’s securitized deals have a two-year revolving period under which it may buy new loans with the cash from those that are paid off.
“That’s pretty unusual in the mortgage world,” Beacham said.
While the underlying residential bridge loans are not a rated asset class, Beacham expects they will be in the “not too distant future.” Toorak is “actively working” with credit agencies that are seeking to develop criteria for rating the asset class, he said.
In the meantime, the firm expects to keep up its pace of securitized offerings to institutional investors.
“We expect to be issuing two to three bond offerings per year,” Beacham said.