Redwood Trust, CPP Form $750M Strategic Capital Partnership

The joint venture will target more than $4 billion in total acquisitions, with a focus on residential investor bridge and term loans.

The Radian student housing community in Philadelphia, located near the University of Pennsylvania, is one of CPP’s U.S. investments. Image courtesy of Walker & Dunlop

Redwood Trust, a Mill Valley, Calif.-based specialty finance company focused on housing credit, and the Canada Pension Plan Investment Board, acting through subsidiaries of CPPIB Credit Investments, have formed a $750 million strategic capital partnership. The new joint venture will invest in multifamily investor bridge loans and term loans.

The partnership consists of a newly formed $500 million asset joint venture and a $250 million corporate secured financing facility that CPP Investments is providing to Redwood. It will initially target more than $4 billion in total acquisitions. CPP Investments and Redwood will contribute up to $500 million of equity to the joint venture, with an expected split of 80 percent from CPP Investments and 20 percent from Redwood.

Redwood and its subsidiaries will administer the assets for the joint venture and earn ongoing fees. The firm will also be entitled to earn additional performance fees if specific return hurdles are met.

The corporate financing will have total capacity of up to $250 million and carry a two-year term, with a one-year extension option. It is structured with revolving capacity to support the continued growth of Redwood’s mortgage banking platforms.

In an effort to promote a long-term strategic alliance, CPP Investments will receive warrants to purchase $15 million in Redwood common stock with an option to acquire an additional $36 million if certain JV targets are met.

During Redwood’s Feb. 20th fourth quarter 2023 earnings call, CEO Chris Abate told analysts that the strategy should open a “vast big spigot of loans” for its operating platforms that otherwise would have gone to banks. He noted that joint ventures create pre-established and reliable takeout for Redwood products, enhancing liquidity and pricing power and resulting in more predictable revenues and profitability.

CPP’s U.S. multifamily investments

The Redwood joint venture is part of CPP Investments’ overall investment strategy in the U.S. multifamily sector. In January 2022, CPPIB Credit Investments III committed $585 million to Harbor Group International’s Multifamily Credit fund. It was the largest investment in the fund which had secured about $1.6 billion in capital commitments.

A year earlier, CPP Investments and LMC, a wholly owned subsidiary of Lennar Corp., announced a joint venture to develop nearly $1 billion of Class A multifamily communities in high-growth metropolitan areas across the U.S. In December 2021, CPP Investments formed a joint venture with Greystar Real Estate Partners to develop and acquire purpose-built single-family rental communities in the U.S.

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