Churchill Real Estate is known in New York City for betting on distress. Over the past few years, the firm has snapped up troubled loans from overeager or desperate developers that have ended up in hot water.
But the firm is increasingly targeting a more secure product: single-family home loans. And recently, it took a big step in that direction thanks to a direct equity investment from Redwood Trust, a publicly traded REIT that focuses on lending in that sector.
Churchill co-founder Sorabh Maheshwari declined to disclose the amount of the investment. But he said the deal will provide the firm with the funds it needs to expand into new markets such as South Florida, California and possibly Texas. (It already has offices in New York City and Charlotte, North Carolina.) It also plans to expand its single-family rental business.
In exchange for its investment, Redwood gets a piece of Churchill’s profits and can possibly buy some of the company’s loans.
“It gives us a tremendous amount of permanent capital to move quickly on opportunities,” said Maheshwari.
The residential lending business has been a boon for Churchill, which has originated 1,300 residential loans worth $1 billion over the past 18 months. About 90 percent of these loans are for single-family homes, both for sale and rentals, according to Maheshwari.
Maheshwari said some of these loans will be used for “fix and flips,” giving developers access to short-term financing, or bridge loans, before selling the properties for a profit.
Across the United States, low mortgage rates and demand for more space has led to an explosion of demand for single-family homes. But investors have found there’s a limited supply of these properties, which has led to 50,000 rental homes being built over the last year, according to a recent report.
Churchill has had a big year: Last summer, the New York-based firm closed on a $2 billion fund to provide financing to other residential lenders, including a major investment from Mitsubishi UFJ, the world’s fourth-largest bank. About $733 million of that fund has been deployed, according to Maheshwari. And it’s still targeting opportunities for distressed deals in New York City.
There haven’t been that many opportunities for bargain-basement deals in the past year; at the end of 2020, distressed asset sales accounted for just 1 percent of real estate sales, according to Real Capital Analytics.
But Churchill execs said they are seeing opportunities in “rescue financing” for nearly completed projects through a preferred equity injection in order to get the development over the finish line.
“Pretty much every sector in the New York City market is in distress, so the opportunities have been plentiful,” co-founder Justin Ehrlich said in a recent interview with The Real Deal.