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Toorak set to expand novel residential lending platform in US, UK markets

The firm wants to boost originations to about $1bn quarterly.

Toorak Capital Partners, which works with networks of lenders in the US and UK on workforce housing originations, wants to scale its novel lending platform over the next year with the addition of new products, origination partners and setting targets for higher quarterly volumes.

The Summit, New Jersey-based company does not lend money directly, instead forming networks of local lenders in the US and UK that can originate loans according to its parameters, John Beacham, CEO, told Real Estate Capital USA.

“There is a housing shortage in both countries, the traditional financing markets do not provide good options for rehabbing properties in both markets. The banks aren’t really filling this void because of how the regulatory capital regime works,” Beacham said.

The structure is similar to Fannie Mae’s Delegated Underwriting and Servicing program, with Toorak’s partner lenders originating loans on single-family rental properties and multifamily properties. “We provide credit guidelines to our partners, who make the loans according to our credit standards and philosophy and we buy and fund the loans and hold them to maturity,” Beacham said.

Toorak’s goal is to bring institutional capital to the single-family and smaller multifamily market, funding about $250 million to $300 million of loans each month. The company’s loans range in size from $50,000 to $10 million, with an average size of $300,000 for one to four-unit residential properties and an average of $1.5 million for five-plus unit commercial properties.

“Before we became involved in this market, financing was provided by local lenders and there was no institutional capital – it was all friends and family money. There really was no Wall Street money in the space,” Beacham said. “Our intention is to partner Wall Street with Main Street and bring reliable institutional capital to this market.”

The company expects to be able to grow significantly in 2022, both through adding more products and origination partners. Toorak rolled out a 30-year rental loan program and revamped its ground-up construction and we’re planning to roll out a multifamily term loan product. We also have expanded the number of originators that we work with, which has doubled over the past year.

When looking for a partner, Toorak is looking for lenders with a strong local expertise and the ability to dig into the credit of small balance loans. Beacham noted that there’s a gap between what traditional residential and commercial mortgage originators do, with the latter working on a loan-by-loan basis and the former taking a more data-driven, big picture approach to analyzing the metrics.

“This is not the natural purview of a commercial real estate debt platform. We need to have partners who are really efficient at underwriting a lot of loans and also assessing credit quality. We are taking a residential approach on data but a commercial approach on looking at loans one by one. It’s hard for many institutions to fit into this space,” Beacham said.

The local expertise is a key factor. “Our lenders tend to be very specialized. A lender we work with in Texas won’t know about the Pacific Northwest or the Northeast. This is very important on rehab loans and having that inside knowledge of that market, including which side of the street is the good side, is even more important for smaller loans,” Beacham said.

Toorak is also an active securitization issuer and has completed seven transactions, including both revolving and static structures. “We are taking that access to the capital markets on one side of the shop while the other side is working with lenders and understanding the credit,” Beacham said.