Borrowers of residential transitional loans—or flip loans, as they are better known—use the money to buy a property, renovate it and then try to quickly resell at a profit. They have become a lucrative and growing niche of finance in recent years. Nomura Holdings Inc. estimates that flippers will borrow some $15 billion this year, nearly 25% more than last year.
KKR is the latest example of Wall Street’s growing interest in the area. The private-equity house is boosting its commitment to Toorak Capital Partners LLC, a New Jersey concern that buys up loans made to home flippers and other residential-rehabilitation specialists from originators throughout the U.S. and the U.K. Toorak has been able to so far buy more than $1 billion of this debt.
KKR had previously invested $75 million in equity in Toorak. Now, the firm says it is increasing that to $250 million.
Goldman Sachs Group Inc. is another big financial player that has entered the business of writing and buying flip loans.
Toorak and other firms like it buy flip loans from originators, often online operations like Peer Street Inc. and LendingHome Corp. Those companies have backing from Silicon Valley venture firms Andreessen Horowitz and First Round Capital, respectively.
These loans command juicy interest rates of 8% to 12% and often have maturities of around 12 months, though many borrowers repay earlier. A one-year U.S. Treasury, by comparison, yields, around 2.27%.