CWCapital has been acquired by New York-based Fortress Investment Group in the third major acquisition of a special servicer in the past year.
While CWCapital’s mortgage origination business has been steadily growing, it’s the company’s special servicing division, the nation’s second largest, that primarily attracted Fortress. And as the amount of distressed CMBS loans continues to grow, it’s a business that should continue to expand.
“This is a once in a generational opportunity for these servicers to sell their businesses at valuations they could only dream of 10 years ago,” says Dan Fasulo, managing director of market-research firm Real Capital Analytics. “It makes sense that a player like [Fortress] would be interested, not only in the income generated, but also by having the first crack at any opportunities that may arise on the real estate side.”
The acquisition brings to Fortress a wealth of data that will inform the company’s strategy for capitalizing on distress, according to a source close the transaction (Fortress executives were not available for interview at press time). Fortress was also attracted by the breadth of CWCapital—the mortgage origination, prime servicing and investment advisory businesses give CWCapital pro-cyclical growth opportunities as well.
Much like the Centerline and Capmark acquisitions, CWCapital’s growth aspirations had been hampered by its parent company’s financial problems. CWCapital’s former owner, Canadian pension fund Caisse de Depot et Placement du Quebec, has been saddled with losses and announced earlier this year that it would be slashing its investments in real estate. So, CWCapital asked Caisse if it could be sold: If the company couldn’t get the support it needed, it hoped to find a more supportive parent, according to a source within CWCapital that spoke on the condition of anonymity.
In April, CWCapital opened new origination offices in Chicago and Los Angeles, and earlier this year struck up a joint venture with Apartment Realty Advisors, called ARA Finance. And last year CWCapital acquired Sierra Capital Partners, which gave the company 12 new employees and a new office in Irvine, Calif.
Indeed, the company’s agency origination business has continued to grow over the last few years. In 2009, the company originated more than $1 billion in Fannie Mae and Freddie Mac loans, and another $330 million in FHA deals. And senior management at Fortress is well aware of the company's prolific pace—Fortress’ CEO is former Fannie Mae CEO Daniel Mudd.
No major changes are planned for CWCapital’s management team, and the company remains headquartered in Needham, Mass., according to Fortress.
The buy is yet another example of how creative some real estate players are in trying to get access to distressed properties. Consider Steve Ross, founder of the Related Companies. Ross and fellow Related executives Jeff Blau and Bruce Beal Jr. formed a bank, called SJB National Bank, late last year, with the sole intent to buy other failed banks to get their hands on distress.
A publicly traded company, Fortress was founded as a private equity firm in 1998 by former BlackRock and UBS executives. The deal is expected to close in the third quarter, and terms of the deal were not disclosed.