Red Capital Group has come back to its roots as an entrepreneurial firm after being acquired by an investment group led by ORIX USA Corp. and Stonehenge Partners.
Red Capital had been the property of PNC Bank since December 2008, when PNC acquired Red Capital's parent company, National City Corp. But there was significant overlap between Red Capital and PNC’s agency lending efforts, and as a result, the two units made for strange bedfellows.
“I expected that at some point, PNC would look to divest itself of Red,” says William Roberts, who was named Red Capital's CEO after the transaction closed. “It never seemed to me that Red could be integrated effectively with PNC Real Estate, which, when it comes to agency executions, is organized around the business formerly known as ARCS.”
Roberts founded Red Capital and served as its CEO from 1995 to 2007. And the deal's other players were also very familiar with the firm, which began life as a subsidiary of Banc One Corp. in 1990.
During his 10-year tenure at Banc One Capital Markets, Roberts worked with David Meuse, who is now a principal at Columbus, Ohio-based Stonehenge Partners. And while at Banc One, Roberts and Meuse arranged a joint venture with ORIX, called Banc One Mortgage Capital, where Roberts served as co-chairman along with Jim Thompson, who is now CEO of ORIX USA.
“The opportunity to co-invest with Stonehenge Partners in the transaction was especially meaningful as ORIX Capital Markets was at one time a joint venture involving many of the principals of Stonehenge and Banc One,” Thompson says.
Now freed from PNC, the Columbus, Ohio-based Red Capital plans to expand on its deep background in seniors, healthcare, and affordable housing debt and equity transactions, including Fannie Mae, FHA, and tax-exempt bond deals. The firm currently employs about 200 individuals, with origination offices in San Diego; Newport Beach, Calif.; Chicago; Dallas; Boston; Charlotte, N.C.; Nashville, Tenn.; and Reston, Va.
“We will look to expand in certain geographies and will look to re-launch certain activities that were shuttered over the past year or two,” Roberts says.
Red Capital did stay busy during its time at PNC, however. In 2009, the company processed about $1.6 billion in Fannie Mae loans, and another $417 million in FHA transactions. So far this year, Red Capital has done about $89 million in Fannie Mae and $150 million in FHA loans.
But the company hopes to ramp back up quickly and originate about $1 billion in Fannie Mae and another $1.2 billion in FHA this year. Red Capital also hopes to close more than $100 million in tax-exempt bond deals, a historical expertise, as the 4 percent tax-credit market slowly begins to see more activity after a rough couple of years.
Beyond Fannie Mae and FHA originations, RED will offer balance sheet executions and also plans to establish proprietary mezzanine and equity capabilities housed in two discreet funds, one focused on multifamily and the other focused on seniors and health care.
For Roberts, the transaction signifies the dawn of a new chapter for Red Capital as it returns to the fold. “Little has changed from the standpoint of office locations, people, and capabilities,” Roberts says. “Yet, everything has changed, in that Red Capital returns to its independent roots, renews its entrepreneurial … spirit, secures strong financial backing and sheds the limitations inherent in commercial banking.”
Terms of the transaction were not disclosed, and a PNC spokesman said the company had no comment.