Rice Park Capital Management LP is a Minneapolis-based private investment firm whose goal is to deliver consistent returns to its limited partner base by leveraging its experience in the residential and commercial mortgage industries. One of their investment strategies focuses on acquiring companies that originate and manage residential transition loans (commonly referred to as “fix & flip” loans) and single-family rental loans (SFR). Rice Park Capital’s investment approach involves facilitating the inherent growth potential of its portfolio companies via collaboration and a mutual objective to build a large sustainable and scalable business.
Originate Report had the opportunity to sit down with Mark Filler, Partner at Rice Park Capital, who spends his time on investments in operating companies, with a focus on loan originators in the fix & flip and SFR loan industry. With over 25 years of mortgage sector experience and almost 35 years in lending company acquisitions, he is able to provide insight into Rice Park Capital’s residential lending acquisition strategy whose goal is to build a nationwide private lending company.
Building a Lending Community—One Acquisition at a Time
The current economic climate is proving to be challenging to navigate for lenders. As the real estate market cools amid rising inflation and interest rates, net profits are coming down. With an uncertain future looming on the horizon, it can be an understandably stressful inflection point for lenders experiencing a tighter profit margin, when lenders had grown accustomed to the booming market we saw less than a year ago. Lenders that sell their loans are subject to the volatility and constant tightening in the capital markets while lenders that hold their loans have a substantial competitive advantage.
That’s where Rice Park Capital believes its investment strategy comes into play. The firm launched its acquisition efforts over a year ago, with the end goal of building a mortgage/housing ecosystem that generates income for all involved entities. With the dynamics of the lending industry constantly shifting, more and more small and midsized lenders are realizing that larger competitors can generally offer superior products and pricing, have more reliable loan buyers and warehouse lenders, economies of scale, and liquidity to quickly ramp up their business operations. To remain competitive with larger firms, Rice Park Capital believes one of the ways to achieve its investment goals is by acquiring lenders and branches with exceptional management teams who are seeking to improve their company’s growth potential. Rice Park Capital believes it has the experience and resources necessary to help these companies achieve their business goals.
The Rice Park Capital strategy involves acquiring successful private lenders to create an origination network with the requisite capital base to retain originated loans and improve the borrower experience. The Rice Park Capital team’s goal is to provide capital and strategic insights to the lenders it acquires with an overarching aim of facilitating the organic growth of these businesses through investments earmarked for hiring additional sales and operations personnel, increasing marketing budgets, and updating technology. They believe this approach translates into better products, pricing and financing, all of which has the potential to accelerate growth.
“Say you have two lenders each doing $450 million of business annually,” says Filler. “Combine those and now you have close to $1 billion.” This extremely effective concept leverages the resultant increase in shared assets and scale to benefit investor and lender alike. “Branches and lenders are leveraging their combined loan volume, brainpower, best practices, and scale efficiencies,” Filler says. “This frees up more funds for technology and marketing initiatives to generate more leads to gain an edge.”
Rice Park Capital believes the injection of capital and resources is a stimulus that drives growth opportunities for lenders that partner with Rice Park Capital – the acquired branch or lender optimizes its scale, volume, and profit margins which has the potential to generate favorable returns for the owners that sold their business as well as Rice Park Capital’s investor base. “We believe our monetary and strategic resources have the potential to allow these lenders to operate more cost effectively, obtain better warehouse financing, and improve customer service thus enabling the prior owners to scale their business even further,” says Filler.
People = The Most Valuable Commodity
Filler and the rest of the Rice Park Capital team conduct a thorough analysis when evaluating prospective lenders and branches to partner with. “The single most important criteria in the evaluation equation is the quality of the management team,” notes Filler. Finding the best team, with the right values and culture, and aligning incentives is critical.
And while Rice Park Capital assists its lender partners in sourcing additional capital, they also provide an additional asset that is arguably just as effective in producing long-term success. “We don’t just provide capital. Our goal is to provide our expertise as well,” Filler emphasizes. “With years of industry-specific experience and the lessons learned in the acquisition process, we are able to provide actionable and effective insights to the companies we acquire.”
Rice Park Capital has plans to scale their fix & flip and SFR strategy as prudently as possible, with a goal of increasing production to $2 billion annually. By prioritizing exceptional management teams looking to bridge the competition gap between larger lenders occupying the same marketplace, the Rice Park Capital team believes that providing equity for future growth and balance sheet capital for lenders will allow them to grow their business and withstand unstable economic factors and headwinds.
