MFA Financial to buy additional stake in fix-and-flip lender Lima One

Real estate investment trust MFA Financial on Thursday announced that it plans to acquire an additional stake in residential business purpose loan originator and servicer Lima One Holdings from affiliates of hedge fund Magnetar Capital.

MFA said it would use cash on hand for the purchase, but otherwise did not disclose the financial details of the transaction, which will put it in control of “substantially all” of Lima One’s assets, including originations of fix-and-flip, new construction and rental property loans.

The REIT said it’s increasing its ownership stake in Lima One because it finds the returns on business purpose loans compelling and wants to have a reliable source of these mortgages on hand. Lima One is on track to originate at least $1 billion in business purpose loans this year. At $900 million as of March 31, BPLs constituted roughly 15.5% of MFA’s total investment portfolio.

“Business purpose lending is one of the mortgage attractive investment opportunities we see within residential credit, but these high quality, high yielding credit assets are difficult to originate,” said Gudmundur Kristjansson, MFA's co-chief investment officer, in a press release.

MFA plans keep Lima One’s current leadership team and its Greenville, S.C.-based operating platform in place. It will close the transaction in the third quarter if it receives necessary regulatory approvals.

The REIT originally purchased a minority interest in Lima One in 2018 and has been buying whole loans from the company since 2017. MFA currently holds a 43% stake in Lima One and a $22 million preferred stock investment.

MFA on Thursday also reported first-quarter net income of $77.3 million, compared to $37.6 million the previous quarter, and a net loss of $914.2 million a year ago. Earnings were driven by net interest income and gains on loans held at fair value in its investment portfolio.

“Much of the noise reported in our net income over the past several quarters, resulting from volatile changes in asset prices and cash flow estimates, driven by uncertainty related to the longer-term effects of COVID-19 have dissipated and hopefully are largely behind us,” Chief Financial Officer Steve Yarad said during the company’s earnings call.