Before last Thursday, Rithm Capital Corp. was a little-known real estate investment trust with a quirky name.
(Bloomberg) — Before last Thursday, Rithm Capital Corp. was a little-known real estate investment trust with a quirky name.
But two eye-catching deals — first to buy a consumer-loan portfolio from Goldman Sachs Group Inc., then to acquire a hedge fund heavyweight — have thrust the company’s ambitions into Wall Street’s spotlight.
On Monday, Rithm agreed to buy Sculptor Capital Management in a deal valued at $639 million after a public feud between the hedge fund firm’s founder and its chief executive officer prompted its board to explore strategic alternatives. The deal brings about 100 investment professionals and $34 billion in assets under Rithm’s umbrella.
The Sculptor news came days after Rithm took on $1.4 billion of loans from Goldman as the Wall Street giant sheds consumer borrowings from its Marcus unit. Rithm, which manages about $32 billion of assets, holds an unassuming portfolio of consumer-facing real estate and lending companies and a pile of mortgage-serving rights.
Rithm’s latest moves reflect its broader ambitions.
“We started as a REIT, and now we’re going to try to morph into some kind of capital structure that looks like some of the largest money managers in the world,” founder Michael Nierenberg said in an interview, rattling off Wall Street giants such as Ares Management Corp., Apollo Global Management Inc. and Starwood Capital Group — all of which, he notes, have REITs.
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Rithm emerged out of the ashes of the financial crisis.
The firm began a decade ago as New Residential Investment Corp. and held mortgage-related assets accumulated by private equity giant Fortress Investment Group, which was betting on subprime lending and real estate after the 2008 financial crisis. Fortress hired Nierenberg to help manage the effort.
Once co-head of US mortgage trading at Bear Stearns, he was running Bank of America Corp.’s global mortgage and securitized products business by 2013 — at the time, the largest underwriter of repackaged slices of US government-backed mortgage bonds.
From its early days, even before Nierenberg’s tenure, the REIT dabbled outside of mortgages. In 2013, it co-invested in a $3.9 billion portfolio of consumer loans originated through HSBC Finance Corp. In 2017, the firm was part of a consortium that agreed to buy loans from financial services platform Prosper.
But the firm’s ties to Fortress crimped its ambitions, especially to raise capital outside the stock market, Nierenberg said. New Residential re-branded to Rithm and paid the private equity firm $400 million to step aside last year.
Bigger Ambitions
Since then, Rithm’s ambitions have expanded beyond real estate into structured credit and direct lending — especially as banks face tightening regulations.
“Once you’re labeled as a REIT or a mortgage company, you’re going to trade like a REIT or a mortgage company,” Nierenberg said. “So we’re trying to change that narrative a bit, and I think this acquisition should help us a ton.”
Rithm’s 70-odd corporate staffers work out of an office near New York’s Union Square. As of Dec. 31, 5,800 were employed across its network of operating companies, which include mortgage lenders, a business lender, a single-family rental company and a commercial real estate investment firm.
The firm hasn’t gotten enough credit for generating a more than 7% return over the past year and keeping a stable dividend while operating with less leverage than some other REITs, according to a recent note from BTIG analysts Eric Hagen and Jake Katsikas, who maintain a buy rating the stock.
Whatever its ambitions, mortgages — and mortgage servicing — remain at the heart of Rithm’s business, according to Ben Elliott, an analyst for Bloomberg Intelligence. Mortgage servicing makes up 47% of Rithm’s investment portfolio.
“They’ve purchased a minuscule asset manager, and they have a gigantic mortgage servicing portfolio, so fundamentally, the company is the same today as when this deal closes” in the fourth quarter, Elliott said. “This is for sure just a baby step.”
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