A decade ago, business‑purpose lending was primarily a local affair. Residential transition loans (RTL), also called fix-and-flip loans, came from local “hard‑money” shops. Debt-service coverage ratio (DSCR) mortgages (the investor cash‑flow) were niche. And capital markets only touched the space indirectly.
Today, the sector looks different. National platforms originate at scale, Wall Street demand supports a growing number of securitizations, and ratings criteria exist for products that didn’t have a formal playbook five years ago.
After the 2008 financial crisis, banks pulled back from mortgage lending. They were more reluctant to lend into non‑agency programs or commit to riskier initiatives like construction projects. In 2012, Invitation Homes and other corporate landlords began buying foreclosed homes at scale, with Invitation Homes purchasing nearly 40,000 homes by 2013.
That activity spurred the first single‑family rental securitization, which allowed institutional investors to buy cash flows, backed by large portfolios of rental properties owned by Invitation Homes. It effectively created a new asset class and gave Wall Street a direct way to participate in single‑family investment real estate.
The beginning of scaled originations in private lending emerged in 2013 with the founding of Kiavi, a leading private lender. By 2017, Kiavi was originating more than $100 million per month. In 2016, Anchor Loans surpassed $1 billion of annual originations. These large, nationwide platforms began to take significant market share from local hard‑money lenders and started selling loans to institutional investors.
RTL securitizations begin
In 2018, Angel Oak completed the first securitization of what were then called “fix‑and‑flip” loans.
This marked the first of its kind for bridge, renovation and construction loans to single‑family investors. Over the next five years, structures evolved, and a flurry of securitization activity occurred. Kiavi completed its first securitization in 2019. CoreVest added a 30‑month reinvestment feature to its securitization, allowing reinvestment of paid‑off loans.
“The growing number of securitizations has accelerated the institutionalization of private lending.”
The real opening for broader institutional investor participation followed the development of formal ratings criteria. In 2023, Morningstar DBRS finalized a methodology appendix for RTLs, and in 2024 Toorak Capital Partners announced the first rated RTL securitization.
Rated securitizations are critical because they provide a third‑party assessment of creditworthiness by a rating agency. These opinions help investors assess the likelihood of default and the overall quality of the loans being securitized.
Many investors (insurance companies, pension funds and banks) cannot buy unrated securitizations under their risk guidelines. Rated RTL securitizations marked a turning point in the institutionalization of the private‑lending market because the available pool of buyers increased significantly.
Long-duration cash flow
If RTL is about short‑duration inventory and rehab capital, DSCR loans are about long‑duration cash flow. Underwriting hones in on whether property income covers debt service, so the loan can be carried by rental cash flow rather than the borrower’s W‑2 income.
DSCR loans, on the other hand, are business‑purpose and sit outside many of the rules of consumer mortgages. That allows them to be underwritten primarily to coverage and leverage, a structure suited for securitization.
One of the first rated securitizations for small‑landlord DSCR loans occurred in 2016, with loans from landlords originated by Visio and Lima One. This lowered the cost of capital and, in turn, interest rates for small landlords. DSCR securitization growth continued, and by 2020 there had been several DSCR‑only securitizations. That groundwork paved the way for a surge during 2021 to 2022 when interest rates dropped, investor purchases rose, and both originations and Wall Street demand accelerated.
What comes next
The growing number of securitizations has accelerated the institutionalization of private lending. Underwriting criteria have standardized, the cost of capital has decreased and stabilized, and the buyer base for business‑purpose loans has expanded.
This has made it easier for local investors to renovate homes cost‑effectively and become landlords. Even though single‑family home sales have fallen by roughly 50% from pandemic highs, business‑purpose loan originations have stayed roughly flat since 2021.
With adequate capital‑markets infrastructure — macroeconomic conditions permitting — business‑purpose lending should continue to see steady growth. All else equal, terms should become more competitive, allowing borrowers to expand faster. With rated securitizations in place, large institutional investors should have greater comfort in the quality of the loans.
