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Redwood targeting $500m of foreclosed residential properties

The Occasio Distressed Residential Fund will target 20% returns by quickly turning over foreclosed residential properties bought without leverage.

Real estate investment company Redwood Real Estate Partners has started investing its Occasio Distressed Residential Fund by snapping up foreclosed residential properties and selling them on in typically less than two months.

The Rancho Santa Margarita, California-based firm hopes to acquire up to $500 million in real estate owned (REO) assets at discounts of roughly 15 to 40 percent, according to Redwood chief executive officer Carl Chang. REOs are properties that have been taken back by a lender, usually a bank, following unsuccessful attempts to dispose of the asset. REO properties are usually worth less than the total amount owed to the bank.

Using an unleveraged strategy, Chang believes the firm can deliver 20 percent-plus IRRs.

The Occasio fund is a “pledge fund” as opposed to a blind pool vehicle, meaning investors commit capital only when the fund is prepared to make an investment. The fund’s limited partners have long standing relationships with Redwood and include high-net-worth individuals and asset managers. The firm also has strategic partnerships with institutional investors.

Redwood began raising the fund roughly four months ago after making $44 million in pilot transactions over two years, netting returns of up to 35 percent.

“In this particular space and this particular strategy the ability to have some velocity within the trades has been the driving force for some of our success,” said Chang. Over the last two years the firm’s average REO-hold time has been about 56 days.

The Occasio Distressed Residential Fund is expected to have a life of three years.