Saluda Grade closes first rated RTL deal

Saluda Grade, an alternative investment manager focused on asset-based finance, has closed its first rated securitization of residential transition loans. Saluda Grade Alternative Mortgage Trust 2025-RRTL1, a $200 million revolving securitization, is backed by short-term, interest-only bridge, construction and renovation loans. The initial pool is comprised of 256 loans with an unpaid total principal balance of $125.1 million, with about $84.9 million in a reinvestment account.

The road to Saluda Grade’s first RTL securitization began shortly after its inception in 2019, closing 15 unrated RTL deals – and 46 total securitizations – over the past few years. RTLs have been one of the firm’s core asset classes since its inception, said Ryan Craft, founder and chief executive.

“Residential development finance has long been an asset class dominated by regional and community banks,” Craft said. “But after the Great Financial Crisis, we saw heavy bank consolidation and increased capital charges on construction lending. It’s been these catalysts that have pushed this type of lending into the private markets.”

Saluda Grade is stepping into the rated market a little more than a year after the first-ever rated RTL deal was completed, Toorak Mortgage Trust 2024-RRT1. The deal, issued in February 2024, was followed by deals from Genesis Capital later that year.

The asset class has a broad lens, including bridge loans for individual investors buying a property to reposition or a renovation loan where a borrower will buy a smaller house, renovate it and sell it at a higher cost. There is also the potential to originate a construction loan to acquire and renovate an existing property down to the studs or demolish it and rebuild, Craft added.

The firm’s borrowers range from entrepreneurial developers to enterprise-grade homebuilders with a portfolio of 10-100 homes that have opted not to use bank finance. The growth of the RTL asset class and the number of firms using the securitization market as a financing tool has fueled commensurate growth in rated deals, Craft added.

“With the rated RTL landscape, the agencies brought the wide box where we have been trading, investing and purchasing loans and brought it down to a necessarily restrictive and conservative box,” Craft added. “Having a rated deal means opening the bond-buying universe to a more conservative and programmatic buyer. These bonds trade at tighter spreads than rated bonds, producing a cheaper cost of financing for the issuer.”

Regular rated and unrated RTL deals have also meant Saluda Grade is seeing more banks providing repo and warehouse financing for issuers.

“The number of banks providing repo finance on these loans has significantly changed over the past five years. When we first started securitizing, there were perhaps one or two banks that were able to provide repo or warehouse lines for RTL loans. Now every single bank is willing to do that, partly because of the regularity of the unrated securitization, and now everyone sees there is a rated takeout,” Craft added.