Detroit billionaire Dan Gilbert, who founded mortgage firm Quicken Loans 35 years ago, took the company public Thursday on the New York Stock Exchange for the second time in its history. With shares trading at $19.30 at 12:45 pm ET, Gilbert’s 95% equity stake in Quicken Loans parent Rocket Companies is worth $36.4 billion. Gilbert also sold $1.76 billion of Rocket Companies shares in the IPO. With his other assets — he owns the Cleveland Cavaliers NBA team and a significant chunk of real estate in Detroit — he’s worth $41.1 billion.
That makes Gilbert, age 58, the 17th richest person in America, and the second richest NBA team owner. Forbes had previously valued Gilbert’s stake in Rocket Companies at $4.1 billion.
After the Federal Reserve slashed interest rates in March to help the U.S. economy weather the Covid-19 pandemic, new mortgage originations soared. Quicken Loans, founded by Gilbert in 1985 at age 22, rode that wave to become the largest mortgage lender in America, passing the likes of traditional banks such as Wells Fargo. Rocket claims to have a market share of 9.2% of the U.S. mortgage lending market.
Rocket Companies posted a record first half of the year, generating $124 billion in new mortgages—a 127% increase from the prior year—and setting the stage for an IPO that ranks among the largest in 2020.
After initially seeking to offer 150 million shares at a price between $20 and $22, Rocket was forced to downsize its offering to 100 million shares at $18 on Wednesday, as investors reportedly pushed back on the valuation. A spokesperson for Gilbert and Rocket declined a request for comment.
Rocket Companies closed 2019 with $5.1 billion in revenues and net income of $894 million, with net profits rising 46% from 2018. Gilbert first took the company public in 1998 when it was named Rock Financial and sold it a year later to financial software giant Intuit for $370 million. In 2002, Gilbert bought it back from Intuit for $64 million and renamed it Quicken Loans. The 2008 financial crisis and collapse of the housing market led many traditional banks to exit the mortgage lending business, giving nonbank lenders like Quicken an opportunity to pick up the slack.
The firm sought to present itself more as a fintech company than a mortgage lender in its initial filing with the Securities and Exchange Commission on July 28, touting its “innovative technologies” and “trusted digital solutions.” While Rocket Companies has been offering mortgages for more than three decades, it was the 2015 launch of its online platform, Rocket Mortgages, that enabled the firm to gain market share by offering mortgages online and through a mobile app. With the IPO coming at a time when interest rates are near zero, Gilbert is betting that Rocket can continue its rapid rise by signing up younger homebuyers attracted by low interest rates and an easy-to-use digital platform. In its filing, the company claimed that 75% of borrowers who applied online or through the Rocket Mortgages app were first-time homeowners or millennials.
Nonbank lenders like Rocket make money both on mortgage originations — signing up new borrowers who want to buy a home — and on the servicing of existing mortgages, where the company collects interest and handles the day-to-day maintenance of a mortgage on behalf of the original lender. While Rocket is reaping record numbers of new mortgages thanks to low borrowing costs, those low rates also decrease the value of the interest payments it collects for the mortgages it services from other lenders. That’s why the current market is something of a double-edged sword for the company, according to Larry Charbonneau, managing director of Texas-based mortgage banking consultancy Charbonneau & Associates.
“[Quicken] perceives right now that because of the increased volume and increased profitability of new originations, a company of their nature would be worth more today than they might be in a normal market,” says Charbonneau. “On the other hand, that servicing isn’t [worth] nearly what it was worth two years ago.”
A provision in Rocket’s filing with the SEC stipulates that the company cannot move its headquarters outside of Detroit unless 75% of voting rights holders agree to a move. Gilbert kept 79% of the voting rights in the IPO, and the company has set up provisions to mathematically ensure that he always holds 79% of the voting rights, meaning the company will not leave Detroit unless Gilbert agrees to it.
Since moving Quicken’s headquarters from the suburbs to downtown Detroit in 2010, Gilbert has committed more than $5.6 billion in investments to redevelop the city’s beleaguered downtown. Gilbert owns more than 8 million square feet of Detroit real estate through his firm Bedrock, plus online sneaker marketplace StockX and a stake in the Horseshoe Casino in Baltimore. The rest of his fortune is largely tied up in Rocket Companies stock.