UNDERSTANDING THE ASSET CLASS
Real Estate Private Debt
what do these funds do?
Real estate private credit funds typically invest in private (non-bank) loans secured by real estate assets. These loans can help owners and investors buy, renovate, build and/or refinance residential and commercial properties.
Funds may originate and fund these loans themselves (direct lending) or rely on the secondary markets. They may also differ on a variety of factors, such as the types of properties held as collateral, their geographic focus, the seniority and average term of the loans, among other factors.
RD Real Estate Debt Fund II LP (”RDREDFII”) primarily invests in private loans and typically originates loans itself. Please consult the offering documents for more information on the type of loans RDREDFII invests in.
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what can they offer to investors?
Real estate private credit funds combine characteristics of typical real estate and fixed income investments.
They may target steady returns, cash distributions, lower risk profiles than equity investments. In addition, their investments are collateralized by real assets. Investors looking for real estate exposure could consider a debt position in addition to, or in lieu of, any equity exposure.
As provided in its offering documents, RDREDFII’s primary investment objective is to seek preservation of capital, with a secondary objective to generate strong risk-adjusted returns.
Fund characteristics may vary. Returns cannot be guaranteed. Not investment advice. Consult offering documents for more details.
WHY DON’T BORROWERS GET A REGULAR BANK LOAN?
BANKS’ REGULATIONS
Risk-off attitudes at banks (especially since 2008) can prevent them from lending on riskier construction projects, or non-homeowner financing.
SPEED
Banks can take months to close a loan, while some private lenders are able close in under a week.
CUSTOM FINANCING SOLUTIONS
Additional collateral, custom drawdown or interest structures, unusual loan terms, etc.
RELIABILITY
Even after months of evaluating a project, banks could pull out of a transaction at the last minute.
QUALIFICATIONS
A borrower may not “fit the credit box” of a bank, even if they have enough assets to conservatively collateralize and service a loan.
Source: Alpha Investing
Potential Advantages
of a Fund
Sure, anyone could lend themselves or participate in one-off real estate-backed loans. However, investing in a real estate debt fund may bring considerable advantages.
1. Diversification
Larger access to capital allows the fund to invest in a larger number of loans to protect investors from the impact of potentially non-performing loans through diversification.
Although RDREDFII has many loans in its portfolio, its focus is primarily on the Boston metropolitan area where it has a local presence, as described in offering documents.
2. Centralized, higher quality Back Office
Funds may work with in-house or 3rd-party servicers to manage the various loans in their portfolio, which can be labor-intensive and too expensive on a one-off basis. In order to ensure adequate processing, underwriting, closing and management of transactions, funds can employ higher quality accounting, tech and legal teams.
As an affiliate of Dominion Capital, RDREDFII is able to leverage Dominion Capital’s existing infrastructure, which provides both front and back-office services to the Firm, in addition to its own employees and service providers, as detailed in offering documents.
3. Access to Leverage and Additional Institutional Capital
Funds with established operations may be audited on a yearly basis and thus gain access to potential leverage providers or other institutional capital.
As of March 30th 2023, RDREDFII benefits from various committed revolving senior secured credit facilities, and has relationships with various institutions that, from time to time, may purchase loans from it. Finally, the Fund also has relationships with various “table funding” institutions that directly fund loans originated by the Firm, as described in offering documents.
4. Constant Deal Pipeline
Funds may aim to maintain a large origination network to constantly deploy and recycle capital, aiming for funds to be constantly put to work and generate returns.
As outlined in its offering documents, RDREDFII can leverage its long-term physical presence and a deep network of operators, developers, buyers, and other real estate professionals to maintain a constant pipeline of opportunities.
