We're Launching a New Real Estate Fund

June 24, 2024

What is preferred equity?

Preferred equity, a subset of private credit, is a type of investment that sits between debt and common equity in the capital stack of a real estate deal. It offers investors a fixed return, priority over common equity holders in receiving payments, and often profit share.

You can think of it as a hybrid between debt and equity with some features of each. Preferred equity is often used to fill funding gaps when traditional financing options are limited or insufficient.

What are the benefits?

Protected position in the capital stack: Preferred equity sits ahead of common equity holders, ensuring that investors receive payments before others. This priority positioning reduces risk and enhances capital protection.
Consistent returns: Preferred equity typically produces a fixed rate of return, often paid monthly. This predictable income stream is appealing, especially when compared to the variable returns of common equity investments.

Why now?

The current lending environment has created a unique opportunity for preferred equity investments. Rising interest rates, maturing rate caps, and tightening lender restrictions have made traditional financing more challenging.

Many real estate operators are facing funding gaps and need creative financing solutions to maintain the health of their assets. Preferred equity can fill these gaps, ensuring the stability of performing properties.

These factors create leverage for preferred equity investors that translates to higher returns and lower risk compared to equity investing. This is exactly what we look for. It’s unclear how long this opportunity will last, which is why we are taking advantage of it now.

Why this fund?

We’ve chosen to invest with Aspen Funds and their open-ended fund dedicated to providing credit to commercial real estate properties. We’ve created a pooled vehicle for other investors to do so as well. The fund is investing in a combination of preferred equity, mezzanine debt, and bridge loans in commercial real estate, primarily multifamily and industrial properties.

Note that I am not providing investment advice. You need to evaluate the fund for yourself and determine if this is a fit for you. If you are interested, you can invest along with us. But I wanted to lay out the reasons I am investing in this specific fund:

Experienced sponsor team: Aspen Funds, the lead sponsor of this fund, has over 11 years of experience operating open-ended credit funds. Their strong underwriting standards and extensive experience in residential should carry over to their commercial real estate investments in this fund.
Strong current yield: The fund focuses on delivering a high current yield paid monthly, with additional profits from accrued payments shared quarterly. The target net total return for investors is 11-13% per year (higher if investors opt to compound). As with any real estate investment, this return is not guaranteed.
Liquidity: Investors have the option for liquidity after a 2-year lockup period, with 90 days’ notice required for withdrawals. This provides flexibility and access to funds when needed.
Alignment & co-investment: The management team at Aspen Funds is co-investing personal capital in this fund, ensuring alignment of interests with investors. The fund’s incentive structure prioritizes a preferred return for investors, enhancing confidence in the investment.
Diversified portfolio: The fund will invest in multiple projects, markets, and operators, enhancing diversification and reducing risk. As the fund grows, diversification is expected to further improve.
Minimal competition: Aspen Funds specializes in providing $1-5 million loans for multifamily properties, a niche with significantly lower competition. This strategic focus allows for attractive investment opportunities with less market saturation.

If you are an accredited investor and interested in exploring this opportunity, or investing in real estate generally, you can join our investment group or DM me directly.