Cash-strapped landlords with maturing property debt aren’t being scared off by 12%-16% rates of interest, said Ben Miller, CEO of Fundrise, which recently launched a new $500 million credit fund to make property loans to borrowers in need of liquidity.
“We have been turning away deals. We have too many deals,” Miller told MarketWatch on Friday. “The problem is too any deals and not enough dollars in the world today. The team has been trying to prioritize what we think are deals with the lowest risk.”
Fundrise’s newly launched Opportunistic Credit Fund, or “OFC” for short, was seeded by the company’s roster of nearly two million small-time investors, Miller said, where investments can be as little as $10.
Its aim is to give clients a shot at profiting off commercial real estate in a down cycle, in ways typically reserved for banks, private-equity funds or other alternative lenders.
Specifically, it makes “bridge” or “mezzanine” loans on residential buildings, either finishing construction or stabilized, where borrowers need more funding in the year since the Federal Reserve started sharply increasing interest rates.
Related: Commercial real-estate’s debt machine is broken down
Green Street Advisor’s May Commercial Property Price Index shows prices fell 15% from a year ago. While the shortage of homes is expected to keep demand high for rentals, it’s unclear if rents can stay as elevated as they have been, or when property prices will bottom.
Fundrise is making average loans of $10 million to $30 million to commercial landlords, according to Miller. The fund targets the gap borrowers need to fill as property values drop from peak pandemic levels and as rates on senior commercial mortgage loans have climbed from lows of roughly 3.5%.
“We had 15 years of ZIRP,” Miller said, of the Fed’s nearly zero-interest-rate policy in recent years. “When there’s too much money and liquidity, the opposite is too little liquidity,” he said.
Miller pointed to stress evident among small-time syndicators in multifamily properties, as highlighted by The Wall Street Journal, as an example of fallout already hitting real estate as credit conditions tighten. “They are the first to get foreclosed on because they are less capitalized,” he said. “But institutions have the exact same problem.”
He expects the new fund to be fully deployed in the next 24 months.
Fundrise, which has about $3 billion in assets under management, got off the ground about 10 years ago as a way for individuals to more easily invest in real estate, private equity and pre-IPO stocks, often now through smartphones.
While redemptions at funds have picked up across the board since the Fed tightened financial conditions, Miller says they haven’t been problematic at Fundrise. “We were seeing more redemptions that we did before, but still more fundraising,” he said.
Read: Debt on trophy office buildings is starting to buckle as loans come due
Stocks closed higher Friday on progress in Washington around a U.S. debt-ceiling deal. The Dow Jones Industrial Average
DJIA,
rose 1% Friday, but gave up 1% for the week, while the S&P 500 index
SPX,
gained 0.3% and since Monday and the Nasdaq Composite Index
COMP,
rose 2.5% for the week, according to FactSet.
Read the full article here
