What are debt funds?
“Real Estate debt funds consist of private equity-backed capital that lends money to prospective borrowers and developers of real estate assets.1” The capital is typically short-term with an average interest rate between 9%-15% per annum. During the 2008 economic crash, real estate debt funds gained popularity due to banks and traditional lenders becoming tighter with their lending standards. This suggested “a less competitive, and therefore a more attractive, investment environment for private debt going forward.2” Debt fund loans became common for people who did not qualify for funding from traditional lenders; Either their loan request was too small for traditional lenders or too large for non-institutional banks. This created a gap between the need for financing and the availability of financing, providing a substantial opportunity for private debt providers, such as Paradyme.
When Paradyme created the Secured Income Fund in 2020, it was based on our hedge against inflation.
Between the economic downturn and the Covid-19 crisis, Paradyme knew inflation was coming and decided the smartest thing to do was to create a conservative vehicle that afforded investors a consistent income and stable returns. According to Think Realty, “Investing in a real estate debt fund is a great avenue for diversification because the capital is used in various projects at the same time. It is also suitable for investors who are looking to balance their high-risk investment portfolio and for those sticking to low-risk investment options. This means that if any particular project fails then you shouldn’t have to worry about losing a significant amount of money.3” Equity is great for accumulation and wealth creation, but debt is known to be more stable, conservative, and have consistent returns.
What is Paradyme’s Secured Income Fund?
The Secured Income Fund is a debt fund that was designed to provide investors with current income in the form of regular, stable cash distributions at an attractive risk-adjusted yield and preserve and protect invested capital. It was structured to provide debt loans for new construction or property conversion and renovation, as well as other interests in real estate; all secured by first trust deeds. The fund is available to Accredited Investors with an offering size of $100M. It is an Evergreen fund, which allows investors to park their money while still having the ability to obtain their investment back at any given time. The minimum investment is $100k with an 8.5% preferred return, dispersed quarterly.
Many investors, mostly the Baby Boomer generation, are coming to the age where they no longer want to operate their rentals, multifamily housing, etc. So, they are selling their real estate assets and moving the liquidity into the Secured Income Fund to maintain a passive income for their retirement. In essence, the Secured Income fund is a savings account that allows your money to work for you.
Works Cited Alpha Investing. (n.d.). How Real Estate Debt Funds Work. Retrieved from Alpha Investing: https://www.alphai.com/articles/how-real-estate-debt-funds-work/ OakTree. (2020, November 12). The Case for Private Debt in Real Estate Investing. Retrieved from OakTree: https://www.oaktreecapital.com/insights/insight-commentary/market-commentary/the-case-for-private-debt-in-real-estate-investing Think Realty. (2021, March 16). How to Invest in Real Estate Debt Funds. Retrieved from Think Realty: https://thinkrealty.com/how-to-invest-in-real-estate-debt-funds/#:~:text=The%20primary%20advantage%20of%20investing,every%20month%20or%20every%20quarter.