Washington, D.C.-based alternative asset manager Fundrise has formed its first fund focused on financing commercial real estate projects.
The credit fund aims to raise $500 million and is designed to give individual investors access to opportunities emerging from reduced liquidity available from traditional banking sources during a period of high interest rates.
“Our new private credit strategy gives our investors a seat at the table for what I believe will be one of the strongest credit investing environments of the last few decades,” Fundrise CEO and co-founder Ben Miller said in a statement.
The past 12 months have witnessed the Federal Reserve’s swiftest-ever period of interest rate hikes to curb soaring inflation, profoundly impacting both debt and equity markets, according to Miller.
Fundrise is not alone in the effort. Three of the top five private equity firms that completed capital raising in the first quarter were for similar debt funds, according Preqin, a private equity data provider.
As investment sentiment in acquiring properties has turned more pessimistic, investors have sought out lower-risk debt strategies, Preqin said. Real estate debt helps to hedge a portfolio’s downside risk while generating a steady income. Real estate debt also forms part of the solution to the cash crunch experienced by commercial real estate borrowers.
Many borrowers are struggling to produce additional equity to pay down loans, giving funds such as Fundrise’s new avenues for debt investment, according to Miller.
Through its new credit strategy, Fundrise has already made one preferred equity investment in a 300-unit multifamily development in Daytona Beach, Florida, according to the firm.
Fundrise invested $20.8 million to provide financing in the form of preferred equity for the development of the Mason at Daytona Beach, a 300-unit multifamily complex on 65.4 acres. The borrower has agreed to pay Fundrise a 13.5% fixed annual rate that will accrue for as long as it takes to finish the project, and the investment is to be paid back upon the project’s completion.
Author Credit: CoStar