2023 Origin Activity Recap: Finding Ways to Win

One of Origin’s core values is “find a way.” And despite numerous economic and market challenges, our acquisitions team made 2023 a productive year. Through boots-on-the-ground relationships in our target markets and our ability to accurately and efficiently evaluate deals using Multilytics®, they were able to source investments that “penciled out” to meet Origin’s strict underwriting standards and deliver strong potential risk-adjusted returns for our investors. The team found tax-incentivized development deals, took advantage of the private credit boom and leveraged established relationships in our target markets. The result? 2023 Origin activity included sourcing 28 investments comprising a gross capitalization of $1.34 billion, representing nearly $590 million of equity deployed on behalf of Origin Investments and Origin Credit Advisers Funds.   

Tax Incentive Deals 

Ground-up development is essential to Origin’s build, buy and hold strategy. Faced with high interest rates, negative rent growth and increased construction and operating expenses, the team needed to be creative to find deals that would still deliver strong potential returns. In Texas, our deep market relationships led to three investments that are receiving significant tax benefits by leasing the land from housing authorities. These structures provide 100% property tax abatement for 99 years and a one-time tax exemption of construction materials in exchange for offering a portion of the units to residents who earn income that is at or below the area’s median. With property taxes in Texas totaling 40% to 50% of operating expenses, these are substantial savings. In addition, these agreements will allow us to broaden our demand segment without sacrificing asset quality.  

First Senior Stretch Loan  

Last year also saw the launch of Origin Credit Advisers’ Strategic Credit Fund, an open-end, multifamily-focused private credit Fund that aims to provide qualified purchasers¹ with a consistent stream of risk-adjusted income and capital protection. The Fund’s flexible structure, allocating investments across a mix of securitized products such as Freddie Mac bonds (more on those later) and direct financing, offers deal structures at attractive terms.

A ground-up development currently under construction in Las Vegas is a prime example. This deal, located in the path of growth, was a direct result of our established relationships in the market. The original senior lender needed immediate liquidity and opted to default on the loan for the planned 308-unit garden development spread over 16 separate buildings. Our existing relationship with the broker led to us stepping in to complete the construction process via a combined senior stretch loan and preferred equity investment. The senior loan will occupy between 0% and 65% of the capital stack and receive a pre-funded fixed rate of return of 9.25%². By adding additional leverage between 50% and 65% of the loan, we are increasing our potential returns on the senior position. 

The preferred equity terms are also quite favorable, generating a double-digit preferred return³ (half being pre-funded) and offering added upside potential through a 10% kicker, meaning that we are entitled to 10% of any profits generated at the deal level.  

Preferred Equity Opportunities 

2023 Origin activity was impacted by high interest rates and bank failures, which culminated in reduced bank lending for multifamily development projects. That created a unique environment where there were more high-quality borrowers seeking options to close a financing gap for unfinished projects than there were lenders. Seizing on these opportunities, both Origin’s IncomePlus Fund and Origin Credit Advisers’ Strategic Credit Fund provided a total of more than $140 million in preferred equity by yearend. The preferred returns for these investments average in the low to mid-teens³—higher than historical averages—which are to be paid to Origin before the sponsor receives any profit, with the bonus of downside protection in the capital stack.  

Freddie Mac Rotation  

Last, but certainly not least, in 2023 Origin Credit Advisers secured a coveted spot in the Freddie Mac bond rotation. This was a complex process that took nearly three years to achieve and speaks to the reputation that we have built with the agency. It means that we are one of slightly more than a dozen fund managers given priority access to Freddie Mac secured bonds, which are highly sought after due to their historically low credit loss rate. This will result in consistent quality deal flow for the Strategic Credit Fund, which we will continue to leverage with scrupulous due diligence and an innovative approach utilizing Multilytics, our proprietary suite of machine-learning models, to crunch data and provide insights on the highest-potential portfolios.  

See a breakdown of all 2023 investments below.

Growth Fund IV

QOZ Fund II

Strategic Credit Fund

Multifamily Credit Fund

Sidecars

1.) Generally, a qualified purchaser is an individual or a family-owned business that owns $5 million or more in investments, excluding their primary residence or any property used for business.

2.) These returns are net of fees and are calculated by subtracting the assumed 1.25% asset management fee from the gross return and taking 90% of this product which assumes 25 basis points of fund-level expenses and a 10% promote over a 6% hurdle. For the performance information of the Strategic Credit Fund from which the above referenced return information was extracted contact Thomas Briney at (800) 628-8008.

3.) Returns are net of fees. For the performance information of the Strategic Credit Fund from which the above referenced return information was extracted contact Thomas Briney at (800) 628-8008.

Disclosure: This information may contain certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance, and actual results or developments may differ materially from those discussed. No investor should assume future performance will be profitable or equal the previous reflected performance. There is no guarantee that investors will or are likely to achieve their objectives or that any investor will or is likely to achieve results comparable to those shown or will avoid incurring substantial losses. Additionally, the performance results displayed herein may have been adversely or favorably impacted by events and economic conditions that will not prevail in the future.