Strategic Credit Fund

A portfolio of yield-focused multifamily debt investments for qualified purchasers. This open-end and evergreen Fund aims to provide investors with a consistent stream of risk-adjusted income, appreciation, and capital protection. The Fund is offered through Origin Credit Advisers, an affiliate of Origin Investments.  

The Strategic Credit Fund is the successor to Origin’s Multifamily Credit Fund, which closed in January 2023. We launched the Strategic Credit Fund to allow investors the opportunity to generate an attractive stream of passive income while protecting and preserving wealth in any market environment.

As of mid-2023, private credit is entering a golden era amid expected higher interest rates for longer, the recent banking crisis, and resulting regulatory pressures that have triggered a pullback in traditional lending. The Strategic Credit Fund is positioned to take advantage of this market dislocation by investing in liquid credit securities, originating private preferred equity, and bridge loan gap financing, all collateralized by multifamily properties. As prolific buyers of Freddie Mac securitizations with priority access to deal flow, we have cemented our reputation in this space.

The Fund’s investment strategy and open-ended structure allow flexibility across several product types. They are designed to provide risk-adjusted returns and income in any market environment by moving to where the market offers mispriced buying and selling opportunities. The Fund seeks to achieve its objectives of generating current income for its investors through investments, including:

• Securitized Multifamily Debt: Pools of fixed and floating rate first-lien multifamily loans originated by Freddie Mac and other lenders.
• Direct Financing: Privately originated senior and mezzanine-level financing provided to multifamily real estate projects and operators.

Our target investments are senior to common equity property owners in payback priority. In turn, we seek to compensate Fund investors with risk-adjusted returns with a 30% to 40% cushion to loss.

• Downside protection: The Fund’s investments are senior to the underlying common equity in payback priority, seeking impairment protection by a 30% to 40% cushion to loss in underlying collateral value.
• Monthly Income: The Fund is designed to generate a stable stream of monthly distributions. Investors can participate in the Fund’s distribution reinvestment program (“DRIP”) to auto-reinvest their monthly distributions and take advantage of compounding returns.
• Built-in Hedge Against Inflation: The Fund seeks to tactically allocate up to 30% to 60% of its equity to floating-rate debt investments, which means that when interest rates rise, so do the borrowers’ interest payments.
• All-Weather Investment Strategy: The Fund’s defensive investment strategy was designed to deliver risk-adjusted returns and income in any market environment.

Unlike most traditional private credit funds available to high-net-worth investors today, greater than 90% of the Strategic Credit Fund’s investments are backed or collateralized by multifamily properties geographically diversified throughout the United States. Most other private credit funds’ investments are either backed by other types of real estate assets (such as office properties) or middle-market businesses’ assets that are not related to real estate.

Business lending can involve significantly different risks than those associated with multifamily real estate lending. When lending to businesses, the risks generally come down to the company’s ability to maintain or grow its cash flows and the nature of the specific collateral, which could be anything from intellectual property to revenue receivables, manufacturing equipment, the business’s inventory, etc. Multifamily real estate is a marketable, resilient, and tangible asset class considered a “necessary asset,” as everyone will always need a place to live.

Because of factors such as those referenced above, we believe that multifamily real estate loan collateral provides investors with an overall more attractive risk profile than a traditional private credit fund while maintaining the ability to achieve substantially similar returns.

The Fund is available for investment from Qualified Purchasers, including individuals and Institutional Buyers. A Qualified Purchaser is an individual or a family-owned business that owns $5 million or more in investments, not including a primary residence or any property used for business.

The Fund is best suited for investors who expect a medium—to long-term hold. While it can accommodate all types of investors (individual, joint, LLC, LP, Corporation, IRA, Trust, etc.) from a taxation standpoint, it is best suited for non-taxed and tax-deferred accounts, such as 401(k) or IRA.

The Fund is structured as a limited liability company (LLC) with a real estate investment trust (REIT) subsidiary. You will invest in the LLC, which owns 100% of the REIT. The REIT subsidiary lets you invest in the Fund with your IRA or 401k without worrying about unrelated business income tax (UBIT). The REIT owns properties, and cash flow passes from the property to the REIT subsidiary, which pays dividends to the Fund and then distributes the funds to you based on the number of units you own.

$100,000

The Fund has no target equity limit but will only acquire new investments that meet the Fund’s risk and return objectives. Origin intends to hold between 30 and 50 assets in the Fund at any given time, subject to an initial ramp-up period.

The Fund’s investment strategy and open-ended structure allow flexibility across several product types. They are designed to deliver risk-adjusted returns and income in any market environment by tactically moving to where the market provides mispriced buying and selling opportunities. The Fund will generally target the following portfolio composition ranges:

Real estate debt securities are marketable and liquid pools of mortgage loans that are packaged, or securitized, by banks and financial institutions that made the underlying loans to their customers. Banks often securitize loans to sell to private investors to free up their capital to continue making more loans to new customers. Debt securitizations are divided into multiple risk tranches, where one tranche may entail a lower interest rate from the investment but will, in turn, be less likely to suffer any consequences should an underlying mortgage borrower default on their loan payments. Conversely, a riskier tranche will entail a higher interest rate from the investment but will face a high likelihood of loss if any underlying loan defaults for foreclosures of the underlying real estate collateral. The different risk tranches offered allow investors to choose the level of risk and return they want to target.

Common types of real estate debt securitizations are agency-backed, non-agency-backed, collateralized loan obligations, and single-asset single-borrower securitizations (SASBs). Freddie Mac is an example of a large creator of agency-backed multifamily mortgage securitizations.

Freddie Mac was chartered by Congress in 1970 to support the U.S. housing finance system and to help ensure a reliable and affordable supply of mortgage funds across the country. Rather than lending directly to borrowers, Freddie Mac operates in the U.S. secondary mortgage market, buying loans that meet our standards from approved lenders. Those lenders are then, in turn, able to provide more loans to qualified borrowers and keep capital flowing into the housing market. Freddie Mac then pools the mortgages it buys into securities, which they sell to investors worldwide.

This is a difficult market, with several material barriers to entry, many created by Freddie Mac to ensure only the best buyers are active in the space. These barriers include:

• Operational Expertise:  Freddie Mac requires the buyer of these investments to be an expert operator of multifamily investments.
• Freddie Mac Borrower: To ensure the buyer is an operational expert and familiar with Freddie Mac’s inner workings, the most prolific bond buyers are also active borrowers.
• Investment Size: The equity required to buy the target tranche of the K-Deals is between $25 million and $65 million, which is a big check for most operational experts. The investment size, plus the requirement to be an operational expert, eliminates more than 90% of the potential buyers of the bonds.
• Controlled Entry: Two investment banks control 80%—85% of the secondary market, and Freddie Mac controls 100% of the original issues. The investment banks and Freddie Mac conduct substantial due diligence to ensure the bond buyers are highly qualified.

Preferred equity and mezzanine debt investments function differently than typical equity ownership of a property. They are typically less risky than equity investments and come with regular interest payments from the borrower. Thus, these investments are included in the IncomePlus Fund’s portfolio to diversify risk and supplement each property’s cash flow with its associated interest income.

The Fund seeks to invest in floating-rate and fixed-rate debt to help hedge inflation risk and maximize investor returns. In a rising-rate environment, the Fund will seek to allocate 30% to 60% of its equity to floating-rate debt investments.

Investors will receive distributions every month.

Yes, generally. However, the exact hold period for each investment will be assessed based on its merits relative to market conditions. We will conduct hold vs. sell analyses when appropriate. If higher returns can be achieved by selling an investment at a premium over par value before maturity and those returns would be greater than could be achieved by holding to maturity and collecting additional interest payments, then a sale before maturity will be prudently considered.

The Fund’s NAV will be fair valued every month. The fair values shall be determined as of the last day of each calendar month based on the fair value of the Fund’s assets, including cash, decreased by the fair value of all liabilities of the Fund, including contingent liabilities on an accrual basis, valued following widely accepted valuation methodologies. 

The Fund’s Valuation Committee may engage one or more third parties to provide valuation determinations. Such valuation determinations may employ appraisals or other methods to value the Fund’s investments. With respect to certain direct real estate investments, including direct lending and preferred equity, fair value is determined by proprietary models and other methods developed by the Origin Parties.

Like nearly all fixed-income or credit investments, the Fund’s target investments are taxed at an investor’s ordinary income tax rate. Select investments may incur phantom income without corresponding distributions, which will require a tax payment by the investor. The ideal investment vehicle for the investment is a tax-deferred account such as a 401(k) or IRA. The Fund’s REIT subsidiary is expected to block all UBTI and ECI (Effectively Connected Income).

As a stand-alone investment, the Fund does not benefit from depreciation. However, due to the Fund’s subsidiary REIT structure, investors may be eligible to take a 20% deduction on taxable income received each year.

Real estate investment firms, large and small, own and operate the properties. These may include small local operators with 250 units under ownership or behemoths with more than 75,000 units under ownership. Origin and third-party originators underwrite property operators to ensure operational competence, infrastructure, and borrower balance sheets sufficiently protect the collateral.

Origin collectively retains an experienced investment team with over 70 years of experience in commercial real estate debt acquisition and investing. Our team has significant relationships developed through a comprehensive network of brokers and financial institutions that Origin believes will provide consistent deal flow to the Fund. Origin has also been thoroughly vetted and approved by Freddie Mac as a select buyer of its bonds as a Directing Certificate Holder (DHC), providing our team with unique access to Freddie Mac securitizations directly through Freddie’s primary auctions. As prolific buyers of Freddie Mac securitizations, we have cemented our reputation in this space, often providing us with priority access to deal flow—and we will continue to leverage our advantages as long as the environment and the opportunities exist.

Origin only invests in multifamily real estate and across the capital stack. Origin Investments and its Investment Manager affiliate, Origin Credit Advisers, have a combined AUM of over $2 billion and over $500M of historical multifamily debt and preferred equity execution. Origin’s proactive fund management seeks to generate alpha by moving to where the market provides mispriced buying and selling opportunities. Origin’s proprietary Multilytics^® machine-learning models provide Origin with bespoke intelligence to support analysis of multifamily real estate and where the best new opportunities exist at any time. 

Origin’s Strategic Credit Fund is an institutionally priced direct-to-investor fund. A typical non-exchange-traded REIT charges higher fees to non-institutional investors and pays advisors to sell its products. The investment strategy of various non-exchange-traded REITs may also vary substantially compared to the Strategic Credit Fund.

To help maximize investor returns, the Fund intends to use a prudent and conservative amount of leverage to acquire investments. The Fund’s target leverage ratio, subject to an initial ramp-up period, is 20%—40% and shall not exceed 50% of the aggregate fair market value of the underlying investments at any point. In all cases, the leverage utilized will be recourse to the Fund or its REIT Subsidiary, not Fund investors.

Origin Credit Advisers opened the Strategic Credit Fund to investors on June 1, 2023. Investor commitments are accepted continuously every month. After completing a subscription agreement and making a formal investment commitment, investors receive a capital call for 10% of their commitment amount shortly after completing the subscription process. The remaining 90% will be called depending on the length of our queue and pipeline of opportunities.

If you want to invest in the Fund, please get in touch with your Origin relationship manager or investorrelations@origincreditadvisers.com. The following steps will be provided.

Fund fees and expenses consist of the following:

• Annual Asset Management fee: 1.25% on net asset value (NAV).
• Performance fee: 10% of net profits, subject to a 6% annual investor preferred return hurdle and 50/50 catch-up.

The Fund is open-ended and evergreen, meaning it is open to investors and makes new investments in perpetuity.

The Fund intends to make quarterly redemption offers on a best-efforts basis by which up to a maximum of 5% of the Fund’s NAV may be redeemed by participating investors on a pro-rata basis each quarter. Each investor is subject to a 12-month initial lock-up period beginning on the date of their contribution. Investors who redeem after being in the Fund for anywhere between 12 and 24 months will be subject to redemption at the prevailing NAV of their account, subject to a 5% penalty. Investors who redeem after being in the Fund for at least 24 months will not be subject to a redemption penalty.

Yes. Investors can contribute additional investments to the Fund at any time by contacting their Origin relationship manager. The minimum add-on contribution is $10,000.