Strategic Credit Fund

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

The Strategic Credit Fund invests in Freddie Mac B Piece Bonds, credit securities, originating private preferred equity, and bridge loan gap financing, all collateralized by multifamily properties.

The Strategic Credit Fund is the successor to the Multifamily Credit Fund, which closed in January 2023. The Strategic Credit Fund was launched to allow investors the potential to generate an attractive stream of passive income while protecting and preserving wealth in any market environment. The Fund invests in Freddie Mac B Piece Bonds, credit securities, originating private preferred equity, and bridge loan gap financing, all collateralized by multifamily properties.

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 use 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.

Unlike most traditional private credit funds available to high-net-worth investors, more 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 needs 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 a 401(k) or IRA.

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

$100,000

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

The Fund’s investment strategy and open-end structure allow flexibility across several product types. The Fund is 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 generally targets 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.

The Freddie Mac K-Deal market has several material barriers to entry, many created by Freddie Mac to ensure that 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 how Freddie Mac works, the most prolific bond buyers are also active borrowers.
• Investment size: The equity required to buy the target tranche of K-Deals is from $25 million to $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% to 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 tend to be less risky than equity investments, and they come with regular interest payments from the borrower.

The Fund seeks to invest in fixed rate and floating 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-versus-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 Strategic Credit Fund’s net asset value (NAV) will be fair-valued every month. The fair values will 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 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 Strategic Credit 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 unrelated business taxable income (UBTI) and effectively connected income (ECI).

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 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 that operational competence, infrastructure and borrower balance sheets sufficiently protect the collateral.

Origin Credit Advisers is an investment adviser registered with the SEC that provides yield-focused multifamily debt investments for qualified purchasers and was founded in 2023 as an affiliate of Origin Investments. The firm’s leadership team has 15-plus years of equity and credit markets experience, utilizes a proprietary suite of machine-learning models to aid in investment decisions, and works in fast-growing markets to gain in-depth knowledge of market fundamentals. Origin Credit Advisers is accepting new investors for the open Strategic Credit Fund. To learn more, visit www.origincreditadvisers.com.  

Note: SEC registration does not constitute an endorsement of the firm by the commission, nor does it indicate that the adviser has attained a particular level of skill or ability. 

The 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 Strategic Credit Fund’s investment strategy may also vary substantially compared with that of various non-exchange-traded REITs.

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.

After completing a subscription agreement and making a formal investment commitment, investors will enter the queue or have their capital called. There is a queue where taxable accounts will 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. For qualified accounts (401K, IRA), your commitment will be placed in a queue with an estimated call time of 3-6 months (subject to change). We expect to make capital calls every 60-90 days.

If you want to invest in the Fund, please contact your Origin relationship manager or investorrelations@origincreditadvisers.com.

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 Strategic Credit 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 net asset value (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 12 to 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.