Opportunistic Credit Fund Update

Dislocation in the real estate credit markets has allowed the Fund to deliver strong returns, a dynamic we expect to continue for the foreseeable future

Jul 13, 2023

Summary

The Opportunistic Credit Fund has delivered robust initial returns and is currently paying a 13% annualized yield largely due to the portfolio’s focus on high-quality borrowers backed by well-located residential assets.
Given recent economic data, we expect to see an increasing volume of attractive gap financing opportunities through the rest of the year and into 2024.
As a result, we plan to continue to open the Fund to additional investment on a regular basis with the next window for investment beginning the week of July 17th.

Now that it has been a few months since the launch of the Opportunistic Credit Fund, we felt it worthwhile to provide investors with a summary of the Fund’s performance to date, as well as an update on our investment strategy through the end of the year and into 2024.

As always, if you have any specific questions, please feel free to reach out to our Investor Relations team investments@fundrise.com or click here to schedule a call.

Since inception, the Fund has generated robust risk-adjusted returns. An investor who invested $500,000 and held their shares for the entirety of Q2 (April 1- June 30th) would have earned approximately $16,500 in dividends, which equates to a roughly 13.2% annualized yield.

While today’s higher interest rate environment has led to higher yields on everything from savings accounts to institutional private credit funds, we believe the Opportunistic Credit Fund’s performance is compelling given not only the higher relative yield but in particular the yield when considering the quality of the underlying assets securing the majority of the Fund’s investments - namely relatively low leverage loans for well-located residential real estate properties.

As we outlined during the Fund’s initial launch, we believed that rapidly rising interest rates would result in a “great deleveraging” whereby many real estate borrowers would be forced to seek out gap or rescue financing in order to either pay down existing debt or secure new debt. In many of these instances, the need for gap financing would not be due to poor credit quality of the assets but instead the sharp move from previously lower to now much higher interest rates. In other words, the assets themselves are solid investments, the borrowers have just become overextended, creating an opportunity for investors such as the Opportunistic Credit Fund to earn uniquely attractive returns.

Below is a breakdown of the assets in the portfolio as of 6/30:

To learn more about the individual assets within the portfolio, please refer to the bottom of the Opportunistic Credit Fund page where you can view the Fund’s assets and learn more about each individual investment.

As discussed in our recent mid-year investor letter, our prevailing view is that interest rates will continue to stay higher for longer, peaking sometime later this year. At that point (despite what many in the market are predicting), we may likely still be a ways off from rates beginning to come back down. This sustained pressure of higher rates will continue to build and build until ultimately something breaks. As has been true (and can be seen in the data we shared) in nearly every rate hiking cycle since WWII, rates have ultimately not come down until a recession was well underway.

While this may be a somewhat less optimistic outlook for the broader economy, it means an extended period of time in which the current debt market dislocation exists, and for those investors who have been patient with the capital further opportunities to earn what we feel are outsized risk-adjusted returns.

As a result, we plan to continue to offer periodic windows for new investment, primarily on a first come, first serve basis. We expect to open the next window for investment sometime next week.

We remain committed to our mission of delivering strong risk-adjusted returns to our investors and appreciate your ongoing support. If you have any questions or require further information, please contact our Investor Relations team at investments@fundrise.com or click here to schedule a call.

Onward,
The Fundrise Team

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1. All asset types excl. bond/asset-backed security: The gross yield solely represents a fixed rate of return due to the Opportunistic Credit Fund under the terms of the investment agreement(s), and does not reflect either a gross or net return that an investor in the Opportunistic Credit Fund may expect to receive as a result of this fixed rate return. Due to the uncertainty of other factors that will ultimately determine the return to any investor (such as leverage, cash drag, and other potential financings), the performance of this asset to the investor is currently unknowable and undeterminable, and may ultimately be lower or higher than the stated fixed rate of return. However, please note that all investors in the Opportunistic Credit Fund will be subject to a 1.75% fund management fee, and, if the Opportunistic Credit Fund is able to achieve a greater than 10% overall return on its portfolio, which is also uncertain and undeterminable at this time, then the asset will also be subject to an additional 20% performance-based fee for those Opportunistic Credit Fund investors.

Bond/asset-backed security: The target net yield of 9.5 -10.9% is intended to represent a range of return we believe is achievable given current market conditions. The target net yield consists of the 8.2% gross yield, assuming roughly 75% leverage at an interest rate of 6.75 - 7.25% and is adjusted net of fees disclosed above. Note that the amount and cost of leverage can vary over time, and there can be no guarantees that the fund is able to achieve the stated target net yield.