Real Estate Investment Trust & Alternative Investing
Pooled Mortgage Funds v. Real Estate Investment Trusts and Other Alternative Investments
Wilshire Finance Partners (“Wilshire”) is an industry leader in pooled mortgage funds, which are a leading form of investment alternative to real estate investment trusts (REIT), peer-to-peer lending, crowdfunding, and other alternative fixed income investments. In summary, the investment portfolios of each of the WFP Income Fund and WFP Opportunity Fund consists of a diversified group of loans secured by mortgages and deeds of trust which generate above average current income.
Alternative options for investing like the funds managed by Wilshire are favored mainly because of their stable returns, low correlation to the stock and bond markets, and little to no sensitivity interest rate changes. Because of this, many high net worth individuals, wealth managers, financial advisors and large institutional investors, such as pensions and private endowments, are allocating larger portions of their portfolios to alternative investments.
Pooled Mortgage Funds v. REITs
As pooled mortgage funds, the WFP Income Fund and WFP Opportunity Fund, are considered a real estate investment trust (REIT) alternative because of the conservative nature of the underlying portfolio investments, the shorter duration or investment horizon (resulting in greater liquidity), accelerated recognition of income, consistent cash flow, and down side risk protection. And, the primary driver of those advantages rests in the underlying investments of the Wilshire funds compared to those in a REIT.
The investment portfolio of a REIT may generally consist of income-producing commercial real estate that the REIT directly owns and manages. Returns to the REIT’s investors will come in the form of the net cash flow generated from the rents received after operating expenses on the underlying properties and the gains received upon the sale or refinance of the underlying properties. As direct owners of the real estate, a REIT may use financing or leverage to acquire the properties, and as an owner the REIT receives all the benefits and drawbacks of ownership – including, having its investors’ equity in a first loss position if there is a change in real estate values. Further, many equity REITs have several distinct phases, including the capital raising phase – where the REIT raises its capital for investment; the acquisition phase – where the REIT acquires the investment property; the asset management phase – where the REIT manages the asset to increase cash flow and generate a return; and the disposition phase – where any gains or losses are realized and distributed to its investors. As a result, the Wilshire funds are most suitable for investors seeking a strong risk-adjusted return which is higher than term deposits and most other traditional fixed income investments, and which provides down-side risk protection.
Conversely, Wilshire’s funds consist of a portfolio of first mortgage loans and deeds of trust, cash, and cash equivalents. The loans are made at lower loan-to-values which result in a protective equity cushion for the fund’s investors and a hedge against a change in property values or non-payment under the loans. All loans are secured by a mortgage or deed of trust recorded against the property, so each loan is secured by a hard asset – real estate. The interest received on the loans is passed through to the investors in the funds and is the primary source of the return generated for each of the funds’ investors. Further, because borrowers pay their mortgage payments on a monthly basis, there is a more immediate, consistent and stable form of income to the fund investors. As a result, the Wilshire funds are most suitable for investors seeking a strong risk-adjusted return that is higher than term deposits and most other traditional fixed income investments, and which provides down-side risk protection.
Pooled Mortgage Funds v. Peer-to-Peer Lending and Crowd Funding
Because of the low interest rate environment, a number of investors have started to invest in loans through peer-to-peer lending platforms and crowd funding in order to seek higher returns.
Peer-to-peer lending platforms essentially connect potential borrowers to parties willing to lend them money without the use of a bank or other financial institution. Loans are often made across online platforms for a variety of reasons, including personal and business, and loan structures, both secured and unsecured. Generally, there is limited direct contact or interaction between the borrower and the investor making the loan.
Crowdfunding is the process of raising small amounts of money from a large number of people to invest in a single loan. Again, loans are typically made across online platforms with limited direct contact and interaction between the borrower and the investor making the loan.
Often, both peer-to-peer lending and crowdfunding command higher rates of interest as a result of the actual and perceived risk under those loans, which include, the risk of default. Additional potential risks associated with these platforms include the actual underwriting and vetting process for the underlying loan investments and the concentration of risk in such investments.
As primary driver of their business models, many peer-to-peer and crowdfunding companies rely heavily on technology and have limited contact with the borrowers to which they lend. In addition to the separation caused by their reliance on technology, many platforms also rely on the purchase of loans and mortgages originated by other parties which further removes them from the loan underwriting process. The result is potential gaps in the underwriting process as their computer algorithms may not capture all the factors and nuances associated with a particular loan transaction. Further, as many investment structures involve slotting an investor in or linking an investor to a single asset, including the use of “linked notes” where an investor only invests in a particular single loan alongside other investors, the risk associated with that investment increases exponentially due to the concentration of risk attributable to investing in a single loan versus a diversified pool of loans. That risk may be compounded by potential gaps in the original underwriting process if the investor happens to make a poor choice in their selection of individual loans through the on-line platforms provided by certain companies. The result may be the investing equivalent of Russian roulette.
Conversely, Wilshire manages pooled mortgage funds consisting of short term loans organically originated by the fund’s manager – Wilshire. As professional lenders first, we have direct contact with the borrower and the property as part of the underwriting and vetting process. Maintaining that discipline helps Wilshire reduce the risks in the individual loans contributed to the fund’s portfolio. In turn, each of those loans represent a building block for a pool of loans that are diversified across borrowers, property types, location, maturity dates, interest rates and other factors – all with an eye to further reducing risk to the investors in the funds. The result, are funds which seek to provide higher returns while striving to reduce lending risk. In other words, Stable Income and Principal ProtectionTM.
Wilshire Finance Partners: Your Trusted Experts in Alternative Investments
At the foundation of Wilshire’s business approach is the creation of stakeholder value. Because Wilshire has a diverse group of stakeholders, including investors, borrowers, employees, vendors, members and shareholders, value is delivered in different forms for each group of constituents. For our investors, employees, vendors, members and shareholders, Wilshire’s main objective is the delivery of Stable Income and Principal ProtectionTM through pooled mortgage funds / real estate investment trust alternatives. Whether an investment is made in individual trust deeds, the WFP Income Fund or the WFP Opportunity Fund, we work to generate strong returns for our investors while striving to preserve their invested principal.
To learn more about your high yield investing options available through Wilshire Finance Partners, call us today at (866) 575-5070.
* ADDITIONAL DISCLOSURES:
ADDITIONAL DISCLOSURES FOR TRUST DEED AND MORTGAGE INVESTMENTS:
The information contained on this Website (the “Overview”) is not an offer to sell or the solicitation of an offer to purchase trust deed or mortgage investments, or the securities of the WFP Income Fund, the WFP Opportunity Fund or other securities or investments (individually and collectively, the “Investments”) offered through Wilshire Finance Partners, Inc. (“Wilshire”). The purpose of this Overview is to provide an overview of one or more Investments and its private placement. Persons interested in learning about one or more Investments and their private placement will be provided with the Private Placement Memorandum, Operating Agreement (as applicable), Subscription Agreement and other related documents (collectively and inclusive of exhibits and any supplements thereto, the “Memorandum”) prepared by Wilshire, which provides a description of the particular Investments, the terms of the private placement, a discussion of risk factors, and other information related to such Investments. To the extent that there is any inconsistency between the information provided in this Overview and the Memorandum, the Memorandum shall control. This Overview and the Memorandum contain certain forward-looking statements regarding the Investments. The forward-looking statements are based on current expectations that involve numerous risks and uncertainties which are difficult or impossible to predict accurately and many of which are beyond the control of Wilshire’s management, including, but not limited to, national and international economic conditions, changes in legislation, and other factors that can disrupt economic stability. Although Wilshire believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements, the inclusion of such information should not be regarded as a representation by Wilshire, any placement agent, or any other person, that the respective objectives and strategies of investing in one or more Investments will be achieved. Investments be made solely by accredited investors (which for natural persons, are investors who meet certain minimum annual income or net worth threshold), who are provided with the Memorandum and who complete, execute and deliver the subscription documents included therein. The Investments are securities and each of the Investments are being offered in reliance on an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), provided by Regulation D, Rule 506(c), and are not required to comply with specific disclosure requirements that apply to securities registered under the Securities Act. Neither the Securities Exchange Commission nor any state securities regulator or agency has passed upon the merits of or given its approval to the securities, the terms of either offering, or the accuracy or completeness of any offering materials. As securities offered in an exempt transaction, each of the Investments are subject to legal restrictions on transfer and resale and investors should not assume they will be able to resell the Investments. Past performance is not indicative of future results. The Investments involve substantial risk, including loss of investment, and is not suitable for all investors. Loans are made by Wilshire Finance Partners, Inc., Bureau of Real Estate Broker’s License number 01523207. Loans made by Wilshire Finance Partners, Inc. outside California will be made pursuant to licenses, authorizations or exemptions in each other state.