Alternative Investments

Real Estate-Based Private Credit Investments Delivering Stable Income & Principal Protection®

Alternative Investments

Navigating today's dynamic financial landscape requires a fresh perspective and innovative strategies. While the traditional 60/40 stock-bond portfolio model was historically preferred, over the last 20 years investors have increasingly looked beyond traditional asset classes to alternative investments that have the potential to offer more balance to portfolios, enhance portfolio resilience, deliver higher returns, and unlock new avenues for diversification.

But what are alternative investments? The possibilities are endless when it comes to the types of alternative investments available. Generally, they encompass any investment that falls outside the scope of stocks, bonds, and cash. They can include real estate, art, precious metals, commodities, cryptocurrencies, and venture capital.

Real Estate Private Credit

Among the choices borrowers have for real estate financing, private credit is filling a void in real estate by providing capital solutions for transactions that show strong underlying value yet need additional speed and flexibility not offered through traditional lenders. On those transactions, private credit can provide greater certainty of execution than traditional sources can provide.

As a leading real estate finance and investment firm, Wilshire Finance Partners focuses on short-term fixed income private credit investments in seniors housing, healthcare real estate, multifamily, and commercial real estate. Investing in real estate-based credit is a well-known way to help increase returns while reducing risk in a portfolio. It’s an appealing investment because real estate historically behaves as a good hedge against stock and bond market risk, and backed by a hard asset, is seen as a more secure investment as compared to other private credit alternatives.

Trust Deeds

Private credit can take on many forms. At Wilshire, we offer real estate-based private credit investment opportunities in trust deeds and mortgages to investors who seek a fixed income alternative investment secured by real estate. Like a mortgage, a trust deed (or deed of trust) is the security instrument where a borrower pledges the property for the repayment of a loan. If a borrower defaults on the loan, the investment is secured by real property.

Most often, the loan is short-term with maturities between six months to five years and secured in a first-lien position to help protect the investment by being at the top of the priority payment structure. Further, the loan is typically made with a protective equity cushion so that the value of the collateral exceeds the loan and the borrower has at-risk capital (or “skin in the game”). This cushion helps reduce default risk and helps protect the investment if property values decline.

Trust deed investing allows investors to benefit from rewards of real estate investing without the hassles of direct property ownership. And with no correlation to the stock or bond markets and little to no sensitivity to interest rates, non-exchange traded, real-estate based private credit is a growing subset of alternative investment strategies.

Separately Managed Accounts and Mini-Pools

For larger trust deed and mortgage investments, investors should consider a separately managed account or mini-pool of investments.

Like a pooled mortgage fund, investors can obtain greater downside risk protection through diversification and increase returns through the ability to reinvest returns in the same asset class. Unlike a pooled mortgage fund where the fund manager determines the investment selection, the investor has more control in the selection process and will collaborate with Wilshire to establish a set of loan parameters and investment criteria for the efficient deployment of capital.

For some institutional investors, investments through separately managed accounts and mini-pools are also attractive under regulatory risk-weighing and capital allocation requirements.

Real Estate Private Equity

With decades of experience in real estate finance and investments and the acquisition and disposition of real estate, Wilshire connects qualified investors with equity investments in stabilized and value-add real estate opportunities. Our deep expertise combined with industry access and disciplined approach allows us to invest equity capital and acquire real estate assets that can be improved, managed, and sold to create near term profits, or held by the investor to build long-term value.

Within the scope of private equity real estate investments, accredited investors have the option to participate in various forms of real estate equity.

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Frequently Asked Questions

What is an example of alternative investments?

Alternative investments are considered any financial asset that falls outside the scope of stocks, bonds, and cash. As such, the universe of alternative investments is very broad and includes real estate, art, commodities, cryptocurrencies, and venture capital.

How do I invest in alternative investments?

If you are an accredited investor, Wilshire is available for a free, no obligation consultation if you would like additional guidance before stepping into the world of real estate-based alternative investments.

Accredited investors are high-net-worth individuals who earn $200,000 individually or $300,000 jointly for the last two calendar years and a reasonable expectation of earning the same in the current year, OR who have a net worth over $1 million, excluding their primary residence.

Is it a good idea to invest in real estate?

Historically, real estate is a time-proven asset that has real, tangible value. It has also served as a hedge against inflation and provided portfolio diversification in times of market volatility. Whether investing in a debt fund, acquiring equity interest, or managing a rental property if done properly, real estate investments can generate a steady stream of passive income and be a valuable source of financial security. Like all investments, investing in real estate debt and equity has risk. Therefore, investors are encouraged to work with experienced professionals and conduct due diligence prior to investing.

What is real estate-based private credit?

Real estate-based private credit is debt financing secured by real property, where the loan is made by an individual or firm not affiliated with commercial banks, credit unions, or similar lenders.

Why invest in real estate-based private credit?

Private lenders stepped into a financing void after the banking crisis in 2008. Since then, private credit expanded and has become an integral part of the financial system, bridging the lending gap left by traditional lenders to many investors.

Structured properly, private credit real estate investments offer portfolio diversification, no correlation to the stock and bond markets, little to no sensitivity to interest rates, and access to investments otherwise inaccessible.

What are examples of private credit?

Private credit consists of financing outside of public markets such as CMBS and RMBS securities, including a direct loan or syndicated debt. Depending on the terms of the transaction, the capital structure can take on various levels of risk and reward. The capital stack, in the order from lower to higher risk, includes senior secured debt, subordinate debt, mezzanine debt, preferred equity, and common equity.

What are examples of real estate-based alternative investments?

Real estate-based alternative investments can include seniors housing, multifamily housing, warehouse buildings, industrial buildings, shopping centers, office buildings, medical office buildings, student housing, and self-storage facilities, among others. Investing in real estate-based private credit means the investor holds the loan on the property. Like a bank holding a first lien on the property, the investor who owns the first loan gets paid first.

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