Alternative Investments

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.

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.

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.