Hi there,

Welcome to our latest edition of News & Views from Faes & Co.

As we build our firm's community of investors, we aim to put together a newsletter that is worthy of your time. If you have any feedback (good or otherwise) or ideas on content you would find useful, please let us know!

Our Firm continues to grow with the Fund and loan originations growing month-on-month.

We have also been busy working on an institutional funding partnership that will bring considerable additional firepower to our Firm. We hope to be able to talk more about this in the coming months!

📈 Fund Performance

Our Faes & Co Income Fund is performing well and proving to do precisely what it says on the tin - provide investors with a consistent and stable return that is asset-backed.

We are currently paying investors a fixed return of 10% per annum (for investments over $250k; and 8.5% per annum for investments between $100-250k).

The average LTV across the portfolio is just under 65% (ie, very conservative), and the average loan size is around $330,000 (ie, it's a very diversified portfolio); and all loans are secured by a first mortgage against residential property in the US. There are no defaulting loans in the portfolio, and the performance is solid.

Our Fund brochure can be found here, and our Fund Factsheet can be found here.

📱 If you’d like to book a call to run through the Fund, or to hear our views on the market, please contact Jamie on email at jamie.mcgee@faes.co or you can schedule a meeting directly here.

🥇 The first rated public securitization for real estate bridging finance

In the US bridging finance market, there was an exciting development earlier this month: the announcement of the first rated public securitization of the asset class. Although the US bridging finance market has seen many securitizations over the last 6-7 years and is quite a mature market, this is the first rated deal.

The landmark deal from Toorak, backed by equity from KKR, received an A rating from Morningstar DBRS for the tranche at the top of the stack.

So what? The expectation from those in the market is that this will now drive more capital into the bridging finance sector, and drive down the cost of that capital. This will probably prove right, however we also believe that this will also drive a continuing divergence between lenders that sell their loans to aggregators backed by the likes of KKR, and those that don’t. 

It is a very narrow credit box to complete a publicly rated securitization, and a large part of the market just doesn’t fit within that box. Our firm wants to play on the margins of this box and continue to deliver our investors a secure and superior risk-adjusted return. 

The continual institutionalization of the sector is a generally positive development for the bridging finance market.

🤔 Food for Thought

      🏘️ Real Estate Commissions:

There has been a big shake-up in the US real estate market, with a swath of class action lawsuits brought against several real estate agencies and their industry organization, the National Association of Realtors (NAR). 

For those of you who are not familiar with the market here, many people are surprised to learn that it is the norm for real estate agents to take home a 6% commission for the sale of a house. This commission is usually split between the seller’s agent and the buyer’s agent, and it has also been the norm for these fees to be largely non-negotiable (if you actually want to sell your house).

This has now been challenged and the NAR and a number of agencies have lost these class action lawsuits, which have resulted in hundreds of millions of $ in awards against those organizations; and in just the last week or so, it has been decided that the NAR and its members will have to change the way the market works when it comes to real estate commissions.

It is a fast-evolving situation, and you can read about it in the mainstream media (see here from the Wall Street Journal). However, we enjoyed this discussion on the topic from one of our favorite podcasts, The All-In Podcast, which explains the situation well (click image to the right for link).

      🏰 Mansion Taxes:

We enjoyed (in a schadenfreude kind of way) reading this article from Bloomberg about the Los Angeles local government’s failure of its new ‘Mansion Tax’. The tax, which was passed by 58% of voters, creates a new transaction tax on the sale of real estate in Los Angeles over $5 million in value. 

Lawmakers promoted the new mansion tax as a way to raise money for (their failure in being able to deal with) the homelessness problem. The projections promoting the tax stated that it would raise upwards of $900 million in additional revenue for the city. However, in reality, it has gridlocked an already gridlocked market even further and has only generated $142 million - which is less revenue than what was being received before the tax was even implemented.

      📊 General Market Data:

For those of you interested in following developments in the US market, with a focus on housing, we find the data released each month from Fannie Mae to be a great source. Fannie Mae and Freddie Mac are said to support about 70% of all US mortgages, and they have a phenomenal reach and view into the market. You can see their March ‘Economic Developments’ release here.

Generally speaking, their commentary on the market is starting to sound increasingly encouraging. The rates on the standard 30-year fixed rate mortgage in the US are expected to come down, and house sales to rebound in response. We are obviously watching market developments closely here.

🎟️ Events

Our team has continued to attend various events and meet with investors and borrowers for F2 Finance. In the last couple of months, we have attended the Structured Finance Association annual conference in Las Vegas (with a few investors from London), the Montgomery Summit here in Santa Monica, and a number of fringe events alongside the ALTS Los Angeles investor conference.