Private Credit

Our innovative private credit investment strategy leverages the evolving economic landscape, presenting some of the most compelling risk-adjusted return opportunities seen in the last ten years.

A lending environment that occurs once every ten years

In 2023, the Federal Reserve increased interest rates at an unprecedented pace to curb inflation. This rapid policy change has unsettled markets, causing widespread disruptions, heightened stress throughout the financial system, and a potential liquidity crisis that threatens the global economy.

At the same time, these conditions have converged to form what we consider to be one of the most compelling opportunities for credit investments in a generation.

rivate credit, also known as private lending, is an asset class that mainly includes loans, fixed-income, or other structured investments designed to provide higher yields with lower overall risk compared to equity investments. Essentially, investors in private credit lend money to borrowers in return for a fixed rate of return—usually through interest payments or preferred returns—without gaining equity ownership or a share in the upside. Like other private market assets, private credit differs from publicly traded credit or fixed-income securities, such as bonds or asset-backed securities, due to its illiquidity, which typically allows it to offer relatively higher returns.

Due to the Federal Reserve’s unprecedented measures, borrowing money for 30 days has become more expensive than borrowing for 30 years—an unusual situation we believe is triggering a rare liquidity crunch, which we’re calling The Great Deleveraging.

During this time, individuals and companies needing short-term loans will face significantly tougher terms favoring investors. Higher interest rates typically mean borrowers will take on much less leverage, thereby reducing risk. Nearly all loans maturing in 2023 will require repayment, and new loans will likely need additional “bridge” or “mezzanine” financing to cover the gap between expected and actual proceeds.

At the same time, investors who wisely kept larger cash reserves in recent years will be in a strong position to demand higher returns for providing liquidity during what is likely a temporary market adjustment. Fundrise is one such investor positioned advantageously.

Income Fund

Our Income Real Estate Fund aims to generate strong current yields through a diversified portfolio of our top real estate-backed fixed income strategies. These primarily include gap financing for stabilized and ground-up multifamily projects, as well as acquisition and development of housing in the Sunbelt region. Additionally, the fund is strategically positioned to take advantage of the current disruptions in real estate credit markets, as outlined in detail in our Great Deleveraging thesis.

Income Fund

Our Income Real Estate Fund aims to generate strong current yields through a diversified portfolio of our top real estate-backed fixed income strategies. These primarily include gap financing for stabilized and ground-up multifamily projects, as well as acquisition and development of housing in the Sunbelt region. Additionally, the fund is strategically positioned to take advantage of the current disruptions in real estate credit markets, as outlined in detail in our Great Deleveraging thesis.

Dislocation Breeds Opportunity

The Great Deleveraging has created a rare and widespread disruption across the real estate credit markets. Virtually every borrower and asset class—regardless of credit quality—has been affected. Over the past several years, most businesses borrowed at historically low interest rates and high asset valuations. Now, as the economic environment has shifted, maturing loans are exposing a capital shortfall. As refinancing becomes more expensive, many borrowers must bring in fresh equity to reduce their loan balances.

Bridging the Capital Gap

Our strategy focuses on stepping into this funding gap by providing rescue capital to borrowers facing liquidity pressure. We offer short-term credit solutions that allow us to invest with a strong margin of safety, focusing on high-quality assets and reliable borrowers—those who are facing temporary cash flow challenges due to the rapid rise in interest rates during 2022 and 2023.

Typically, these situations involve borrowers mid-execution on a value-add strategy—such as new development, renovations, or lease-up efforts—who need more time to stabilize the property before securing permanent financing.

Targeted Activities Include:

• Originating and structuring senior and subordinated mortgage loans

• Providing mezzanine capital in the form of preferred equity, B-notes, or second trusts

• Structuring mezzanine and preferred loans with an eye toward eventual GSE (Fannie Mae or Freddie Mac) takeouts

• Financing residential construction and development projects

• Acquiring subordinate notes and high-yield securities, particularly those backed by single-family rental portfolios

Geographic Focus: The Sunbelt Advantage

We concentrate on high-growth markets we know best, particularly in the Sunbelt—including Dallas-Fort Worth, Phoenix, Orlando, Tampa, Houston, Atlanta, Charleston, and Las Vegas. Roughly 70% of our investment acquisitions have occurred in the four fastest-growing states: Texas, Florida, North Carolina, and Georgia—with over 90% in the broader Sunbelt region.

By maintaining disciplined credit standards and focusing on residential rental assets, we believe we’re positioned to capture some of the most compelling risk-adjusted returns since the post-2008 recovery.