Faes & Co, a Los Angeles-based investment firm, has launched its first private credit fund, focusing on short-term residential mortgages tied to the house-flipping market.
The Faes & Co Income Fund invests in short-term, bridge finance mortgages against residential property tied to so-called “fix-and-flip” real estate purchasers where owners buy a property, make improvements to it, then turn around and sell it at a profit, said Christian Faes, CEO of the firm.
"Typically a borrower will buy a property, to rahabilitate or renovate, with a view to selling for a profit," the company says in its fund brochure. "These loans are usually less than 12 months in duration, and our focus is on the more liquid parts of the residential housing market where there remains an undersupply of housing."
Investors receive a fixed 8.5% return as the firm takes the margin between what the firm pays to the investor and what it lends the money out at, Faes said. The firm does not charge any other fees.
The underlying loans are small, since they are meant for those who will own a property for a short period. They have an average size of about $300,000 with an average duration of 12 months, Faes explained. Many expect this industry to grow rapidly and reach $68 billion a year in annual originations, according to the firm.
“This income fund allows investors to get across to that investment opportunity and to earn a return against that,” Faes said.
Faes has more than 20 years of experience working in the real estate bridging finance sector, having worked in Australia, the U.K., and Ireland. His most recent venture began 15 years ago when he built a real estate lending business in the U.K. He came to America over the summer to launch his current firm.
He launched a similar fund at his previous company more than 10 years ago that amassed the equivalent of more than $400 million in assets, according to Faes.
He is hoping to mimic that success here with the Faes & Co Income Fund.
“It was always a very attractive investment opportunity for investors,” he said. “Investors were interested in real estate, but this is not real estate in the sense that we’re investing in assets [but] it’s kind of a way to earn an income against an asset people are interested in.”