Debt Fund Information

The Benefits of Investing in a Debt Fund with Gatsby

Cash Flow: Debt investing typically offers a steady stream of income in the form of interest payments. Debt funds can be attractive if you are seeking passive income.

Lower Risk: Debt investments are generally considered less risky than equity investments. In case of borrower default, debt investors have a higher claim on the property's assets, providing a degree of protection.

Predictable Returns: Debt investments come with fixed interest rates, making it easier to forecast returns.

Diversification: Investing in a real estate debt fund allows for diversification across multiple loans and property types. This diversification helps mitigate the risk associated with individual loans or properties.

A Reliable Borrower: With Gatsby’s debt fund, you are only lending money to be used on Gatsby’s projects. This gives you more control, knowing who you’re lending to and what you’re investing in. Gatsby has a strong track record, working in a niche of high-value deals with high return potential. We also have expertise in our established product strategies and local market, which further lowers the risk for investors.

How Debt Fund Investing Works

When you invest in a debt fund, your capital is pooled with that of other investors to provide loans to a fund, which includes a portfolio of real estate projects.

The fund is professionally managed. The manager sets up the fund and outlines its investment strategy and goals before identifying suitable real estate projects and originating loans. These loans can be for various purposes, such as property acquisition, construction, development, and rental holdings.

As the loans are repaid, the fund earns interest income. This income can then be distributed among the debt investors in the fund, providing you with consistent cash flow.

Investing in a debt fund with Gatsby Investment allows you a level of control over your investment. Unlike many other debt funds, in which your capital can be used across unknown properties for unknown purposes, Gatsby’s debt fund is limited to Gatsby projects. As a debt investor with Gatsby, you can see which properties your capital is funding, and how your capital is being invested.

Fund Property Criteria

The properties inside the fund will be a mix of different projects from Gatsby Investment’s product line. This mix can include single-family and multi-family properties as well as a combination of value-add, new developments, and rentals.

The type of projects included in a fund will be specified in the “details” section of the investment page when the fund is open for investments.

Fund Lending Criteria

The loan types included in Gatsby’s debt funds are acquisition loans, construction loans, mortgage/commercial loans, and refinance loans.

Gatsby’s fund lending criteria are as follows:

• The fund will lend up to 85% of the loan-to-cost ratio (or 85% of the loan-to-value) for the properties that make up the fund.
• The fund may lend up to 100% of construction costs.
• The target timeframe is estimated at 1-3 years.
• All loans will be “interest only.”
• The borrower is to be a company or business entity.
• Borrower extension options are negotiable.
• Funds may require a minimum debt service coverage ratio (DSCR) to ensure that the property generates sufficient income to service the debt. DSCR measures a property's ability to cover its debt obligations through its operating income

Risk Management

The fund manager, Gatsby Investment, is responsible for assessing the risks associated with the loans. This includes conducting due diligence on properties, underwriting the loans, and monitoring loan performance.

Real estate debt funds are considered a lower-risk investment option than equity investments because debt investors have a higher claim on the property's assets in case of default.

Capital Contributions

Gatsby’s funds operate on a first-come, first-served basis. The investment opportunity will be listed on the investment page, specifying the terms and objectives, once the opportunity is available to investors. Investors can read through the private placement memorandum and commit a certain amount of capital to the investment at that time.

The ownership interests in the fund shall be evidenced in the form of “Units.” Once you have placed your investment, you will have five business days to transfer the investment capital to activate your investment. We do not offer capital calls.

Close-Ended Fund Structure

Gatsby’s equity fund is a closed-ended fund with a fixed number of shares issued during its initial public offering. Once the fund is closed, the fund does not continuously issue or redeem any shares.

Debt Fund Term

The specific timeline for a debt fund will be specified under the “details” section of each fund’s investment page. On average, debt investors will stay committed to the fund for an estimated 1-3-year period.

Reporting

Throughout the investment period, the fund manager provides regular updates, financial reports, and other relevant information to investors. This transparency helps investors stay informed about the project status and performance of their capital.

Returns/Distributions

Gatsby’s debt funds typically receive fixed annual interest rates of around 8.5%. Interest is paid out to debt fund investors quarterly, distributed via wire transfer directly to investors.

Each debt fund will have all details outlined under the “investment details” for each specific fund investment.

Investors will receive their initial investment back as properties in the fund are completed and sold. So instead of receiving a lump sum of the initial investment, you may receive multiple distributions towards the end of the fund term.

Difference Between the Debt and Equity Structure

With the debt structure, you serve as a lender to the deal and are entitled to a set rate of return.

With the equity structure, you have an ownership stake in the underlying real estate and are entitled to a share in the profits.

Debt is considered to be less risky than equity since investors hold the collateral to the loan. However, the returns are limited by the interest rate on the loan.

Equity comes with higher risk and potentially higher rewards since there is no cap on how much you can make. If a property ends up earning more than expected, only equity investors share in those gains.

Investors should carefully assess their risk tolerance and investment goals before choosing between debt and equity investments. With Gatsby’s low minimum investment amounts, you could potentially spread your investments into both types. This would allow you to balance risk and reward while further improving the diversification of your portfolio.

Placing an Investment

Gatsby Investment’s Debt Fund is expected to launch in mid-2024. Investors who have an account with Gatsby will be notified via email once the investment becomes available.

Sign up and stay tuned!