Liquid Home-Building Funds Offered - Hedge Fund Alert

Liquid Home-Building Funds Offered

A Los Angeles investment firm is seeking to raise a combined $100 million for two funds that provide short-term construction loans to builders of single-family home projects.

Arixa Capital is targeting high-net-worth individuals, family offices and other types of investors in its capital-raising drive. Arixa’s founder, Jan Brzeski, hopes to raise the bulk of the targeted $100 million by the end of 2017.

The firm’s two open-ended funds — Arixa Fund 1 and Arixa Fund 3 — are able to offer investors liquidity terms that are similar to those available to limited partners in hedge funds. Roughly 5-8% of the loans written by the two funds are typically paid off monthly, usually allowing Arixa to process redemptions within a month of investor requests.

Fund 1, which began in 2010, originates developer loans that mature within six months. The $16 million, unleveraged vehicle has produced an average annual return of 8% since inception.

Fund 3, established in 2014, writes loans with terms of up to one year and has produced a return of 10% a year. That vehicle has $37 million of equity capital and boosts its buying power by using 50% leverage.

Unlike those two funds, Arixa’s Fund 2 is a closed-end vehicle.

Arixa’s borrowers typically repay their loans from proceeds of property sales after construction is complete. The firm lends up to 75% of a property’s expected sale price — or in the case of renovation projects, up to 75% of the renovation costs. It charges interest rates of 9-10% and origination fees of 100–125 bp.

The rates are higher than those offered by banks. However, the money is available to developers immediately, and traditional lenders tend to shy away from such short-term loans, leaving a void for specialty-finance firms like Arixa to fill. Arixa typically originates 10-20 loans a month, with average balances of about $1 million. The company has some 100 developer clients that borrow regularly, Brzeski said.

“We’re a business model that’s set up to hit singles again and again and again,” he said.

Arixa, founded in 2010, manages $160 million of gross assets, including separate accounts. It hopes to use some of the new capital to fund multi-family projects. Most of the real estate financed by Arixa is located in its home territory of southern California. 

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