A letter to investors, originally published August 1st, 2020. We are closely monitoring many economic fundamentals; the COVID-19 pandemic; and not only the national election, but also many state level elections along with broader market changes. We will continue to evaluate new market opportunities, partnerships and investments.
What about COVID-19 and how Concreit will be navigating the coronavirus pandemic?
The crisis that we are in has been humbling and simply reminds us that some things are not within our control. We believe that this is a time for investment managers to focus on what they can control and to be more proactive than they have been in the past to actively manage through this unprecedented time. This is an ongoing global pandemic and we believe we’re in a black swan event that was impossible to predict and has caused massive disruptions. There are more unknowns than knowns today and as time progresses, we’re learning more. Here are the things that are clear to us:
- Real estate is not immune to a downtown and the level of risk is impossible to quantify at this time.
- We are not nearing the end of this outbreak yet as cases continue to climb in the United States and globally.
- The global economy is impacted by the many restrictions and adjustments in consumer behaviors, yet new tech-enabled behaviors are emerging such as a broader adoption of work-from-home policies.
- We are in a recession and at risk of slipping into a depression
When we first started Concreit, we had strategically planned for varying times of economic distress. The initial investments that we took on in Concreit Fund I LLC were made for the potential of sustaining through periods of different degrees of risk and economic challenges and balanced with shorter duration horizons. We knew that starting a fund in a time where the economic outlook was already shaky meant that we needed a good strategy to provide us with optionality when we were met with risks that were not yet defined.
We still hold the belief that short term private market lending in real estate is a good way to hedge against economic uncertainty. We are building investments in both short term commercial & residential lending as we believe in focusing on housing during this time.
As of November 2020, we are in a world of low and negative interest rates. We believe that as other lenders are tightening up we will be in a position to see better deals with better borrowers and more favorable terms. The lending landscape has dramatically shifted by the impact of COVID-19. We have taken proactive steps in our underwriting and are only contemplating deals that look stronger for the fund. This means ensuring that we have additional risk mitigations such as having lower LTV/LTCs, interest paid up front, and very strong borrower balance sheets.
We remain prudent yet excited at the opportunity that lies ahead of us. We are not a leveraged fund, so we don’t expect to see a margin call impact us across our number of investments. We will continue our journey to build a fortress balance sheet as the fund continues to grow.
COVID-19 continues to impact all markets, however all of our current investments have continued to perform and have not entered a territory that is ringing any alarms for us. While this doesn’t mean COVID-19 will not have an impact on us, it may if it shuts down our economy for longer periods of time as that will directly impact both rent collections, capabilities of borrowers to execute against their plans and even stall residential home sales. With that said, the question is still unanswered as it is unknown how long this will last.
To wrap things up, you may have invested in us to find private market opportunities for additional diversification. Our fund has continued to perform and we believe our foundation remains strong. We will continue to be as transparent as possible about our beliefs and further actions as they relate to our portfolio.
Our Portfolio, Recent Adjustments & Outlook
Our current investments have continued to perform as expected and have not raised concerns that require adjustments. After a deep review on some new loans with our investment advisory committee, we ultimately chose to pass on some investments and did not deploy new capital as we readjusted our allocations in preparation for new opportunities. We are still seeing dealflow, and are optimistic at our recent decision to focus more on the surge in demand in the residential space. We believe that our strict underwriting standards combined with the experience of our investment advisory committee can help guide us through these economically challenging times.
Recessions can create tremendous opportunities for market disruption, growth, and improvements. The challenges we face can make us stronger and, as a result, we hope we will be better prepared for the next crisis. Please keep your families and your loved ones safe.
Investing in the Concreit is speculative and involves substantial risks. The “Risk Factors” section of the offering circular contains a detailed discussion of risks that should be considered before you invest. These risks include, but are not limited to, illiquidity, complete loss of invested capital, limited operating history, conflicts of interest and blind pool risk. In addition to the foregoing risks, the adverse economic effects of the COVID-19 pandemic are unknown and could materially impact this investment.