Through the use of data-driven algorithms, Origin Investments is able to construct closed-end funds for accredited investors who are interested in investing in multi-family real estate prospects.
Our Take
Accredited investors may engage in multi-family real estate investment possibilities via Origin Investments' closed-end funds. Data-driven algorithms are part of its recipe for success, assisting fund managers in making judgments on whether to create new buildings or purchase pre-existing ones. This strategy aids in the company's ability to have a laser-like focus on controlling the risk associated with commercial real estate while offering investors enticing returns. Despite some significant obstacles that lie ahead, the funds are still in a strong position to perhaps exceed comparable investment possibilities in multi-family real estate.
Pros
- Minimum investment of $50,000 for accredited investors
- Long track record of managing property risk
- Funds target an internal rate of return (IRR) of 9% to 12%
- Funds are structured for tax efficiency
- Fund managers seek growth opportunities
Cons
- Highly illiquid investments with no secondary market available
- Long investment lock-up periods
- Multi-family investments may face unusually difficult challenges
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Pros Explained
- Minimum investment of $50,000 for accredited investors: Founders and co-CEOs David Scherer and Michael Episcope wanted to make real-estate investments available beyond institutional-level investment. However, Origin Investments makes its services available to accredited investors only.1
- Long track record of managing property risk: The company’s founding in 2007 might seem like the worst possible time to start a real estate investment company, but the experience fashioned Origin Investments’ approach of managing risk from the ground up. The company’s innovative use of data and its Origin Multilytics forecast has helped its fund managers create successful offerings over the years since its founding.
- Funds target an internal rate of return (IRR) of 9% to 12%: Origin Investment's offerings change over the years to meet the shifting investment landscape, with the current two offerings being closed-end funds. The IncomePlus Fund targets 9% to 11% IRR from growth and income opportunity, while the QOZ Fund III focuses strictly on growth to target 10% to 12% IRR.
Cons Explained
- Highly illiquid investments with no secondary market available: The common challenge for any real estate investment is the illiquidity of the underlying assets. While some investment companies try to provide a secondary market for their investors to make an early exit, Origin Investments has no available secondary market.
- Long investment lock-up periods: The funds offered by the company have terms dictated in a private placement memorandum (PPM) available only to accredited investors. These terms specify a holding period of either five or 10 years, with procedures and penalties spelled out for withdrawing from the fund before the holding period ends.
- Multi-family investments may face unusually difficult challenges: 2022 brought multi-family real estate to a 50-year high in supply of new rental units, an oversupply that had a negative impact on rent growth during 2023.
Company Overview
Origin Investments was established with the goal of lowering the barrier to entry for those who could handle the risks associated with investing in illiquid commercial real estate. Their company concept seems to be effective even after three significant market shocks and more than ten years in operation.
What then does Origin Investments carry out? The firm looks for ideal locations with growing demand for apartment complexes to acquire or develop. In the same locations, they also search for chances to get tax incentives. They seek to build a portfolio of multi-family homes that they feel will probably outperform comparable investments over the next five to ten years. They attract capital from authorized investors into closed-end funds.
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How Does Origin Investments Work?
Origin Investments aims to provide investors with complex real estate investments in an easy-to-understand manner. Its management teams put a lot of effort into compiling a portfolio of properties that are well-balanced between value and potential. They mostly depend on in-house analytical algorithms that use millions of data points to predict future rent prices and property values.5.This enables the business to provide two closed-end funds, IncomePlus and QOZ Fund III, at affordable expense ratios while minimizing market risk.
Key Features
Although real estate funds packaged as limited partnerships (LLPs) or REITs are not new, Origin Investments' primary selling point is its in-house forecasting and analytic tools. Because of this, the funds have a unique value proposition. Because of this, the IncomePlus and QOZ funds lack a few features that are included in rival funds, but the business feels that the value is more than made up for by the caliber of the investment portfolios in each fund.
The Bottom Line
Origin Investments focuses only on investments in multi-family buildings. To choose whether to purchase already-existing homes or start from scratch, it employs proprietary market analytics. It predicts the expected trajectory of rent prices and unit demand based on millions of data points. This strategy has been beneficial to the business, enabling it to prosper and operate successfully in spite of market pressures like the pandemic and recent changes in borrowing rates. If you're interested in investing in commercial real estate but are wary of taking a big risk given the situation of the economy, the offers seem appealing.