Investment Strategy
Arixa Enhanced Income Fund (AEIF) provides first lien loans to experienced residential developers who are purchasing mid-range and high-end homes in major urban markets and renovating them for resale. On a limited basis, the fund may provide the junior financing on renovation projects, or senior financing on ground-up single family home developments. These loans provide investors with a steady stream of income from interest payments while borrowers are able to access working capital for their projects. Arixa Enhanced Income Fund differs from Arixa Secured Income Fund in that the average loan size is larger, and the fund will make select second lien loans and utilize leverage in order to enhance returns.
How it works
A borrower finds a single family home that he feels he can renovate and resell for a profit.
Arixa lends up to 75% project hard costs (down payment, plus working capital and soft costs) at a 9.99%-11.99% interest rate. The renovation funds are released after inspections during the renovation phase. Arixa’s loans are secured by the property in the first position.
The borrower renovates the property, which improves the value, further protecting the loan.
If everything goes according to plan, in approximately twelve months the borrower sells the property for a profit and repays the loan.
If the borrower defaults, Arixa forecloses on the property. The 20%-40% difference between the value of the property and the loan amount provides a margin of safety for Arixa to recoup its principal and any lost interest at a foreclosure sale.
Rationale for Investment Strategy
Arixa Capital was established on the premise that investment strategies that preserve principal and generate strong returns and current cash flow are available to investors in selected, under-served niche markets. Arixa Capital has identified the mid-range and high-end homes in major urban markets in California as such an investment opportunity and provides investors with the following:
High Current Income
Professional developers have limited access to debt financing, allowing lenders to earn attractive returns by charging interest rates between 9.99%-11.50% per annum and for Arixa Capital to pay out monthly income to investors.
Comfortable Margin
The overwhelming majority of the portfolio is comprised of loans secured by a first lien on a house. Borrowers typically provide 20%-25% of the capital needed to buy the house. Additionally professional developers often create equity at the time of purchase by buying houses at prices below retail value. They further enhance the value of the collateral through cost effective renovations.
Borrowers
Will provide between 15–25% of cash equity and further enhance the value of the collateral through renovations.
Low Interest Rate Risk
Loans have short maturities as most projects last between 9 and 12 months, which does not put principal at risk in a rising interest rate environment.
Liquidity
Due to the short-term nature of renovation loans, the portfolio turns over approximately once per year.
Uncorrelated Returns
Returns from investing in bridge loans are unlikely to be correlated with returns from the stock market or other traditional asset classes.
Arixa’s Differentiation & Value Added
Arixa Capital differentiates itself from other residential bridge lending funds by bringing a disciplined approach and a high level of investment sophistication to a relatively new asset class.
Conservative Approach to Underwriting
Arixa Capital’s underwriting combines a deep knowledge of local real estate markets and extensive experience in evaluating residential projects to establish collateral value along with maintaining strong relationships with borrowers and an understanding of their strategy and capabilities. As a result of this approach, no losses have been incurred since Arixa Capital was formed in 2010.
Focus on Underserved Niche
Arixa Capital specializes in a market that is particularly underserved by both private lenders and banks who are unwilling or unable to provide loans of $1 million or more and are not set up to provide construction draws.
Audited Track Record or Consistent Returns
All fund financial statements have been audited each year since the fund's inception in 2014. The Fund has experienced low volatility in its returns since inception, targeting annualized net returns of 8.5-9.5%.*
Established Relationships
Established relationships to source high-quality investments: The portfolio managers have an extensive network of borrowers, real estate agents/brokers and other influencers, resulting in a steady supply of loans that meet the Fund’s investment criteria.
Sophisticated Investment Team
Arixa Capital understands institutional investors and is able to service their needs and the needs of their clients.
Arixa Capital’s funds are only open to accredited investors as the term is defined by the Securities Act of 1933 under Rule 501 of Regulation D. Before accepting an investment in one of Arixa’s Funds, Arixa Capital must verify an investor’s Accredited Investor Status.
*Net returns reflect the deduction of management fees (1% on assets for the Fund), any applicable incentive fees (20% after a 9% preferred return), and all applicable Fund expenses. Returns are time weighted and calculated based on the capital contributions received from limited partners since the inception of the Fund in March 2010, assuming re-investment of interest income. The time weighted returns for limited partners who invested after the inception of the Fund may be lower. The performance information contained herein is provided for informational and discussion purposes only. Past performance is not an indication of future results.