On Tuesday February 16th, 2021, Sortis’ Jef Baker and Sam Ross hosted a webinar for investors and our larger community to discuss the Sortis Income Fund.
The one-hour webinar covers:
- The Sortis Income Fund’s growth through 2020 and pipeline looking forward into the rest of 2021
- Sortis’ deep experience in distressed environments
- SIF’s approach to risk mitigation
- Case studies of two Sortis Income Fund loans from 2020
- Live Q&A
Summary
The Sortis Income Fund (the SIF) is an un-leveraged, evergreen investment fund focused on the acquisition of senior loans collateralized by real estate in Western US markets. Our teams’ expertise is invaluable to this fund in both residential and commercial spaces, but we do focus more on the commercial space.
About the Sortis Income Fund
- Commercial and residential collateral
- $25,000 minimum investment for accredited investors
- Liquid after a 6-month hold period
- Targeting an investor return of 10%
- Cash-flowing with quarterly payout of earnings or reinvestment
- Life to date, no losses and have maintained the SIF’s number one goal of principal protection
- The SIF currently has between 450-475 investors
Subsidiary REIT Structure
As of this year (January 2021), we implemented a subsidiary REIT structure. We did not become a REIT, rather, we created a wholly owned subsidiary of the Sortis Income Fund to hold the loans creating tax benefits for our investors. This is a trend we are seeing in the space and we see this as a great tax solution for our taxable investors.
Market Opportunity for the Sortis Income Fund
Market
- Banks continue to pull back on commercial real estate, creating more opportunity for private money lenders
- Banks do not want to finance short-term loans (i.e. bridge loans)
- Leveraged fund competitors are having severe challenges in this environment
Borrowers
- Sortis knows there is a need to close quickly, which is why we often close in as little as a week (significantly faster than banks)
- SIF provides rapid feedback enabling borrowers to make strategic decisions for their business
- SIF offers flexibility on payoff with the average loan being under 12 months
COVID-19 Environment
- Even more difficulties with Bank Financing
- Cash flow issues leading to refinancing needs of good assets
- Possible note purchases on solid assets
Sortis Income Fund Investment Strategy
We start with the fundamentals, understanding every property and prioritizing high quality real estate collateral on our loans.
- The Sortis Income Fund focuses on opportunistic lending situations where banks and other lenders can’t perform
- Backed by expertise and knowledge of the property and markets, SIF moves quickly to structure deals and capture opportunities
- SIF remains unleveraged to minimize risk, especially in volatile environments
- Sortis management has deep backgrounds in distressed assets and workout strategies that helps us see opportunities and mitigates risk in the portfolio
- COVID-19 is a distressed environment, and we are seeing many opportunities to finance RE at good Loan to Value
- The COVID-19 environment has also demonstrated how the fund is able to protect principal and continue to deliver attractive returns
Deal Flow – Where does SIF Source Loans?
- Broad network from lending for many years
- Banks
- Mortgage companies
- Attorneys
- Most recently, other struggling lenders
Disciplined Risk Management
Leverage
- No leverage is critical in markets where real estate values may decrease
- Throughout the COVID-19 environment, leveraged competitors have had to freeze lending and dividends to investors to focus on loan portfolios
- Sortis’ portfolio performance has remained strong and we have been able to take advantage of increased loan demand, adding high quality real-estate loans at better yields for investors
Default Risk
- Minimize single default impact by holding a large number of smaller assets
- Sortis management has significant experience in handling distressed loans and real estate assets
Liquidity Risk
- Short-duration loans and high monthly cash flow is expected to minimize the need for secondary market liquidity
- Foreclosed real estate poses greater liquidity risk, however, Sortis management has a long history of working with distressed assets
Interest Rate Risk
- Minimize risk of increasing interest rates with short-duration loans that mature generally within 12 months
Sortis’ Deep Expertise in Distressed Environments
Our teams’ experience contributes to the success of our various activities. The Sortis Income Fund is managed by Jef Baker and Sam Ross. Jef is a CPA by trade, and up until the 2008 financial crisis he was working as a CFO for a private bank. He was brought on as CEO to guide the bank through the Great Recession where his main goal was networking and bringing in people to help move through tough assets – those people were Sortis’ own Paul Brenneke and Michael Sander.
After Jef got the bank onto solid footing and in good health, a larger bank came and made an offer advantageous for its shareholders. Jef, Paul, and Michael continued their work together turning the 20 year old bank holding company into Sortis Holdings. Sortis then launched its private financing funds.
Sam Ross began his career in Chicago at a small opportunistic real estate fund that was acquiring and restructuring distressed debt in the wake of the 2008-2009 financial crisis. There, Sam worked through, restructured, and ultimately generated substantial returns for investors. Once that business faded as the world recovered, he moved into originating commercial bridge loans and worked on structuring opportunistic real estate vendors.
Sam has always been with small firms and is used to wearing many hats – he has direct experience making 2am phone calls as a property manager all the way up to closing large complicated commercial transactions. His well-rounded background all focused on real estate has led him to his role now with the SIF where he sources, structures, executes, and manages the loan portfolio with Jef and the rest of the team.
While Jef and Sam are Fund Managers for the SIF, Paul Brenneke and Michael Sander are also key to the funds success. Brenneke, Sortis’ Executive Chairman, is a long time private lender in his own right. He is well connected to deal flow sources and his experience in underwriting allows him to figure out workable deals quickly. Paul is also a large scale developer and has built every property type from thousands of residential homes to assisted living facilities to hotels and office space. Critically this year, Paul’s experience in acquisitions and bankruptcy has been key to Sortis’ success.
Michael Sander joined Paul during the 2008 crisis in coming to the bank to help Jef work their way out of the recession. Michael primarily works on the capital raise side and is the point person on our Sortis Opportunity Zone Fund. Sander spends his time working with investors, vetting various activities, and feeds a lot of loan activity into the SIF through his broad networks across the region.
Deal Case Study 1: Kirkland, WA
Deal Case Study 2: Colorado Springs, CO
Questions? Reach out to Jef Baker at jb@sortis.com, or to Sam Ross at sam.ross@sortis.com.