Real Estate Debt Fund Investing
Invest in private first position loans to residential home builders and investors throughout the Pacific Northwest.
Welcome to Trueline Capital Fund II
Welcome to Trueline Capital Fund II, a residential real estate debt fund for accredited investors. Fund II is an asset-based construction debt fund providing investors diversified access to an actively managed portfolio of residential construction loans throughout the Pacific Northwest. This evergreen fund has grown year-over-year and we are eager to share with you an overview of our Fund, our strategies, and specifically how Fund II investors have earned an 9.23% annual cash-on-cash yield since inception. The Fund is designed to generate active income and distributes an 8% annual preferred return each month and quarterly profit distribution.
Offering Size
$50,000,000
Minimum Investment
$25,000
Unit Value
$1,000
Capitalization
$21,000,000
Fundraising Period
Evergreen
Portfolio Size
$70,000,000
Minimum Hold Time
2 Years
Projected Returns
8%-10%
Over the last 18 years, the management team at Trueline Capital has worked in originating and servicing short-term construction loans and have personally underwritten, managed, and financed over 1,300 projects. Having cultivated invaluable relationships with land-owners, builders, and capital providers, this is our fourth fund in the space. Trueline Capital was launched in 2014 to focus on building a sustainable lending platform to navigate the tides of the modern-day real estate market and continues to produce on these guidelines today. Fund II is structured to benefit from the unique aspects of construction loans.
Why Invest in Construction Loans?
- High-yield
Residential construction loans generate a reliable high-yield income return for investors. - Limited Exposure
Construction loans are short term, 6-12 months, limiting exposure to market cycles and interest rates.
- SECURED BY REAL ESTATE
All loans are secured by a lien on the underlying real property with a conservative loan to value ratio. - DIVERSIFICATION
The Fund is structured to diversify originations and loans across builders, submarkets, and regions diluting regional and even single asset risk.
Portfolio Overview
The Fund is focused on a few major Pacific Northwest (PNW) metropolitan areas consisting of the greater Puget Sound, the greater Portland metropolitan area, and Central Oregon. The PNW housing market is one of the strongest in the country. Nationally, Zillow ranked Seattle as the #3 hottest housing market and Portland shortly follows, ranking at #9. Bend, Oregon has also seen a huge real estate spike with an increase in the average list price of over 48% over the last 5 years. Diversified across this portfolio, we have strong confidence in where this market is headed.
We believe the market fundamentals in this asset class are very strong. We are excited to invite you to join over 150 investors who participate in our premier construction debt fund that features a high-yield income investment in the form of preferred equity, backed by a diversified pool of real estate collateral.
Annualized IRR
9.23%*
Preferred Return
8%
(Distributed Monthly)Profit Split Above Pref
Quarterly
(50.0% Investors, 50% Manager)Distribution Commencement
Month 1
(After the First Full Month)Management Fee
1%
Loan Servicing Fee
1.5%
Property Type
Residential
Total Projects Funded
134
*Reflects annualized historical returns since the Fund’s inception (2/1/2016) through 9/30/2022, Fund returns depend on many factors and market conditions and historical results may not be indicative of future returns. All investments contain risk.
Key Deal Points
Evergreen Fund
The Fund operates as an “Evergreen” fund meaning that investors can invest at any time and may request a redemption of their investment after a 2-year lockup.
Current Monthly Income
The Fund generates monthly income through fees and interest and distributes an 8% annual preferred return every month. Additional profit distributions are returned to investors quarterly. Fund II’s annualized return since inception is 9.23%.
Focus on Capital Preservation
All loans are secured by a deed of trust on the underlying real property. Loans are made at conservative loan-to-value ratios to provide protection in a real estate market correction. The Fund can foreclose and liquidate properties if necessary, to obtain repayment of the loan.
Strong Pacific Northwest (PNW) Real Estate Market
The Fund is focused on a few major (PNW) metropolitan areas consisting of the greater Puget Sound, the greater Portland metropolitan area, and Central Oregon. The PNW housing market is one of the strongest in the country.
Historic Fund Returns & Track Record
Trueline Capital Fund I was restructured into Trueline Capital Fund II in February 2016 to take advantage of a more scalable fund structure. We have averaged investor return of 9.23% since the inception of Fund II.
Sign Up for the Q2 Investor Call
July 18th, 2018 at 1:00 PM PDT
Risk-Management
Trueline Capital manages risk carefully across several aspects of its business.
Conservative Loan-to-value: Trueline Capital originates loans at loan to value ratios (typically 65% or less) that protect the principal balance of the loan from a market correction.
Title Protection: Trueline Capital records a Deed of Trust on title at the county with the ability to proceed into foreclosure if the loan defaults. Trueline Capital collects lien releases from subcontractors throughout the project in order to protect the Fund’s position on title from potential liens.
Underwriting: Trueline Capital underwrites across three distinct aspects: the asset, the borrower/operator, and the credit of the guarantor. This process ensures the Fund accesses the highest quality projects and borrowers while filtering out sub-optimal operators.
Short-term Loans: Construction loans are typically originated within days of ‘breaking ground’ and starting on construction and last for 8-12 months. The short-term nature of these loans means the Manager has an opportunity to exit a project and make a new investment decision as markets evolve. The Fund is not locked into long-term loan exposure.
Lending Criteria & Guidelines
Short term construction loans are the company’s primary investment and are expected to make up a substantial portion of the company’s assets. These types of loans are a significant source of funding for professional real estate developers/builders who wish to acquire and build residential housing units.
The following is a general summary of the parameters and underwriting guidelines the Manager expects to utilize when making decisions to originate and acquire Fund Assets.
Loan Types
The company’s loans are anticipated to be for the purpose of business and investment. These loans can be for the construction of Single-Family or Multi-Family Residences, Short-Term purchases, Fix-and-Flip (Rehabilitation) loans, Rental Property purchase and seasoning. Loan funds for development and construction are typically held in construction reserve and disbursed according to a line item disbursement schedule. From time to time the company may make other business purpose loans to facilitate the company’s and customers’ objectives. The company does not plan to make any consumer purpose loans.
Loans may also be made to businesses or investors helping them to achieve strategic business investment goals to acquire, season, or renovate an existing structure. To control the quality of the collateral given to secure the Mortgage Loans, the Manager expects to utilize the following guidelines and procedures:
- All loans must be secured by real property.
- The security instrument (typically a Deed of Trust) for each loan must be recorded with the company named in first position in the office of the county auditor where the real property is located.
- A lender’s policy of title insurance is required in an amount equal to the face amount of the Mortgage Loan.
- Fire and hazard insurance is required on all improved property.
- The company must be named as an insured on all insurance policies.
Collateral
Loans are to be secured by real property. Further security may be provided by personal guaranties, additional real property collateral or the borrower’s additional liquid assets. The type of property that will likely secure most of the company’s loans will be 1-4 family detached homes and townhomes. The typical single-family project is anticipated to be a new house on a developed building lot in a residential zone. Currently, the primary target home is in the lower to mid-range price point for single-family new construction. The company does not plan to finance high-end homes but may originate, underwrite and close them on a case-by-case basis. The company does not currently target multifamily apartment buildings, commercial or condos but may originate, underwrite, and close them on a case-by-case basis.
Asset Valuation
At its core, Trueline Capital makes asset-based Mortgage Loans. The decision to lend is primarily based on the equity and value of the property being posted as collateral, versus on the borrower’s credit. The company typically requires, in connection with any such Mortgage Loan, a written opinion of value, typically an appraisal from a qualified real estate appraiser located in the same area as the subject real estate. The importance of an accurate and thorough appraisal report is foremost to the company and the loan to value standards apply to properties where existing buildings (if any) are in average or better condition, typical for a given market area, and located where sales activity and occupancy levels allow reliable market value estimates.
The company believes it has built an effective program for collateral (property) evaluations. The Manager sets forth minimum guidelines internally and are responsible for developing their own policies and procedures for evaluations that are commensurate with the well-being of the company.
Loan Origination
A large portion of the loans originated by the company will likely come from development opportunities sourced by the Manager via three different marketing channels: 1) real estate agents and brokers 2) mortgage banks and brokers and 3) home builders directly. The Manager has created a referral network in the company’s primary lending markets area by building upon and extending, the relationships in these existing channels. The referral network and the Manager’s relationships within the primary market area are expected to be A KEY competitive advantage for the company.
Loan Approval
Approving real estate loans for construction, rehabilitation and acquisition and development (A&D) is generally a less automated process than the approval of conventional home loans. It requires considerable knowledge of the builder, the local real estate market, and the various risks associated with this type of lending. The company utilizes established guidelines including the project size or loan amount, the location, the appraisal results, the experience and financial strength of the builder, the marketability of the project, and the current economic conditions in determining whether or not it will approve a construction loan.
One of the primary considerations is the loan-to-value ratio (LTV) and loan-to-after-repair-value (LTARV). The company intends to typically limit the LTARV ratio to 65% or less, and up to 75% LTV on properties without a construction reserve. Approved loans may contain one or more characteristics outside of the company’s general written guidelines if the Manager concludes that the overall risk of the loan is acceptable to the company.
Loan Documentation
For each loan, the company creates a loan file containing the documentation that the company deems necessary to underwrite and secure the loan. The typical loan file includes a promissory note, deed of trust, loan agreement, assignment of project agreements, environmental indemnity, personal guaranty, title insurance policy, opinion of value, evidence of hazard insurance and other documents deemed necessary by the company. Each Loan agreement has, as one of its terms, a date by which the Loan must be paid in full. In its discretion, the company may renew or extend the Loan beyond that date at the request of the borrower. A renewal or extension request requires a loan file and payment history review and may require a new appraisal. The payment of an extension fee and/or modification of loan terms may also be required.
Credit Considerations
The borrower’s credit report and repayment ability are also analyzed but at a less stringent level than conventional mortgage lenders. The company believes that this does not create an unacceptable risk because the company requires more collateral than most lenders and borrower defaults will be addressed more aggressively. The company typically maintains a separate credit file for each borrower that is updated periodically and with each loan request. A credit file may include a financial statement, recent tax returns, credit report, entity documentation, builder application and contractor information, some of which may not be available or practical in every case. Along with each loan request, the Manager on behalf of the company attempts to evaluate the borrower’s experience, financial strength, credit history, integrity and investment level in the company.
Servicing
The company plans to service all loans in its portfolio and has established written policies and procedures for loan set-up, payments, payoffs, insurance tracking, construction draws, delinquencies, assignments, and the general ledger balance. Draw requests from the contractor are typically submitted on a monthly basis. Prior to funding, the company requires a third-party construction inspection to be completed certifying that the work associated with the draw is complete. Lien releases from all major subcontractors performing labor, services or supplying materials for the project are required as well.