Real Estate Debt Fund II LP 2024

RD Real Estate Debt Fund II LP (“RD”) focuses on shorter-term, senior, secured real estate loans on non-owner-occupied, primarily value-add investment properties, largely concentrated in the Greater Boston Area. RD’s senior loans typically range from $200,000 to $10 million, with current average loan terms of ~$1.0 million + in size, average interest rates of ~12%*, and ~12 months of term. Since its inception in 2017, RD has successfully closed over 280 loans, comprising more than $260 million in total principal amount. RD has delivered 26 consecutive quarters of positive returns (avg. 9.7% trailing 12-month as of Nov '23) and consistent quarterly distributions since 2018.

Bull Case

1. Strong Performance: RD Real Estate Debt Fund II LP has demonstrated consistent positive returns with a 26-quarter streak of profitability, strong Q3 2023 results, and investor satisfaction, indicating a track record of success.

2. Conservative Underwriting: The fund employs a conservative underwriting approach, emphasizing limited leverage, sale-ready assets, and a focus on preserving capital, which may enhance resilience in the face of market challenges.

3. Strategic Portfolio Management: The short-term, senior loans structure allows for nimble capital repositioning, and the focus on senior secured first-priority loans provides potential risk mitigation. The fund's diversified portfolio and strategic target markets add to its strength.

Bear Case

1. Geographical Concentration: RD's heavy allocation in Massachusetts and the Greater Boston metro residential real estate (87% of total principal amount) lacks geographical diversification, exposing the fund to potential risks associated with regional market fluctuations.

2. Economic Sensitivity: The fund's performance is sensitive to economic factors, especially in the residential real estate market. Economic downturns or changes in interest rates could impact returns, despite the sponsor's conservative approach.

3. Interest Rate Impact: In the event of declining interest rates, the fund's ability to issue loans at targeted terms may be reduced, potentially affecting its performance. This is a risk given the short duration of RD’s target loans.