The Appeal Of Senior Secured Real Estate Debt, With Carson Rasmussen

Even amidst sky-high inflation, bond prices have not fallen enough to deliver anywhere near positive yields, on a real basis. Many investors are turning to alternative types of debt investments to enhance the returns of their portfolio.

Carson Rasmussen, principal of Fairview Partners Investment Management, joins the show to discuss senior secured real estate debt and its appeal for High Net Worth investors.

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Episode Highlights

  • Background on Fairview Partners Investment Management, and how long the company has been operating in the senior secured real estate debt space.
  • Why senior secured real estate debt is an appealing asset class, especially during periods of high inflation.
  • Carson’s views on the 60/40 portfolio, and whether some investors place too much emphasis on liquidity.
  • Where senior secured real estate debt “fits” in a portfolio (i.e., whether it should be considered as “debt” or as an “alt”).
  • The importance of “triple-net thinking” when it comes to evaluating debt instruments (whether liquid, or private debt).

Today’s Guest: Carson Rasmussen, Fairview Partners

About The Alternative Investment Podcast

The Alternative Investment Podcast is a leading voice in the alternatives industry, covering private equity, venture capital, and real estate. Host Andy Hagans interviews asset managers, family offices, and industry thought leaders, as they discuss the most effective strategies to grow generational wealth.

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Show Transcript

Andy: As sky-high inflation continues, should high net-worth investors consider senior secured real estate debt for their portfolios? Get the answer coming up.

Welcome to “The Alternative Investment Podcast.” I am your host Andy Hagans, and today we’re talking about a very exciting topic, a very exciting product segment, and asset class. We’re talking about senior secured real estate debt. And joining me, I have Carson Rasmussen, who is principal of Fairview Partners Investment Management. Carson, welcome to the show.

Carson: Hi, Andy. Thanks a lot for having me. Excited to be here with you.

Andy: And let’s start from the top. I wanna dive into this asset class. We’re gonna do that in a minute. But first, could you tell us a little bit about Fairview Partners Investment Management? How long have you been around? And what is it that you do?

Carson: Yeah. So, Fairview Partners Investment Management was founded in 2011 in Seattle, Washington. And what we do is we are senior secured real estate investors. And specifically, where we invest, or sorry, what we invest in is kind of just stress and troubled assets, special situations. And so, our capital serves a very specific function within the senior secured real estate debt market.

Andy: Okay. Yeah. And thinking of that, right away I’m thinking, all right, special situations, debt. I mean, that’s kind of the wheelhouse for a private placement offering or just, you know, an issuer or manager where you need some flexibility and you need high net-worth investors who kind of understand the illiquid nature of that segment.

Carson: Yeah. I think that’s right. I mean, most people when they think about debt investments, they think about an origination at point A and they think about periodic payments to get to point B when the payoff occurs. When you’re thinking about distressed debt or troubled situations, you’re making an investment at kind of time zero or point A and you’re trying to get to point B. But our job or the job of the investor is to fix that problem and, you know, drive the asset to a resolution. And that, as you state, it does take time and that’s why it fits really well into a private placement offering because you can then give yourself the flexibility to drive to that solution. But it’s inevitably gonna take some time. And in that time and in that work, that’s really truly the value that we’re creating as managers.

Andy: Got it. Okay. Well, let’s zoom out then. Even outside of special situations, you know, what’s the appeal of senior secured real estate debt? What’s the appeal of this type of debt as an investment, as a portfolio component compared to other forms of debt?

Carson: Sure. I mean, debt, in general, it’s a quality asset or, you know, it’s a segment of someone’s portfolio that they should have, right? When you’re thinking about your asset allocation, you need to have a component that’s debt. And then from our standpoint, real estate debt is, you know, it’s a place where you’re, first and foremost, you’re looking for security or return of principle. And like as I was talking about earlier is like a normal debt product is gonna have those periodic payments where you have your principle invested and then the debt payments are coming in, and that cash flow is something that is needed from or wanted from the investors where we said is we wanna provide a little bit of both your periodic payments as well as capital appreciation. And that’s where, you know, segment-wise or Fairview sort of fits in is we’re trying to achieve slightly higher returns from a debt investment. So, you’re still senior secured, you’re still the first to get repaid when there’s a transaction that occurs. However, you’re getting that slightly higher return expectation because you’re going to try and solve this problem.

Andy: And so that… I mean, intrinsically, that’s going to require active management, right? That’s not the type of thing where I can buy an ETF and get a broad-based index of special situation senior secured real estate debt.

Carson: Yeah, no, absolutely not. It is truly active management and it starts from the selection process. You have this large universe of distressed debt and, you know, our first job is to sift through all of those deals and all of those investments and kind of figure out which ones we can actually transact in because one of the problems in our space is that the bid-ask spread can be very wide, right? Like, we’re underwriting this problem loan and we may wanna buy that loan for 40 cents and the financial institution may wanna sell it for 80 cents. You can’t close that gap in order to make the transaction occur. And so, you’ve gotta sift through that universe of investment opportunities to find the ones that we can actually transact on. Then once you actually bring it into the portfolio, then it’s just as you said, it’s true active management from there to actually solve that problem.

Andy: So, it’s like you’re looking for sellers who are realistic? It sounds like that’s job one is that some of them have maybe unrealistic expectations about the level of risk with the debt that they’re holding?

Carson: Yeah. I mean, it can be any number of things. You know, sometimes you have banks that…a lot of times you’ll have the big money center banks, the Bank of Americas, U.S. banks, cities, they’ll do periodic quarterly loan sales. Well, they’ll just look at their own loan book and they’re just gonna say, “Hey, look, this is a house cleaning event, this is part of our process. Every quarter, we’re gonna sell these loans and get rid of them. We’re gonna sell them in secondary market.” And then other times there could be capital issues that have been that says, “Hey, look, you’re undercapitalized from a tier one or tier two capital standpoint, we need you to go sell some loans.” And so, they’ll go into the market. Other times, you know, we’ll buy and sell from other fund managers because, you know, these are closed-end funds most of the time that are people like us. And so, sometimes when you get to the end of the life of a fund, fund managers will sell those remaining 2 to 10 assets. And like, you know, they’re doing their cost of capital. It’s easier for them to sell those loans than it would be to carry on the fund for another year.

Andy: So, thinking of efficient frontier theory, is that what it’s called? This sounds like it might be kind of an inefficient market in the sense that these distressed or special situations, they’re all gonna probably have different headaches associated with them, which are also, I guess, opportunities associated from a value standpoint, but they’re probably differing amounts, different maturities, different levels of motivation from the standpoint.

Cason: Sure.

Andy: So, is that kind of the case for the alpha here just that like this is a space that a lot of people can’t even operate in and that you guys are kind of coming in and filling in that gap?

Carson: Yeah. I mean, I think that it’s efficient to a point. And I think, you know, our market is competitive just like anyone else’s. You know, there are other competitors and I think where you’ve gotta figure out where…you know, what your own expertise is within the market. But then I think when we think about the return expectations or, you know, the efficiency or getting paid for the risk that you’re taking, we think about it and say like, you know, what’s…? A typical kind of private capital deal should yield 8% return. Then you kind of add on top of that, okay, distress, you know, you’re gonna need maybe 2 to 300 basis points from that. So, now you’re kind of 10 to 11. Then you’re kind of mid… Then you say, well, you’re small to mid-balance loans and so maybe there’s another 100 to 200 basis points. And so, now you’re in the, call it 12% to 13%. And then, you know, anything on top of that, we would kind of describe as alpha, which is, you know, you gonna get that from selection, from asset management, from driving your own kind of investment process. So, there are inefficiencies within it and you have to find those where you can really thrive in the market, but also you need to get paid for what we’re doing.

Andy: Yeah, absolutely. So, you know, bringing up the alpha and your competitive advantage, I’m gonna bring this up on my computer here because I was reviewing your website and I saw this quote in your literature. I always like to ask, you know, what’s investment manager? What’s the competitive advantage? What is it that you do that, you know, is really better than anyone else or that really brings value? And so, you know, from your literature quote, the competitive advantage was your ability to navigate the complex issues common to distressed credits and special situations. So, now we’re zooming in to Fairview Partners Investment Management. So, this isn’t just senior secured real estate debt, these are distressed credits and special situations. So, what kind of…? You know, what’s the complexity, I guess, beyond just the pricing? Because I think obviously you make a lot of money when you buy in real estate or in debt, I would assume.

Carson: For sure.

Andy: But what other kinds of complexity happens in this market that Fairview is uniquely, you know, good at navigating?

Carson: You know, generally, I think it’s just like you’re trying to run…you’re trying to be efficient and you’re trying to run a process. And I think one of the things… As an investment, I mean, we’ve been doing this for 11 years and I often like to think back like when we started we were like, “Man, we are ready to go hit the market and, you know, run a $200 million fund,” right? And now 12 years in, looking back, we simply were prepared. If we had raised $200 million 10 years ago, we would not have been prepared. And you look at where we are today and with our people, with our outreach to our network of potential deal flow sources, with our servicing team, everything is sort of…you need to have a cohesive unit that understands what it’s trying to achieve, and that’s finding the right deals at the right price.

And then once you get them, that’s onboarding them and putting them in a position to be successful. And like everybody on our team…you know, the majority of our team, we have 11 people here, and the majority of our team has been with us since 2014. And everyone since 2014 has gotten better and better every single year. And it’s just a matter of communicating and like trying to get everybody on the same page so that we know when you enter into a transaction, this is where you wanna go and this is how we’re gonna get it there, right? Like, put it on that critical path to success and just start driving. So, I think, you know, our competitive advantage would be just that having a team that really is all…you know, everyone is rowing in the same direction.

Andy: Yeah. You know, sounds like reps, right, just the experience that comes from doing it over and over and getting more efficiency. I think the word is kaizen when it’s applied to manufacturing in Japan, you know, just getting a little bit better every time you do it. And it occurs to me to use a real estate analogy, you know, like if you’re not used to doing gut rehabs and you take over a property that needs a gut rehab, it’s just gonna stress you out, right? Like, as an owner of that asset, it’s gonna like put a pit in your stomach like, “I don’t wanna deal with a gut rehab.” Maybe it’s your first one or you just didn’t wanna deal with that problem versus some people, they specialize in that and it’s like, “I have a system, I have a checklist, I come in, this is like what I live for, what I live, you know, and I know what the timeline is.” And so I can just approach this whole thing on a personal level with a whole lot less stress, but also because I’ve done it 100 times, just that experiential knowledge.

Carson: Totally. And I mean, ours is the same as like instead of you doing a rehab on a 25-unit apartment building, we’re rehabbing the loan. Or in the case of a loan, like a high yield origination, like we’re just…like our capital is used to rehab the situation and to like unlock it so that it can move forward. But it’s the same thing. And then to that exact point, it’s when we come across a major stumbling block, we can rely on a bunch of investments that we’ve done in the past where we’ve screwed up and we’ve had to kind of change direction. And that just happens. Like, when you’re in the troubled loan space or when you’re in the high yield space, you have to be able to take everything that comes at you and be able to draw on your experiences. I mean, we’ve definitely…over the years, we’ve screwed up and we’ve gone the wrong directions and we’ve cost ourselves time and capital. And you just hope today and going forward, you are able to kind of see the…you have some foresight into where you might go and so you can avoid making the same mistake that you may have made, you know, 5, 6, 7 years ago.

Andy: So, that’s that MBA from the school of hard knocks.

Carson: That’s right.

Andy: Generally, the most valuable MBA in my experience, it’s up there. It’s up there with Harvard and Yale, in my opinion.

Carson: Yeah. I’ve got a great… I mean, we have a great…one of our employees, Max, he started with us and he…like, one of the very first investments that he worked on was a deal in Idaho. And, you know, when you’re senior secured, you are actually subordinate to real estate taxes, right? And so, when you’re doing your underwriting, you’ve gotta go and check your taxes. And we like to tease Max because one of the first deals that he underwrote, he failed to check the taxes. No, no. Of course, us on the investment committee, we didn’t ask him that question. And so, we ended up doing the deal and we get in there and you kind of…and like it’s… When you’re in the private markets, you’re not buying an apple, right? Like, you can’t sell out of something, right?

Andy: Right.

Carson: So, you get in there and you’re like, “Oh, well, there’s, you know, X thousand dollars of back taxes and, you know, those are senior to you.” And so, we like to tease Max that now every time he does an underwriting, he’s certainly is checking those back taxes.

Andy: I mean, it’s the proven way to learn, that’s for sure. So…

Carson: For sure.

Andy: …talking about reps of doing these deals, what’s the timeline of a typical deal? I mean, are you looking to sort of…? You know, talking about that path getting from point A to point B, are you looking to sort of reposition the debt and then flip it as fast as you can, or is it more that, you know, you reposition it and then just own it until maturity?

Carson: Yeah. I mean, the most we like to talk about whether you’re buying a high-yield or buying a non-performing or sub-performing loan, or you’re originating a high-yield loan, the most critical time period for that investment is the first four months, right? You gotta get like…you have to bring everything into a position to succeed. And so, those first four months, you are having contentious calls with people. You know, you’re trying to act as a consultant to… We kind of know where we wanna go, but the other part is like whoever that equity is, whoever is above you and really, you know, owns the real estate subject to the senior secured loan, you have to get them on board as well. And so, that process of getting everybody on board is about a four-month process and it’s the most critical. And you can really…like, we’ve now kind of…we now have a really good idea within the first call it month of owning either, you know, a purchase loan or a loan originated by us, whether it’s gonna be successful or not, or where…you know, what we’re gonna have to do in order to get it to a resolution.

Andy: Okay. So, when we’re talking about the equity then on the stack, my mom told me that honey wins more friends than vinegar. So, how do you get…? What’s a typical tactic to get equity on board with the plan? Is it honey, is it vinegar, or does it depend on their attitude?

Carson: You gotta be… Yeah. I mean, well, 100% the latter. It depends on their attitude. But I think pretty much always people are in a bad situation or in a situation that they…or don’t wanna be in. I mean, a lot of times, people just wanna avoid dealing with it, right? I mean, that’s a lot of times what we face is like people are just like, “I don’t wanna deal with it.” And so, the first thing is like, “Hey, we need to have a conversation.” And then the second thing is, like, you gotta be firm and you do have to be very brutally honest with people. You know, if they have an office building that’s over levered, but they may have, you know, six cars that they have at home because they’re car collectors, well, you have to have that conversation like, “Go sell your cars and use those proceeds to pay down your debt.” And you’ve got to re-emerge in the situation. And so, you’ve gotta get people over those humps. And what you do is you just…you give them achievable goals that they can go out and do.

And frankly, it’s odd. I mean, people think those must be tough and they are tough conversations. But once you get the equity on board with, “Hey, we’re all in this together to solve this problem,” you get people that are super motivated. And we’ve had borrowers come to our office and say thank you, we’ve had people write us letters and say, “This is…you know, you guys help us get out of the situation.” So, you could put loans or you can put things in position to succeed, not just for us, but also for the equity. Now, if someone is just gonna be a knucklehead and not wanna deal with you, well, that happens as well. And you’ve gotta deal with that as well. And that’s when you just your…you know, you use your loan documents, you use your legal enforcement rights to go and deal with the situation.

Andy: Got it. Okay. Yeah, that makes sense. So, let’s zoom out for a minute and talk about the 60/40 portfolio. So, our team was at the IPA conference recently, and so much talk about the 60/40 portfolio and that, you know, I think at least in the alternatives industry, there’s a belief, you know, that 60/40 portfolio is dead or at least maybe it’s on its way out, at least in the world of family offices in the world of very high net-worth, ultra-high net worth investors, but it’s still a useful reference point. So, that being said, are you personally a believer in the 60/40 portfolio when we’re talking about family offices or ultra-high-net-worth investors?

Carson: Not in the traditional sense, no. I mean, I think that there has been…I think there’s far better ways to run a portfolio from an individual standpoint. Now, I think you can have… Taking just a really quick step back, I think you can have something that looks like a 60/40 portfolio. But I think…take, for example, just there, right? I think we’re a private debt offering. And I think, you know, if you were to think of the debt component of a 60/40 portfolio and you start to kind of replace it with things, you could say, “Hey, this is their view. We’re gonna use them as a proxy for debt and we’re gonna slice it into the traditional model.” But, you know, one of the reasons that I don’t believe in the 60/40 model is I just think we’ve…I don’t think we need as much liquidity as people have traditionally thought, right?

Andy: Yeah.

Carson: I mean, I think that’s kind of the… My main focus is I think if you’re willing to accept less liquidity, then going to the private markets is a great place to get outsized returns. And, you know, unless you’re spending frivolously and you need a bunch of liquidity, it’s the best way to compound wealth over a long period of time is to have privates because I do think if you select the right manager, you’re gonna get outsized returns.

Andy: So, it sounds to me, if I could try and pair this back, and correct me if I mess up, the 60/40 concept sounds like you kind of maybe agree with it, but not necessarily that it’s all liquid. You know, like, so if you don’t need the liquidity, then take some of that and earn an illiquidity premium in the private markets.

Carson: Hundred percent. And like, you know, very simple, maybe simple thought process from an equity standpoint, maybe if you found a…you know, if you find a long-short equity manager, that can replace part of that equity portfolio. It just is gonna be with a manager that has lock-ups, has gates and, you know, will do some different things. But ultimately, like, yeah. You’re just sort of trying to slice the 60/40…you know, slice those big piece, those big pies of the 60 to 40 and slice those further and go get some privates in.

Andy: So, comparing them, what would be the closest…? I know there is no perfect analog, but would I compare senior secured real estate debt to junk bonds, or like, what would be the liquid, you know, kind of alternative?

Carson: I think so, yeah. I think that’s a great way to think about it would be high-yield corporate debt. Of course, it’s different, but when you’re thinking about it, that’s a great way to think about it, right? There are folks that invest in junk real estate bonds with the purpose of restructuring or re-orging or being in a position to sometimes take over companies. And so, I think that whole thought process is very similar. I mean, because at the end of the day, if you’re a senior debt, you’re in a control position.

Andy: Got it. Yeah. It’s interesting. I just had Lara Rhame, economist at FS Investments, on the show, and I think that’s…it hasn’t published yet, but it probably will by the time this episode publishes. And we were talking about junk bonds, and they are yielding higher than the inflation rate. But, you know, after taxes if they’re in a taxable account, they’re not keeping even with the inflation. And I’m like…you know, personally, I feel like…I hate to use the word immoral, but I’m just like this…that is…to me, it’s, like, unjust that you’re asking an investor to take on so much risk to have their assets slowly shrink on a real basis. And I know that, you know, on the illiquid side when we’re talking about senior secured real estate debt, the returns would be quite a bit higher because of that illiquidity premium. But putting that aside, you know, do you think investors need to think about the debt portion of their portfolio differently right now in this higher inflationary environment?

Carson: A hundred percent. And it’s tough. I mean, I think that you just…what we think about, and getting a little bit back to our model, which is one we feel fortunate to be where we are is that we are in this idea of, you know, buy it, fix, sell it, or keep the term of the investment as short as possible, right? Like, we’re not originating five-year paper and then just sitting on it. And that’s where you could see. The more duration that you have, that’s gonna be extremely sensitive to interest rates, right? And you can be put in a super tough position with inflation. And so for us, because our investments are short-term in nature, call it 6 to 24 months, you can drive to resolution and then reinvest that capital. And you can reinvest that capital in a timeframe where, you know, hopefully, you can reinvest it at a higher rate given where the…you know, hopefully, your return expectation go higher or what…your cost, your [inaudible 00:26:28] cost of capital should kind of change with the inflation expectations. So, you know, I like the fact that we are short-term in nature in our investments and that within our private funds, we’re able to reinvest. However, you know, you’ve gotta do that. I think one of the things that for us in this goes to the selection process is that you wanna select into deals that you can resolve, right? Like, a lot of times if you select into a situation that’s overly complex and you’ve got super difficult borrowers that get highly litigious, maybe you buy a loan that’s in New York, and all of a sudden you’re in the New York legal system because they file bankruptcy, well, that’s a three or four-year period.

Andy: Okay. Wow.

Carson: And so, you could get…you know, your returns are gonna get degraded super quickly. Like, yeah, you might protect principle, but you’re gonna lose out big time to inflation. And so, you do wanna be highly cognizant of the term of the loans that you’re either writing or buying into.

Andy: So, you all work very hard to keep that duration low, which obviously that’s just gonna… I mean, if you’re finding good deals, then you’d wanna turn over the capitals quickly as you can for its own sake. And it sounds like that sort of has that side effect than of there’s less interest rate risk, there’s less inflation risk with a fund like what we’re talking about.

Carson: From a debt perspective like from someone who invests in debt, yeah, I think we’re in a really good spot. We’re in a position where inflation certainly impacts us. It’s just gonna impact us less and someone has got a ton of duration within their portfolio.

Andy: Okay. So, let’s…back to the portfolio for a minute. And I think you already answered this, but I just wanna make sure. So, we’re talking about a 60/40, and more and more when I talk with RIAs, family offices, you know, you’re hearing like 50/30/20, a lot of times, the alts allocation is even a lot more than 20. But let’s just say 50/30/20, you know, kind of as a default model. So, if I’m looking at investing in senior secured real estate debt, maybe let’s say 5% of my overall portfolio, is that 5% slotting into the 30% debt portion or the 20% alternatives portion?

Carson: What I heard is they would slot that into the…well, what we do, they would slot that into the alternative portion of the portfolio or the asset allocation. And what we have had, we have a few RIAs that have…you know, that we’ve built relationships with and we’ve just asked them. We’ve said, “Hey, look, what do you think, you know, A is a…?Kind of where do you see us from a percentage standpoint, and then where do you put us?” And they say that we’re in an alternative bucket because we’re illiquid. And then B, they say, you know, we’re gonna have our investors be somewhere, you know, 2% to 20% of their net worth would be allocated towards something like that, depending on their risk profile and what they’re trying to achieve. But typically, we’re seeing, you know, kind of 2% to 5% of someone’s portfolio would be allocated to private credit or someone like us.

Andy: Got it. And RIAs are tending to bucket it in with alternatives even though it’s credit just because of that illiquid nature. So…

Carson: That’s right.

Andy: …I guess asking about your fund or really any similar type of fund, do they pay a dividend, or is it more…?

Carson: Our funds do not. So, back to your… You asked a great question really early on about why it kind of fits into privates. And the nature of the distress or the nature of the terms of our loans are such that you really can be without cash flow until you solve the problem. And so, we tend to make, or no, not tend, like, we try to make at least one distribution of income every year. And we’ll typically do that in the fourth quarter or the first quarter, so before tax time. But it’s not a requirement and it’s not like a guarantee, it’s just what we do within our process. And, you know, doing it once a year allows people to match their kind of asset with their tax liability.

Andy: I see.

Carson: But it’s not…

Andy: So, it’s like a tax distribution essentially then?

Carson: Correct. Yeah. Yeah.

Andy: And I actually wanted to ask about taxes now. So, I mean, I find the debt world so interesting because, you know, the returns that we’re talking about, totally different piece of the cap table. I spend so much time talking and thinking about the equity side, but the debt side is just as important. And with debt, the thing that can kill you is taxes, right? I mean, a lot of high net-worth investors, family offices are in municipal bonds. The nominal yield is like in the twos or it’s quite silly. But, you know, the strategy that you’re talking about with these special situations, with these distressed situations with that goal of resolving this situation basically as quickly as possible, it’s a good thing to deploy the capital, resolve the situation, liquidate, and then be able to redeploy it, you know, plus earn some alpha in the meantime. But all of that turnover is creating taxable events and then it’s also…I presume that it’s ordinary income. Is that the case?

Carson: Yeah, no, you hit it spot on the head, Andy. And I think from our strategy, you’re looking at…it’s transactional-based, right? I mean, just based on everything I’ve said today and like who we are, we’re trying…we think the safest way to invest is to get our money back, right? And so, it’s more of we’re constantly driving towards resolution, but in doing so, you’re very transactional. And those transactions, plus the…you know, if you restructure a loan and you get them paying, those payments are gonna be interest payments. And interest is ordinary income. And if you’re driving it to a resolution, that resolution when you get it at the end, it’s a taxable event. So, you know, we are not buy-and-hold, we are transacting. And so, look, we are generating taxes for our investors. And I mean, I think it…you know, I like to think of it as you’re generating taxable income. That’s a good thing. It’s better than losses. But I think when I talk to potential investors, you wanna make sure that they understand what you’re trying to achieve and what you do. And that is who we are. You know, we’re generating ordinary income and we’re transaction-based.

Andy: Well, so the interesting thing to me, I mean, especially when you’re talking with families or ultra-high-net-worth, very high net-worth, everything has to be triple net. It’s like…and now with inflation in the eights, you know, it’s like I don’t even think about nominal returns. I’m always…like, I just kind of trained my mind to think in terms of triple net. And so, back to the Mooney bonds thing, I’m like, “Wow, a 3% nominal yield with 8% inflation. Wow, this is really great, guys. I’m so happy to save on the taxes off the 3% nominal yield.” But, you know, so I would be thinking in this case with a tax-inefficient type of fund plus it’s illiquid, that investors are going to insist upon or are gonna demand in a sense that much higher top-line return number.

Carson: That’s right.

Andy: Is that the case with this specific asset class?

Carson: Yeah. I mean, I think there’s two things. I think for the folks that are looking for an alternative or looking for a safe place to invest their capital that’s not tax-exempt, they’re looking at after-tax returns, right? And they’re looking at what we can achieve net of taxes, and they’re saying, “Wow.” For the active management for what you do, I still think that that’s an attractive place to be. On the other side, we do have a fair number of tax-exempt investors, so investors who are invested in being self-directed IRAs and whatnot. And those investors, you know, it’s less of an issue for them because you’re not looking at those…that triple net number as you say, but it’s still something that everybody needs to be aware of. Because you’re looking at… I mean, the way that we like to think about it is that the after-tax number is still attractive. And when you look at that after-tax number compounded over 5, 10, 15, 20 years, the couple of 100 basis points of return that we’re giving you really…like, when you run it out 20 years, it becomes a meaningful difference than investing in non-tax or, you know, tax-exempt bonds like a muni or something like that.

Andy: Got it. So, that illiquidity premium, that risk premium, those are there, or at least, you know, I guess I would coach investors to demand it, I mean, really looking at any credit product or any alternative. So, can we talk about the capital base for a second? So, you mentioned some tax-exempt accounts. Sounded like those were maybe individual investors.

Carson: Yep.

Andy: Is this a market that institutional investors play in at all, or is this mostly, you know, private placement offerings for individual investors and family offices?

Carson: Yeah, it’s the latter. I mean, for someone like us, we’ve been around for 12 years, we’ve got a great track record, but at the end of the day, we’re talking to people that are sophisticated, you know, high net-worth individuals, family offices, and then some independent RIAs that are looking at that traditional 60/40 model and they’re trying to say we can bring some privates under our umbrella and help our investors get a little bit more for their portfolios. And so, those are kind of where we’ve spent most of our time focusing.

Andy: I’m curious, you know, especially for RIAs, but even for individual investors. How do they get introduced to this asset class? Are they just…? I mean, are they just looking for an alternative to junk bonds or is it…do they have some other, you know, connection point where they kind of learn about it and learn about the appeal?

Carson: Yeah. It’s a great question. I mean, we’re still fair. I mean, private credit in general has just recently become more interesting and more kind of in the news, I guess you might say.

Andy: Hey, we’re spreading the word, right? At AltsDb, I hope we are.

Carson: Yeah, no. We’re not out marketing. We don’t market. We’re not… Regulatory-wise, we don’t market. And so, we just…you know, we kind of do our thing. We’ve always taken the standpoint of if we go out and do what we say we’re gonna do, and we are good fiduciaries of capital, that capital will eventually find us. And that’s kind of been…that’s proven itself true. But over time, you know, you do need word of mouth and just like folks that are kind of curious, right? I mean, to a certain extent, individuals or family offices that are looking for something else, they themselves have to be a little bit curious, right? They have to challenge that 60/40 portfolio themselves, and then they have to say to themselves like, “Yes, I want private credit. Where do I go find it?” And for us, I do think that private credit, or I think, you know, where we sit, real estate debt has a place in portfolios. And that’s kind of the first question that people ask. Like, “Is that something you want in the portfolio?” And then the second question is like, “Who do you want to be your manager, and who can I trust?” And so, those are the two things that we always like to tell people. It’s like, do you want it in your portfolio, and then who do you want to be your manager?

Andy: Right. And that’s where, whether we’re talking about credit, equity, you know, multi-family, industrial, that’s where track record and investor experience, those are so important. I think you’re exactly right. A lot of this, you know, private placement, alternative space, it is word of mouth. And increasingly, you know, you see referrals, word of mouth, and then also investors have a good experience with one offering from a sponsor or issuer. You’re gonna be interested in the next offering, right? So, one question, back to RIAs, self-directed high net-worth investors, you know, that crowd who are listening to us right now, they probably get it, right? Like, if you’re listening to “The Alternative Investment Podcast,” you are interested in private placement offerings, you’re interested in alternatives. But even so, you know, I think a lot of people with their alternatives they’re investing in, you know, multi-family funds or industrial funds or, you know, mostly real estate, they might be more familiar with doing due diligence or evaluating those sorts of deals and products and less familiar with evaluating private debt products. Where would you start? You know, presuming that, you know, I’m an RIA or a family office, you know, I have some background in debt and equity in real estate, all this sort of thing, but I’m not an expert. How would I start to evaluate the different offerings that are on the market? Just high-level tips.

Carson: Yeah. So, the managers themselves?

Andy: Yeah. Yeah. The sponsors, the managers, and the offerings, the actual offerings.

Carson: Yeah. I mean, I think when you’re evaluating the offerings, I think you’ve gotta peel back the onion more than just the returns, right? You have to really go in and request like, you know, does the manager have write-ups? Do the managers have deals that they’re willing to share with you? Like, that step through what they’ve done. You know, like really challenge their track record like on an investment basis, but then also challenge them on a thought basis as well. You know, like what have they communicated with their investments on how they wanna achieve what they wanna achieve because the debt markets, especially the private debt markets, they move slow, right, where in the sense that like when you make an investment, I said this earlier, you’re in that investment. And so, you’ve likely…full disclosure, you’ve likely missed one or two things. And so, you wanna know how is that manager going to react? You know, are they gonna be emotional? Are they gonna be quick to make a judgment, or are they gonna go back to their process and say like, this is…? You know, are they thoughtful enough to go back to their process and say, “Hey, look, we’re in this situation. Here’s how we’re gonna drive to a solution”? And so, I think that, you know, peeling back the onion and getting as much information from the manager as you can, not just financial-based information, but also just the qualitative stuff, I think that’s really important.

Andy: Peeling back the onion of the private debt market, something I find fascinating, you know, may not be everyone’s cup of tea, but certainly, as an investor, I think it’s an appealing opportunity to take a look at, especially in this higher inflation environment that we’re in right now. So, that being said, Carson, where can our viewers and listeners go to learn more about Fairview Partners Investment Management?

Carson: Yeah, no, I’d encourage everybody if they’re interested to learn more about us to go to our website. It’s At that website, you can learn more about us, you can reach out to us, you can see our team. And yeah, you can see all our emails. And from there, you can reach out to us. I’m there on [email protected] if you wanna reach out to me directly.

Andy: Yeah. And the website was just recently redesigned, and I did review it before the show today, and it looks good. Not every sponsor, especially in the debt markets, has a really informative website site.

Carson: We’re super proud of it. We went through…we did our website earlier this year and it was a huge undertaking, but we’re very proud of it. So, we’d appreciate it if you go and take a look at it.

Andy: Awesome. And for our listeners and viewers, if you want links to everything that we’ve mentioned in today’s show, I’ll be sure to link in our show notes to that website on And a reminder, don’t forget to subscribe to our show on YouTube and on your favorite podcast-listening platform so you can be sure to receive our new episodes as we release them. Carson, thanks so much for coming on the show today.

Carson: Hey, thank you very much. I really appreciate you having me, Andy. It was a pleasure.

Andy: I had a blast.

Andy Hagans
Andy Hagans

Andy Hagans is co-founder and CEO at AltsDb, and host of The Alternative Investment Podcast. He resides in Michigan.