The close of 2021 signaled the completion of 12 years without a single loss for the leaders of Freedom Financial Funds, LLC. The firm’s investor yield for 2021 was 7.93%, with no problem loans in its portfolio.
According to Freedom Financial Funds Principal and CEO Michael Klein, as a unleveraged REIT Freedom’s tax equivalent yield to its investors is about double that of most fixed income investments, while the firm takes equal or less risk. “Freedom is one of the only lenders in the United States that calculates LTV after deducting 3% to 7% from the asset’s value to account for selling expenses such as real estate broker commissions and government transfer taxes. As a result, our LTV is three to five points more conservative than the LTV reported by other lenders such as competing funds, life insurers and banks. This is just one example of how Freedom is different in the safety of its underwriting from the funds we compete with for your trust and investment dollars.”
At the end of 2021, Freedom’s loan commitments increased to $107,711,00, up 28% from 2020, while outstanding loans totaled $84,267,000, up 32%. Its net loan count increased from 31 to 34. Freedom’s portfolio remains concentrated in the most stable asset classes: 29.4% in apartments; 41.2% in retail; and 15.0% in industrial. “We like the fact that 85.6% of our book is in these asset classes,” Klein said. “Our number one priority continues to be on working with people that have expertise in the asset classes we are financing.”
Eighty-eight percent of Freedom’s portfolio is coming due this calendar year. Its high loan turnover means it can make rapid adjustments to loan terms such as interest rates and loan to value. “We think being focused on short-term exposures and obtaining rates that are generally only available to long term investors is a very good risk-to-reward trade,” Klein said.
Freedom continues to win business from highly bankable clients who are looking for bespoke solutions to their financing needs. While Klein foresees ongoing challenges in the new year, including Fed rate increases, inflation, scarcity of talent, and political uncertainty, he maintains an optimistic outlook for 2022. “As I have said many times, we believe our future is bright because of the borrowers we choose to do business with. We work hard to lend only to the best and the brightest professionals in the real estate market. Our sales cycle can be long because we must convince bankable Borrowers that they will benefit financially from our creative, responsive, and timely process in ways that will more than offset the increase in rate charged by Freedom versus their bank. Given that over 80% of our business is generated from repeat borrowers, the hardest loan for us to get is the first one. Based on the testimonials from our borrowers, our growth last year and our pipeline today, our model appears to be working.”