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Red Oak Capital Launches Hybrid Fund For Commercial Real Estate Debt

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Red Oak Capital Holdings is offering a hybrid fund that allows it to take in both qualified and taxable investments.

Red Oak Capital Fund VI, qualified by the U.S. Securities and Exchange Commission (SEC), is divided into two products: a bond offering and preferred units offering that will focus on U.S. senior-secured, small-balance-sheet real estate debt investments in primary and secondary markets.

“The hybrid structure of the fund is to better suit current investor objectives,” Red Oak Chief Strategy Officer Raymond Davis said. “That is, it allows us to take in both qualified and taxable investments while increasing returns for both. And both products will invest in the same high-quality senior-position loans on income-producing commercial real estate that has been the staple of our business.”

Fund VI is offering $40 million in Series A preferred membership units structured to accept taxable investments. The bonds are priced at $1,000 each, with a minimum purchase of 30 units. Red Oak is targeting preferred returns of 9.5% to be paid quarterly.

The fund’s second product is a $35 million bond with two options — 8% Series A bonds and 8.65% Series Ra bonds. The bonds carry a 5.5-year term and are priced at $1,000, with a minimum commitment of $10,000. The bonds are securitized by senior-secured commercial and backed by U.S. commercial real estate.

“Banking regulations and a changing market have limited borrower access to traditional sources of capital,” Red Oak CEO Gary Bechtel said. “This, combined with high levels of fragmentation and operating inefficiencies in the small-balance bridge lending industry, presents a significant opportunity for our investment strategy.”

Proceeds from Fund VI will primarily be used to originate and make short-term, first-lien loans and acquired other senior-secured real estate debt investments backed by income-producing real estate in the top 200 U.S. markets.

Crescent Securities Group Inc. is the managing broker-dealer for the offering, accounting firm UHY LLP is the auditing company, and Whiteford, Taylor & Preston LLP is the legal counsel.

Red Oak Capital Holdings is a group of commercial real estate capital entities that lend and invest in commercial real estate, raising capital through retail and institutional channels.

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