Ronald Mis, Managing Director of Cahoon Capital, joined Julie Cooling, Founder and CEO of RIA Channel at the GTE Wealth Forum, to discuss a niche private credit strategy available in an evergreen fund structure.
The Cahoon Capital Fund has delivered an IRR of over 11% since its 2016 inception. These returns are driven by being a specialty finance company that focuses on a niche market. Borrowers are willing to pay a higher interest rate to access credit more quickly and easily than at banks. The fund has low volatility due to the strong cash flows and short duration of the loans.
Cahoon lends to real estate developers, funding the revitalization of residential real estate in New England. Many home builders focus on a strategy of purchasing worn-out homes and selling them for a strong return after refurbishment. This strategy is important in Massachusetts due to the limited permits available for new residential construction projects.
These investors used to be funded by banks, but this process has become more cumbersome as banking regulations have increased. Mis attributes the growth of private credit to these changes, where bank lending no longer meets the needs of borrowers. Builders can close on private credit loans within 2 weeks, giving them the flexibility to purchase properties quickly and get started on the rehab project. If bank financing is available, the process may take 60 to 90 days, potentially causing builders and investors to miss property purchase opportunities.
The $170 million Cahoon Capital Fund is an evergreen fund that allows investors to subscribe at any time. Investors can take all or part of the loan income as distributions or reinvest it in the fund. After a one-year lock-up period, investors can withdraw up to 25% of their capital each quarter.
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