In private credit and mortgage note investing, the term collateral refers to the underlying asset that secures the loan. Notes can be backed by a wide range of collateral types, each with its own risk-return characteristics and operational considerations.

Common Types of Collateral

• Residential Real Estate – Single-family homes, condominiums, and small multifamily properties.
• Commercial Properties – Retail, office, or industrial buildings with income-producing tenants.
• Land and Development Projects – Parcels or construction loans tied to future improvements.
• Specialty Assets – Mobile homes, mixed-use buildings, or unique collateral types like reverse mortgages (HECMs).

Each type of collateral influences how the loan is priced, serviced, and ultimately resolved—whether through performance, payoff, refinance, or liquidation.

Why Focus on Residential Notes

While there are many ways to deploy capital in the note space, residential notes offer a compelling balance of stability, liquidity, and predictable outcomes.

1. Deep and Stable Market

• Residential real estate remains the largest and most liquid asset class in the U.S.
• Broad borrower demand and active secondary markets provide consistent valuation data.
• Strong market depth supports reliable exit strategies—from loan payoff to REO disposition.

2. Predictable Performance Patterns

• Borrower behavior in the residential space is well-understood, supported by decades of mortgage data.
• Homeownership incentives lead to higher cure and modification success rates.
• Standardized servicing and foreclosure processes reduce operational uncertainty.

3. Tangible Collateral Value

• Each note is secured by a physical property that retains utility and market appeal.
• Even in adverse scenarios, the underlying real estate provides measurable recovery potential.
• Third-party valuations (BPOs and appraisals) offer objective insights for risk management.

4. Social and Economic Alignment

• Residential notes often align investor returns with positive community outcomes—keeping borrowers in homes and stabilizing neighborhoods.
• Investors benefit from both financial performance and measurable social impact.

The Bottom Line

By focusing on notes secured by residential real estate, we target an asset class that combines transparency, durability, and liquidity. This focus supports consistent returns, risk mitigation, and scalability—key drivers for long-term private equity success in the note investment space.