WFP Opportunity Fund

As seasoned investors already know, the principal invested in stocks, bonds, and mutual funds may rise or fall, create gains or losses, due to a number of factors, including, the fundamentals of the underlying investments and fluc­tuations in respective markets in which those investments trade. 

If “alternative investments” is defined as everything other than stocks, bonds and cash, the universe of alternative investments is very large, and the risk in each category of investment is varied, will differ in each potential investment in those categories, and may change based on a number of factors, including, changes in economic conditions, law and regulation, market conditions, and other factors. Therefore, a comprehensive discussion of risk of all alternative investments is beyond the scope of this discussion. A better approach for an investor may be to compare the risk of the Fund relative to other alternative investments in their portfolio and under consideration. 

To assist with that comparison, investors may consider the following risk categories as a starting point: 

• Market Risk. Market risk includes increases or decreases in an investment's value due to volatility or fluctuation in the respective market in which those investments trade, and for real estate-based investments positive and negative impacts to the real estate market.

Exchange traded investments may have direct correlation to the stock and bond markets and/or interest rates, and some may be subject to volatility or fluctuation driven by factors completely unrelated to the fundamentals of the underlying investment or investment quality such as investor sentiment, potential monetary action, geopolitical impacts, news, and other factors.

Because the Fund is not exchange traded and it anticipates holding shorter-term loans and investments in its portfolio, the Fund is non-correlated to the stock and bond market and has little to no sensitivity to interest rate changes. Therefore, the Fund is potentially less susceptible to the impacts of stock and bond market volatility and interest rate fluctuations. 

With respect to real estate market risk, the Fund will lend against and invest in real estate-based investments. Real estate values underlying these loans and investments are not immune from fluctuation or change. Real estate values have changed in the past and will change in the future. 

What is unique about the Opportunity Fund is the blend of risk mitigation strategies in place, as outlined below.

• • Shorter-term real estate investments with terms of approximately 1 to 3 years and holding those loans to maturity allows the Fund to react to real estate values and interest rates more quickly as compared to being locked into a 30-year mortgage. Additionally, the Fund has the opportunity to better gauge potential future market conditions over a 1- to 2-year time period as opposed to projecting market conditions 7 to 10 years into the future.
  • Diversification across a number of segments, versus a pool of homogeneous loans, helps to mitigate the risk of an entire pool of loans and investments negatively reacting in a similar fashion at the same time. The Fund segments by geography, property types, borrowers, sponsors, maturities, rates, terms, and other mitigating factors.

• Interest Rate Risk. Interest rate risk is the potential for losses that result from a change in interest rates. For example, because of the inverse relationship between bond prices and interest rates, an increase in interest rates may result in a decrease in bond prices. Further, rising interest rates may negatively impact the capitalization rates used to value income producing real estate and the costs of operation. 

Because the Fund invests in loans with terms of approximately 1 to 3 years and holding those loans to maturity, the Fund is better able to react to changes in real estate values and interest rates as compared to being locked into 30-year mortgages.

With respect to participating loans, equity investments, and other investments, the Fund targets opportunistic acquisitions and value-add investments with shorter investment horizons—generally 1-to3 years—with greater certainty of execution and upside potential. Shorter term opportunistic and value-add investments give the Fund the opportunity to better gage potential future market conditions compared to longer term investments and helps to reduce execution risk.    

• Liquidity Risk. Liquidity risk involves the illiquidity of an investment or the inability to quickly or easily exist an investment or convert to cash. While exchange traded investments may have greater liquidity, the tradeoff is market risk and volatility.

Unlike other alternative investments that may have very long investment horizons (e.g. REITs with 7 to 10 year investment periods), the Fund allows investors to withdraw all or a portion of the investment after an initial 24-month period has passed. After that period, an investor may withdraw up to the lesser of 25% of your investment or $100,000 every consecutive 3 months. Additional restrictions on withdrawals may apply. 

By having shorter-term investments with staggered maturities in the Fund’s portfolio, the Fund has internal liquidity as loans repay and investments are harvested to help meet redemption requests.

• Regulatory Risk. Regulatory risk includes the risk that a change in laws or regulations will adversely affect a business, business sector, market or investment, or their respective prospects.

As an industry, real estate is subject to direct and indirect impacts of changing laws and regulations that may adversely affect a business, sector, market, investment, or other respective prospects. During the COVID-19 pandemic, stay in place orders and prohibitions against gathering had both direct and indirect impact on certain real estate segments, such as hospitality and retail properties. Moratoriums on evictions and foreclosures impacted both owners and lenders in multifamily and other residential properties. 

A certain level of regulatory risk is inevitable and an accepted part of real estate-based investments and, with certain exceptions such as the emergency regulations described above, can be foreseen and managed. For example, laws and regulations related to leasing and tenant rights are an accepted part of the real estate business and can be managed. 

Because of the nature of its operations, the Fund will be exposed to certain forms of regulatory risk and will seek to mitigate regulatory risk by managing existing requirements and foreseen changes where the regulatory risk is at an acceptable level for the applicable loan or investment. The Fund will avoid regulatory risk by not engaging in certain forms of investment where the risk is not in alignment with the Fund’s objectives or outweighs the potential rewards, such as entitlement risk associated with raw land, development, and ground-up construction loans and investments due to its risk with obtaining discretionary and non-discretionary approvals for matters like zoning, site plans, etc.

• Operational Risk. Operational risk includes the risk of loss resulting from inadequate or failed internal processes, procedures, people or systems.

In a real estate context, operational risk often relates to the plan and positioning of the property in the market and the owner or property manager’s execution of that plan.

Operational risk exists in most real estate investments, with some risk being greater than others. For example, ground up construction and later stabilization after completion has greater operational risk than the operational risk associated with a well-positioned, existing property managing tenant rollover. Further, there is greater operational risk in hotels and certain seniors housing properties compared to multifamily or warehouse properties. 

Because the Fund will lend against and invest in various property types and properties in transition, operational risk will be present in various degrees in the loans and investments made by the Fund. The Fund will seek to mitigate those risks by lending to and investing with borrowers and sponsors who have experience and a successful track record in the specific asset class and circumstances giving rise to the lending and investment opportunities. 

• Principal Risk. Principal risk involves the potential loss of the principal amount of an investment.

As addressed in this document, the Fund will seek to provide principal safeguards through, among other things, the avoidance of certain risks, stratification and diversification in the Fund’s portfolio, shorter term lending and investment horizons, selection of borrowers and sponsors, and underwriting the strength and viability of the plan of execution.   

• Other Risks. Investors are encouraged to investigate and inquire about other potential risks in all investments they are contemplating, including the Fund. For more information about the potential risks of investing in the Fund, please review the Memorandum, including the section entitled “Risk Factors.”

Declines in real estate values, longer marketing periods, lower absorption rates and other factors in a declining market may have an effect on the Fund’s portfolio. Specifically, if the value of the property underlying an investment (whether a debt or equity investment) drops below the breakeven point for the investment, a loss would occur. 

As an active market participant who has weathered several real estate cycles, the Manager’s principals have in-depth knowledge, expertise, and experience managing such risks. In anticipation of potential market changes the current underwriting philosophy employed by the Manager results in the use of third-party valuations (e.g. appraisals), market analysis, stress testing of cash flows, capitalization rates, and project projections, deal structure and other factors to help mitigate downside risk.

While there are no assurances that the Manager will be successful with all investments, in a waning market the Manager has the ability to review and revise its underwriting approach and stress testing as necessary to employ a more conservative approach to further address changing market conditions.

For more information about the potential risks of investing in the WFP Opportunity Fund, please review the Memorandum, including the section entitled “Risk Factors.”

The Fund has a targeted annualized return of 12%, net of all expenses, costs and management, and profit participation fees payable by the Fund. If members of the Fund receive a quarterly return of 3% (for an annualized rate of 12%), any net profits remaining after the members have received their quarterly return of 3% will be split 80% in favor of the members and 20% in favor of the Manager as a quarterly profit participation fee.

In order to achieve the net target return, the Fund will strive to achieve an annualized yield on the loans and investments in its portfolio which are higher than 12%, but the target yield and returns may change based on various factors, including changes in market interest rates, the economy, competition, individual investment criteria, and other factors.

Although the Fund plans to target an overall annualized net return of 12%, and we believe achieving that level of  return is realistic, there is no guarantee that the Fund will be able to provide its members with these or any specific levels of returns in any given year or at all, and neither the Manager nor the Fund represents or warrants (whether expressly or by implication) that such returns will be achieved, whether in any segment of the Fund’s portfolio or on average. 

Yes, it is possible that future returns may be lower than returns paid in prior periods. 

Once the gains on any investments are realized, there is no guarantee that the Fund will find com­parable quality investments at the same or a higher returns to replace them. Specifically, in order to stay competitive and maintain a portfolio of higher-quality investments, the Manager carefully monitors the market and adjusts its required rate of return on its investments as needed. 

The Fund will also experience periods of time when committed capital is not fully invested in targeted real estate-related loans and equity interests. Those periods will include the initial capital-raising and investment periods (“Ramp-Up Periods”), the periods during which capital is committed to fund acquisitions, loans and project-specific allocated capital prior to deployment of the capital, committed funds immediately prior to the funding of a specific investment, funds returned immediately following a liquidity event, and other similar events. At such times, the Fund will seek to employ such under-invested capital in short-term, interest-bearing investments to temporarily generate additional income for the Fund. However, overall returns in the Fund will be affected by the under-deployment of capital.