Why Private Debt Funds Are Printing Money Right Now | Jan Brzeski

Here's a detailed, transcript-style summary of the "Why Private Debt Funds Are Printing Money Right Now | Jan Brzeski" episode of No Vacancy with Taylor Avakian:

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**No Vacancy with Taylor Avakian**

**Episode: Why Private Debt Funds Are Printing Money Right Now | Jan Brzeski**

**[00:00] Taylor Avakian:** Welcome back to No Vacancy, everyone. Today, I'm incredibly excited to be joined by Jan Brzeski, co-founder of Arixa Capital and Sage Credit Investment Partners. Jan is a true titan in the private credit and real estate lending space, especially here in California. We're going to dive deep into how private debt funds are not just surviving but absolutely thriving in today's market, the intricacies of building a massive debt fund, and how lenders are navigating this wild interest rate environment. Jan, thanks so much for being here.

**[00:45] Jan Brzeski:** Taylor, it's a pleasure to be here. Thanks for having me on. I always enjoy these conversations.

**[01:10] Taylor Avakian:** Jan, let's start with your journey. You've built Arixa Capital into a significant player. What was the initial vision, and how did you get into the private lending space, especially focusing on real estate debt funds?

**[01:35] Jan Brzeski:** Well, it's been quite a journey. My background actually started in investment banking and then private equity, but I always had a fascination with real estate. We saw an opportunity post-2008, when traditional banks pulled back significantly from certain types of real estate lending. There was a huge gap for borrowers who were creditworthy but didn't fit the rigid box of conventional lenders. That's where private credit stepped in. Our vision was to provide flexible, fast capital to experienced real estate operators, primarily focusing on value-add, transitional, and construction projects that traditional banks found too risky or too complex. We started with smaller funds, proving out the model, demonstrating strong returns, and building trust with both borrowers and investors. It really comes down to understanding the real estate, understanding the borrower, and structuring the loan appropriately.

**[02:50] Taylor Avakian:** That makes a lot of sense. The gap left by traditional banks seems to be a recurring theme for the rise of private credit. Can you elaborate on the types of projects Arixa typically finances and what makes them attractive for a private debt fund?

**[03:15] Jan Brzeski:** Absolutely. We focus heavily on residential and commercial real estate in California, with a strong emphasis on multifamily, single-family residential for-sale projects, and light industrial. What makes these attractive for us is the ability to underwrite the underlying real estate value, the business plan of the borrower, and the exit strategy. We're often funding projects that require speed – a borrower needs to close quickly on an acquisition, or they need capital for a construction project where traditional banks might take months. Our sweet spot is typically loans from $1 million up to $25 million, often for bridge financing, construction, or rehab projects. We're looking for experienced sponsors with a clear path to value creation and a strong equity contribution.

**[04:20] Taylor Avakian:** So, it's about speed and flexibility, filling that void. Let's talk about the current market. We've seen significant interest rate hikes over the past couple of years. How has this shifting interest rate environment impacted property values, and more importantly, how has it affected your lending strategy and the demand for private credit?

**[04:50] Jan Brzeski:** The rising interest rates have been a game-changer, no doubt. On one hand, they've put downward pressure on property values, especially for stabilized assets, because cap rates have to adjust upwards to reflect the higher cost of capital. This has created some repricing in the market, and transactions have slowed down as buyers and sellers adjust their expectations. However, for private debt, it's actually created a massive opportunity.

**[05:25] Jan Brzeski:** First, the cost of borrowing from traditional banks has gone up, and their underwriting has become even more conservative. This means more borrowers are being pushed towards private lenders. Second, our returns have naturally increased. If the Fed funds rate goes up, our floating rate loans adjust, and we're able to charge higher interest rates to our borrowers, reflecting the increased cost of capital and the risk premium. This is why you hear about private debt funds "printing money" – the yield environment is incredibly attractive right now. We're seeing loan rates that were unthinkable just a few years ago, often in the 10-14% range, sometimes higher depending on the risk profile.

**[06:10] Taylor Avakian:** That's a significant point. The higher rates mean higher returns for the lenders. But with higher rates and potentially declining property values, how do you adjust your underwriting strategies to mitigate risk, especially in multifamily and construction projects, which can be sensitive to market shifts?

**[06:40] Jan Brzeski:** Excellent question, and it's critical. Our underwriting has become even more disciplined. For multifamily, we're scrutinizing rent growth projections much more carefully. We're looking at debt service coverage ratios with higher interest rate assumptions, and we're stress-testing valuations. We're also requiring more equity from borrowers, so our loan-to-value (LTV) ratios have generally come down. Where we might have lent at 70-75% LTV a few years ago, we're now often closer to 60-65%, sometimes even lower for riskier projects.