While NorthStar Income II may invest in commercial real estate securities and select equity investments, its primary focus is to originate and manage a diversified portfolio of commercial real estate loans. We will strive to diversify the portfolio by location and commercial property type, which could include office buildings, retail properties, apartments, hotels and industrial facilities.
How a Non-Traded, Debt-Focused REIT works:
Diversification does not eliminate risk and does not assure better performance. 1) NorthStar funds its investments using proceeds from the offering as well as borrowings. 2) There is no guarantee of distributions. Distributions may be paid from sources other than cash flow from operations, including offering proceeds, borrowings or sales of assets and distributions may exceed earnings. Fees paid to the advisor were not determined on an arm’s length basis and reduce the amount the program can invest in income-producing assets and your overall return may be reduced.
Debt-focused REITs may:
- Potentially Generate Cash Flow. In a typical debt-focused REIT, the distributions to investors are made from mortgage payments made by property owners. Conversely, distributions paid to equity investors are made after all property-related expenses are paid, including the mortgage.
There is no guarantee of distributions. Distributions have been paid from sources other than cash flow from operations, including offering proceeds, borrowings or sales of assets and distributions may exceed earnings.
- Preserve Capital. Since NorthStar Income II is primarily focused on originating commercial real estate loans, its investment portfolio maybe cushioned against losses in declining markets. In the real estate capital structure, debt investments maintain a higher priority, meaning commercial real estate debt investors maintain a lower-risk position as property values change. While commercial real estate debt investments may provide greater downside protection, certain commercial real estate debt investments within the capital structure also vary in degree of risk.
This illustration is hypothetical in nature and is provided for informational purposes only. There can be no assurance that a debt-focused investment will protect against loss.