NexPoint Real Estate Strategies Fund Inc. (“NRES” or the “Fund”) seeks long-term total return, with an emphasis on current income, by primarily investing in a broad range of real estate-related debt, equity and preferred equity investments across multiple real estate sectors.
The Fund will pursue its investment objective by investing, under normal circumstances, at least 80% of its assets in “real estate and real estate related securities” (as defined below). In particular, the Fund will pursue its investment objective by investing the Fund’s assets primarily in (1) commercial mortgage backed securities (“CMBS”) and residential mortgage backed securities (“RMBS”), (2) direct preferred equity and mezzanine investments in real properties, (3) equity securities of public (both traded and non-traded) and private debt and equity real estate investment trusts (“REITs”) and/or real estate operating companies (“REOCs”) and (4) opportunistic and value added direct real estate strategies (through a wholly-owned REIT).
Preferred equity and mezzanine investments in real estate transactions come in various forms which may or may not be documented in the borrower’s organizational documents. Generally, real estate preferred equity and/or mezzanine investments are typically junior to first mortgage financing but senior to the borrower’s or sponsor’s equity contribution. The investments are typically structured as an investment by a third-party investor in the real estate owner or various affiliates in the chain of ownership in exchange for a direct or indirect ownership interest in the real estate owner entitling it to a preferred/priority return on its investment. Sometimes, the investment is structured much like a loan where (i) “interest” on the investment is required to be paid monthly by the “borrower” regardless of available property cash flow; (ii) the entire investment is required to be paid by a certain maturity date; (iii) default rate “interest” and penalties are assessed against the “borrower” in the event payments are not made timely; and (iv) a default in the repayment of investment potentially results in the loss of management and/or ownership control by the “borrower” in the company in favor of the investor or other third-party.
In addition, subject to the 15% Limitation and the 35% Limitation discussed in this Prospectus, the Fund may invest up to 20% of its total assets in equity or debt securities other than real estate and real estate related securities. NexPoint Advisors, L.P. (the “Adviser”), the Fund’s investment adviser, will evaluate each opportunity within the context of where the Adviser believes the various real estate subsectors are within the broader real estate cycle and tactically allocate among these opportunities. Also, the Adviser will select investments it believes offer the best potential outcomes and relative risk to assemble the most appropriate portfolio to meet the risk-adjusted return goals of the Fund. The Adviser has broad discretion to allocate the Fund’s assets among these investment categories and to change allocations as conditions warrant.
This portfolio construction strategy is designed to (i) recognize and allocate capital based upon where the Adviser believes we are in the current real estate cycle, and as a result (ii) minimize drawdowns during market downturns and maximize risk adjusted returns during all market cycles, though there can be no assurance that this strategy will achieve this objective. The Fund will seek to utilize debt at the Fund level to leverage its returns when the Adviser believes doing so would be accretive to returns. The Fund will rely on the expertise of the Adviser and its affiliates to determine the appropriate structure for structured credit investments, which may include, bridge loans, common and preferred equity or other debt-like positions, as well as the acquisition of such instruments from banks, servicers or other third parties.
The Fund defines “real estate and real estate related securities” to consist of common stock, convertible or nonconvertible preferred stock, warrants, convertible or non-convertible secured or unsecured debt, and partnership or membership interests issued by:
- CMBS, RMBS and other real estate credit investments, which include existing first and second mortgages on real estate, either originated or acquired in the secondary market, and secured, unsecured and/or convertible notes offered by REOCs and REITs
- Publicly traded REITs managed by affiliated or unaffiliated asset managers and their foreign equivalents (“Public REITs”)
- Private real estate investment funds managed by affiliated or unaffiliated institutional asset managers (“Private Real Estate Investment Funds”)
- Registered closed-end funds that invest principally in real estate (collectively, “Public Investment Funds”)
- Real estate exchange traded funds (“ETFs”)
- Publicly-registered non-traded REITs (“Non-Traded REITs”) and private REITs, generally wholly-owned by the Fund or wholly-owned or managed an affiliate
The Fund has not imposed limitations on the portion of its assets that may be invested in any of the other categories outlined above. The Fund, however, will limit its investments in Private Real Estate Investment Funds that are excluded from the definition of “investment company” under the 1940 Act by Section 3(c)(1) or Section 3(c)(7) of the 1940 Act to no more than 15% of its net assets. Such entities are typically private equity funds and hedge funds. The Fund will further limit its aggregate investments in issuers subject to the 15% Limitation as well as other private funds, private REITs and Private Real Estate Investment Funds to 35% of its net assets (the “35% Limitation”). For purposes of compliance with the 15% Limitation and the 35% Limitation, the Fund will not count its direct investments in wholly-owned subsidiaries but will look through such subsidiaries and count their underlying holdings. REITs are pooled investment vehicles that invest primarily in income-producing real estate or real estate-related loans or interests, and REOCs are companies that invest in real estate and whose shares trade on public exchanges. Foreign REIT equivalents are entities located in jurisdictions that have adopted legislation substantially similar to the REIT tax provisions in that they provide for flow through tax treatment for the foreign REIT equivalent and require distributions of income to shareholders.
An investment in the Fund is subject to fees and expenses. You should read the prospectus carefully to fully understand the objectives, risks, sales charges, and fees and expenses before investing or sending money.
Before investing in the Fund, you should carefully consider the Fund’s investment objectives, risks, charges and expenses. For a copy of a prospectus which contains this and other information, please visit our website at www.nexpointres.com or call 1-877-665-1287. Please read the fund prospectus carefully before investing.
An investment in the Fund involves a considerable amount of risk. It is possible that you may lose money, including the risk that you may receive little or no return on your investment or that you may lose part or all of your investment. Consequently, you can lose money by investing in the Fund. No assurance can be given that the Fund will achieve its investment objective, and investment results may vary substantially over time and from period to period. An investment in the Fund is suitable only for investors who can bear the risks associated with the limited liquidity of the shares and should be viewed as a long-term investment. Before making your investment decision, you should (i) consider the suitability of this investment with respect to your investment objectives and personal financial situation and (ii) consider factors such as your personal net worth, income, age, risk tolerance and liquidity needs. An investment in the Fund is not appropriate for all investors.