# How to Compare Real Estate Debt Funds: Scoring Framework

> Fourteen criteria that actually separate debt funds, with a scoring sheet you can run against any offering: lien position, LTV, leverage, fees and liquidity.

Canonical: https://matadornotefund.com/blog/how-to-compare-real-estate-debt-funds
Author: Apurva Sanghavi
Published: 2026-10-02T17:45:02.178Z
Tags: Debt Fund, Due Diligence, Private Lending, Real Estate Investing

## Why we are not publishing a ranked list

You searched for the best real estate debt funds. We run one, so any ranking we published would be worthless to you and you would be right to think so. Every list of this kind on the internet is either an affiliate arrangement, a sponsor's own marketing, or a writer with no lending experience reorganising other people's websites.

What we can do honestly is publish the framework we would use ourselves if we were allocating someone else's money, and then run it on our own fund in public. The second half is the part that makes the first half worth reading. A framework nobody applies to themselves is an advertisement with a table in it.

Two ground rules for the rest of this post. We do not name other funds, favourably or otherwise. And every criterion below is answerable from a Private Placement Memorandum, an operating agreement or a direct question on a call. If a fund cannot answer one of these in writing, that is itself the answer.

## The fourteen criteria

**1. Lien position.** First lien, second lien, mezzanine or preferred equity. First lien means a foreclosure extinguishes junior claims and the borrower's equity absorbs losses before you do. Everything else in this list matters less than this one.

**2. Collateral type.** Non-owner-occupied single family, multi-family, commercial, ground-up construction, raw land. These are not interchangeable. A finished house sells in weeks and raw land can sit for years.

**3. Geography.** One metro, one state, one region or national. Concentration in a market the manager knows deeply is a defensible trade against diversification across markets they know less well. Both positions are legitimate; drifting between them is not.

**4. Weighted and maximum loan-to-value.** The average tells you the portfolio's posture and the maximum tells you what the manager permits themselves on a bad day. Ask both, and ask what the value is measured against.

**5. Duration.** How long the loans run. Short duration means the book reprices quickly and capital returns naturally. Long duration means a rate move is your problem for longer.

**6. Concentration limits.** The maximum share of fund capital in any one loan, borrower or asset type, and critically whether that limit binds at the fund's current size.

**7. Leverage.** Whether the fund borrows against its own loans, on what terms, at what advance rate, and what happens if the facility lender cuts that advance rate.

**8. Preferred return and its type.** The rate, and whether it is cumulative, compounding or non-cumulative. A non-cumulative preferred return that is missed is gone.

**9. Fee load.** Asset management fee, the split above the preferred, and every fee paid to the manager or an affiliate at the loan level.

**10. Distribution frequency.** Monthly, quarterly or on realisation. For an income investor this is a real consideration, not a detail.

**11. Liquidity terms.** Lock-up, notice period, processing frequency, per-period redemption cap and the manager's power to suspend.

**12. Third-party service providers.** Fund administrator, auditor, custodian or bank, servicer, counsel. Independent parties between the manager and the money.

**13. Track record and loss history.** Loans funded, principal funded, workouts, recoveries, principal lost, and whether the numbers are the manager's own record or audited fund performance. Those are different things.

**14. Manager alignment.** Who else is in the fund, what the manager earns when investors do badly, and how the fee structure behaves in a slow year.

## How to score each one

Score each criterion 0, 1 or 2. Twenty-eight is the maximum.

| **#** | **Criterion** | **2 = Good** | **1 = Acceptable** | **0 = Concerning** |
| --- | --- | --- | --- | --- |
| 1 | Lien position | First lien only, stated in the documents | Predominantly first lien with a disclosed limit on juniors | Second lien, mezzanine or unstated |
| 2 | Collateral type | Income-producing or readily saleable property, clearly defined | Mixed, including construction, with stated sublimits | Land, speculative development or undefined |
| 3 | Geography | A defined market the manager has lent in for years | Several markets with local presence in each | National reach with no local underwriting |
| 4 | LTV | Weighted in the 60s to low 70s, hard maximum under 80%, measured against as-is value | Low-to-mid 70s weighted, maximum 80–85%, basis disclosed | Above 80% weighted, no stated maximum, or basis unexplained |
| 5 | Duration | 6–24 months, interest-only, with an evidenced average | Up to 36 months | Multi-year or undisclosed |
| 6 | Concentration limits | A hard limit that binds at today's fund size | A limit that binds at a stated future size, with interim discipline described | No limit, or one that binds only at a size the fund may never reach |
| 7 | Leverage | None, or a stated cap with the facility terms disclosed | A facility within Private Placement Memorandum limits, terms available on request | Undisclosed borrowing, or a high advance rate with no discussion of margin risk |
| 8 | Preferred return | Cumulative, ideally compounding, paid before any manager share | Cumulative, non-compounding | Non-cumulative |
| 9 | Fee load | Total load under roughly 2% plus a 20% share above the preferred, with affiliate fees disclosed | Around 2% plus 20–30%, affiliate fees disclosed | Above that, or affiliate fees you had to ask twice about |
| 10 | Distribution frequency | Monthly | Quarterly | Annually or on realisation only |
| 11 | Liquidity | 12 months or less, then quarterly redemption with a modest cap | 24 months, notice period, quarterly at a capped percentage | Long lock-up, no redemption mechanism, or unlimited suspension power |
| 12 | Service providers | Independent administrator and an annual audit by a named firm | One in place, the other being appointed | Neither, or the manager values and reports on itself |
| 13 | Track record | Audited fund performance across a full cycle, losses disclosed unprompted | A documented manager lending record with workouts described honestly | No losses ever mentioned, or a record you cannot verify |
| 14 | Alignment | Meaningful manager capital in the fund, fees that fall in a bad year | Preferred return ahead of any manager share | Fees earned regardless of investor outcome, undisclosed conflicts |

A fund in the low twenties is a conservative structure. Mid-teens means a structure with real trade-offs that may still suit you if you understand them. Under ten means either an aggressive strategy or an information problem.

## The scoring sheet

Print this, fill one column per fund, and require a document reference for every answer.

| **#** | **Criterion** | **Fund A** | **Fund B** | **Fund C** | **Document reference** |
| --- | --- | --- | --- | --- | --- |
| 1 | Lien position |  |  |  |  |
| 2 | Collateral type |  |  |  |  |
| 3 | Geography |  |  |  |  |
| 4 | Weighted / maximum LTV |  |  |  |  |
| 5 | Duration |  |  |  |  |
| 6 | Concentration limits |  |  |  |  |
| 7 | Leverage |  |  |  |  |
| 8 | Preferred return and type |  |  |  |  |
| 9 | Fee load |  |  |  |  |
| 10 | Distribution frequency |  |  |  |  |
| 11 | Liquidity terms |  |  |  |  |
| 12 | Service providers |  |  |  |  |
| 13 | Track record and losses |  |  |  |  |
| 14 | Manager alignment |  |  |  |  |
|  | **Total out of 28** |  |  |  |  |

The printable version is available as a PDF download in exchange for an email address, with the scoring guide on the reverse and space for the document reference beside each answer.

One instruction that matters more than the sheet. Fill it in from the Private Placement Memorandum and the operating agreement, not from the investor deck. Decks describe intentions. Documents describe rights.

## Three criteria most investors skip

**Fee layering across affiliates.** The fee schedule in the offering summary is rarely the whole cost. Ask who receives the origination points paid by the borrower, who receives extension and default fees, whether servicing is performed by an affiliate and at what rate, and whether any affiliate takes a broker fee on loans the fund makes. None of those arrangements is automatically wrong, and all of them belong in the conflicts section of the documents. The question to ask is simple: what is the total amount the manager and its affiliates earn in a year in which the fund returns exactly the preferred return and nothing more?

**Who values the assets.** Most private loans are carried at par until something goes wrong, and the decision about when something has gone wrong is usually made by the manager. Ask who determines the carrying value of a loan in workout, whether a third party reviews it, at what point a loan is placed on non-accrual, and how a foreclosed property is valued while it is held. A fund that has never marked anything down after several years of lending has either been very lucky or is not marking.

**Whether distributions are covered by cash flow.** A preferred return paid on time tells you nothing by itself, because the money could come from interest actually received, from returned principal, or from new subscriptions. Ask for interest actually collected in a period against distributions paid in that period. A coverage ratio at or above one is the answer you want. Anything below it needs an explanation you find convincing, and there are legitimate explanations, including a quarter in which several loans paid off at once.

## Running the framework on us

Here is Matador Note Fund 1 LLC scored against all fourteen criteria, using the same table above. We score 14 out of 28.

| **#** | **Criterion** | **Our position** | **Score** |
| --- | --- | --- | --- |
| 1 | Lien position | First-lien loans only | 2 |
| 2 | Collateral type | Non-owner-occupied single family, multi-family, commercial, ground-up construction and entitled raw land, each with its own loan-to-value limit | 1 |
| 3 | Geography | Texas only, where the manager has lent since October 2019 | 1 |
| 4 | LTV | 65–75% weighted portfolio target, 85% maximum; by type 75/85 single family, 65/70 multi-family, 65/75 commercial, 75/80 construction as-completed, 55/65 entitled land | 2 |
| 5 | Duration | Generally 6–24 months, interest-only with a balloon; the manager's own loans have averaged 13 months with an 11-month median | 2 |
| 6 | Concentration limits | No single loan above 20% of fund capital once the fund holds $20 million or more. The fund's maximum committed equity is $5 million, so that limit does not bind today | 0 |
| 7 | Leverage | The fund may use a note-on-note credit facility within Private Placement Memorandum limits | 1 |
| 8 | Preferred return | 8% per year, non-cumulative, paid quarterly, before any manager profit share | 0 |
| 9 | Fee load | 2% annual asset management fee on invested capital, then 60% to investors and 40% to the manager on excess distributable cash above the preferred | 1 |
| 10 | Distribution frequency | Quarterly | 1 |
| 11 | Liquidity | 24-month lock-up, then written request with 90 days' notice, processed quarterly at up to 25% of balance per quarter, subject to fund liquidity | 1 |
| 12 | Service providers | Third-party infrastructure is still being built out | 0 |
| 13 | Track record | 60 Texas loans, $13.3 million funded since October 2019, five workouts, under $50,000 total principal lost. This is the manager's own lending record and is not audited fund performance | 1 |
| 14 | Alignment | Preferred return paid to investors before any manager profit share | 1 |

Now the four zeros and near-zeros, stated plainly rather than explained away.

**The fund is small, and the concentration limit does not bind yet.** Maximum committed equity is $5 million. The 20% single-loan rule takes effect at $20 million. At current size, a large loan could represent a much greater share of the fund than that rule suggests, and an early investor is by definition accepting a more concentrated position. The interim discipline is that we size loans against the capital actually in the fund and can hold loans across affiliated entities, but interim discipline is a practice and a stated limit is a right. Ask us what the largest position is as a percentage of capital on the day you are considering investing, and hold us to the number.

**The preferred return is non-cumulative.** By our own scoring table that is a zero, and it should be. If the fund cannot pay the 8% preferred return in a given quarter from available distributable cash, that quarter is not made up later. It is payable at the manager's discretion from available cash and it is not guaranteed. A cumulative preferred return is straightforwardly better for an investor, and we are not going to pretend our structure is something it is not.

**Third-party infrastructure is still being built.** We do not yet have the length of audited fund history that the top of our own scale describes. If an independent fund administrator and an annual audit matter to you, and they reasonably might, ask for the current status of both by name and confirm it directly with those firms rather than taking our word for it. That is the correct standard and we would apply it to anyone else.

**The record is the manager's, not the fund's.** Sixty loans since October 2019 is enough to demonstrate a process and nowhere near enough to prove it survives a serious decline in Texas property values, which we have not had during that period. Fifty-five of 60 repaid on schedule and five went to workout: four foreclosures and one deed in lieu, three returning principal in full and two not. Those are the manager's own lending figures, not audited fund performance, and past performance is not indicative of future results.

Three more things belong here for symmetry. A 2% asset management fee on invested capital sits at the higher end for a debt fund, and 40% of excess cash above the preferred is a larger manager share than the 20% that is common in the category. Quarterly distributions are less convenient than monthly for an investor living on the income. And a 24-month lock-up with a 25% quarterly redemption cap means returning a full position can take several quarters after the lock-up ends, in good conditions.

What we would say in our own defence is confined to the criteria where we score well: first liens only, one state we know, conservative loan-to-value limits set by asset type, short duration, and a loss history we publish including the two files that did not return full principal.

If you run this framework on a fund and it scores 26 out of 28 on the sponsor's own telling, be more suspicious rather than less. Every structure trades something away. A fund that appears to have traded nothing away has simply not told you what it traded.

## Where to find funds to compare

Neutral starting points, none of which is a recommendation of anyone.

**SEC EDGAR.** Form D filings are public and searchable. A Form D shows the issuer, the exemption claimed, the amount sought, the amount sold and the date of first sale. It is the fastest way to see how long a sponsor has actually been raising and whether the amount raised matches the story being told.

**State securities regulators.** Most states require a notice filing for Regulation D offerings sold to their residents. The Texas State Securities Board is the relevant one here.

**Self-directed IRA custodians.** Most maintain lists of sponsors whose assets they are willing to hold. Understand what that means: it is administrative acceptance, not diligence and not endorsement.

**Industry associations.** The American Association of Private Lenders and the Alternative and Direct Investment Securities Association both maintain member directories. Membership is a subscription, not a seal.

**Regional real estate investor associations and your own professionals.** Your CPA and your securities counsel see offerings from many sponsors and have no incentive to promote any of them. A broker-dealer selling a fund is paid to sell it, and that is not a disqualification as long as you know the commission exists and ask what it is.

Whichever route you use, run the same fourteen criteria on everything you look at, including us.

## Frequently asked questions

**Q: How do I compare real estate debt funds?**<br />A: Score each fund on the same criteria rather than on its marketing. The fourteen that separate funds in practice are lien position, collateral type, geography, weighted and maximum loan-to-value, loan duration, concentration limits, fund-level leverage, the preferred return and whether it is cumulative, total fee load, distribution frequency, liquidity terms, third-party administrator and auditor, documented track record including losses, and manager alignment. Every answer should come from the Private Placement Memorandum, not a deck.

**Q: What should I look for in a private lending fund?**<br />A: First-lien position, a weighted loan-to-value you can verify loan by loan, short duration, a concentration limit that binds at the fund's current size rather than a future size, clearly disclosed leverage, a fee load you can add up including anything paid to affiliates, an independent administrator and auditor, and a manager who volunteers their loss history without being asked. The loss conversation is the most informative part of any diligence call.

**Q: What is a good LTV for a debt fund?**<br />A: For first-lien residential and small commercial bridge lending, a weighted portfolio loan-to-value in the 60s to low 70s with a hard maximum below 80% is a conservative profile. Anything above 80% on an after-repair or as-completed basis deserves scrutiny, because those values are estimates of a future condition. Ask whether the ratio is measured against as-is value, after-repair value or as-completed value, because the same number means three different things.

**Q: How do I find real estate debt funds to invest in?**<br />A: Form D filings on the SEC's EDGAR system are public and searchable, and they show who is raising, how much and since when. State securities regulators publish notice filings. Self-directed IRA custodians maintain lists of sponsors whose assets they will hold, which is administrative acceptance rather than an endorsement. Industry associations and regional real estate investor groups are the other common route. None of those sources is a recommendation.

Download the scoring sheet, run it against every fund you are considering, then book a call and run it against ours line by line. We will answer all fourteen on the call, including the four we score badly on.

**Important disclosures.** This article is for informational purposes only and is not an offer to sell or a solicitation of an offer to buy any security. Any offer is made only through the Private Placement Memorandum, Operating Agreement and Subscription Agreement of Matador Note Fund 1 LLC, which govern in all cases and should be read in full, including the risk factors. Interests are offered only to accredited investors as defined in Rule 501 of Regulation D, pursuant to Rule 506(c); accredited status must be independently verified. Real estate debt investments involve significant risk, including possible loss of principal. The 8% preferred return is non-cumulative and is payable only from available distributable cash at the manager's discretion; it is not guaranteed. The 8–12% figure is a target objective, not a promise or projection of results. Targeted returns are not guarantees of future performance, and past performance is not indicative of future results. Figures describing prior lending are the manager's own lending record and are not audited fund performance. Nothing here is legal, tax or investment advice. Matador Lending LLC is not a registered investment adviser.

## What to read next
- [27 questions to ask](/insights/questions-to-ask-before-investing-debt-fund/)
- [Red flags](/insights/private-lending-fund-red-flags/)
- [Who holds the money](/insights/fund-administrators-servicers-controls/)
- [Verify a track record](/insights/verify-fund-manager-track-record/)