Pagaya’s AI real estate bet has cost investors nearly $300 million
The SmartResi fund continues to slide even as broader US property markets post gains.
Artificial intelligence has already reshaped how we work, learn, and make decisions. It helps us write, analyze, code, and optimize almost every task. But for investors in Pagaya, AI has so far been more a source of losses than gains.
Calcalist has obtained the third-quarter 2025 results of the Pagaya SmartResi fund, Pagaya’s AI-driven real estate vehicle. During the quarter, the fund fell another 10%, bringing cumulative losses to nearly 40% since its launch. In 2025 alone, through the end of the third quarter, the fund declined by roughly 24%. SmartResi is one of Pagaya’s largest funds, managing $432 million as of the end of the quarter.
In absolute terms, the fund has erased close to $300 million in value since its inception in the second quarter of 2021. The SmartResi fund uses Pagaya’s AI models to identify residential properties that it believes are undervalued relative to their market price. The portfolio currently includes approximately 1,400 residential properties across the United States. The algorithm is designed to improve asset selection, manage risk more efficiently, and generate excess returns for investors.
The fund is now in an advanced stage of its lifecycle. Under its terms, investor capital is locked in until the end of 2027, with fund managers retaining the option to extend the lock-up through 2029. Pagaya charges an annual management fee of 1.5%.
SmartResi was marketed in both Israel and the U.S. to qualified and institutional investors. But the timing has been unforgiving. The past several years have been challenging for U.S. real estate investors more broadly, amid rising interest rates and declining property valuations.
Still, broader market benchmarks have performed meaningfully better. The MSCI US Investable Market Real Estate 25/50 Index rose about 17% between the second quarter of 2021 and the third quarter of 2025. The Dow Jones U.S. Select REIT Index gained roughly 4% over the same period. Both posted positive, if modest, returns while Pagaya’s fund suffered steep losses.
Pagaya itself is currently valued at about $1.8 billion on Nasdaq. Over time, the company has transformed its business model. Rather than focusing primarily on asset management, Pagaya has increasingly positioned itself as a technology and infrastructure provider, specializing in debt securitization and credit solutions for financial institutions. In this area, the company has reported growing volumes and expanding partnerships with banks and institutional investors.
That strategic shift may appeal to equity investors. But for those who committed capital to Pagaya’s AI-powered real estate funds, it offers little consolation.
