Pagaya's AI-powered real estate fund has lost 54.5% since 2022
The $250 million fund has seen the value of its assets fall as higher interest rates and declining property valuations weigh on its portfolio.
Pagaya's real estate fund, which uses artificial intelligence to invest in U.S. residential real estate, has recorded a negative return of 54.5% since the beginning of 2022. The Pagaya SmartResi Fund I raised $250 million from investors and used leverage to expand its asset base to nearly $830 million. Since then, the value of its assets has fallen by $480 million, while investor losses have totaled $135 million.
The fund uses technology developed by Israeli fintech company Pagaya to identify and acquire single-family homes in the U.S. In the second quarter of 2026, it recorded an additional negative return of 10.28%, bringing its year-to-date loss to 13.9%.
The fund currently holds 888 single-family homes across 412 U.S. ZIP codes, a sharp decline from the 1,400 homes it held last year. The portfolio has an occupancy rate of 92.3%, while its rent collection rate stands at 96.2%. The average purchase price per home is $317,000, and the average monthly rent is $2,016.
The losses at Pagaya's real estate fund stem largely from the sharp shift in the macroeconomic environment since its launch in 2021. The fund acquired single-family rental homes during a period of historically low interest rates. The subsequent Federal Reserve rate hikes increased financing costs and mortgage rates, weakened housing demand and put downward pressure on property values.
At the same time, rising U.S. Treasury yields pushed up the capitalization rates used to value real estate assets, further weighing on valuations and making relatively conservative investments more attractive. The result was a double hit for the fund, with higher financing costs coming alongside declining asset valuations.
The SmartResi fund was launched in 2021 and targeted qualified and institutional investors in Israel and the U.S. Its strategy was to use Pagaya's AI systems to identify and acquire undervalued homes for the rental market.
Under the fund's previously disclosed terms, investors' capital is locked in until at least the end of 2027, while the managers have the option to extend the fund's lifespan until 2029. Management fees are set at 1.5% annually.
The fund's poor performance stands in contrast to Pagaya's current core business. In recent years, the company has moved away from fund management and transformed primarily into a technology platform focused on credit and securitization.
