Blind Pool vs Deal-by-Deal Private Lending Funds

The blind pool vs deal-by-deal fund question comes down to one thing: who picks the loans. In a blind pool, you subscribe, your money sits in the fund, and the manager decides where it goes. In a deal-by-deal structure, your capital still sits in the fund, but nothing gets deployed to a specific loan until you elect that loan and sign a disclosure tied to it.

Michael Columbia runs the second version inside Midpoint Capital Fund One, a 506(c) fund for accredited investors with Midpoint Capital Partners as general partner. He is also candid that the feature he sells hardest is the same one that slows his funding timeline.

What follows is how the election mechanic actually works, what the delay costs on both sides of the table, and the underwriting guardrails — rate bands tied to sponsor history, per-metro concentration caps, written risk memoranda — you should insist on seeing before wiring money into either structure.

From the Real Estate Pros Show

This article draws on an interview with Michael Columbia of Midpoint Capital Partners / Midpoint Capital Fund One on the Real Estate Pros Show, hosted by Scott Bursey.

Blind Pool vs Deal-by-Deal Fund: Where the Allocation Decision Sits

In the standard private debt fund, you review a PPM, subscribe, wire capital, and hand over discretion. As Columbia describes the model, investors “put their money in and they kind of don’t know what’s going on,” then spend the holding period calling investor relations to find out where it went and how it is performing.

That is not a criticism of the structure so much as a description of the trade. Blind pool discretion is what lets a manager fund a loan in days, rebalance across product types when fix-and-flip softens, and tell a borrower yes without waiting on anyone. Speed is the product.

What you give up is visibility and veto. You cannot decline the one deal in the portfolio you personally think is mispriced, and your view of the market — which, if you are an active investor, may be sharper than the manager’s in your own metro — does not enter the allocation decision.

The information gap is the part investors underrate. In a blind pool, the reporting you get is the reporting the manager chooses to produce, filtered through whoever answers the phone. Columbia’s framing is blunt: there is usually “an investor relations sales guy getting on the phone trying to make it sound better.”

The alternative exists because private capital is crowded right now. More managers are raising, more borrowers are moving from banks to private money, and the differentiator in a crowded field stops being rate and starts being how much the investor can actually see.

Deal-by-Deal Election: The Mechanic and the Paperwork

Here is the sequence Columbia runs inside Midpoint Capital Fund One. An investor reviews the PPM, subscribes, and wires capital into the fund. The money sits there — inside the fund, not allocated. When a loan clears underwriting, it is presented to the investors in the platform, who elect whether their capital goes into that specific deal.

The paperwork step is the part that makes it real. Before any capital moves to a loan, the electing investor signs an investment disclosure for that particular deal. Only then are funds deployed, and they are deployed to that deal only.

Two structural details matter for anyone evaluating it. It is a 506(c) offering, so participation is limited to verified accredited investors. And Midpoint Capital Partners — the operating lender that originates, funds, and services the loans — acts as general partner of the fund, which means the entity choosing what to present is the same entity underwriting and servicing it. Ask how that alignment is documented.

Reporting does not stop at funding. Investors keep a login and can see how each allocated position is performing on their own schedule — monthly, quarterly, or at two in the morning — through statements and repayment. Columbia’s point is that the bad months show up on screen the same way the good ones do: “they get to see the good, the bad, the ugly.”

The practical effect is that selection risk shifts partly onto you. You are no longer buying a manager’s judgment wholesale. You are buying access to their pipeline and underwriting, then making your own call on each file.

Every single project, every single deal, every single investment is going to have risks. There’s absolutely not one out there that has zero. Review the risk, understand the risk, ask the why on every single risk.

— Michael Columbia, Midpoint Capital Partners / Midpoint Capital Fund One

The Tradeoff Nobody Advertises: Funding Speed

Election takes time, and time costs both sides money. Columbia names this as his single biggest operational worry: “It’s one of those things where it’s the greatest selling point of the fund, but at the same token, I want to make sure it’s working right.”

The mechanism is simple. A file finishes underwriting, the platform notifies investors, and nothing funds until enough of them elect. If that takes a few extra days or a week, underwriting and funding slip by that much. Meanwhile the capital waiting in the fund is earning nothing — it is subscribed but not deployed.

Notification does not solve it. His words: “People are people. They can get notified a hundred times. They may not even look at it, even though their money is sitting in our fund, not making a dollar.”

If you are the borrower, that changes how you shop this lender. A deal-by-deal fund is a reasonable fit for a development bridge with a flexible close, and a poor fit for a 14-day hard money close on a foreclosure auction takedown. Midpoint tells borrowers about the election step up front, so ask the question directly: what has your median time from underwriting approval to wire been, and what happens if elections come in short?

If you are the investor, model deployment pace, not just coupon. A 10% loan that sits uninvested for six weeks between positions is not a 10% return on your committed capital. Ask what percentage of subscribed capital is currently deployed, and how fast it recycles after a payoff.

Underwriting Guardrails to Demand From Any Debt Fund

The most useful thing in Columbia’s process is not the election feature. It is that every file gets underwritten against the fund, not just against the collateral.

A loan can be a genuinely good loan and still fail. If it would pull too much of the fund’s capital into one position, or if the property sits in a metropolitan area already at the fund’s exposure ceiling, the system declines it automatically and tells the underwriter why. He cites a $50M cap per metropolitan area: “Let’s say my fund was getting too full and it came in in this metropolitan area and I already have two deals and it’s already capped at our $50 million mark. It’s immediately going to decline the file.”

The second guardrail is written. Underwriting memoranda and deal disclosures list the risks on a file alongside the mitigations the underwriters are relying on — not a summary of the upside with a risk paragraph bolted on.

Frame both as questions for a blind pool manager, where you have no per-deal veto and these limits are the only thing standing between you and concentration:

• What is the maximum percentage of fund capital that can sit in a single loan, and who can waive it?
• Do you cap exposure by metro, by asset class, or both? What are the current numbers, and where are you against them today?
• Are those limits coded into the underwriting workflow or enforced by judgment?
• Will you show me a redacted underwriting memorandum with the risk and mitigation sections intact?

A manager who cannot answer the concentration question with a number is answering it with hope.

Pricing and Market Read: Where Rates and Risk Sit Now

Midpoint’s bridge rates run roughly 8% to 14%, with placement inside that band driven by risk factors on the file. Loan sizes go up to $30 million on bridge, alongside fix-and-flip and DSCR product for smaller deals.

The dominant variable is sponsor track record. “That track history is really going to determine a lot of times if you’re approved or if you’re not and what your rate’s going to be,” Columbia says. “It’s kind of your credit, so to speak, when you’re developing something or going into the commercial world.” For an LP, that cuts the other way: if a presented deal is priced at the low end of the band, the sponsor history had better justify it.

His current read on product and geography:

• Multifamily — “doing its little turn” right now, while roughly 90% of lender programs are still pointed at it. Crowded capital, softening fundamentals.
• Hospitality and hotels — currently favored.
• RV parks — strong on the West Coast.
• Geography — Texas and Arizona markets saturated after years of running hot; the Carolinas still healthy; rural disfavored; California and Nevada avoided entirely.

He is careful that asset class alone tells you nothing: a product type that is weak in one market can be fine in another, which is why the underwriters read the market before issuing an approval.

The discipline to copy is asking why a number is what it is. On a Punta Cana condo-hotel deal in progress, hotels are running 79.4% occupancy year-round against a typical 60% to 70%. That gap is the reason to underwrite it, and also the thing to interrogate: how long has it held, and is it a one-year fluke?

Due Diligence Runs Both Directions

Columbia’s most expensive lesson cost him two funds, from opposite directions. Asked what it was, he does not hedge: “Do not deal with bad investors and or bad clients. Both of them have taken down one fund that I started. So pay attention, do your due diligence, do your background checks, do your KYCs.”

Expect to be diligenced, in other words. A manager who runs KYC and background checks on incoming capital as seriously as on borrowers is protecting the position you are about to buy. If subscribing feels frictionless, that is information.

His rule for accredited investors putting money into debt is to stop treating LTV as the whole answer. A deal can show a 50% loan-to-value and a projected return that looks excellent, and still be a bad loan if the project type does not belong in that market. “That’s a red flag,” he says — low leverage does not fix a demand problem, because the exit depends on someone buying or refinancing the thing at the end.

So read the risk section first. Every deal has risks; none has zero. His instruction is to ask why on each one and to compare the stated mitigation against what you actually know about that market. Then decide whether the total sits inside your appetite.

“I think people forget to look at the bad stuff in a deal,” he says. In a deal-by-deal structure, that omission is entirely yours — you signed the disclosure. In a blind pool, it is the manager’s, which is why the concentration and memoranda questions matter more there, not less.

Frequently asked questions

What is the difference between a blind pool fund and a deal-by-deal fund?

In a blind pool, you subscribe capital and the manager has full discretion over which loans it funds. In a deal-by-deal structure, your capital sits in the fund but is not deployed until you elect a specific loan and sign an investment disclosure for that deal, after which your money goes to that loan only.

The blind pool buys you speed and passivity. The deal-by-deal structure buys you veto rights and per-deal visibility, at the cost of slower deployment and more work on your side.

Do I have to be an accredited investor to invest in a 506(c) real estate debt fund?

Yes. A Rule 506(c) offering can advertise publicly, but in exchange the sponsor must take reasonable steps to verify that every investor is accredited — typically through third-party verification, tax documents, or a letter from your CPA or attorney. Midpoint Capital Fund One is structured this way.

Expect that verification to be more involved than simply checking a box, and confirm the process before you plan around a funding date.

What bridge loan rates should an investor expect right now, and what moves them?

Midpoint’s bridge pricing runs roughly 8% to 14%, with the specific rate set by the risk factors on the file. The single biggest driver is sponsor track record, which Columbia describes as the borrower’s credit in the commercial world.

Leverage, asset class, market, and exit plan move the number too. If a loan is priced near the bottom of the band, look for the sponsor history that earns it.

Why would a lender decline a good deal because of its location?

Because the loan is underwritten against the fund, not only against the property. If a fund already holds its maximum exposure in a given metropolitan area, another loan there adds correlated risk regardless of how good the individual deal looks.

Midpoint caps exposure at $50 million per metropolitan area and declines files automatically once that is hit. Ask any manager what their per-metro and per-deal limits are and whether they are enforced by software or by judgment.

What should I look for in a fund’s risk disclosure before I approve a specific loan?

Look for a risk section that names specific risks and pairs each with the mitigation the underwriter is relying on, plus an assessment of the market for that project type. Then ask why on every risk listed and decide whether the mitigation is credible.

Treat an unusually strong headline number as a question rather than a comfort. A market running 79.4% occupancy against a 60% to 70% norm needs an explanation for the gap and evidence that it has held for more than one year.

The bottom line

Before you wire into either structure, get three numbers in writing: the maximum share of fund capital any single loan can take, the exposure cap per metro, and the share of subscribed capital currently deployed. Those three answers tell you more about how your principal will be treated than the target return ever will.