Pagaya Real Estate Fund Suffers Major Losses Despite AI Strategy

The Pagaya SmartResi Fund I, which utilizes artificial intelligence to invest in U.S. real estate, has experienced a significant downturn, reporting a negative return of 54.5% since the beginning of 2022. The fund raised $250 million from investors and, through leverage, grew its asset base to nearly $830 million. However, the value of its assets has since decreased by $480 million, resulting in a total loss of $135 million for investors.

The fund employs the AI technology of the Israeli fintech company Pagaya to identify and acquire single-family homes across the United States. In the second quarter of 2026, the fund recorded another negative return of 10.28%, pushing the year-to-date loss to 13.9%. Currently, the fund holds 888 single-family homes spread across 412 U.S. zip codes, a reduction from the 1,400 homes held last year. The occupancy rate stands at 92.3%, with a rent collection rate of 96.2%. The average purchase price per home is $317,000, and the average monthly rent is $2,016.

The substantial losses are largely attributed to a dramatic shift in the macroeconomic environment since the fund's launch in 2021. The fund acquired rental homes during a period of low interest rates. However, subsequent interest rate hikes by the Federal Reserve significantly increased financing costs and mortgage rates, weakening housing demand and pressuring asset values. Concurrently, rising U.S. Treasury bond yields increased capitalization rates used for real estate valuation, making safer investments more attractive.

This combination of higher financing costs and declining asset valuations created a double blow to the fund. The SmartResi Fund was launched in 2021 for accredited and institutional investors in Israel and the U.S., with the aim of using Pagaya's AI to find undervalued homes for purchase and rental. Investor funds are locked in until at least the end of 2027, with potential extensions to 2029, and management fees are set at 1.5% annually.

These poor performance figures contrast with Pagaya's primary business operations, which have shifted in recent years from fund management to primarily serving as a technology platform for credit and securitization.