Looks like my portfolio with Fundrise picked up a new project recently. We are entitled to an 8.5% annual return, while the principal of our investment is secured by the value of the land.
It is a bit more conservative of a play with a lower return, but it is debt with roughly a 70% LTV, so the market would have to lose a LOT of value before it risks our principal portion. Here’s the info:
We’ve invested roughly $6.5 million in a 198,000 square foot lot (4.5-acre) property in the El Sereno neighborhood of Los Angeles, as the future site of 42 homes. This is our first investment in El Sereno, which is located just seven miles northeast of downtown LA and offers an urban feel among rolling hills.
By opportunistically financing new housing creation in supply-constrained markets like LA, we can continue to target attractive yields, while record prices have driven yields on public stocks and bonds to near-historic lows.
The borrower, True Life Companies, intends to entitle the property and finalize permits to build 42 new homes. We expect this process will take roughly 12 to 18 months. Upon securing the necessary entitlements and permits, they expect to pay back our investment via a sale or refinancing.
Our investment is structured as debt, where the borrower must pay us a fixed rate of return — in this case 8.5% annually — before they can earn a return for themselves. Our goal is to earn consistent cash flow from interest payments through the maturity of the loan.
Why we invested
- Attractive margin of safety: Our loan is equal to roughly 71% of the total value of the property, based on a May 2019 appraisal. This serves to reduce our risk, as the property would have to lose over 29% of its value before the principal of our investment was threatened.
- Experienced, local sponsor: True Life Companies is a real estate investment firm that specializes in creating desirable housing communities in fast-growing markets. To date, their team has invested approximately $340 million across more than 670 homes and 5,000 lots on the West Coast.
- Fast-growing area: El Sereno is an emerging neighborhood located in northeast Los Angeles that benefits from proximity to downtown, hillside views, and a strong school district. Over the five year period ending May 2019, home values in the 90032 ZIP code have increased more than 72%, according to Zillow.