One of my investments just posted an update. There was a bit of a delay getting started because it required a ton of excavation, but now things are moving forward! Here was what they sent me:
In May 2018, we invested $5 million in the construction of a mixed-use building consisting of 51 apartments accompanied by ground-floor retail and parking in the Koreatown neighborhood of Los Angeles. Today, we’re pleased to report that the foundation has been poured and the retaining walls are being constructed.
While the project is progressing, the sponsor has reported a number of delays, including a period of heavy rain, mismarked utility lines, and carefully monitoring our impact on neighbors to limit disturbances during major excavation work.
It’s important to note that delays are an inherent part of construction, and very few projects actually finish on time.
This may initially seem like a reason to avoid investing in construction, but by structuring our investments as debt, we earn a fixed amount of interest income each month for as long as it takes to finish the project, even it takes longer than initially expected (which it usually does).
While construction continues, we expect to earn an annualized return of roughly 11.3%. At the same time, the successful completion of each major construction milestone reduces the overall risk of the project.
Construction is expected to wrap up in the Spring of 2021, which is roughly ten months behind the original schedule.
Here are a few pictures of the project so far.
It’s pretty cool to be part of a big development in LA’s Koreatown!
Hopefully this project stays on track and is able to reach its projected returns of 11.3%. This particular deal is structured as preferred equity, which means no matter how much the developer makes, we get a fixed percentage FIRST, before the developer (but after the lender).