Just over a year ago, we launched the Fundrise Opportunity Fund with the mission to combine our nimble, technology-driven approach to real estate investing with the exclusive set of tax benefits being offered through the new Opportunity Zone legislation.
As one of the first Opportunity Funds to launch, we were able to quickly begin deploying capital while many other groups grappled with concerns over what they believed to be uncertainties in the legislation. That early start has allowed us to become one of a select few operating funds that have both acquired multiple assets and actually commenced work on improving on those assets.
Our unique technology-driven approach enabled us to not only adopt the new Opportunity Fund investment model faster than most but also offer investors a low-cost, diversified, and accessible portfolio at one of the lowest investment minimums in the market.
Additionally, having gone to work quickly on the real estate side, we were able to establish a robust pipeline of high-quality real estate opportunities — an imperative given the deadline-driven nature of Opportunity Zone tax incentives.
Overall, we’ve been extremely pleased with our progress at both the fund level and asset level and look forward to continuing to grow the fund and its portfolio through the rest of the year.
Key Performance Stats
- Approximately $11.5 million in QOF proceeds deployed in qualifying opportunity zone real estate.
- 3 assets acquired, with a fourth under contract.
- 2 of our assets have spent approximately 25% of the substantial improvement requirement.
- Construction underway for one asset.
In addition to these important achievements, we continue to believe there are a number of features that distinguish the Fundrise Opportunity Fund, and that these features offer investors compelling benefits on top of the tax incentives already available through the Opportunity Fund structure.
What Sets the Fundrise Opportunity Fund Apart
1. Lower costs
Unlike the traditional private equity fund “two-and-twenty” fee structure, the Fundrise Opportunity Fund fee structure subtracts hundreds of basis points from these typical expenses. We do this by leveraging our proprietary technology platform and performing extensive hands-on work ourselves – from tax compliance and reporting to asset underwriting, to execution on carefully crafted redevelopment plans.
Through this approach, we’ve lowered traditional fees, including:
- 0.75% annual investment management fee (waived through June 30, 2019).
- 0.45% annual tax and accounting fee.
- 15% incentive allocation, to be assessed at the end of the fund’s 10+ year term, and only after net returns to our investors exceed 8% annually.
Through a technology-focused approach, we’re able to create backend efficiencies to dramatically reduce our overhead and operating expenses. Moreover, as a sponsor of more than a dozen private offerings, including 11 REITs, we are able to leverage economies of scale.
2. Investment on Your Schedule
Our relatively low Opportunity Fund investment minimum accommodates a wide variety of capital gain events, and also allows investors to roll in smaller gains as they recognize them, rather than waiting for a more significantly sized gain to accumulate.
This lower barrier enables investors to invest on their schedule. Why? We believe that an investor-first structure is built to meet your timeline – not ours. Rather than requiring a six-figure lump sum on day one, or necessitating that investors sell their assets at inopportune moments in order to fund capital calls, we empower you to calibrate your Opportunity Fund investments to match your appreciated asset dispositions and meet your financial planning needs.
3. Boosted Transparency
One of our overarching goals is to provide a new level of transparency to the investment industry. To that end, we aim to provide you with regular updates on the performance of the assets within our Opportunity Fund.
Within your personalized investor dashboard, we provide you with an aggregated synopsis of your holdings across our platform, as well as more granular performance metrics and qualitative asset-level information. Your dashboard features a comprehensive timeline with updates on all of the various properties to which you have exposure within your portfolio. Your dashboard also makes it easy to navigate to important updates, such as the fund’s externally audited consolidated annual financials.
In addition to fund-level and asset-level performance reporting, we also aim to facilitate easy financial record-keeping. Your dashboard provides easy access to your account history, as well as any documents and information needed to complete your tax returns.
4. Risk Mitigation
By investing in Opportunity Zones through the Fundrise platform, you have a world-class, multidisciplinary team working on your behalf. Not only do we have an in-house real estate acquisition and management team with more than $10 billion and 100 years of combined transactional experience, we also have teams of dedicated accounting, tax, and legal experts focused on navigating the complexities of Opportunity Zone investing.
Additionally, we engage outside experts where needed. To date, we’ve partnered with Ballard Spahr, LLP; Goodwin; and CohnReznick for legal, accounting, tax, and compliance consulting. We are also a member of the Economic Innovation Group’s Opportunity Zone’s Coalition, which has helped shape the Opportunity Zone legislation and subsequent regulations since its inception.
We believe that this comprehensive approach will help maintain our fund’s ongoing compliance with Opportunity Zone regulations, and enhance our ability to leverage the legislation to the greatest possible extent for the benefit of our investors.
5. Diversification Leverage
We’ve thought deeply about how best to structure our Opportunity Fund to maximize its tax efficiency and return potential while mitigating its risk profile. With this intention, we believe that the most advantageous step forward is to structure the fund as a C Corp, and to make a REIT election. We believe this should position the fund to capitalize on unique REIT benefits such as:
- The ability to avoid double taxation of income at the corporate and investor levels, as well as certain state taxes.
- The opportunity for investors to potentially leverage the new 20% deduction for QBI available to pass-through entities.
- The clear guidance on QOF exit strategies for REITs that has been issued by the IRS in its most recent round of regulatory guidance.
A multi-asset REIT structure also gives investors the benefit of diversification, thereby mitigating risk through exposure to numerous markets, asset types, and investment strategies. To quote the Economic Innovation Group, the independent think tank that spearheaded the initial legislation that effectively made QOZ investing possible:
Multi-asset funds are imperative so that investors can spread risk across multiple zones, investments, and asset classes.
While our fund structure is not simple and does require a higher back-end lift than a more straightforward single-asset fund, our experience and expertise enable us to efficiently manage these complexities. As a result, we give our investors the potential to unlock better risk-adjusted returns without the headaches that come with actively managing multiple assets.
A Look at the Progress of Fundrise Opportunity Fund Assets
Washington, D.C. — LeDroit Park Apartment Renovation
We are optimistic about the potential of this asset to generate strong investment returns for a variety of reasons, which you can read about here. To date, we have received Board of Zoning Administration approval for our project design. We are currently working with an architecture firm on a permit set, have commenced pre-construction testing and demolition, and expect to begin construction this autumn.
Los Angeles — Culver City — West Adams Commercial Renovation
Our business strategy of redeveloping this property just east of Culver City for creative office use — which is detailed here — is already being validated. Not only have we received permits to begin core and shell work on the asset, but most importantly we have successfully signed a lease with Mass Appeal Records, a New-York based company that now joins a spate of other high-profile entertainment and technology tenants that are expanding in the Culver City-West Adams submarket. We anticipate construction work on the property to take between 4-6 months with the tenant taking possession of the building shortly thereafter
Los Angeles — Culver City — West Adams Commercial Redevelopment
Our second investment in the Culver City–West Adams Corridor has also seen significant progress to date. As discussed here, our site plan for the property gives us the flexibility to tailor the interior build-out for office or retail use or a combination of the two. At present, we are engaged in preliminary conversations with prospective tenants and intend to identify one or more that we believe will inject added energy into this revitalizing community.
Our teams are working diligently to ensure the continued compliance and performance optimization of the Fundrise Opportunity Fund.
In addition, as we have noted, transparency is of the utmost importance to us. As such, we intend to continue providing regular and comprehensive updates for you, so you can stay abreast of our progress at both the fund level, and the individual property level.
We look forward to continuing to partner with you, and to helping you reap the benefits of this novel investment model. As always, if you have any questions or feedback, you can reach our Investments Team at email@example.com or schedule a time to talk with one of our Opportunity Fund Investments specialists here.