In November 2020, we invested approximately $11.2 million to provide a loan for the development of a new horizontal multifamily community in Phoenix, Arizona. In July 2021, after evaluating the progress, we elected to increase the total balance of our loan by $4.3 million to approximately $15.4 million. At that time, the borrower determined that an increase in the initial project budget was necessary to complete the construction as the cost of building materials and labor had increased.
Since our acquisition, demand for build-for-rent single-family rental homes has continued to rise, especially across the nation’s Sunbelt regions like Phoenix, where affordable living costs have drawn a vast migration of new residents over the past decade — particularly since the onset of the COVID-19 pandemic put a premium on spaciousness and privacy. This surging demand for rental homes has driven an increase in prices for properties like this one, thus reducing the overall risk of our investment.
Today, we’re pleased to share that our sponsor has successfully refinanced the property and paid back our investment plus interest, in full. Per the loan agreement, a unique provision in the loan structure allowed the interest to accrue on the maximum principal balance for fifteen months after closing, despite the borrower repaying the loan ahead of schedule. As a result, we were able to achieve an annualized return of roughly 13%, surpassing the roughly 11.5% projected annualized return over the life of the investment. We view the successful result of this investment as both a validation of this project specifically and of our build-for-rent housing thesis broadly — a thesis in which we continue to anticipate tremendous potential in the coming years. In addition, as interest rates have increased considerably since our original investment in this property in November 2020, this payback allows us the opportunity to now redeploy our capital into a much higher yield environment.
Investor FAQ: How does this project impact your portfolio?
This investment was structured like debt, where we were entitled to a fixed rate of return — in this case, approximately 13% annually. Throughout the term of the investment, the regular income it generated supported quarterly dividends for the Fundrise West Coast eREIT.
As always, if you have any questions or feedback, please visit our help center or reach out to us at investments@fundrise.com.
