Portfolio update: Preferred equity investment successfully exits with strong returns

A 103-unit Arizona development pays back capital ahead of schedule, delivering strong returns to investors.

Oct 22, 2025

Investment outcome: Capital returned with attractive returns

We're pleased to report that Thompson Reserve, the 103-unit horizontal multifamily development in San Tan Valley, Arizona, has successfully paid back. The investment was held in both the Income Real Estate Fund and the Opportunistic Credit Fund, carrying a 13.85%¹ annual interest rate, delivering a strong return for fund investors.

This outcome validates our opportunistic credit strategy and demonstrates the effectiveness of our preferred equity structure in delivering predictable, risk-adjusted returns even in challenging market conditions.

Investment recap

Thompson Reserve represented a compelling opportunity during a period of credit market dislocation. Our preferred equity investment financed the development of a 103-unit horizontal multifamily community on 9.63 acres in San Tan Valley, roughly an hour southeast of Phoenix.

Key investment terms:

Fund breakdown: $9.0 million across Opportunistic Credit Fund ($7.2M) and Income Fund ($1.8M)
Structure: Preferred equity with 13.85%¹ fixed annual return
Location: San Tan Valley, AZ (Phoenix metro area)
Asset type: 103-unit horizontal multifamily development

Why this investment succeeded

Several factors contributed to the successful outcome of this investment:

Strong market fundamentals: The Phoenix metropolitan area has been one of the fastest-growing regions in the country over the past decade and is the 11th largest metro area with nearly five million residents.
Preferred equity structure: Our senior position in the capital stack provided downside protection while capturing attractive fixed returns. The sponsor's 23.6% equity investment junior to our position created a meaningful cushion for our capital.
Experienced execution: The borrower successfully navigated the construction process and lease-up phase, demonstrating the importance of partner selection in our investment process.
Market timing: We invested during a period when traditional lenders had pulled back, allowing us to secure attractive terms that reflected the risk-return opportunity in the credit markets.

Validating our opportunistic credit strategy

This successful exit reinforces several key elements of our investment approach:

Credit market dislocation creates opportunity: As we noted when making this investment, macroeconomic conditions and credit market dislocations created a window to achieve outsized returns. The 13.85%¹ fixed return we secured was significantly higher than the 9-10% rates available 12-24 months prior.
Preferred equity provides optimal risk-return profile: The structure allows us to capture equity-like returns while maintaining debt-like downside protection. Our priority position ahead of common equity proved crucial in delivering predictable returns.
Focus on fundamentals: Our investment in high-growth Sunbelt markets with strong demographic trends continues to prove successful. The Phoenix metro area's diverse economy and consistent population growth provided a solid foundation for this investment.

Portfolio impact and outlook

The successful completion of Thompson Reserve contributes to the overall performance of both funds and demonstrates the value of our opportunistic credit strategy. While interest rates have declined since we originally closed this preferred equity investment, we continue to see attractive opportunities in the current environment.

We are currently witnessing one of the largest commercial real estate refinancing cycles in history, with approximately $1.5 trillion in debt scheduled to mature over the next few years. This massive refinancing cycle, combined with persistent bank selectivity and continued financing gaps, is creating a robust deal pipeline with experienced sponsors offering compelling risk-adjusted returns. We expect these market dynamics to persist through the current cycle, though we acknowledge that such periods of dislocation are inherently temporary.

As always, if you have any questions about this investment or our broader strategy, please don't hesitate to reach out to our Investor Relations team at investments@fundrise.com.

Disclosure: An investor in the Fundrise Income Real Estate Fund should consider the investment objectives, risks, charges, and expenses carefully before investing. The Fund’s prospectus contains this and other information and may be obtained here. Investors should read the prospectus carefully before investing.

Disclosure: This update describes the performance of a specific investment and should not be considered representative of the performance of any other investment or of the funds overall. Past performance does not guarantee future results. All investments involve risk and may result in partial or total loss of capital.

1. This solely represents a fixed rate of preferred return paid to the Opportunistic Credit Fund and Fundrise Income Fund under the terms of their investment agreements, and does not reflect either a gross or net return that an investor in the Opportunistic Credit Fund or Fundrise Income Fund may expect to receive as a result of this fixed rate return. Due to the uncertainty of other factors that will ultimately determine the return to any investor (such as leverage, cash drag, and other potential financings), the performance of this asset to the investor is currently unknowable and undeterminable, and may ultimately be lower or higher than the stated fixed rate of preferred return. However, please note that all investors in the Fundrise Income Fund will be subject to a 0.85% asset management fee and 0.15% advisory fee, and all investors in the Opportunistic Credit Fund will be subject to a 1.75% fund management fee, and, if the Opportunistic Credit Fund is able to achieve a greater than 10% overall return on its portfolio, which is also uncertain and undeterminable at this time, then the asset will also be subject to an additional 20% performance-based fee for those Opportunistic Credit Fund investors.