As part of our broader strategy of investing in new housing in cities with a supply shortage, we’ve invested $2 million in the acquisition of two neighboring lots, totaling 0.34 acres, in East Hollywood, Los Angeles as the future site of an apartment building.
Business plan
The borrower intends to finalize permits for the construction of a 33-unit apartment building on the property, then secure a construction loan to pay back our investment. We anticipate that this process will take 12 to 18 months.
This type of investment is referred to as bridge loan, since it provides a short-term financing solution until the next stage of financing (in this case, a construction loan) is obtained. The primary advantage of making a bridge loan is the ability to earn an attractive risk-adjusted return without committing our capital for a long period of time.
Why we invested
- Great location: Just five miles northwest of downtown LA, East Hollywood provides close proximity and easy transportation to major employment centers.
- Strong recent growth: Over the five-year period ending September 2018, the Zillow home value index in the 90004 ZIP code has increased from $866,000 to $1.44 million, an increase of more than 60%. We believe this trend will continue as prospective homebuyers are priced out of more established neighborhoods.
- City-wide housing shortage: LA home prices have grown much faster than incomes in recent years, resulting in a major affordability crisis within the city. With large sections of the city simply out of reach for many renters and homebuyers, we believe that investments which create reasonably-priced new homes will deliver attractive long-term returns. See our LA market analysis.
