We’ve invested $5 million in the acquisition of an 81,070 square foot (1.86 acres) property in the Glassell Park neighborhood of Los Angeles as the future site of 36 homes. This project is the latest execution of our broader urban housing strategy, which aims to earn attractive risk-adjusted returns through the creation of new homes in supply-constrained cities.
Business plan
The project’s sponsor aims to obtain the entitlements to build 36 small-lot homes on the property. Upon securing the necessary entitlements, they expect to secure a construction loan to take out our position in the investment.
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
- Strong recent growth: Over the five-year period ending October 2018, the Zillow home value index in the 90065 ZIP code has grown nearly 50% from $548,000 to $811,000. We believe this trend will continue as prospective homebuyers are priced out of more established areas.
- Great location: Just six miles northwest of downtown LA, Glassell Park provides close proximity and easy transportation to major employment centers.
- 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.
