We’ve invested $3 million in the acquisition of two neighboring lots, totaling roughly 13,800 square feet (0.32 acres), in the Mid-City neighborhood of Los Angeles, California as the future site of a 31-unit apartment building. This project is the latest execution of our urban housing strategy, which aims to earn attractive risk-adjusted returns — in this case, roughly 8.9% annually — through the creation of new housing in supply-constrained cities.
Business plan
The borrower intends to finalize permits for the construction of a 31-unit apartment building on the property. We anticipate that this process will take 18 to 24 months. Upon finalizing permits, they plan to either sell the shovel-ready property or secure a construction loan to take out our position in the investment. Our goal is to earn interest income for the West Coast eREIT during this period.
Why we invested
- Experienced partner: The principals of the borrower have collectively entitled and developed about 60 projects valued at roughly $650 million worth of real estate.
- Attractive margin of safety: Our loan is equal to roughly 72.3% of the total value of the property, based on an April 2019 appraisal. This serves to reduce our risk, as the property would have to lose more than a quarter of its value before the principal of our investment was threatened.
- City-wide housing shortage: LA housing 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 smart investments in up-and-coming areas will deliver attractive long-term returns. See our LA market analysis.
