In August 2018, we acquired Sterling Town Center, a 339-unit stabilized apartment community located in Raleigh, NC, partnering with a real estate sponsor focused in the region. We initially structured our investment as a short-term loan, which would convert to equity ownership once we were able to assume the Housing and Urban Development (HUD) loan on the property. HUD loans are more difficult to obtain than traditional apartment financing but are longer-term with generally lower interest rates.
We are pleased to announce that HUD approved our assumption of a 33-year loan on the property with a fixed interest rate of 3.70%. By comparison, the national average rate for 10-year apartment loans greater than $5 million was 4.00% – 4.30% as of May 2, 2019, according to Marcus and Millichap.
A lower interest rate effectively makes the property more valuable, as more of the rental income is left over to distribute to the owners. The long-term, fixed interest rate also lowers our risk, as our monthly loan payments would be unaffected by future interest rate increases.
Conversion supports increase in Heartland eREIT dividend for May 2019
Now that our investment has converted to equity, we have received our share of the rental income that Sterling Town Center earned from August 2018 to March 2019, when the HUD application was still pending. This distribution has supported an increase in the daily dividend for the Heartland eREIT to 9.5% on an annualized basis for May 2019. We anticipate a similar dividend amount for June 2019.
In effect, the increase is making up for the past few months, during which the Sterling Town Center investment made up a substantial portion of the Heartland eREIT’s allocation, but was waiting on the loan approval before it could distribute. Going forward, we expect that the Heartland eREIT’s dividends will settle back to be more in line with our other more mature eREITs (but as with any investment, there can be no guarantees).
As always, please don’t hesitate to reach out to investments@fundrise.com with any questions or feedback.
