We’ve invested roughly $3 million in the acquisition of a 12,500 square foot (0.28 acre) property in the Mid-City neighborhood of Los Angeles, as the future site of a 54-unit apartment building.
By opportunistically financing new housing creation in supply-constrained markets like LA, we can continue to target attractive yields — in this case 8.9% annually — while record prices have driven yields on public stocks and bonds to near-historic lows.
Business plan
The borrower, Ketter Group, plans to finalize designs and permits for the construction of a 54-unit apartment building on the property. We expect that this process will take roughly 12 to 18 months. Upon finalizing designs and permits, they plan to either sell the shovel-ready property or refinance into a construction loan.
Our investment is structured as debt, where the borrower must pay us a fixed interest rate before they can earn a return for themselves. Our goal is to earn consistent cash flow from interest payments through the maturity of the loan.
Why we invested
- Experienced partner: The principals of the borrower have collectively entitled and developed more than 60 projects valued at roughly $700 million worth of real estate.
- Attractive margin of safety: Our loan is equal to roughly 64% of the total value of the property, based on a July 2019 appraisal. This serves to reduce our risk, as the property would have to lose more than 35% 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.
As always, please don’t hesitate to reach out to investments@fundrise.com with any questions or feedback.
