In June 2016, we partnered with an experienced real estate developer to acquire and renovate The Reserve at Mandarin, a 520-unit apartment community in Jacksonville, Florida.
Today, we’re pleased to report the successful sale of the property. Between the rental income we received during the course of the investment and the profits from the sale, we achieved an annualized return of roughly 20.4%¹ (more than 1.6x our original investment over three years), substantially outperforming our initial return projection of roughly 11 – 13% annualized.
Business plan recap
Our partner renovated the unit interiors and remodeled the common areas in under 24 months. These renovations increased net income by 30% and the property value by approximately 38%.
We initially planned to hold the property for several years after completing renovations. However, we saw strong interest from buyers and ended up selling at a roughly 47% profit, net of transaction costs and prepayment penalties.
When we invested in 2016, this was our first project with American Landmark Apartments. Through its success, we’ve developed a strong relationship, and have since invested in 16 additional projects together.
To be clear, these results are exceptional and are not something we expect to be able to repeat with every investment. In particular, we believe this investment benefitted from the market’s relative undervaluing of Jacksonville apartments in 2016, when we acquired the property.
As we stated in our mid-year letter on investing late in the business cycle, record asset prices have made opportunities like The Reserve at Mandarin increasingly rare. In short, we do not believe that current prices are sustainable, and accordingly expect to hold back and keep more cash on hand than normal.
While this may result in slightly lower returns in the short term, we believe that by positioning ourselves to aggressively pursue future opportunities that arise as a result of economic turbulence, our patience will be rewarded.
Investor FAQ: How does an individual project impact your portfolio?
This investment was structured as equity, i.e. we were the owners of the property and entitled to our share of rental income as well as any profits from selling it. Along with several similar projects, The Reserve at Mandarin investment has driven the strong performance in terms of both dividends and NAV appreciation for the Growth eREIT over the past three years.
Because our quarterly net asset value (NAV) process already captured most of the increased value of the property in past adjustments to the Growth eREIT’s NAV per share, we do not expect the sale to contribute substantially to any future NAV changes.
As always, please don’t hesitate to reach out to investments@fundrise.com with any questions or feedback.
