Last October, we provided a $4.5 million loan for the acquisition of a 33,000 square foot (0.76 acre) property in the West Adams neighborhood of Los Angeles, as the future site of a 30-unit rental townhome community.
Earlier this month, the borrower refinanced the property and paid back our loan. We earned an annualized return of roughly 10.8%¹ over the 8-month duration, which exceeded our initial projection of 8%, because the borrower agreed to fund 12 months of interest reserve on the maximum principal balance of $4.5 million even though they didn’t draw down the full loan amount.
As we stated in our recent letter on how we plan to invest through the current crisis, we believe that attractive investment opportunities will begin to present themselves in the coming months. While we’d have been happy to hold this investment over the full 14-month term, an earlier-than-expected payoff like this one serves to further bolster our cash reserves as we look to acquire assets that have the potential to outperform over the long term due to more permanent structural changes that emerge from the pandemic.
Investor FAQ: How does this project impact your portfolio?
This investment was structured as debt, where the project’s sponsor must pay us a fixed rate of return before they can earn a return for themselves, and their equity provides us with a cushion against losses. Throughout the term of this investment, the regular income it generated supported quarterly dividends for the Income eREIT III.
As always, if you have any questions or feedback, please visit our help center or reach out to us at investments@fundrise.com.
