In June, we acquired a new class-A distribution center with an in-place lease to PepsiCo (NASDAQ: PEP) in Capitol Heights, Maryland, for roughly $7.8 million.
We acquired this property all cash, with plans to obtain financing and then hold it over the long term. Our goal is to earn regular rental income from the tenant (at the time of our acquisition, PepsiCo had nine years remaining on their lease, with multiple options to extend), then eventually sell the property for more than we spent on the acquisition.
We recently obtained senior financing on the property via a five-year, $4.6 million loan from Capital One Bank. The loan includes three years of interest-only payments and a floating interest rate equal to 2.35% over LIBOR (in effect, roughly 2.5 - 2.7% in today’s historically low interest rate environment). This financing frees up roughly $4.3 million of our original $7.8 million investment out of this property to deploy elsewhere.
While taking on senior financing introduces foreclosure risk, we believe that in practice this risk is substantially mitigated due to the fact that the tenant (PepsiCo) is a Fortune 500 company with an exceptional “A” credit rating.
Investor FAQ: How does this project impact your portfolio?
This investment is structured as equity, which means we are the owners of the property and entitled to our share of rental income, plus any future increase in the value of the property. As an investor, you can expect to see this impact your return in two ways. Any additional rental income would contribute to quarterly dividends, while any increase in the property value would be captured in adjustments to the Balanced eREIT’s net asset value (NAV) per share.
As always, if you have any questions or feedback, please visit our help center or reach out to us at investments@fundrise.com.
