Note: Images above depict a similar project by the same sponsor (for illustrative purposes only)

We’ve invested approximately $12.1 million to provide a loan for the development of a new horizontal multifamily community near Dallas, TX.

What is horizontal multifamily?

From an operational / business plan perspective, a “horizontal” multifamily community is essentially identical to a traditional apartment community: that is to say, it consists of a single property that’s improved with many rental dwellings, each of which is leased to an individual tenant.

However, rather than being built like traditional apartments where each unit takes up only a small part of a larger, multi-story building, a horizontal multifamily community is made up of many single-story duplexes and detached homes, with each rental unit having its own private entrance, and, in many cases, reserved parking and a fenced-in backyard.

This innovative new asset class is intended to offer the convenience of apartment living with the privacy of a single-family home — a value proposition that we believe will prove increasingly attractive in the coming years.

Business plan

Our loan will be used to finance the construction of this new community, which the borrower expects will take between two to three years to complete. At that point they expect to lease up the units and pay back our loan via a sale or by refinancing once the property is stabilized. By structuring this investment (and most of our other investments in construction) like debt, we aim to mitigate risk to your principal and negate the impact of delays on performance.

  • The borrower must pay us a fixed rate of return — in this case 11.5%, annually — for as long as it takes to finish the project. This means that delays do not negatively impact returns as long as the project eventually reaches a successful completion.

  • We will fund our loan in draws over time, releasing the money incrementally upon completion of agreed-upon milestones, such as foundation, framing, roofing, etc. Our team reviews detailed third party progress reports before approving each draw, limiting the amount of principal at risk at any given point.

Why we invested

  • Social distancing-friendly: The community is expected to offer a variety of single-story, direct-entry duplexes, which we believe will be particularly attractive to renters who are seeking an additional level of social distancing, or who simply need more living space as norms around work and school shift.
  • Attractive margin of safety: The borrower contributed roughly $6.1 million of their own equity capital at closing, and is required to contribute a total of roughly $8.5 million over the course of the investment (roughly 20% of the project cost).
  • Growing local economy: Grand Prairie is a fast-growing Dallas suburb, nestled between the area’s three major cities: Dallas, Fort Worth, and Arlington. The Dallas metro area as a whole continues to rank among the nation’s fastest-growing, having added nearly 19% to its population since 2010, far outpacing the national average of about 6%.

As always, if you have any questions or feedback, please visit our help center or reach out to us at investments@fundrise.com.