As part of our broader strategy to finance the creation of new housing in supply-constrained areas, we’ve provided a loan of roughly $19.3 million for the acquisition of approximately 11 acres of land in Union City, California, as the future site of 351 new homes. This investment is part of Station East, a master-planned, mixed-use community, in which we first invested in September 2019. Union City is located on the eastern side of San Francisco Bay about halfway between Oakland and San Jose.

Despite the overall negative impact on demand for apartments in most major cities caused by the pandemic, we believe that over the long term, new housing in certain submarkets will remain supply constrained. In the case of this investment, Union City represents a relatively affordable, suburban submarket within the Bay Area. In an economy where remote work becomes the norm for more and more people, and there is consequently less of a premium placed on living close to major downtown employment centers, we believe that demand for residential real estate in places like Union City has the potential to grow.

Additionally, because of a general pullback in land and development lending from traditional banks, we expect to see occasional opportunities such as this to provide financing to these assets at a relatively attractive basis while also earning strong yields in a historically low interest rate environment — in this case 8.5% annually.

Business plan

The borrower, Integral Communities, has already made substantial progress on designs and permits for a master-planned community on the property. Plans call for a mix of apartments and for-sale homes, with substantial green space and walkable retail options. Our investment in the project is structured as a loan (debt), where we are entitled to earn an annual return of roughly 8.5% over the life of the investment before the borrower can earn a return for themselves. The loan’s initial term is three years, with one optional six-month extension. Upon securing the necessary entitlements, Integral expects to pay back our investment via a sale or refinance.

Why we invested

  • Experienced sponsor: Integral Communities is a California-based real estate firm that specializes in entitling and developing homes throughout the state. The principals of the firm have collectively developed roughly 2,300 multifamily units valued in excess of $1 billion.
  • Attractive margin of safety: The borrower contributed $8,037,000 of their own equity at closing which is junior to our investment.

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