We’ve invested $18.6 million to provide financing for the acquisition of Water Terrace, a stabilized 438-unit apartment community located in Sunrise, Florida, a component of the South Florida metropolitan area located just west of Fort Lauderdale.

At a strategic level, this investment fits within our affordably-priced Sunbelt apartment / rental housing thesis. From millennials to retirees, a broad group of Americans have been taking part in a “great migration” from north to south over the past decade, driving continued demand for well-priced, well-located real estate, and supporting steady returns for disciplined investors.

As we stated in our mid-year letter to investors, we believe that this long-term trend has only been further accelerated by the pandemic. In an economy where remote work has become the norm, we expect that an increasing share of the population won’t need to live in expensive gateway cities and will instead seek out locations that offer more affordable costs of living and more agreeable climates.

Business plan

Originally built in 1987, the buildings are in well-maintained condition. The project’s sponsor, Lyon Living, kicked off a major renovation plan at the property in 2015, which includes full upgrades to all of the units and improvements to the community’s amenities.

At this point they have essentially completed the value-add plan, having renovated 420 of 438 (96%) units. As of December 2020, the property was roughly 95% occupied, having maintained similarly strong levels of occupancy through the course of the COVID-19 pandemic. Lyon Living plans to spend an additional $2.4 million to complete the renovation plan, with the intent to be a long-term owner-operator of the property.

Our investment in this stabilized property is structured like debt: we provided capital which freed up the sponsor’s equity to pursue other ventures, in exchange for earning a fixed rate of return over the life of the investment. We expect to see occasional opportunities such as this to provide financing to stabilized assets at a relatively attractive basis while also earning strong yields in a historically low interest rate environment — in this case, 9.1% annually.

Why we invested

While the extent of the negative impacts of the COVID-19 pandemic on the broader economy remains uncertain, we believe this investment is well-positioned not only to withstand a prolonged economic downturn, but to potentially benefit from more permanent shifts in behavior that may result.

  • Social distancing-friendly: The community offers a combination of townhomes and direct-entry garden-style apartments, 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.
  • Experienced partner: Lyon Living has over 50 years of experience in the acquisition, management, renovation, and development of real estate. Their portfolio is currently valued at over $2 billion in real estate, encompassing approximately 7,500 apartments at 37 properties across California, Colorado, Nevada, Georgia, and Florida.
  • Income-generating asset: The property was roughly 95% occupied at the time of our investment, generating consistent cash flow through rental income.

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