Dear investors,

We’re excited to be able to share with you the progress the Fundrise Opportunity Fund has achieved over the past year, as well as how we’ve adapted to the changing market conditions.

As you are aware, the Fund closed to new investment in July 2020, having raised just over $50 million of equity from individual investors. To date, we’ve acquired six assets, with initial purchase prices totaling approximately $33.4 million in value. We plan to use the remaining capital to complete the required renovations and improvements necessary to qualify for the Opportunity Zone tax benefits.

Despite the disruptions caused by the pandemic, we continued to move forward with our business plans — completing designs, submitting for permits, demoing interiors, and pursuing new leases. While the market for commercial property broadly (particularly in large cities such as Los Angeles and DC) saw a substantial slowdown, we feel fortunate that the Fund’s lack of leverage and long-term investment horizon, combined with resilience in the specific submarket in which many of the assets are located, allowed us to make substantial headway.

As previously mentioned, our near-term strategy continues to be to focus our efforts on the redevelopment of the portfolio to satisfy the requirements under the OZ regulations, while making decisions that we feel will maximize the value of the portfolio over a 10 year hold period. In the immediate, this likely means little to no cash flow (and no distributions or dividends) and little to no leverage. As the portfolio reaches stabilization over the next few years, we would expect to begin to see cash flow result in regular distributions, as well as look for opportunities to strategically employ moderate leverage to both increase returns as well as either fund investor tax payments and/or acquire additional assets.

A breakdown of asset-level progress

An elevation report from our latest submission for new permits according to revised plans for the LeDroit Park Apartment Renovation.

Our first acquisition, the Apartment renovation in the Le Droit Park neighborhood of Washington, DC, was originally intended to be a mixed-use redevelopment with community-serving retail space occupying the first floor and two residential units on the second and third floors respectively. Although we’d successfully obtained the necessary entitlements and permits to begin construction on our original designs, given the impact that the pandemic has had on commercial retail space in the city (rising vacancy rates and falling rents), we concluded that it was prudent to revise our original business plan and instead design a 100% residential project.

As a result of these changes, we are now filing for new permits which in turn will delay our breaking ground on the asset. However, we expect that the minimally revised plans should allow for a relatively quick turnaround and hope to begin construction later this year. The units themselves are larger, each with private outdoor space, and we anticipate that once completed the property will appeal to individuals seeking more space, and particularly outdoor space, without sacrificing the convenience of location or having to leave the city entirely.

Jazzi McGilbert of Reparations Club (aka Rep Club), a local bookstore and community gathering space that has leased the remaining unit at our West Adams Commercial Renovation property.

At our first LA asset, the creative office redevelopment in the West Jefferson / West Adams Neighborhood, we’re happy to report that we signed a new 5-year lease with a local bookstore and community gathering space, Reparations Club, who will be joining Mass Appeal Media at the property. With this lease, the property is now 100% occupied and will serve as an anchor for the neighborhood bringing new traffic to the area which in turn we believe will drive increasing demand for the Fund’s other assets.

Rendering of a reimagined workspace at one of our West Adams Commercial Renovation properties.

Our second and third acquisitions (mixed-use commercial renovation and mixed-used commercial renovation) recently received their building permits after substantial delays due to the impacts of Covid and we plan to begin work on the core and shell of the buildings imminently. We are also happy to report that we are in the final stages of lease negotiations with an award-winning restaurateur and should also be obtaining our ABC alcohol license shortly. By proactively submitting for permits and alcohol licenses, we should be able to expedite the build-out and delivery process and we remain optimistic that we will complete construction later this year.

Los Angeles - Culver City - West Adams Commercial Renovation

The Fund’s largest acquisition to-date, a commercial renovation in South LA, has an existing lease in place with the previous owner which is expected to continue generating rent revenue through the first half of this year. This lease-back structure provides near-term revenue that helps to offset carry costs such as taxes, insurance, and general maintenance as we work through the planning and entitlement process. Once again, despite the delays, we continue to move forward with our initial design and permitting work with the current plan to develop a new ground-up creative office property.

Los Angeles - Culver City - West Adams Commercial Renovation

Similarly, our latest acquisition also has a short-term lease in place with an existing tenant which will help cover carry costs as we work through our initial design and pre-development work.

All in all, despite the broader slowdown in development activities in most major cities, as well as the pandemic-induced delays in nearly every governmental approval or permitting process, we’re pleased that we were able to continue to move each project forward putting ourselves in a better position to quickly capture the potential upside that may come as vaccines roll out and more and more cities are able to reopen.

Looking ahead

Despite the broader decrease in demand for commercial space across LA as a whole, we continue to see our unique West Jefferson and West Adams submarkets retain relatively strong activity levels, with the demand generated by large streaming entertainment providers increasing over the past year. As a result, several large developments continue to move forward in nearby Culver City along with the leasing and sales market. Notably, Apple recently closed on a $162 million acquisition to continue its expansion in Culver City while The Cumulus District, an 11-acre Whole Foods anchored mega-development, has steadily progressed throughout 2020 and now expects substantial completion in 2021. The result of all this continued activity, in particular by the large tech and entertainment companies, has been an ongoing push east into West Jefferson and West Adams as smaller independent companies and businesses seek well-located but more affordable space.

To summarize, while the impact of the pandemic undoubtedly caused some near-term delays in the progress of nearly all the Fundrise Opportunity Fund’s assets, we continue to believe that the long-term impact over the full ten-year hold period may be immaterial. The West Jefferson submarket of LA, because of the specific demand created by the rapid growth in streaming television and movie services, proved to be much more resilient than many other markets in almost every major city. We expect that same demand to only get stronger and create positive knock-on effects for companies and businesses that work with or provide services to groups like Apple, Amazon, Netflix, and HBO. This should not only bode well for the area but for our portfolio, which is particularly well-positioned to benefit from that growth.

As we’ve stated previously, we plan to continue to focus our efforts on maximizing long-term value over near term cash-flow and, as a result, do not anticipate producing a meaningful dividend or seeing large increases in NAV until properties are fully stabilized. While this means less in the way of immediate returns, we continue to believe that with the ten-year required hold period, it is the most effective way to drive long-term risk-adjusted value.

As always, we thank you for your ongoing support and welcome any feedback or suggestions you may have.

Best,
The Fundrise Opportunity Fund Team