We’ve invested $6.1 million to provide refinancing for Alon at Castle Hills, a stabilized 306-unit apartment community located in Castle Hills, Texas, just 15 minutes north of downtown San Antonio.
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 has been taking part in a migration from northern to southern states 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 2020 year-end letter to investors, we believe that this long-term trend has only been further accelerated by the pandemic. In an economy where remote work is becoming the norm for more and more people, 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 lower living costs and more agreeable climates.
Strategy
Fixed Income
Provide real estate backed loans or similar structured financing
- Risk-return profile: Low to moderate
- Expected timing / delay of returns: Typically immediately after acquisition
- Expected source of returns: Interest income
Note that this section is intended to provide a general overview of the Fixed Income strategy for educational purposes only, and is not meant to be representative of the specific details of any individual investment. All investments involve risk and there are no guarantees of any returns.
Business plan
Originally built in 1999, the buildings are in well-maintained condition. Prior to our investment, the project’s sponsor, American Landmark Apartments (ALA), completed renovations at the property, which included upgrades to the units and improvements to the community’s amenities.
In the year leading up to our acquisition, rent collections averaged roughly 91%. Our partner, ALA, has extensive property management experience so they plan to manage the property in-house, with the intention of being a long-term owner-operator.
During the term of the investment, we are entitled to our pro rata share of the monthly cash flow. Upon exit, we are entitled to receive a return equivalent to 7% annually (including the cash flow we received in the interim) before the sponsor can earn a return for themselves.
This investment is part of our broader Fixed Income strategy: we provided capital which freed up the sponsor’s equity to pursue other ventures, in exchange for earning an attractive yield on our investment with a considerable margin of safety, while yields on many other investments are at or near historic lows.
Why we invested
- Experienced partner: American Landmark Apartments (ALA) owns and operates approximately 32,000 units across the southern United States, with communities in Georgia, Florida, North Carolina, South Carolina, Tennessee, and Texas. They are one of the fastest growing multifamily owner-operators in the country, with a diverse portfolio valued in excess of $2 billion.
- Paid first upon exit: Upon sale or refinance, we are entitled to receive a return equivalent to 7% annually (including the cash flow we received in the interim) before the sponsor can earn a return for themselves.
- Attractive margin of safety: The sponsor has roughly $13.6 million of equity (about 30% of total value) junior to our position. They would have to lose their entire investment before our principal was threatened.
As always, if you have any questions or feedback, please visit our help center or reach out to us at investments@fundrise.com.
