In November 2020, we invested approximately $11.2 million to provide a loan for the development of a new horizontal multifamily community in Phoenix, Arizona. We’re pleased to report that construction is well underway. Due to the recent and continued increases in building material and labor costs, the borrower has determined that an increase to the initial project budget will be necessary to complete construction.
After evaluating the progress to date, we’ve elected to increase the total balance of our loan by $4.3 million to approximately $15.5 million. By upsizing our loan, our investment now makes up a larger percentage of the overall project costs (this is known as the loan-to-cost ratio (LTC) in real estate investing terms), however, we believe that the incremental risk is mitigated due to the strong progress made on the development, the borrower’s track record, and the growing demand from renters for this product type.
Since our acquisition, demand for single-family rental homes has continued to rise, especially across the nation’s Sunbelt regions like Phoenix, where attractive climates and affordable living costs have drawn a vast migration of new residents over the past decade — particularly since the onset of the COVID-19 pandemic put a premium on spaciousness and privacy. This surging demand for rental homes has driven an increase in prices for properties like this one, thus reducing the overall risk of our investment.
No other terms of our investment have changed, and we will continue to earn a fixed rate of return of 11.5% annually for as long as it takes to finish the project.
Investor FAQ: How does this project impact your portfolio?
This investment is structured like debt, where we are entitled to a fixed rate of return — in this case, 11.5% annually — before the project's sponsor can earn a return for themselves, and their equity provides us with a cushion against losses. Throughout the term of the investment, the regular income it generates supports quarterly dividends for the West Coast eREIT.
As always, if you have any questions or feedback, please visit our help center or reach out to us at investments@fundrise.com.
