|Current Ann. Return||0.0%|
|Accrued Ann. Return||+
|Gross Ann. Return*|
|Current Ann. Return||0.0%|
|Accrued Ann. Return||+ 15.0%|
|Gross Ann. Return*||15.0%|
|Term Remaining||18 of 36 mo.|
|Underlying Security||Preferred Equity|
We are excited to offer an opportunity to invest with us in the first phase of a three phase 14-unit luxury home development in the high-end Andreas Hills neighborhood of Palm Springs, California. The developer, Alta Verde Group, is an award-winning industry leader and has completed and sold over 91 homes with a market value of $82 million.
To begin to understand why we made this investment, first take a look at the 60-home development that the Alta Verde Group is currently building and selling located at the property directly adjacent to our investment site: http://www.altaverdemontesereno.com/.
We focused on the following considerations in making this investment:
1) The developer's track record for meticulous design and construction, along with their in-depth knowledge of this particular sub-market.
2) The low-cost basis of our investment which puts our position at 44% below the sales projections.
3) The strong multimillion-dollar corporate guarantee.
· Are the projected sale prices inline with other homes that have recently sold in the market? By how much can they miss their target before the Fundrise position is affected? The developer's projected sale prices are on the high-end of the market, however given the investment’s low basis, the takeout price required for our position has substantial support based on other recent comparable home sales. The developer would have to miss their sales projections by more than 44% to negatively impact our position.
· What happens if they run over budget? The developer is very experienced in this market and asset type (see adjacent development in the link above), and does all of the construction management in-house. In addition, our due diligence shows that the parent company is well-capitalized to meet potential shortfalls, and the investment features a corporate guaranty, helping mitigate the downside risk.
· Can the developer cash out equity from the project as homes are sold, thereby harming the investment’s basis? No, the senior loan documents and our investment agreement prohibit the developer from pulling cash proceeds out of the project until both the senior debt and our investment are paid back in full.
Neighborhood: Andreas Hills is one of the most scenic areas of Palm Springs, sitting against the San Jacinto Mountains in the Indian Canyons area. This community features some of the finest homes in the Palm Springs area, with most of the larger single-story homes priced above $1 million.
Market Comparable Sales Support of Stressed Basis: Our investment features a basis of $253/SF. Under a stressed scenario, the required sale prices needed to take-out our position are supported by the following market comps:
· The developer’s homes in the adjacent development are currently selling for $379/SF.
· Current on-market listings in the neighborhood greater than 4,000 SF feature an average listing price/SF of $349.
· Lender required appraisal concluded a retail value for the proposed homes of $399/SF.
Milestones & Exit Strategy: The developer closed on the land acquisition in January 2015 at a purchase price of $3,000,000, and anticipates the following phased development timeline:
· Complete Entitlements and Final Map Approval by June 2015
· Complete Phase I ($7,400,000 of infrastructure development and 6 units) by September 2016
*Phase I = Fundrise 18-month Note
· Complete Phase II (2-4 units) by March 2017
· Complete Phase III (4-6 units) by December 2017
· Exit via Completed Home Sales by March 2018
Financials: The project cost of Phase I is estimated at $11,375,000, and the total project cost of Phase I, II, III are estimated at $24,212,013.
The developer has projected total sales of all 14 homes at $32,200,000 which represents $2,300,000/home or $450/SF.
Phased Development: As is typical with home development, the amount of senior debt outstanding will fluctuate with the construction costs and sale proceeds of the phased development. All of the developer's equity will be required to remain in the deal until the Fundrise Investment has been fully repaid. Sale proceeds from Phases I will either (a) be rolled forward to meet the equity requirement needed to fund both Phase II and III, or (b) be used to pay back the senior debt and/or Fundrise Investment.
The senior lender outlined the following draws broken into phases:
Total Loan Amount: $13,800,000
· Phase I (Infrastructure + 6 Homes): $7,400,000
· Phase II (2-4 Homes): $3,200,000
· Phase III (4-6 Homes): $3,200,000
Funds from the senior loan cannot be drawn down from the lender until after the full $3,975,000 of equity has been invested into the project.
The project will feature the following capital stack through Phase I, yielding an LTC of 78.3% for the Fundrise position:
Total Phase I Cost: $11,375,000
· Debt: $7,400,000
· Preferred Equity: $1,500,000 Fundrise
· Equity: $2,475,000 Developer/LP
Payments: Interest payments on this series of notes will be as follows:
· Months 1-18: 15% annual interest all-accrued.
This investment features a strong corporate guaranty from the developer, Alta Verde Group. The senior lender is requiring Alta Verde Group to maintain a minimum liquidity and net worth during the entire term of the investment that is several times greater than the entirety of our $1,500,000 position.
Based in Los Angeles, Alta Verde Group is led by a group of award winning industry leaders, including CEO Andrew Adler. His career includes the completion and sales of over 50 projects and over $1 billion in planned residential communities, commercial and mixed-use projects. Alta Verde Group is currently developing 60 homes in the Monte Sereno project, located on an adjacent parcel: (http://www.altaverdemontesereno.com/).
The developer forecasts sales of $450/SF which equals roughly $2,300,000/home for a total of $32,200,000 for the entire project. On an all-in basis, the investment (including the projected return) plus the senior debt feature a year 3 basis of $253/SF or $1,297,000/home. This is 44% below the developer's sales projections and is also 36% lower than the "as-completed" appraised retail value.
As Palm Springs has garnered increasing bi-coastal attention in recent years, the area’s housing market has continued to recover and grow as median housing prices increased 30% in 2013 and 14% in 2014, according to desertrealestate.com. Palm Springs traditionally experiences strong housing demand and real estate growth in correlation with the greater Los Angeles economy.
|Gross Annual Return*||15.0%|
|Capital Senior to Fundrise||60-69%||3|
|Capital Junior to Fundrise||20-29%||3|
|Developer’s Track Record||$50-249 million||2|
The information contained in the Fundrise Rating is for informational purposes only. It is impersonal and not individualized for any specific investor's financial situation and is not investment advice. These ratings are not intended to be, nor should you interpret them to be, a prediction of how a particular investment will actually perform. You should always carefully consider investments in any security and be comfortable with your understanding of the investment. You may also consider consulting investment professionals.
|Type||Source||% of Total||Amount|
|Equity||Developer and LPs||21.8%||$2,475,000|
|Preferred Equity||Fundrise Investment||13.2%||$1,500,000|
As-completed: The developer plans building 14-luxury homes with gross square footage totaling 71,677. The homes will feature 4 separate designs:
|Address||1030 Bogert Trail|
|City & State||Palm Springs, CA|
|Product Type||Residential / 14 Luxury Homes|
|Project Phase||Ground-Up / Acquisition & Construction|
Two hours east of Los Angeles at the northern end of the Colorado Desert, the Coachella Valley in California is composed of a handful of cities, the most established of which is Palm Springs. Rich in history and blessed with gorgeous weather, Palm Springs is a preferred destination of travelers from all over the world. Nestled at the base of the Mount San Jacinto Mountains, Palm Springs is known for its crystal blue skies, year-round sunshine, stunning landscape, palm tree lined streets and starry nights. Once known as a winter escape for Hollywood’s Rat Pack and other entertainers, Palm Springs and its neighbors are now famous for their 110 golf courses, 24-hour casinos, scenic hiking trails, and mid-century modern architecture, boutiques and art galleries. As Palm Springs has garnered increasing bi-coastal attention in recent years, the area’s housing market has continued to recover and grow as median housing prices increased 30% in 2013 and 14% in 2014, according to desertrealestate.com.
Andreas Hills is an exclusive neighborhood in Palm Springs, CA. This community features some of the finest homes in the Palm Springs area, offering an eclectic mixture of residential design styles in a tranquil and natural setting. The neighborhood sits against the San Jacinto Mountains in the spectacular Indian Canyons area. Most Andreas Hills homes make a statement with gorgeous architectural detail nestled amongst the rugged features of the nearby mountains and desert canyons.
Homes run the gamut as far as size is concerned, ranging from approximately 1,600 SF to nearly 8,000 SF. Most homes in the neighborhood were built from the 1960's through the 2000s. This community is conveniently located and only minutes from the restaurants, shopping and entertainment of downtown Palm Springs. Additionally, the renowned Indian Canyons Golf Resort is located in the middle of the neighborhood. Indian Canyons Golf Resort has been a jewel of Palm Springs and the Coachella Valley since 1961. Once a private club named Canyon Country Club, this 36-hole facility was a favorite haunt of Hollywood celebrities like Frank Sinatra, Bob Hope, and Jackie Gleason. Former U.S. Presidents Dwight D. Eisenhower, Lyndon B. Johnson and Ronald Reagan also walked these fairways.
Alta Verde Group is a residential real estate development company creating architecturally elegant homes set in highly desirable neighborhoods. Our developments provide superior open floor plans with welcoming interiors, classic exteriors, and affordable price points. Alta Verde homes ‘democratize’ high-end architecture, while maintaining a commitment to contemporary living, historic precedent, and green design practices.View full profile
|Gross ann. return*||15.0%|
|Servicing and administration fee||-0.3%|
|Net ann. return to investors||14.7%|