Historically, the real estate market has been good to investors; however, making money in real estate isn’t like shooting fish in the barrel. In a rapidly changing market, the old formula of institutional funds borrowing money on the cheap and buying institutional assets for reliable investor returns no longer works as well. Rising interest rates make that harder to do.
In light of this, this real estate investment trust (REIT) — the Fundrise Development eREIT — is taking a different approach. The fund’s managers believe that the strategy of buying institutional-sized assets within the core sector is getting progressively more difficult to execute because the high price of these assets leaves them with limited upside. It has responded by starting the Development eREIT, which focuses on small- to medium-sized assets in the value-add and opportunistic sectors.
This is a testimonial in partnership with Fundrise. We earn a commission from partner links on Benzinga.com. All opinions are our own.
The logic behind this change in strategy is simple. The Development eREIT’s focus on value-add assets in growing urban markets that are below the radar of institutional funds allows it to acquire these assets at comparatively low prices. This strategy enhances the potential for appreciation and increases rental revenue. Accordingly, it has acquired a diverse mix of assets in growing markets across the United States, all of which have significant long-term potential.
Historical Performance Data
The Development eREIT is still in the ramp-up phase. The fund’s inception date is May of 2019 when it opened for investments with a $10 net asset value (NAV). Since then, the fund’s general partners have been busy renovating and upgrading the assets, which led to relatively slow growth in 2020 and 2021, where share averages increased by 4.6% and 3.8% respectively.
So far in 2022, share values have somewhat retreated from the close of 2021 from $10.78 to $10.66. This move is to be expected in a fund composed mainly of value-add and opportunistic assets, especially while it’s in the ramp-up stage of its lifecycle. Most of the assets in the fund are still undergoing improvements, which means they won’t stabilize for a few more years.
The Development eREIT is betting that once those assets stabilize, the returns will be impressive. The historical performance of several other Fundrise value-add REITs (specifically the Growth eREIT II and Growth eREIT III, which grew slowly until experiencing massive NAV share increases after asset stabilization) would indicate that the Development eREIT is preparing for take-off.
Portfolio
The Development eREIT portfolio holds 13 assets that are strategically located in a number of different real estate markets throughout the country. Just under 60% of the assets in the fund are in the value-add sector, while the remaining 40% are in the opportunistic sector. A quick overview of some of the fund’s assets include:
- Single-family home rentals: Brookshire and Denton, Texas
- New commercial development: Los Angeles, California
- Stabilized commercial development: Alexandria, Virginia
- Commercial renovation: Los Angeles, California
- New apartment development: Brentwood, Maryland
- Stabilized commercial development: Greenville, South Carolina
- Stabilized commercial development: Washington, D.C.
Current Stats
Here are some other relevant stats regarding the Development eREIT portfolio.
- Inception date: May 2019
- Phase: Ramping up
- Objective: Value-add/Opportunistic
- Geographic focus: National
- Current NAV/share: $10.66
- Current dividend yield: 0.47%
- Tax reporting: 1099-DIV
Final Thoughts
The Development eREIT offers investors an impressive mix of properties in a wide variety of real estate sectors. They were carefully chosen to give eREIT investors an ideal combination of diversity, income and long-term upside. Although this fund is still in its ramp-up stage, there is certainly the potential for long-term profits and appreciation.
Investors still have an opportunity to get in before the NAV goes up. As is the case with all investment offerings, the risk of loss exists and investors should consider this fact carefully before investing. If the Development eREIT can hit its targets, investors should be very happy with the final results.
