In today’s economy, with many markets unsettled by record inflation and rising interest rates, some investors have a natural tendency to turn toward real estate. In many cases, they look for stabilized investments that are already delivering consistent returns.
While this approach has merit, another strategy can yield even higher results: taking a value-add strategy that maximizes returns by targeting underperforming assets.
The Fundrise Growth eREIT III is a real estate investment trust (REIT) designed to do that. Fundrise is a highly respected and well-run real estate crowdfunding platform. It offers investors a variety of investment opportunities with a full range of strategies, including:
The braintrust at Fundrise who devised the eREIT III believe that many core investments in the modern market are overvalued and are currently delivering returns at or near their maximum potential. This belief is rooted in the fact that high interest rates and costs have taken much of the upside out of larger, institutional investments that most REITs gravitate toward.
The Growth eREIT III targets small to medium value-add assets in growing urban population centers. In many cases, these small to medium-sized buildings (the fund targets assets that cost below $10 million or require less than that in mezzanine financing) are easier to acquire while also offering tremendous upside because of continued population growth that drives housing demand.
The fund currently has five active projects. They are all multifamily apartment buildings, with four of them in the booming Dallas/Fort Worth market (or surrounding suburbs) and one in Los Angeles a short distance of the University of Southern California. This particular section of the city has been experiencing strong growth and demand for quality housing because of the large student population.
The Growth eREIT III is still in the stabilization stage of its operational life. In spite of that, it has already delivered some impressive returns for investors. The fund came to life in February 2019 with a net asset value (NAV) of $10 per share. That share value remained constant for the rest of the year while the assets were being renovated and prepared for their reintroduction to the market as higher-class assets capable of generating increased rents.
The Growth eREIT III began to bear fruit in 2020 when it ended the year with a NAV of $11.70. But in 2021, which ironically was a year when inflation and other pressures began putting a drag on investor returns, the Growth eREIT III experienced a massive 48.1% increase in NAV and closed at $13.70. Investor returns and NAV have shown more growth in 2022 as the fund’s assets continued to stabilize.
Through July of this year, the Growth eREIT III shares have seen a NAV increase of 14.1%, which means the current NAV is $17.42. That means Growth eREIT III investors who pledged $10,000 at inception have seen the value of that investment grow to $17,420 — a nearly 75% increase in just over three years. Remarkably, the fund is still in the stabilization phase, meaning there is room for increased investor returns.
A quick snapshot of the Growth eREIT III’s current stats is below:
- Inception date: February 2019
- Phase: Stabilizing
- Objective: Value-add/growth
- Geographic focus: Dallas/Fort Worth and surrounding submarkets, Los Angeles
- Current NAV per share: $17.42
- Current dividend yield: 2.87%
- Tax reporting: 1099-Div
The real estate market is changing, but that doesn’t mean it’s on the verge of falling apart. It means that investors, and REITs, will need to be more creative about finding opportunities to grow wealth. Specifically, the Growth eREIT III looks for those opportunities in the value-add sector, and so far, the approach has paid off.
Based on early returns, it’s an option worth considering. Although the fund has performed exceptionally, investors must still consider their risk tolerance because prior performance is no guarantee of future performance.