UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
FORM 1-U
CURRENT REPORT
Pursuant Regulation A of the Securities Act of 1933
November 21, 2016
(Date of Report (Date of earliest event reported))
FUNDRISE EAST COAST OPPORTUNISTIC REIT, LLC
(Exact name of registrant as specified in its charter)
| Delaware | 30-0889118 |
| (State or other jurisdiction of incorporation) | (IRS Employer Identification No.) |
| 1519 Connecticut Ave., Suite 200, Washington, DC | 20036 |
| (Address of principal executive offices) | (ZIP Code) |
(202) 584-0550
(Registrant’s telephone number, including area code)
Common Shares
(Title of each class of securities issued pursuant to Regulation A)
Item 9. Other Events
Asset Acquisitions
Acquisition of Controlled Subsidiary Investment – CEAI Sandtown Vista, LLC
On November 21, 2016, we directly acquired ownership of a “majority-owned subsidiary”, CEAI Sandtown Vista, LLC (the “Sandtown Controlled Subsidiary”), in which we have the right to receive a preferred economic return for a purchase price of $5,000,000, which is the initial stated value of our equity interest in the Sandtown Controlled Subsidiary (the “Sandtown Controlled Subsidiary Investment”). The Sandtown Controlled Subsidiary used the proceeds to acquire a stabilized, 350-unit garden-style multifamily property, Sandtown Vista, located at 1475 Sand Bay Drive, Atlanta, GA 30331 (the “Sandtown Property”). The Sandtown Controlled Subsidiary intends to increase the value of the Sandtown Property by completing light renovations and is anticipating redeeming the Sandtown Controlled Subsidiary Investment via refinancing or sale by July 2022.
Sandtown Controlled Subsidiary is managed by the principals of Cohen-Esrey Apartment Investors, LLC (“Cohen-Esrey”), a Kansas based real estate company. Generally, Cohen-Esrey pursues apartment communities of 75-units and larger in stable metropolitan and non-metropolitan locations covering a 30-state region. Its primary focus has tended to be on B and C+ class multifamily properties that present the opportunity for Cohen-Esrey to leverage its expertise to add value. Cohen-Esrey’s principals presently own and manage a real estate portfolio with 31 multifamily assets totaling 2,403 units valued in excess of $120,000,000. Except for certain other real estate transactions, neither our Manager nor we are affiliated with Cohen Esrey.
Pursuant to the agreements governing the Sandtown Controlled Subsidiary Investment (the “Sandtown Operative Agreements”), our consent is required for all major decisions regarding the Sandtown Property. In addition, pursuant to the Sandtown Operative Agreements, we are entitled to receive a minimum 12.5% per annum economic return on our Sandtown Controlled Subsidiary Investment. In addition, Fundrise Lending, LLC (“Lending”), an affiliate of our sponsor, earned an origination fee of approximately 2% of the Sandtown Controlled Subsidiary Investment, as well as approximately $20,000 in due diligence fees and third-party reimbursements, paid directly by the Sandtown Controlled Subsidiary.
The Sandtown Controlled Subsidiary is required to redeem our Sandtown Controlled Subsidiary Investment by July 2, 2022 (the “Sandtown Redemption Date”). In the event that the Sandtown Controlled Subsidiary Investment is not redeemed by the Sandtown Redemption Date (after giving effect to any applicable extensions), pursuant to the Sandtown Operative Agreements, we have the right, in our discretion, to force the sale of the Sandtown Property outright. The Sandtown Controlled Subsidiary may redeem our Sandtown Controlled Subsidiary Investment in whole or in part without penalty during the term of the Sandtown Controlled Subsidiary Investment.
Concurrent with the closing of the Sandtown Controlled Subsidiary Investment, the Sandtown Controlled Subsidiary closed on the acquisition of the Sandtown Property on November 21, 2016, for a purchase price of $36,750,000, which included the assumption of a senior secured loan by Fannie Mae with an unpaid principal balance of approximately $22 million as well as a supplemental loan with an unpaid principal balance of approximately $5 million (collectively, the “Sandtown Fannie Mae Senior Loan”), with concurrent maturity dates on July 1, 2021. Aggregate with the senior debt totaling approximately $27 million, the Sandtown Controlled Subsidiary Investment features an LTV of 87.0%, based on the purchase price of approximately $36,750,000, with approximately $7 million of equity junior to the Sandtown Controlled Subsidiary Investment at closing. The combined LTV ratio is the amount of the Sandtown Fannie Mae Senior Loan plus the amount of the Sandtown Controlled Subsidiary Investment, divided by the purchase price of the Sandtown Property. LTV, or loan-to-value ratio, is the approximate amount of the total commitment amount plus any other debt on the asset, divided by the anticipated value based on the purchase price of the property. The Sandtown Controlled Subsidiary Investment features an LTC of 82.0%, based on the construction budget of approximately $2.2 million, with approximately $7 million of equity junior to the Sandtown Controlled Subsidiary Investment. LTC, or loan-to-cost ratio, is the approximate amount of the total commitment plus any other debt on the asset, divided by the anticipated cost to complete the project. There can be no assurance that the anticipated completion cost will be achieved.
As of the date of closing, the Sandtown Property consists of 11 three/four split-story apartment buildings containing a total of 350 dwelling units. Additional buildings include a single-story leasing office building, a two-story amenity building and a maintenance shop. Construction of the buildings was completed in 2009. The rent roll of the Sandtown Property, dated as of October 31, 2016, reflected a current occupancy rate of 95.71%. The Sandtown Controlled Subsidiary intends to spend approximately $700,000 to upgrade the units and common areas allowing them to increase the value of the Sandtown Property by raising rents, and is anticipating redeeming the Sandtown Controlled Subsidiary Investment via a refinancing or sale by July 2022.
The Sandtown Property apartment buildings are conventionally wood framed with vinyl siding and painted wood trim exterior wall finishes. The building foundations is constructed of concrete slabs on grade with spread footings at perimeter and bearing wall locations (no basement areas). The pitched roofs are wood truss framed with oriented strand board (OSB) sheathing, and are covered with composition shingles. Amenities at the site include a fitness center, spin room, and business center. Outdoor amenities include a playground and dog park. The remainder of the property consists of asphalt paved drive aisles and parking areas, concrete pedestrian walkways, a storm water retention pond and moderate landscaping.
The Sandtown Property is located in the Atlanta MSA within the South Fulton submarket. Both the MSA and submarket are benefiting from strong job growth in the area. The MSA has experienced approximately 2% annual population growth since 2000. Estimated median household income for the MSA was $28,744 in 2015 and is expected to grow 3.4% annually through 2020, which will outpace the US. The South Fulton submarket has seen strong population growth as well, approximately 2.1% between 2010 and 2016 with an expected 1.7% expected between 2016 and 2020.
Safe Harbor Statement
This Current Report on Form 1-U contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934. You can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “projects,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties, including those described under the section entitled “Risk Factors” in our Offering Statement on Form 1-A dated September 30, 2016, filed with the Securities and Exchange Commission (“SEC”), as such factors may be updated from time to time in our periodic filings and prospectus supplements filed with the SEC, which are accessible on the SEC’s website at www.sec.gov. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in our filings with the SEC. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.
SIGNATURES
Pursuant to the requirements of Regulation A, the issuer has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| FUNDRISE EAST COAST OPPORTUNISTIC REIT, LLC | ||
| By: | Fundrise Advisors, LLC | |
| Its: | Manager | |
| By: | /s/ Bjorn J. Hall | |
| Name: | Bjorn J. Hall | |
| Title: | General Counsel | |
Date: November 28, 2016
