Filed Pursuant to Rule 253(g)(2)
File No. 024-10567
FUNDRISE MIDLAND OPPORTUNISTIC REIT, LLC
SUPPLEMENT NO. 2 DATED MAY 30, 2019
TO THE OFFERING CIRCULAR DATED APRIL 18, 2019
This document supplements, and should be read in conjunction with, the offering circular of Fundrise Midland Opportunistic REIT, LLC (the “Company”, “we”, “our” or “us”), dated April 18, 2019 and filed by us with the Securities and Exchange Commission (the “Commission”) on April 30, 2019 (the “Offering Circular”). Unless otherwise defined in this supplement, capitalized terms used in this supplement shall have the same meanings as set forth in the Offering Circular.
The purpose of this supplement is to disclose:
| · | Asset acquisition; |
| · | Asset performance projections; and |
| · | Declaration of dividend. |
Asset Acquisition
Acquisition of Controlled Subsidiary Investment – Lennox Apartments LLC
OnMay 24, 2019,we directly acquired ownership of a “majority-owned subsidiary”, Lennox Apartments LLC (the “RSE- Lennox Controlled Subsidiary”), in which we have the right to receive a preferred economic return, for a purchase price of $3,400,000, which is the initial stated value of our equity interest in the RSE- Lennox Controlled Subsidiary (the “RSE- Lennox Controlled Subsidiary Investment”). The RSE- Lennox Controlled Subsidiary used the proceeds to acquire a single mid-rise multifamily property totaling 100 units located at 430 E Cactus Ave, Las Vegas, NV 89183 (the “RSE- Lennox Property”). The RSE- Lennox Controlled Subsidiary Investment was funded with proceeds from our Offering.
The RSE- Lennox Controlled Subsidiary is managed by Interwest Capital (“Interwest”). Interwest Capital is an investment firm based out of La Jolla, CA. Interwest specializes in the acquisition, repositioning and asset management of commercial real estate as well as debt collateralized by real estate. Interwest sources and restructures investments involving significantly underperforming properties and through the execution of value-add business plans. Interwest has successfully executed on this business plan across a real estate portfolio worth in excess of $650 million.
Pursuant to the agreements governing the RSE- Lennox Controlled Subsidiary Investment (the “RSE- Lennox Operative Agreements”), our consent is required for all major decisions regarding the RSE- Lennox Property. In addition, pursuant to the RSE- Lennox Operative Agreements, we are entitled to receive a preferred economic return of 9.0% on our RSE- Lennox Controlled Subsidiary Investment, with 5.0% paid current years 1-2, 6.0% paid current years 3-4, and 9.0% paid current in the years thereafter. During the term of the investment, there is to be a hard pay requirement of 4.1%. In addition, an affiliate of our sponsor earned an origination fee of 2.0% of the RSE- Lennox Controlled Subsidiary Investment, as well as an approximate $35,000 in due diligence fees and third-party reimbursements, paid directly by the RSE- Lennox Controlled Subsidiary.
The RSE- Lennox Controlled Subsidiary is expected to redeem our RSE- Lennox Controlled Subsidiary Investment by May 24, 2029 (the “RSE- Lennox Redemption Date”). In the event that the RSE- Lennox Controlled Subsidiary Investment is not redeemed by the RSE- Lennox Redemption Date, pursuant to the RSE- Lennox Operative Agreements, we have the right, in our discretion, to force the sale of the RSE- Lennox Property outright. The RSE- Lennox Controlled Subsidiary may redeem our RSE- Lennox Controlled Subsidiary Investment in whole or in part without penalty during the term of the RSE- Lennox Controlled Subsidiary Investment.
The RSE-Lennox Property was acquired for a purchase price of approximately $20,600,000. Interwest anticipates investing approximately $970,000 in hard cost renovations which will include enhancements to the amenity spaces, installing package lockers, and expanding the fitness center. Soft costs and financing costs of approximately $928,000 are anticipated, bringing the total project cost for the RSE-Lennox Property to approximately $22,498,000.
Simultaneous with the closing of the RSE- Lennox Controlled Subsidiary Investment, senior financing was provided through a $12,600,000 secured loan from Capital One/Freddie Mac (the “RSE- Lennox Senior Loan”). The loan features a 10-year term and 5 years interest-only at a fixed rate of4.43%.Aggregate with the RSE- Lennox Senior Loan, the RSE- Lennox Controlled Subsidiary Investment features a LTV of 77.7% based on the purchase value of $20,600,000. The combined LTV ratio is the amount of the RSE- Lennox Senior Loan plus the amount of the RSE- Lennox Controlled Subsidiary Investment, divided by the purchase price of the RSE- Lennox Property. We generally use LTV to define leverage for properties that are generating cash flow.
The RSE- Lennox Property features one four-story building that consists of one, two, and three bedroom residential units and at the time of investment is approximately 86% occupied. It offers modern floor plans, gourmet kitchens, European-style cabinetry, stainless steel appliances, in-home washer and dryer, designer fixtures, as well as central heating/air conditioning. Amenities include a pool and spa, clubhouse, fitness center, business center, fire pits and barbecues entertainment areas. The business plan for the property is to implement an approximately $970,000 capital expenditure plan, install a professional management company, and hold the property for approximately five years.
The subject is located in south Las Vegas off the Las Vegas strip and has good access to I-15. Tenants can easily access the strip, within a 15-minute drive. There is a new retail development which includes a Costco that is less than 2 miles away from the subject. Dignity Health – St. Rose Dominican hospital is located less than 3 miles away from the subject. The subject is also approximately 3 miles from the new 55-acre Raiders NFL practice facility in Henderson. The first phase of the facility is estimated to cost approximately $75 million.
Asset Performance Projections - Sterling Town Center - Raleigh, NC
On August 28, 2018, we acquired an unsecured bridge loan with a maximum principal balance of approximately $9,702,000, (the “Sterling Town Center Bridge Loan”). The Borrower, Sterling Integra JV LP, a Delaware limited liability company (“Sterling Integra”), used the loan proceeds to acquire a single stabilized garden-style multifamily property called Sterling Town Center totaling 339 units located at 7880 Triangle Promenade Dr, Raleigh, NC 27616 (the “Sterling Town Center Property”). On March 28, 2019, the Sterling Town Center Bridge Loan converted into additional ownership of a “majority-owned subsidiary”, Aspect Promenade JV LP (the “RSE Aspect Promenade Controlled Subsidiary”) upon receiving approval from HUD, for an initial purchase price of approximately $9,702,000, which is the initial stated value of our additional equity interest in the RSE Aspect Promenade Controlled Subsidiary (the “Third RSE Aspect Promenade Investment”). See acquisition filinghere.
The following table contains performance assumptions and projections. Individual assumptions and projected returns are presented at the asset level. All of the values in the table below are projections and assumptions that we believe to be reasonable; however, there can be no guarantee that such results will be achieved.
| Asset Name | Projected Returns | Total Renovation Hard Cost per Unit | Average Increase to Monthly Rent from Renovation | Stabilized Economic Vacancy | Average Annual Rent Growth | Average Annual Other Income Growth | Average Annual Expense Growth | Projected Hold Period | ||||||||
| Sterling Town Center (Aspect Promenade JV LP) | 10.06% - 14.88% | $4,491 | $29 - $178 | 6.25% - 6.5% | 2.5% | 2.5% | 2.5% | 10 |
Please note that past performance is not indicative of future results, and these asset performance projections may not reflect actual future performance. Any projections on the future returns of any of our assets may not prove to be accurate and are highly dependent on the assumptions described above. Investing in Fundrise Midland Opportunistic REIT, LLC is an inherently risky investment that may result in total or partial loss of investment to investors.
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.
Declaration of Dividend
On May 30, 2019, the Manager of the Company declared a daily distribution of $0.0012328767 per share (the “June 2019 Daily Distribution Amount”)(which equates to approximately 4.50% on an annualized basis calculated at the current rate, assuming a $10.00 per share purchase price) for shareholders of record as of the close of business on each day of the period commencing on June 1, 2019 and ending on June 30, 2019 (the “June 2019 Distribution Period”). The distributions will be payable to shareholders of record as of the close of business on each day of the June 2019 Distribution Period and the distributions are scheduled to be paid prior to July 21, 2019. While the Company’s Manager is under no obligation to do so, the annualized basis return assumes that the Manager will declare distributions in the future similar to the distributions disclosed herein.
