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Fundrise For-Sale Housing eFUND - Los Angeles CA

Filed: 21 Sep 21, 8:00pm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 1-SA

 

SEMIANNUAL REPORT PURSUANT TO REGULATION A OF THE SECURITIES ACT OF 1933

 

For the Semiannual Period ended June 30, 2021

 

Fundrise eFund, LLC

(Exact name of issuer as specified in its charter)

 

Delaware 61-1775059

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

   

11 Dupont Circle, NW, 9th Floor

Washington, DC

(Address of principal executive offices)

 

20036

(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)

 

 

 

 

 

 

TABLE OF CONTENTS

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations
Other Information13
Index to Unaudited Consolidated Financial Statements of Fundrise eFund, LLC14
Exhibits15

 

 

 

 

Item 1.Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto contained in this Semiannual Report on Form 1-SA (“Semiannual Report”). The following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in Statements Regarding Forward-Looking Information contained in our latest offering circular (the “Offering Circular”) qualified by the Securities and Exchange Commission (“SEC”), which may be accessed here. Unless otherwise indicated, latest results discussed below are as of June 30, 2021. The consolidated financial statements included in this filing as of and for the six months ended June 30, 2021 and 2020 are unaudited and have not been reviewed, and may not include year-end adjustments necessary to make those consolidated financial statements comparable to audited results, although in the opinion of management, all necessary adjustments have been included to make interim statements of operations not misleading.

 

Business

 

Fundrise eFund, LLC (formerly known as Fundrise For-Sale Housing eFund – Los Angeles CA, LLC) is a Delaware limited liability company formed on November 19, 2015, to acquire property for the development, sale, and/or rental of Single Family Housing and last mile logistics centers in any metropolitan statistical area (“MSA”). Operations commenced on May 26, 2017. Effective November 30, 2020, Fundrise National For-Sale Housing eFund, LLC and Fundrise For-Sale Housing eFund – Washington DC, LLC, the (“Target eFunds”), merged with and into Fundrise For-Sale Housing eFund – Los Angeles CA, LLC, with the Company as the surviving entity (the “Merger”). For more information about the Merger, please see the offering circular file on November 30, 2020 here.

 

Following the Merger, we intend to acquire property for the development, sale, and/or rental of single-family attached and detached homes, townhomes and condominiums targeted to first-time, move-up and active adult homebuyers (referred to herein as “Single Family Housing”) and last mile logistics centers without a focus on any MSA in the United States as opportunity dictates. We expect to use substantially all of the net proceeds from our initial and subsequent offerings (the “Offering(s)”) to continue to originate, invest in and manage a diversified portfolio primarily consisting of investments in commercial, industrial, and residential real estate properties, as well as commercial real estate loans, commercial real estate debt securities (including commercial mortgage-backed securities, collateralized debt obligations, and real estate investment trust (“REIT”) senior unsecured debt), development projects, and other select real estate-related assets, where the underlying assets primarily consist of such properties. We may make our investments through majority-owned subsidiaries, some of which may have rights to receive preferred economic returns. We intend to be treated as a partnership for U.S. federal income tax purposes, with the intent of offering investors a tax-efficient means of investing in real estate-related business plans that are generally non-REIT qualifying. The Company has one reportable segment consisting of investments in real estate. The use of the terms “Fundrise eFund”, the “Company”, “we”, “us” or “our” in this Semiannual Report refer to Fundrise eFund, LLC unless the context indicates otherwise.

 

We have elected to be taxed as a partnership under the Internal Revenue Code of 1986, as amended (the “Code”), commencing with our taxable year ending December 31, 2017. We have attempted to diversify our portfolio by investment type, investment size and investment risk with the goal of attaining a portfolio of real estate assets that provide attractive and stable returns to our investors.

 

We are externally managed by our Manager, which is an investment adviser registered with the SEC and a wholly-owned subsidiary of Rise Companies Corp. (our “Sponsor”), the parent company of Fundrise, LLC, our affiliate. Fundrise, LLC owns and operates the online investment platform located at www. fundrise.com (the “Fundrise Platform”), which allows investors to hold interests in real estate opportunities that may have been historically difficult to access for some investors. Our Manager has the authority to make all of the decisions regarding our investments, subject to the limitations in our operating agreement and the direction and oversight of our Manager’s investment committee. Our Sponsor also provides asset management, marketing, investor relations and other administrative services on our behalf. As such, we do not currently have any employees nor do we currently intend to hire any employees who will be compensated directly by us.

 

 

 

Risk Factors

 

We face risks and uncertainties that could affect us and our business as well as the real estate industry generally. These risks are outlined under the heading “Risk Factors” contained in our latest offering circular filed with the SEC (“Offering Circular”), which may be accessed here, as the same may be updated from time to time by our future filings under Regulation A (“Regulation A”) of the Securities Act of 1933 (the “Securities Act”). In addition, new risks may emerge at any time and we cannot predict such risks or estimate the extent to which they may affect our financial performance. These risks could result in a decrease in the value of our common shares.

 

Offering Results

 

As of June 30, 2021, we were offering up to $50.0 million in our common shares during the rolling twelve-month period under Regulation A (the “Offering”). Effective March 15, 2021, the SEC adopted an amendment to increase the maximum offering amount under Tier 2 of Regulation A from $50.0 million to $75.0 million. The Company is currently utilizing this increased offering amount in its current Offering. The Offering is being conducted as a continuous offering pursuant to Rule 251(d)(3) of Regulation A, meaning that while the offering of securities is continuous, active sales of securities may occur sporadically over the term of the Offering. As of both June 30, 2021 and December 31, 2020, we have raised total gross offering proceeds of approximately $86.9 million from settled subscriptions (including the approximately $309,000 and $100,000, respectively, received in the private placements to our Sponsor and Fundrise, L.P., an affiliate of our Sponsor). On July 26, 2021, we qualified approximately $30.7 million of shares, which represents the value of shares to be offered as of the date of our most recent offering circular out of the rolling twelve-month maximum offering amount of $75.0 million.

 

In connection with the Merger, we issued to the shareholders of the Target eFunds common shares based on an agreed upon exchange ratio (“Exchange Ratio”). The Exchange Ratio was based on each of the Target eFund’s projected net asset value (“NAV”) per share that was effective as of the date of the Merger, November 30, 2020. For additional information, see the offering circular relating to the Merger, which may be accessed here. As of both June 30, 2021 and December 31, 2020, we have settled subscriptions in our Offerings and private placements of approximately 8,095,000 of our common shares. Assuming the settlement for all subscriptions received as of June 30, 2021, approximately $5.5 million of our previously qualified common shares remained available for sale (based on our current share price) to the public under our Offering as of June 30, 2021.

 

Until December 31, 2018, the per share purchase price for our common shares was $10.00 per share, an amount that was arbitrarily determined by our Manager. Thereafter, the per share purchase price of our common shares has been and will continue to be adjusted semiannually and will equal the greater of (i) $10.00 per share or (ii) the sum of our net asset value (“NAV”), divided by the number of our common shares outstanding as of the end of the prior fiscal semiannual period (“NAV per share”).

 

Below is the NAV per share, as determined in accordance with our valuation policy. Linked in the table is the relevant Form 1-U detailing each NAV evaluation method, incorporated by reference herein.

 

Date  NAV Per Share  Link 
 December 31, 2018  $10.34   Form 1-U 
 June 30, 2019  $10.44   Form 1-U 
 December 31, 2019  $10.74   Form 1-U 
 June 30, 2020  $10.92   Form 1-U 
 November 30, 2020  $11.44   Form 1-U 
 June 30, 2021  $11.59   Form 1-U 

 

Distributions

 

We do not expect to declare any distributions until the proceeds from our public offering are invested and returns, if any, have been received by the Company. In addition, as we expect primarily to invest in the acquisition of property for the development of Single Family Housing or in properties that have significant capital requirements, these properties may not immediately generate cash flow from sale. Thus, our ability to make distributions may be negatively impacted, especially during our early periods of operation. As of June 30, 2021, we have not declared any distributions.

 

Once we begin to make distributions, we expect that our Manager will declare and make them on a periodic basis based on appreciation of, or operating cash flow from, the sale of our assets, as determined by our Manager, in arrears. Any distributions we make will be at the discretion of our Manager, and will be based on, among other factors, our present and reasonably projected future cash flow, the appreciated value of the underlying assets and/or our need to maintain reserves. Given the expectation that most of our distributions will come from the sale of assets, it is likely that we will not make distributions at a consistent rate nor on a consistent periodic basis, if at all. Distributions will be paid to shareholders as of the record dates selected by the Manager.

 

Redemption Plan

 

Our common shares are currently not listed on a national securities exchange or included for quotation on a national securities market, and currently there is no intention to list our common shares. In order to provide our shareholders with some limited liquidity, we have adopted a redemption plan whereby, on a monthly basis, a shareholder may obtain liquidity as described in detail in our Offering Circular. However, the Manager may, in its sole discretion, amend, suspend, or terminate the redemption plan at any time without notice, including to protect our operations and our non-redeemed shareholders, to prevent an undue burden on our liquidity, following any material decrease in our NAV, to comply with the publicly traded partnership Safe Harbor, or for any other reason.

 

 

 

Effective as of March 31, 2020, our Manager determined to (i) suspend the processing and payment of redemptions under our redemption plan until further notice, and (ii) delay the consideration and processing of all outstanding redemption requests until further notice. We have resumed the processing and payment of redemptions under our redemption plan as of June 30, 2020. Additionally, in connection with the Merger, our Manager determined to temporarily waive certain provisions of our redemption plan, effective from October 20, 2020 until consummation of the Merger, to allow our shareholders to redeem their shares (i) without any discount to the per share price for our common shares in effect at the time of the redemption request, and (ii) without any limits on the number of shares that may be redeemed pursuant to a redemption request. Further, in connection with the Merger, we accelerated outstanding redemption requests for shares that were not otherwise eligible for redemption under the terms of our redemption plan. All other provisions of the redemption plan remained unchanged. The waiver to certain provisions of the redemption plan applied to all outstanding redemption requests as of October 20, 2020 and to any redemption request submitted prior to the consummation of the Merger. We temporarily ceased accepting redemption requests on November 15, 2020. After consummation of the Merger, and as of December 31, 2020, our redemption plan has reverted to its pre-Merger provisions. All redemption requests submitted prior to the Merger were fulfilled on November 30, 2020.

 

As of June 30, 2021, approximately 1,374,000 common shares had been submitted for redemption since operations commenced, and 100% of such redemption requests have been honored.

 

Critical Accounting Policies

 

Our accounting policies have been established to conform with U.S. generally accepted accounting principles (“U.S. GAAP”). The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Management believes that we have made these estimates and assumptions in an appropriate manner and in a way, that accurately reflects our financial condition. We continually test and evaluate these estimates and assumptions using our historical knowledge of the business, as well as other factors, to ensure that they are reasonable for reporting purposes. However, actual results may differ from these estimates and assumptions. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied, thus resulting in a different presentation of the consolidated financial statements.

 

We believe the following accounting estimates are the most critical to aid in fully understanding our reported financial results, and they require our most difficult, subjective or complex judgements, resulting from the need to make estimates about the effect of matters that are inherently uncertain.

 

Investments in Equity Method Investees Impairment

 

The Company evaluates its investments in equity method investees for impairment whenever events or changes in circumstances indicate that there may be an other-than-temporary decline in value. If it is determined that an impairment exists and is other than temporary, then the Company estimates the fair value of the investment using various valuation techniques including, but not limited to, discounted cash flow models, the Company’s intent and ability to retain its investment in the entity, the financial condition and long-term prospects of the entity, and the expected term of the investment. Such assumptions involve a high degree of judgment and could be impacted by future economic and market conditions. If the Company determined any decline in value is other-than-temporary, the Company would recognize an impairment loss to reduce the carrying value of its investment to fair value.

 

Impairment of Rental Real Estate Properties and Real Estate Held for Improvement

 

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. When determining if a property has indicators of impairment, we evaluate the property's occupancy and cash flows, our expected holding period for the property, strategic decisions regarding the property's future operations or development, and other market factors. Impairment exists if estimated future undiscounted cash flows associated with those assets are less than the assets' carrying value. Estimates of undiscounted cash flows are based on forward-looking assumptions, including annual and residual cash flows, terminal capitalization rates, and our estimated holding period for each asset. Such assumptions involve a high degree of judgment and could be affected by future economic and market conditions. When impairment exists, the long-lived asset is adjusted to its fair value. Impairment is calculated as the excess of carrying value over the fair value. Fair value is determined using industry techniques, which include a discounted cash flow, comparable sales or other income approaches. These valuation techniques require assumptions regarding future occupancy, rental rates, capital requirements, capitalization rate and discount rate that could differ materially from actual results and involve a high degree of judgment. Assets held for sale are recorded at the lower of cost or fair value less costs to sell.

 

Recent Accounting Pronouncements

 

The Financial Accounting Standards Board has released several Accounting Standards Updates (each an “ASU”) that may have an impact on our consolidated financial statements. See Recent Accounting Pronouncements in Note 2, Summary of Significant Accounting Policies – Recent Accounting Pronouncements, in our consolidated financial statements, for discussion of the relevant ASUs. We are currently evaluating the impact of the various ASUs on our financial statements and determining our plan for adoption.

 

 

 

Extended Transition Period

 

Under Section 107 of the Jumpstart Our Business Startups Act of 2012, we are permitted to use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. This permits us to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in Section 7(a)(2)(B). By electing to extend the transition period for complying with new or revised accounting standards, our consolidated financial statements may not be comparable to companies that adopt accounting standard updates upon the public business entity effective dates.

 

Sources of Operating Revenues and Cash Flows

 

We expect to primarily generate revenues from investments in the development, sale, and/or rental of Single Family Housing and last mile logistics centers. We may also invest in commercial, industrial, or residential properties and, to a lesser extent, as real estate-related debt and other real estate-related assets. See Note 2, Summary of Significant Accounting Policies – Revenue Recognition, in our consolidated financial statements for further detail.

 

Results of Operations

 

On May 26, 2017, we substantially commenced operations. The Company had seventy-three and eighty investments as of June 30, 2021 and December 31, 2020, respectively. For the six months ended June 30, 2021 and 2020, we had total net income (loss) of approximately $(204,000) and $129,000, respectively.

 

Revenue

 

Interest Revenue

 

For the six months ended June 30, 2021 and 2020, we earned approximately $0 and $125,000 of interest revenue, respectively. The decrease in interest revenue was due to the troubled debt restructuring and direct acquisition through deeds in lieu of our two previously held real estate debt investments during the year ended December 31, 2020. See Note 5, Investments in Real Estate Debt Investments, in our consolidated financial statements for further detail.

 

Rental Revenue

 

For the six months ended June 30, 2021 and 2020, we earned rental revenue of approximately $864,000 and $447,000, respectively. The increase in rental revenue was due to six months of increased rental operations following the Merger, in which we operated fifty-five rental revenue producing properties as of June 30, 2021, compared to only twenty-two rental revenue producing properties as of June 30, 2020.

 

Expenses

 

Property Operating and Maintenance

 

For the six months ended June 30, 2021 and 2020, we incurred property operating and maintenance expenses of approximately $316,000 and $161,000, respectively. The increase in in property-related expenses was due to operating thirty-three additional rental real estate properties during the six months ended June 30, 2021 as compared to the prior period.

 

Depreciation and Amortization

 

For the six months ended June 30, 2021 and 2020, we incurred depreciation and amortization expenses of approximately $369,000 and $92,000, respectively. The increase in depreciation and amortization expenses was due to thirty-two additional rental real estate properties being depreciated during the six months ended June 30, 2021 as compared to the prior period.

 

General and Administrative Expenses

 

For the six months ended June 30, 2021 and 2020, we incurred general and administrative expenses of approximately $262,000 and $233,000, respectively, which includes auditing and professional fees, bank fees, and other costs associated with operating our business. The increase in general and administrative expenses was primarily attributable to managing additional assets acquired in connection with the Merger during the six months ended June 30, 2021 as compared to the prior period.

 

 

 

Other income (expense)

 

Equity in Earnings (Losses)

 

For the six months ended June 30, 2021 and 2020, we incurred equity in earnings (losses) of approximately ($75,000) and $38,000, respectively, from our equity method investments. The decrease in equity in earnings is primarily attributable to the sale of an equity method investment during August 2020 as well as unimproved performance of the remaining equity investment during the six months ended June 30, 2021 as compared to the prior period.

 

Gain (Loss) on Sale of Real Estate

 

For the six months ended June 30, 2021 and 2020, we incurred approximately ($47,000) and $0, respectively, of loss on the sale of real estate, from the sales of six single-family homes and one small lot ordinance during the six months ended June 30, 2021.

 

Our Investments

 

As of June 30, 2021, we have entered into the following investments. See “Recent Developments” for a description of investments we have made since June 30, 2021. Note: the use of the term “controlled subsidiary” is not intended to conform with U.S. GAAP definition and does not correlate to a subsidiary that would require consolidation under U.S. GAAP.

 

 

 

Residential Properties:

 

Asset Name Zip
Code
 Beds / Baths at
Acquisition
 Approximate
Square

Footage at
Acquisition
 Date of
Acquisition
 Approximate
Acquisition
Cost
 

Overview

(Form 1-U)

La Vista Property (1) 90004 2 / 1  697 05/31/2017 $405,000 InitialUpdate
H41 90062 2 / 1  1,446 06/22/2017 $486,000 Initial

Update 1

Update 2

463 90037 3 / 1  1,176 07/07/2017 $532,000 Initial

Update 1

Update 2

W48 90062 2 / 1  1,446 08/09/2017 $ 553,000 Initial

Update 1

Update 2

416 90062 3 / 1  1,448 08/10/2017 $ 485,000 Initial

Update 1

Update 2

H412 90062 2 / 1.75  1,956 08/18/2017 $ 509,000 Initial

Update 1

Update 2

511 90037 3 / 2  1,792 09/01/2017 $ 435,000 Initial

Update 1

Update 2

413 90037 2 / 1  1,092 09/12/2017 $ 435,000 Initial

Update 1

Update 2

291 90011 3 / 2  1,747 12/13/2017 $ 451,000 Initial

Update 1

Update 2

J28 90018 2 / 1  1,204 06/12/2018 $ 717,000 Initial

Update 1

Update 2

D32 (3) 90065 3 / 2  1,613 07/31/2018 $ 736,916 Initial

Update 1

Update 2

L60 (4) 90042 3 / 1.5  1,217 08/03/2018 $ 794,000 Initial

Update 1

Update 2

S15 90004 2 / 1  1,335 08/17/2018 $ 716,000 Initial

Update 1

Update 2

L602 (4) 90042 2 / 2  1,365 09/11/2018 $ 952,000 Initial

Update 1

Update 2

E91 90011 (2) (2) 12/11/2018 $ 1,790,000 InitialN/A
E62 90011 3 / 2  1,900 12/12/2018 $ 512,000 InitialUpdate 1
W18 90062 2 / 1  1,500 12/14/2018 $ 512,000 InitialUpdate 1
E855 90011 3 / 1  1,300 12/20/2018 $ 415,000 InitialUpdate 1
S41 90037 2 / 1  1,300 01/31/2019 $ 527,000 InitialUpdate 1
E42 90016 3 / 2  1,350 02/14/2019 $ 717,000 InitialUpdate 1
H30 90018 5 / 3.5  1,500 02/22/2019 $ 651,000 InitialUpdate 1
G55 90016 3 / 2 1,500 03/21/2019 $ 728,000 InitialUpdate 1
344 (6) 20011 4 / 3.5 1,660 11/30/2020 $765,000 InitialUpdate 1
 
Update 2
H61 (5) (6) 20011 2 / 1.5 832 11/30/2020 $595,000 InitialUpdate 1
Update 2
I81 (6) (7) 20011 3 / 1 1,936 11/30/2020 $650,000 InitialUpdate 1
Update 2
P91 (6) 22202 2 / 1.5 2,100 11/30/2020 $975,000 InitialUpdate
473 (6) 90037 4 / 2 1,800 11/30/2020 $535,000 InitialUpdate
S37 (6) 90018 3 / 1 900 11/30/2020 $560,000 InitialUpdate
317 (6) 90018 3 / 2 1,400 11/30/2020 $675,000 InitialUpdate
E81 (6) 90011 3 / 1 1,700 11/30/2020 $540,000 InitialUpdate
S48 (6) 90062 3 / 2 1,100 11/30/2020 $550,000 InitialUpdate
E35 (6) 90011 3 / 1 1,148 11/30/2020 $530,000 InitialUpdate
W47 (6) 90011 3 / 1 1,305 11/30/2020 $455,000 InitialUpdate
E22 (6) 90011 2 / 1 1,008 11/30/2020 $455,000 InitialUpdate
C33 (6) 90011 3 / 2 1,113 11/30/2020 $470,000 InitialUpdate
W11 (6) 90037 2 / 1 1,210 11/30/2020 $505,000 InitialUpdate
E19 (6) 90018 2 / 1 1,308 11/30/2020 $670,000 InitialUpdate
E85 (6) 90011 3 / 1 1,320 11/30/2020 $510,000 InitialUpdate
W114 (6) 90037 5 / 1 2,401 11/30/2020 $680,000 InitialUpdate
P50 (6) 90011 3 / 2 1,841 11/30/2020 $530,000 InitialUpdate
E44 (6) 90011 4 / 2 1,584 11/30/2020 $535,000 InitialUpdate
C38 (6) 90011 4 / 2 1,730 11/30/2020 $530,000 InitialUpdate
M34 (6) 90011 2 / 1 1,200 11/30/2020 $460,000 InitialUpdate
W145 (6) 90062 3 / 1.5 1,500 11/30/2020 $630,000 InitialN/A
P29 (6) 90016 3 / 1 1,600 11/30/2020 $875,000 InitialN/A
H95 (6) 30310 3 / 2 1,300 11/30/2020 $288,000 InitialN/A
A49 (6) 30310 3 / 2 1,500 11/30/2020 $350,000 InitialN/A
A50 (6) 30310 3 / 2 1,400 11/30/2020 $345,000 InitialN/A
251 (6) 90043 2 / 1 1,000 11/30/2020 $550,000 InitialN/A
M77 (6) 30316 2 / 1 1,000 11/30/2020 $247,000 InitialN/A
C387 (6) 90062 3 / 2.5 1,100 11/30/2020 $700,000 InitialN/A
S56 (6) 90016 3 / 3 1,300 11/30/2020 $840,000 InitialN/A
236 (6) 90018 3 / 2 1,800 11/30/2020 $735,000 InitialN/A
O92 (6) 30310 3 / 3 2,000 11/30/2020 $330,000 InitialN/A
935 (6) 90018 3 / 1 1,300 11/30/2020 $755,000 InitialN/A
536 (6) 90018 4 / 2 1,269 11/30/2020 $790,000 InitialN/A
S375 (6) 90018 4 / 3 1,678 11/30/2020 $760,000 InitialN/A
M184 (6) 90062 4 / 2 1,629 11/30/2020 $750,000 InitialN/A

 

 (1)La Vista Property sold on March 23, 2018 for a sales price of $550,000.
 (2)Property is improved with three separate structures: a multi-tenant building containing four residential units and approximately 2,500 square feet, a single-family home with approximately 2,000 square feet, and a three-story commercial building with approximately 7,200 square feet.
 (3)D32 sold on January 23, 2019 for a sales price of approximately $995,000.
 (4)These assets were classified as single family residential properties at acquisition. As of June 30, 2019, these assets are included as part of the RSE L6025 entitlement project. See (E) under "Entitlement and Development Properties" below.
 (5)H61 was classified as held for sale as of June 30, 2021.
 (6)These assets were acquired by the Company on November 30, 2020 in connection with the Merger. See Note 2 – Summary of Significant Accounting Policies – Merger Transaction – Asset Acquisition for more information on the assets acquired from the Merger.
 (7)I81 sold on May 20, 2021 for a sales price of approximately $855,000.

 

 

 

Entitlement and Development Properties:

 

Asset Name Zip
Code
 Approximate
Square Footage
of Lot(s) at
Acquisition
  Date of
Acquisition
  Approximate
Acquisition
Cost
  Projected
Number of
Entitled
Lots
 Overview (Form 1-U)
CNP 36 Properties (6) 90034 15,800  (1)  $2,705,000  12 Initial Update 1
NPSC Westmoreland- Controlled Subsidiary (6) 90029 13,000  (2)  $2,143,000  14 Initial 

Update 1

Update 2 

R13 and R14- Controlled Subsidiary 90026 13,460  (3)  $2,061,000  10 Initial 

Update 1

Update 2

NPSC Virgil- Controlled Subsidiary (6) 90029 19,150  (4)  $2,881,000  15 Initial 

Update 1
Update 2

Update 3

RSE L6025- Controlled Subsidiary 90042 27,000  (5)  $2,976,000  18 Initial  N/A

 

 (1)CNP 36 Properties comprised of two parcels: an approximately 8,300 square foot lot purchase on May 3, 2018 for $1,555,000 and an approximately 7,500 square foot lot purchase on March 23, 2018 for approximately $1,150,000.
 (2)NPSC Westmoreland- Controlled Subsidiary comprised of two parcels: an approximately 5,800 square foot lot purchased on March 15, 2018 for approximately $1,103,000 and an approximately 7,200 square foot lot purchased on November 9, 2017 for approximately $1,040,000.
 (3)R13 and R14- Controlled Subsidiary comprised of two parcels: an approximately 6,730 square foot lot purchased on January 4, 2018 for approximately $1,138,000 and an approximately 6,730 square foot lot purchased on November 14, 2017 for approximately $923,000.
 (4)NPSC Virgil- Controlled Subsidiary comprised of three parcels: an approximately 5,750 square foot lot purchased on January 25, 2018 for approximately $921,000, an approximately 6,700 square foot lot purchased on January 19. 2018 for approximately $910,000, and an approximately 6,700 square foot lot purchased on December 27, 2017 for approximately $1,050,000.
 (5)RSE L6025 Controlled Subsidiary comprised of three parcels: L60 (acquired August 3, 2018), L602 (acquired September 11, 2018), and the latest investment, L6025, was acquired on June 26, 2019 for an initial purchase price of approximately $1,230,000. Proceeds were used to acquire approximately 9,000 square feet of land, which is currently improved with an approximately 1,500 square foot single-family home. The acquisition of L6025 is the last property required to assemble the three lots. Combined, the three parcels achieve a lot size of approximately 27,000 square feet, which will be entitled for 18 single-family homes.
 (6)These assets were classified as held for sale as of June 30, 2021. Prior to June 30, 2021 these assets were classified as investments in real estate held for improvement.

 

 

 

 

Residential Properties – Intended for Renovation:

 

Asset Name Zip Code Beds / Baths
at
Acquisition
   
 Approximate
Square

Footage at
Acquisition
 
 Date of
Acquisition
 Approximate
Acquisition
Cost  
 

Overview

(Form 1-U)

W41 90062 3 / 1 1,400 01/11/2019 $494,000 InitialUpdate 1
W418 90062 3 / 2 2,200 09/24/2019 $687,000 InitialN/A
              Update 1
749 (3) (4) 20011 4 / 2 1,288 11/30/2020 $900,000 InitialUpdate 2
              Update 1
F64 (2) (4) 20011 4 / 3 1,152 11/30/2020 $955,000 InitialUpdate 2
              Update 1
F42 (4) (5) 20011 5 / 2 1,280 11/30/2020 $940,000 InitialUpdate 2
              Update 1
              Update 2
H13 - Controlled Subsidiary  (4) 20009 2 / 1 2,072 11/30/2020 $1,228,000 InitialUpdate 3
              Update 1
              Update 2
S17 - Controlled Subsidiary (4) (6) 20009 4 / 2 1,254 11/30/2020 $1,291,000 InitialUpdate 3
              Update 1
N22 - Controlled Subsidiary (4) 20018 4 / 1 1,140 11/30/2020 $589,000 InitialUpdate 2
              Update 1
M20 - Controlled Subsidiary (4) 20018 3 / 1 1,760 11/30/2020 $ 600,000 InitialUpdate 2
              Update 1
G12 - Controlled Subsidiary (4)(7) 20009 6 / 2 3,316 11/30/2020 $1,252,000 InitialUpdate 2
              Update 1
R13 - Controlled Subsidiary (1) (4) 20009 4 / 2 2,664 11/30/2020 $1,550,000 InitialUpdate 2

 

 (1)R13 sold on April 22, 2021 for a sales price of approximately $1,750,000.
 (2)F64 sold on April 30, 2021 for a sales price of approximately $1,105,000.
 (3)749 sold on February 25, 2021 for a sales price of approximately $1,325,000.
 (4)These assets were acquired by the Company on November 30, 2020 in connection with the Merger. See Note 2 – Summary of Significant Accounting Policies – Merger Transaction – Asset Acquisition for more information on the assets acquired from the Merger.
 (5)F42 sold on January 18, 2021 for a sales price of approximately $975,000.
 (6)S17 sold on February 26, 2021 for a sales price of approximately $1,325,000.
 (7)This asset was classified as held for sale as of June 30, 2021. Prior to June 30, 2021 this asset was classified as an investment in real estate held for improvement..

 

Joint Venture Entitlement and Development Properties, Senior Loans, and Other Assets:

 

Real Property
Controlled
Subsidiaries
 Zip Code  Approximate
Square Footage of
Lot at Acquisition
  Date of
Acquisition
  Purchase
Price
(1)
  #
Lots/Homes
  Overview
(Form 1-U)
RRE F1  90731   28,800   05/04/2018  $2,023,000   19   Initial   N/A
Marathon 12 (2)  90026   15,620   05/17/2018  $1,279,000   12   Initial  Update

 

 (1)Purchase Price refers to the total price paid by us for our pro rata share of the equity in the controlled subsidiary.
 (2)On August 24, 2020, we received our final cash flow distribution from the Marathon 12 Controlled Subsidiary. This completed the sale of the Marathon 12 Property and hence, the liquidation of the Marathon 12 Investment. See Note 12, Subsequent Events, for further information.

 

Senior Loans Zip
Code
  Date of
 Acquisition
  Interest
 Rate
(1)
  Maturity
 Date
(2)
 Total
 Commitment

 (3)
  LTV
 (4)
  LTC
(5)
  Overview
(Form 1-U)
SC Group 6845 Figueroa, LLC (7)  90042   08/04/2017   9.0% 02/04/2019 $2,250,000   90.0%  97.5% Initial Update 1
Update 2
SGGP 1300 Douglas, LLC (8)  90026   11/20/2017   9.0% 05/13/2019 $2,923,350   89.0%  97.0% Initial Update 1
600 Block Commonwealth, LLC (6)  90004   02/08/2018   18.0% 07/31/2018 $500,000      42.0% Initial Update 1

 

 (1)Interest Rate refers to the projected annual interest rate on each senior loan. The interest rate presented does not distinguish between interest that is paid current and interest that accrues to the maturity date, nor does it include any increases in interest rate that may occur in the future.

 (2)Maturity Date refers to the initial maturity date of each senior loan, and does not take into account any extensions that may be available.
 (3)Total Commitment refers to the total commitment made by the Company to fund the senior loan, not all of which may have been funded on the acquisition date.

 (4)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 future value of the underlying asset at stabilization as determined by our Manager. LTVs presented are as of the date of acquisition by the Company, and have not been subsequently updated. There can be no assurance that such value will be achieved. For performance evaluation, we generally use LTV for properties that are generating cash flow.

 

10 

 

 

 (5)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. For performance evaluation, we generally use LTC for properties that are subject to construction. LTCs presented are as of the date of acquisition by the Company, and have not been subsequently updated. There can be no assurance that the anticipated completion cost will be achieved.

 (6)On July 20, 2018, 600 Block Commonwealth, LLC paid off the loan for the full amount of the outstanding principal balance plus interest.
 (7)On February 3, 2019, SC Group 6845 Figueroa, LLC (“Stradella Court – La Prada”) executed a loan modification extending the maturity date of the senior loan to May 3, 2019. The loan principal increased to $2,396,545. In April 2020, the investment was issued a notice of maturity default for failing to repay the outstanding principal and contractual interest amounts owed. On September 2, 2020, the Company executed a deed in lieu for the underlying property of the real estate debt investment. In full satisfaction of the loan, the transfer of title occurred on December 15, 2020.

 (8)In April 2020, the  investment was issued a notice of maturity default for failing to repay  the outstanding  principal and contractual interest  amounts owed.  On  September 2, 2020, the Company  executed a deed in lieu for the underlying  property of the real estate debt investment. In full satisfaction of the loan, the transfer  of  title  occurred on December 15, 2020. The property was sold on March 18, 2021 for a sales price of approximately $1,750,000.

 

Liquidity and Capital Resources

 

We require capital to fund our investment activities and operating expenses. Our capital sources may include net proceeds from our Offerings, cash flow from operations, net proceeds from asset repayments and sales, borrowings under credit facilities, other term borrowings and securitization financing transactions.

 

We will obtain the capital required to purchase and originate real estate-related investments and conduct our operations from the proceeds of our Offering and any future offerings we may conduct, from secured or unsecured financings from banks and other lenders and from any undistributed funds from our operations. As of June 30, 2021, we have seventy-three investments totaling approximately $58.5 million in deployed capital and had approximately $15.2 million in cash and cash equivalents. As of December 31, 2020, we had eighty investments totaling approximately $67.0 million in deployed capital and had approximately $10.9 million in cash and cash equivalents.

 

For information regarding the anticipated use of proceeds from our Offering, see our “Estimated Use of Proceeds” in our Offering Circular here. As of June 30, 2021, we anticipate that cash on hand and proceeds from our Offering will provide sufficient liquidity to meet future funding commitments and costs of operations.

 

As of both June 30, 2021 and December 31, 2020, we had no outstanding debt from our Sponsor (See Note 9, Related Party Arrangements in our consolidated financial statements) nor to any third-party lenders. Our targeted portfolio-wide leverage after we have acquired an initial substantial portfolio of diversified investments is between 50-85% of the greater of the cost (before deducting depreciation or other non-cash reserves) or fair market value of our assets. During periods when we are growing our initial portfolio, we may employ greater leverage on individual assets (that will also result in greater leverage of the interim portfolio) in order to quickly build a diversified portfolio of assets. Our Manager may from time to time modify our leverage policy in its discretion in light of then-current economic conditions, relative costs of debt and equity capital, market values of our assets, general conditions in the market for debt and equity securities, growth and acquisition opportunities or other factors. However, other than during our initial period of operations, it is our policy to not borrow more than 85% of the greater of cost (before deducting depreciation or other non-cash reserves) or fair market value of our assets. We cannot exceed the leverage limit of our leverage policy unless any excess in borrowing over such level is approved by our Manager’s investment committee.

 

We face challenges in order to ensure liquidity and capital resources on a long-term basis. If we are unable to raise additional funds from the issuance of common shares, we will make fewer investments resulting in less diversification in terms of the type, number and size of investments we make and we may be subject to more fluctuations based on the performance of the specific assets we acquire. Further, we have certain direct and indirect operating expenses. Our inability to raise substantial funds would increase our fixed operating expenses as a percentage of gross income and would limit our ability to make distributions.

 

Outlook and Recent Trends

 

After enduring the worst peacetime economic downturn since the Great Depression in 2020, the global economy is experiencing a resounding rebound with the International Monetary Fund (“IMF”) forecasting record-setting growth of 6% for 2021. Fueled by government stimulus, accommodative monetary policy, and accelerated vaccination programs, a generally ‘v-shaped’ recovery has taken hold in most sectors of the economy, including real estate where the Vanguard Real Estate Index that was down -4.72% for 2020, is now up over 30% through August 2021.

 

11 

 

 

Within real estate, performance has diverged significantly between sectors, and we are encouraged by our focus on residential assets where we anticipate continued demand growth. Single Family Rental (“SFR”) (+41%) has continued to outperform the broader REIT sector year-to-date, building on outperformance in 2020 (SFR +6%). Meanwhile, after sharply negative performance in 2020 (Office -18%, Lodging -24%), these commercial sectors have continued to underperform the broader REIT sector in 2021 (Office +16%, Lodging +13%); Retail REITs have returned 39% year-to-date after posting the worst performance among REIT sectors in 2020 (-25%).

 

Multifamily properties have recently recorded unprecedented average national rent growth of over 6% year-over-year in June, with Jeff Adler, VP at Yardi Matrix, noting, “These are the largest year-over-year and monthly increases in the history of our data set.” Single-family rental units have featured even stronger year-over-year growth of 11%.

 

Despite the potential for setbacks from Delta and other new COVID-19 variants, the U.S. economy is expected to continue on its strong growth trajectory through the end of 2021 and into 2022. On July 27, 2021 the IMF indicated it is maintaining its global growth forecast of 6.0% for 2021 and increasing its 2022 growth forecast to 4.9%, explaining:

 

“The 2021 global forecast is unchanged from the April 2021 report, but with offsetting revisions. Prospects for emerging markets and developing economies have been marked down for 2021, especially for Emerging Asia. By contrast, the forecast for advanced economies is revised up. These revisions reflect pandemic developments and changes in policy support. The 0.5 percentage-point upgrade for 2022 derives largely from the forecast upgrade for advanced economies, particularly the United States, reflecting the anticipated legislation of additional fiscal support in the second half of 2021 and improved health metrics more broadly across the group.”

 

The economic tailwinds are likely to broadly drive rent growth, occupancy and asset pricing. On the other hand, economic vibrancy generally raises interest rates, construction costs, and will generally create a more competitive environment for the Company. The current interest rate environment dramatically eased as a result of the Federal Reserve materially lowering rates and broad based liquidity injections, but the Federal Reserve is closely monitoring their policy stance for reevaluating factors. Capital markets are vigilantly monitoring the Federal Reserve’s policy stance. Historically when markets recover, hard assets, such as real estate, see an increase in value as a result of economic expansion.

 

Off-Balance Sheet Arrangements

 

As of June 30, 2021 and December 31, 2020, we had no off-balance sheet arrangements.

 

Related Party Arrangements

 

For further information regarding “Related Party Arrangements,” please see Note 9, Related Party Arrangements in our consolidated financial statements.

 

Recent Developments

 

Investments

 

On August 18, 2021 the Company invested $1.0 million in a third party real estate related company through a derivative financial instrument.

 

Other

 

Event Date Description
     
Share Purchase Price Update 07/01/2021 Beginning on July 1, 2021, the per share purchase price of our common shares was updated to $11.59 due to a change in NAV. More information can be found here.

 

Status of our Offering 09/21/2021 

The Company qualified an additional $30.7 million of common shares on July 26, 2021, which represents the value of shares available to be offered as of the date of its most recent offering circular out of the rolling 12-month maximum offering amount of $75.0 million.

 

As of September 21, 2021, we had raised total gross offering proceeds of approximately $86.9 million from settled subscriptions (including the $309,000 and $100,000, respectively, received in the private placements to our Sponsor, and Fundrise, L.P., an affiliate of our Sponsor), and had settled subscriptions in our Offering and private placements for an aggregate of approximately 8.1 million of our common shares.

 

 12 

 

 

Item 2.Other Information

 

Departure of Certain Officers

 

Effective June 7, 2021, Benjamin Miller (i) resigned as the Interim Chief Financial Officer of the Manager and (ii) relinquished his roles as principal financial officer and principal accounting officer of the Company. Mr. Miller remains the Chief Executive Officer of the Manager and principal executive officer of the Company. Additionally, effective June 7, 2021, Alison Staloch (i) was appointed the Chief Financial Officer of the Manager and (ii) assumed the roles of principal financial officer and principal accounting officer of the Company. More information can be found here.

 

 13 

 

 

Item 3.Financial Statements

 

INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF

 

Fundrise eFund, LLC

 

Consolidated Balance SheetsF-1
Consolidated Statements of OperationsF-2
Consolidated Statements of Members’ EquityF-3
Consolidated Statements of Cash FlowsF-4
Notes to Consolidated Financial StatementsF-5 to F-18

 

 14 

 

 

Fundrise eFund, LLC

 

Consolidated Balance Sheets

(Amounts in thousands, except share data)

 

  As of  As of 
  June 30, 2021
 (unaudited)
  December 31,
 2020 (*)
 
ASSETS        
Cash and cash equivalents $15,161  $10,924 
Other assets  304   777 
Real estate deposits  250   - 
Investments in residential rental properties, net  30,561   30,793 
Investments in real estate held for improvement  13,919   25,650 
Investments in real estate held for sale  10,341   7,165 
Investments in equity method investees  2,572   2,567 
Total Assets $73,108  $77,876 
         
LIABILITIES AND MEMBERS’ EQUITY        
Liabilities:        
Accounts payable and accrued expenses $472  $1,512 
Rental security deposits and other liabilities  59   468 
Due to related party  16   42 
Redemptions payable  786   3 
Below market leases, net  31   33 
Total Liabilities  1,364   2,058 
         
Commitments and Contingencies        
         
Members’ Equity:        
Common shares, net of redemptions; unlimited shares authorized; 8,095,316 and 8,095,316 shares issued, and 6,721,753 and 7,061,449 outstanding as of June 30, 2021 and December 31, 2020, respectively  71,394   75,264 
Retained Earnings (Accumulated deficit)  350   554 
Total Members’ Equity  71,744   75,818 
Total Liabilities and Members’ Equity $73,108  $77,876 

 

* Derived from the audited consolidated financial statements.

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-1 

 

 

Fundrise eFund, LLC

 

Consolidated Statements of Operations

(Amounts in thousands, except share and per share data)

 

  For the Six
Months
Ended
  For the Six
Months
Ended
 
  June 30, 2021
(unaudited)
  June 30, 2020
(unaudited)
 
Revenue        
Interest revenue $-  $125 
Rental revenue  864   447 
Other revenue  1   5 
Total revenue  865   577 
         
Expenses        
Rental properties operating and maintenance  316   161 
Depreciation and amortization  369   92 
General and administrative expenses  262   233 
Total expenses  947   486 
         
Other income (expense)        
Equity in earnings (losses)  (75)  38 
Gain (loss) on sale of real estate  (47)  - 
Total other income (expense)  (122)  38 
         
Net income (loss) $(204) $129 
         
Net income (loss) per basic and diluted common share $(0.03) $0.03 
Weighted average number of common shares outstanding, basic and diluted  6,940,183   3,788,627 

 

The accompanying notes are an integral part of these consolidated financial statements. In the opinion of management, all necessary adjustments have been included in order to make the interim consolidated financial statements not misleading.

 

F-2 

 

 

Fundrise eFund, LLC

 

Consolidated Statements of Members’ Equity

(Amounts in thousands, except share data)

 

  Common Shares  Retained
Earnings
(Accumulated
  Total
Members'
 
  Shares  Amount  deficit)  Equity 
December 31, 2020 (*)  7,061,449  $75,264  $554  $75,818 
Proceeds from issuance of common shares  -   -   -   - 
Redemptions of common shares  (339,696)  (3,773)  -   (3,773)
Offering costs  -   (97)  -   (97)
Net income (loss)  -   -   (204)  (204)
June 30, 2021 (unaudited)  6,721,753  $71,394  $350  $71,744 

 

  Common Shares  Retained
Earnings
(Accumulated
  Total
Members'
 
  Shares  Amount  deficit)  Equity 
December 31, 2019 (*)  3,800,487  $37,853  $504  $38,357 
Proceeds from issuance of common shares  21,138   227   -   227 
Redemptions of common shares  (183,980)  (1,906)  -   (1,906)
Offering costs  -   (196)  -   (196)
Net income (loss)  -   -   129   129 
June 30, 2020 (unaudited)  3,637,645  $35,978  $633  $36,611 

 

* Derived from the audited consolidated financial statements.

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-3 

 

 

Fundrise eFund, LLC

 

Consolidated Statements of Cash Flows

(Amounts in thousands)

 

  For the Six
Months
Ended
  For the Six
Months
Ended
 
  June 30, 2021
(unaudited)
  June 30, 2020
(unaudited)
 
OPERATING ACTIVITIES:        
Net income (loss) $(204) $129 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:        
Equity in (earnings) losses  75   (38)
Depreciation and amortization  369   92 
Amortization of below-market lease  (2)  (2)
Bad debt expense  27   - 
Loss on sale of real estate  47   - 
Interest revenue received in kind  -   (125)
Changes in assets and liabilities:        
Net decrease (increase) in other assets  320   70 
Net increase (decrease) in due to related party  (26)  9 
Net increase (decrease) in accounts payable and accrued expenses  (1,132)  13 
Net increase (decrease) in rental security deposits and other liabilities  -   (3)
Net cash provided by (used in) operating activities  (526)  145 
INVESTING ACTIVITIES:        
Repayment of real estate debt investments  -   250 
Improvements of real estate held for improvement  (900)  (168)
Improvements in residential rental properties  (11)  (13)
Improvements of real estate held for sale  (203)  - 
Proceeds from sale of real estate  9,245   - 
Investment in equity method investees  (80)  (100)
Issuance of real estate deposits  (250)  - 
Net cash provided by (used in) investing activities  7,801   (31)
FINANCING ACTIVITIES:        
Proceeds from issuance of common shares  -   227 
Proceeds from note payable - related party  -   2,000 
Offering costs paid  (48)  (54)
Redemptions paid  (2,990)  (584)
Net cash provided by (used in) financing activities  (3,038)  1,589 
         
Net increase (decrease) in cash and cash equivalents  4,237   1,703 
Cash and cash equivalents, beginning of period  10,924   1,676 
Cash and cash equivalents, end of period $15,161  $3,379 
         
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITY:        
Improvements in real estate held for improvement included in accounts payable $12  $99 
Improvements in real estate single-family residential rental properties included in accounts payable $-  $10 
Improvements in real estate held for sale included in accounts payable $26  $- 
Recognition of unearned revenue in connection with sale of real estate held for sale $400  $- 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-4 

 

 

 

Fundrise eFund, LLC

 

Notes to Consolidated Financial Statements (unaudited)

 

1.Formation and Organization

 

Fundrise eFund, LLC was formed on November 19, 2015, as a Delaware limited liability company to acquire and invest in property, for development or redevelopment. Operations commenced on May 26, 2017. Effective November 30, 2020, Fundrise National For-Sale Housing eFund, LLC and Fundrise For-Sale Housing eFund – Washington DC, LLC, the (“Target eFunds”), merged with Fundrise For-Sale Housing eFund – Los Angeles CA, LLC in which Fundrise eFund, LLC was the surviving entity (the “Merger”). Following the Merger, we intend to acquire property for the development, sale, and/or rental of single-family attached and detached homes, townhomes and condominiums targeted to first-time, move-up and active adult homebuyers (referred to herein as “Single Family Housing”) and last mile logistics centers without a focus on any MSA in the United States as opportunity dictates. We expect to use substantially all of the net proceeds from our initial and subsequent offerings (the “Offering(s)”) to continue to originate, invest in and manage a diversified portfolio primarily consisting of investments in commercial, industrial, and residential real estate properties, as well as commercial real estate loans, commercial real estate debt securities (including commercial mortgage-backed securities, collateralized debt obligations, and REIT senior unsecured debt), development projects, and other select real estate-related assets, where the underlying assets primarily consist of such properties. We may make our investments through majority-owned subsidiaries, some of which may have rights to receive preferred economic returns. We intend to be treated as a partnership for U.S. federal income tax purposes, with the intent of offering investors a tax-efficient means of investing in real estate-related business plans that are generally non-REIT qualifying. As used herein, the “Company,” “we,” “our,” and “us” refer to Fundrise eFund, LLC except where the context otherwise requires. The Company has one reportable segment consisting of investments in real estate.

 

Each residential real estate property investment of the Company is acquired by a limited liability company that is a subsidiary of ours. These subsidiaries are wholly owned by the Company and consolidated in these consolidated financial statements.

 

The Company’s business is externally managed by Fundrise Advisors, LLC (the “Manager”), a Delaware limited liability company and an investment adviser registered with the Securities and Exchange Commission (the “SEC”). Subject to certain restrictions and limitations, the Manager is responsible for managing the Company’s affairs on a day-to-day basis and for identifying and making acquisitions and investments on behalf of the Company.

 

The Company’s Offerings are being conducted as a continuous offering pursuant to Rule 251(d)(3) of Regulation A (“Regulation A”) of the Securities Act of 1933, as amended (the “Securities Act”), meaning that while the offering of securities is continuous, active sales of securities may happen sporadically over the term of an Offering. A maximum of $75.0 million of the Company’s common shares may be sold to the public in its Offering in any given twelve-month period. However, each Offering is subject to qualification by the SEC. The Manager has the authority to issue an unlimited number of common shares. Most recently, the Company qualified $30.7 million of shares on July 26, 2021, which represents the value of shares available to be offered as of the date of its most recent offering circular out of the rolling 12-month maximum offering amount of $75.0 million.

 

As of June 30, 2021 and December 31, 2020, after redemptions, the Company has net common shares outstanding of approximately 6,722,000 and 7,061,000, respectively, including common shares held by Rise Companies Corp. (the “Sponsor”), the owner of the Manager. As of both June 30, 2021 and December 31, 2020, 1,414 common shares were held by the Sponsor at an average of $10.93 per share for an aggregate purchase price of approximately $15,500. In addition, as of both June 30, 2021 and December 31, 2020, Fundrise, L.P., an affiliate of the Sponsor, had purchased an aggregate of 26,872 common shares at an average of $10.93 per share in a private placement for an aggregate purchase price of approximately $293,700.

 

As of both June 30, 2021 and December 31, 2020, the Company’s total amount of equity outstanding on a gross basis was approximately $86.9 million, and there were no settling subscriptions for each of the periods then ended.

 

The Company’s Manager has established various plans by which individual clients of the Manager may elect to have distributions received from real estate investment trusts managed by our Manager (“eREITs”), the Fundrise eFund, LLC, and the Fundrise Real Estate Interval Fund, LLC reinvested across such individual client's Fundrise portfolio according to such individual client’s selected preferences (“Reinvestment Plans”).

 

2.Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting and conform to accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial reporting and the instructions to Form 1-SA and Rule 8-03(b) of Regulation S-X of the rules and regulations of the SEC. Accordingly, certain information and note disclosures normally included in the consolidated financial statements prepared under U.S. GAAP have been condensed or omitted.

 

F-5 

 

 

In the opinion of management, all adjustments considered necessary for a fair presentation of the Company’s financial position, results of operations and cash flows have been included and are of a normal and recurring nature. Interim results are not necessarily indicative of operating results for any other interim period or for the entire year. The December 31, 2020 consolidated balance sheet and certain related disclosures are derived from the Company’s December 31, 2020 audited consolidated financial statements. These consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in the Company’s annual report, which was filed with the SEC.

 

The consolidated financial statements as of June 30, 2021 and for the six months ended June 30, 2021 and 2020, and certain related notes, are unaudited, have not been reviewed, and may not include year-end adjustments to make those consolidated financial statements comparable to audited results.

 

Certain amounts in the prior year’s consolidated financial statements have been reclassified to conform to current year presentation.

 

Merger Transaction – Asset Acquisition

 

As a result of the Merger, the financial information being presented represents a continuation of the financial information of the acquired assets. The properties we acquire typically are not businesses as defined by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)  805, Business Combinations. Per this definition, a set of transferred assets and activities is not a business when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. We therefore account for such acquisitions as asset acquisitions. Acquisition costs are capitalized and identifiable assets (including physical assets and in-place leases), liabilities assumed and any noncontrolling interests are measured by allocating the cost of the acquisition on a relative fair value basis. Acquisitions executed prior to our adoption of ASU 2017-01 as of January 1, 2017 were accounted for as business combinations. The historical information included herein, covering periods prior to the Merger, refers to our business as operated by Fundrise For-Sale Housing eFund – Los Angeles CA, LLC.

 

The Company acquired forty-five residential real estate properties in connection with the Merger. The table below summarizes the assets acquired from the Merger (dollar amounts in thousands):

 

Asset Type Number of Properties  Real Estate Acquired (1) 
Residential rental properties  34  $19,838 
Real estate held for improvement  6   6,503 
Real estate available for sale  5   4,033 
Total  45  $30,374 

 

 (1)Real estate acquired is inclusive of acquisition-related costs, including approximately $139,000 of transfer taxes related to the Merger.

 

The following table further details the purchase price allocation for the properties acquired in connection with the Merger (dollar amounts in thousands):

 

Description Asset Acquisition
Allocation
 
Land $                18,323 
Building and building improvements  11,780 
Site improvements  4 
Furniture, fixtures and equipment  40 
In-place lease intangibles  227 
Working capital, net  (534)
Cash acquired  14,417 
Total $44,257 

 

F-6 

 

 

Principles of Consolidation

 

We consolidate entities when we own, directly or indirectly, a majority interest in the entity or are otherwise able to control the entity. We consolidate variable interest entities (“VIE”) in accordance with FASB ASC 810, Consolidation, if we are the primary beneficiary of the VIE as determined by our power to direct the VIE’s activities and the obligation to absorb its losses or the right to receive its benefits, which are potentially significant to the VIE. A VIE is broadly defined as an entity with one or more of the following characteristics: (a) the total equity investment at risk is insufficient to finance the entity’s activities without additional subordinated financial support; (b) as a group, the holders of the equity investment at risk lack (i) the ability to make decisions about the entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests, and substantially all of the entity’s activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights. All intercompany balances and transactions have been eliminated in consolidation.

 

Estimates

 

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates.

 

Cash and Cash Equivalents

 

Cash and cash equivalents consist of money market funds, demand deposits and highly liquid investments with original maturities of three months or less.

 

Cash may at times exceed the Federal Deposit Insurance Corporation deposit insurance limit of $250,000 per institution. The Company mitigates credit risk by placing cash with major financial institutions. To date, the Company has not experienced any losses with respect to cash.

 

Organizational and Offering Costs

 

Organizational and offering costs of the Company are being paid by the Manager on behalf of the Company. These organizational and offering costs include all expenses to be paid by the Company in connection with the formation of the Company and the qualification of the Offering. These may also include marketing and distribution of shares, including, without limitation, expenses for printing, amending offering statements or supplementing offering circulars, mailing and distributing costs, telephones, Internet and other telecommunications costs, all advertising and marketing expenses, charges of experts and fees, expenses and taxes related to the filing, registration and qualification of the sale of shares under federal and state laws, including taxes and fees, and accountants’ and attorneys’ fees. Pursuant to the Company’s amended and restated operating agreement (the “Operating Agreement”), the Company will be obligated to reimburse the Manager, or its affiliates, as applicable, for organizational and offering costs paid by them on behalf of the Company, subject to a minimum net asset value (“NAV”), as described below.

 

After the Company has reached a NAV greater than $10.00 per share (“Hurdle Rate”), it will start to reimburse the Manager, without interest, for these organizational and offering costs incurred, both, before and after the date that the Hurdle Rate was reached. The total amount payable to the Manager will be based on the dollar amount that the NAV exceeds the Hurdle Rate, multiplied by the number of shares outstanding. Reimbursement payments will be made in monthly installments, but the aggregate monthly amount reimbursed shall not exceed 0.50% of the aggregate gross offering proceeds from the Offering. No reimbursement shall be made if the reimbursement would cause the NAV to be less than the Hurdle Rate. If the sum of the total unreimbursed amount of such organizational and offering costs, plus new costs incurred since the last reimbursement payment, exceeds the reimbursement limit described above for the applicable monthly installment, the excess will be eligible for reimbursement in subsequent months (subject to the 0.50% limit), calculated on an accumulated basis, until the Manager has been reimbursed in full.

 

The Company recognizes a liability for organizational costs and offering costs payable to the Manager when it is probable and estimable that a liability has been incurred in accordance with FASB ASC 450, Contingencies. As a result, no liability was recognized by the Company until it reached the Hurdle Rate. After the Company’s NAV exceeded the Hurdle Rate, it recognizes a liability with a corresponding reduction to equity for offering costs, and a liability and a corresponding expense to general and administrative expenses for organizational costs.

 

As of both June 30, 2021 and December 31, 2020, the Manager had incurred cumulative organizational and offering costs of approximately $500,000 on behalf of the Company. The Hurdle Rate was met as of June 30, 2021 and December 31, 2020, so as a result, approximately $0 of offering costs were due to the Manager as of both June 30, 2021 and December 31, 2020, respectively. As of June 30, 2021 and December 31, 2020, no offering or organizational costs incurred by the Manger have been forgiven or reimbursed back to the Company.

 

F-7 

 

 

During the six months ended June 30, 2021 and the year ended December 31, 2020, the Company directly incurred cumulative offering costs of approximately $97,000 and $339,000, respectively. Of these amounts, approximately $49,000 and $41,000 were payable as of June 30, 2021 and December 31, 2020, respectively.

 

Earnings per Share

 

Basic earnings per share is calculated on the basis of weighted-average number of common shares outstanding during the period. Basic earnings per share is computed by dividing income available to common members by the weighted-average common shares outstanding during the period. Diluted net income (loss) per common share equals basic net income (loss) per common share as there were no potentially dilutive securities outstanding during the six months ended June 30, 2021 and 2020.

 

Real Estate Deposits

 

During the closing on an investment in residential rental property or real estate held for improvement, we may place a cash deposit on the property being acquired or fund amounts into escrow. These deposits are placed before the closing process of the property is complete. If subsequent to placing the deposit, we acquire the property (the deed is transferred to us), the deposit placed will be credited to the purchase price. If subsequent to placing the deposit, we do not acquire the property (deed is not transferred to us), the deposit will be returned to us. The Company may pay a deposit for a property that is ultimately acquired by a related party fund. Upon acquisition of the property, the related party fund would reimburse the Company for the full amount of the deposit.

 

Investments in Residential Rental Properties and Real Estate Held for Improvement

 

Our investments in rental real estate properties and real estate held for improvement may include the acquisition of unimproved land, homes, townhomes or condominiums, office space, or industrial properties that are (i) held as rental properties or (ii) held for redevelopment or are in the process of being renovated.

 

In accordance with FASB ASC 805, Business Combinations, the Company first determines whether the acquisition of a property qualifies as a business combination, which requires that the assets acquired and liabilities assumed constitute a business. If the property acquired does not constitute a business, the Company accounts for the transaction as an asset acquisition. The guidance for business combinations states that when substantially all of the fair value of the gross assets to be acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the asset or set of assets is not a business. All property acquisitions to date have been accounted for as asset acquisitions.

 

Upon acquisition of a property, the Company assesses the fair value of acquired tangible and intangible assets (including land, buildings, site improvements, above- and below-market leases, acquired in-place leases, other identified intangible assets and assumed liabilities) and allocates the purchase price (including capitalized transaction costs) to the acquired assets and assumed liabilities on a relative fair value basis. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant. During this process, we also evaluate each investment for purposes of determining whether a property can be immediately rented (presented on the consolidated balance sheets as “Investments in rental real estate properties, net”) or will need improvements or redevelopment (classified as “Investments in real estate held for improvement”).

 

The amortization of in-place leases is recorded to depreciation and amortization expense on the Company’s consolidated statements of operations. The amortization of above- or below-market leases is recorded as an adjustment to rental revenue on the Company’s consolidated statements of operations. We consider qualitative and quantitative factors in evaluating the likelihood of a tenant exercising a below-market renewal option and include such renewal options in the calculation of in-place lease value when we consider these to be bargain renewal options. If the value of below-market lease intangibles includes renewal option periods, we include such renewal periods in the amortization period utilized. If a tenant vacates its space prior to contractual termination of its lease, the unamortized balance of any in-place lease value is written off. In-place lease assets haven been reflected within other assets in our consolidated balance sheets.

 

For rental real estate properties, significant improvements are capitalized. Expenditures for ordinary maintenance and repairs are expensed to operations as incurred. We capitalize expenditures that improve or extend the life of a property and for certain furniture and fixtures additions.

 

For real estate held for improvement, we capitalize the costs of improvement as a component of our investment in each property. These include renovation costs and other capitalized costs associated with activities that are directly related to preparing our properties for their intended use. Other costs may include interest, property taxes, property insurance, and utilities. The capitalization period associated with our improvement activities begins at such time that development activities commence and concludes at the time that a property is available to be rented or sold.

 

F-8 

 

 

At the completion of the improvement plan, a property is classified as either a rental property or available for sale. Once a property is ready for its intended use, expenditures for ordinary maintenance and repairs are expensed to operations as incurred. We capitalize expenditures that improve or extend the life of a property and for certain furniture and fixtures additions.

 

Costs capitalized in connection with residential property acquisitions and improvement activities are depreciated over their estimated useful lives on a straight-line basis. The depreciation period commences upon the cessation of improvement related activities. For those costs capitalized in connection with rental real estate properties acquisitions and improvement activities and those capitalized on an ongoing basis, the useful lives range of the assets are as follows:

 

Description Depreciable Life
Building and building improvements 20 – 30 years
Site improvements 5 – 10 years
Furniture, fixtures and equipment 5 – 10 years
Lease intangibles Over lease term

 

We evaluate our real estate properties for impairment when there is an event or change in circumstances that indicates an impaired value. If the carrying amount of the real estate investment is no longer recoverable and exceeds the fair value of such investment, an impairment loss is recognized. The impairment loss is recognized based on the excess of the carrying amount of the asset over its fair value. If the Company determines that an impairment has occurred, the affected assets must be reduced to their fair value. During the six months ended June 30, 2021 and 2020, no such impairment occurred.

 

Investments in Real Estate Held For Sale

 

From time to time, we may identify residential properties to be sold. At the time that any such properties are identified, we perform an evaluation to determine whether or not such properties should be classified as held for sale or presented as discontinued operations in accordance with U.S. GAAP.

 

Factors considered as part of our held for sale evaluation process include whether the following conditions have been met: (i) we have committed to a plan to sell a property that is immediately available for sale in its present condition;(ii) an active program to locate a buyer and other actions required to complete the plan to sell a property have been initiated; (iii) the sale of a property is probable within one year (generally determined based upon listing for sale); (iv) the property is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (v) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. To the extent that these factors are all present, we discontinue depreciating the property, measure the property at the lower of its carrying amount or its fair value less estimated costs to sell, and present the property separately within other assets, net on our consolidated balance sheets.

 

Investments in Real Estate Debt Investments

 

Our real estate debt investments may include first mortgage loans, subordinate mortgage and mezzanine loans and participations in such loans and preferred equity interests in unconsolidated joint ventures.

 

Our real estate debt investments are generally classified as held to maturity, as we have both the intent and ability to hold these investments until maturity. Accordingly, these assets are carried at cost, net of unamortized loan origination costs and fees, discounts, repayments and unfunded commitments, if applicable, unless such loans or investments are deemed to be impaired. The Company’s real estate debt investments are subject to annual analysis for potential impairment.

 

A debt related investment is impaired when, based on current information and events (including economic, industry and geographical factors), it is probable that we will be unable to collect all amounts due, both principal and interest, according to the contractual terms of the agreement. When an investment is deemed impaired, the impairment is measured based on the expected future cash flows discounted at the investment’s effective interest rate. As a practical expedient, FASB ASC 310, Receivables, permits a creditor to measure an observable market price for the impaired debt related investment as an alternative to discounting expected future cash flows. Regardless of the measurement method, a creditor should measure impairment based on the fair value of the collateral when the creditor determines that foreclosure is probable. A debt related investment is also considered impaired if its terms are modified in a troubled debt restructuring (“TDR”). A TDR occurs when we grant a concession to a borrower in financial difficulty by modifying the original terms of the loan. Impairments on TDR loans are generally measured based on the present value of expected future cash flows discounted at the effective interest rate of the original loan.

 

During the year ended December 31, 2020, both of our real estate debt investments were deemed impaired and on September 2, 2020, the Company executed deeds in lieu of foreclosure for the underlying property of the real estate debt investments. In full satisfaction of the loans, the transfers of title occurred on December 15, 2020. As of June 30, 2021, one of these real estate debt investments had been sold and one is classified with investments in real estate held for improvement on the consolidated balance sheets.

 

F-9 

 

 

Investments in Equity Method Investees

 

If it is determined that we do not have a controlling interest in a joint venture through our financial interest in a VIE or through our voting interest in a voting interest entity and we have the ability to provide significant influence, the equity method of accounting is used. Under this method, the investment, originally recorded at cost, is adjusted to recognize our share of net earnings or losses of the affiliate as they occur, with losses limited to the extent of our investment in, advances to, and commitments to the investee.

 

The Company evaluates its investment in equity method investees for impairment whenever events or changes in circumstances indicate that there may be an other-than-temporary decline in value. If it is determined that an impairment exists and is other than temporary, then the Company would calculate the estimated fair value of the investment using various valuation techniques, including, but not limited to, discounted cash flow models, the Company’s intent and ability to retain its investment in the entity, the financial condition and long-term prospects of the entity, and the expected term of the investment. If the Company determined any decline in value is other-than-temporary, the Company would recognize an impairment charge to reduce the carrying value of its investment to fair value. No impairment losses were recorded related to equity method investees for the six months ended June 30, 2021 and 2020, respectively.

 

With regard to distributions from equity method investees, we utilize the cumulative earnings approach to determine whether distributions from equity method investments are returns on investment (cash inflow from operating activities) or returns of investment (cash inflow from investing activities). Using the cumulative earnings approach, the Company compares cumulative distributions received for each investment, less distributions received in prior periods that were determined to be returns of investment, with the Company’s cumulative equity in earnings. Generally, cumulative distributions received that do not exceed cumulative equity in earnings represent returns on investment and cumulative distributions received in excess of the cumulative equity in earnings represent returns of investment.

 

Share Redemptions

 

Share repurchases are recorded as a reduction of common share par value under our redemption plan, pursuant to which we may elect to redeem shares at the request of our members, subject to certain exceptions, conditions, and limitations. The maximum number of shares purchasable by us in any period depends on a number of factors and is at the discretion of our Manager.

 

The Company has adopted a redemption plan whereby, on a monthly basis, an investor has the opportunity to obtain liquidity monthly, following a minimum sixty (60) day waiting period after submitting their redemption request. Pursuant to the Company’s redemption plan, a member may only (a) have one outstanding redemption request at any given time and (b) request that we redeem up to the lesser of 5,000 shares or $50,000 worth of shares per each redemption request. In addition, the redemption plan is subject to certain liquidity limitations, which may fluctuate depending on the liquidity of the real estate assets held by the Company. Redemptions are also subject to declining discounts on the redemption price over the course of the time the member has held the shares being redeemed.

 

In light of the SEC’s current guidance on redemption plans, we generally intend to limit redemptions in any calendar month to shares whose aggregate value (based on the repurchase price per share in effect as of the redemption date) is less than or equal to 0.5% of the NAV of all of our outstanding shares as of the first day of such calendar month, and generally intend to limit the amount redeemed in any calendar quarter to shares whose aggregate value (based on the repurchase price per share in effect as of the redemption date) is 1.25% of the NAV of all of our outstanding shares as of first day of the last month of such calendar quarter (e.g., March 1, June 1, September 1, or December 1), with excess capacity carried over to later calendar quarters in that calendar year. However, as we intend to make a number of real estate investments of varying terms and maturities, our Manager may elect to increase or decrease the number of common shares available for redemption in any given month or quarter, as these real estate assets are paid off or sold, but we do not intend to redeem more than 5.00% of the common shares outstanding during any calendar year. Notwithstanding the foregoing, we are not obligated to redeem common shares under the redemption plan.

 

In addition, our Manager may, in its sole discretion, amend, suspend, or terminate the redemption plan at any time without prior notice, including to protect our operations and our non-redeemed members, to prevent an undue burden on our liquidity, following any material decrease in our NAV, to comply with the publicly traded partnership Safe Harbor, or for any other reason. Therefore, you may not have the opportunity to make a redemption request prior to any potential termination of our redemption plan. However, in the event that we amend, suspend or terminate our redemption plan, we will file an offering circular supplement and/or Form 1-U, as appropriate, and post such information on the Fundrise Platform to disclose such amendment.

 

Therefore, a member may not have the opportunity to make a redemption request prior to any potential termination of the Company’s redemption plan.

 

F-10 

 

 

Income Taxes

 

The Company is treated as a pass-through entity for federal income tax purposes and, as such, is not subject to income taxes at the entity level. Rather, the distributive share of all items of income, gain, loss, deduction, or credit are passed through to the members and reported on their respective tax returns.  The Company’s federal tax status as a pass-through entity is based on its default classification as a limited liability company with more than one member, that is treated as a partnership. As of the date of these consolidated financial statements, the Company does not have any subsidiaries that pay tax at the entity level. Accordingly, these consolidated financial statements do not reflect a provision for income taxes and the Company has not taken any other tax positions which require disclosure.

 

The Company is required to file, has filed, and will continue to file income tax returns with the Internal Revenue Service and other taxing authorities. Income tax returns filed by the Company are subject to examination by the Internal Revenue Service for a period of three years. All tax periods since inception remain open to examination at this time.

 

Revenue Recognition

 

Rental revenue is recognized on a straight-line basis over the term of the lease. We will periodically review the collectability of our resident receivables and record an allowance for doubtful accounts for any estimated probable losses.

 

Interest revenue is recognized on an accrual basis and any related premium, discount, origination costs and fees are amortized over the life of the investment using the effective interest method. Interest revenue is recognized on real estate debt investments classified as held to maturity securities.

 

Gains on sale of real estate are recognized net of costs and selling expenses at the time each single-family property is delivered and title and possession are transferred to the buyer.

 

Recent Accounting Pronouncements

 

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), which eases the potential burden in accounting for reference rate reform on financial reporting. The guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. The Company has not adopted any of the optional expedients or exceptions as of June 30, 2021. We will continue evaluating the impact of the adoption of this standard on our consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02, Leases, which changes the accounting for leases for both lessors and lessees. The guidance requires lessees to recognize right-of-use assets and lease liabilities for virtually all of their leases, including leases embedded in other contractual arrangements, among other changes. In June 2020, the FASB voted to delay the fiscal year effective date of this standard by one year, and the interim period effective date by one year. The standard will now be effective for annual reporting periods beginning after December 15, 2021, and for interim periods within fiscal years beginning after December 15, 2022. We are currently assessing the impact of this update on the presentation of our consolidated financial statements.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13 was originally effective for annual reporting periods, and interim periods within those years beginning after December 15, 2020. In November 2019, the FASB voted to delay the effective date of this standard by two years. The standard is now effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2022, with early adoption permitted. We are currently in the process of evaluating the impact of the adoption of this standard on our consolidated financial statements.

 

Due to the business disruptions and challenges severely affecting the global economy caused by the COVID-19 pandemic, many lessors may provide rent deferrals and other lease concessions to lessees. While the lease modification guidance in ASC 840, Leases, addresses routine changes to lease terms resulting from negotiations between the lessee and the lessor, this guidance did not contemplate an exceptionally high volume of concessions being so rapidly executed to address the sudden liquidity constraints of certain lessees caused by the COVID-19 pandemic. In April 2020, the FASB issued a question and answer document that allows lessors to elect not to evaluate whether lease-related relief provided to mitigate the economic effects of COVID-19 is a lease modification under ASC 840. This election would allow lessors to bypass a lease-by-lease analysis, and instead choose to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. Lessors making this election would continue to recognize property rental revenue on a straight-line basis. Rent abatements would be recognized as reductions to property rental revenue during the period for which they relate. Rent deferrals would not impact the recognition of property rental revenue, but would result in an increase to tenant receivables during the deferral period.

 

F-11 

 

 

We did not grant any lease-related relief as a result of COVID-19 during the six months ended June 30, 2021. In the future, we may be in discussions with tenants to grant concessions and additional lease-related relief, such as the deferral of lease payments, for a period of time . We have elected to account for possible COVID-19 related concessions provided to our tenants as a deferred payment in which we will continue to recognize revenue on the existing straight-line basis over the remaining applicable lease term. Any changes in payment will be recognized through rent receivables, which is recorded in “Other Assets” in our consolidated balance sheets. Any identified uncollectible amounts related to the deferred payments will be recognized as an adjustment to rental revenue.

 

Extended Transition Period

 

Under Section 107 of the Jumpstart Our Business Startups Act of 2012, we are permitted to use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”) for complying with new or revised accounting standards. This permits us to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in Section 7(a)(2)(B). By electing to extend the transition period for complying with new or revised accounting standards, these consolidated financial statements may not be comparable to companies that adopt accounting standard updates upon the public business entity effective dates.

 

3.Investments in Residential Rental Properties and Real Estate Held for Improvement

 

As of both June 30, 2021 and December 31, 2021, our residential rental properties consisted of fifty-one single-family residential rentals and one quadplex.

 

The following table presents the Company’s investments in residential rental properties (amounts in thousands):

 

  As of
June 30,
2021
  As of
December 31, 2020
 
Land- acquisition allocation $18,768  $18,768 
Building and building improvements  12,413   12,404 
Furniture, fixtures, and equipment  54   52 
Total gross investment in residential rental properties $31,235  $31,224 
Less: accumulated depreciation  (674)  (431)
Total investment in residential rental properties, net $30,561  $30,793 

 

As of both June 30, 2021 and December 31, 2020, the carrying amount of the residential rental properties above included cumulative capitalized transaction costs of approximately $260,000, respectively, which includes cumulative acquisition fees paid to the Sponsor of $219,000, respectively.

 

During the six months ended June 30, 2021 and 2020, the Company recognized approximately $243,000 and $92,000, respectively, of depreciation expense on residential rental properties.

 

As of June 30, 2021 and December 31, 2020, we had twelve and twenty-one single-family residential properties held for improvement, respectively.

 

F-12 

 

 

The following table presents our real estate held for improvement (amounts in thousands):

 

  As of
 June 30, 2021 (1)
  As of
 December 31, 2020
 
Land- acquisition allocation $9,626  $17,455 
Building and building improvements  2,221   5,225 
Work in progress  2,072   2,970 
Total investment in real estate held for improvement $13,919  $25,650 

 

 (1)During the six months ended June 30, 2021, nine real estate investments were determined to be classified as held for sale and were reclassified from “Investments in real estate held for improvement” to “Investments in real estate held for sale” on the consolidated balance sheets for a total reclass of approximately $12.7 million. Two of these investments were sold during the six months ended June 30, 2021.

 

As of June 30, 2021 and December 31, 2020, real estate held for improvement included capitalized transaction costs of approximately $208,000 and $595,000, respectively, which includes cumulative acquisition fees paid to the Sponsor of approximately $139,000 and $269,000, respectively.

 

4.Investments in Real Estate Held for Sale

 

As of June 30, 2021 and December 31, 2020, we had eight and six single family residential properties held for sale, respectively.

 

The following table presents the Company’s investments in residential properties held for sale (amounts in thousands):

 

  As of
June 30,
2021 (1)
  As of
December 31, 2020
 
Land- acquisition allocation $8,591  $5,563 
Building and building improvements  1,750   1,602 
Total investment in real estate held for sale $10,341  $7,165 

 

(1)During the six months ended June 30, 2021, nine real estate investments were determined to be classified as held for sale and were reclassified from “Investments in real estate held for improvement” to “Investments in real estate held for sale” on the consolidated balance sheets for a total reclass of approximately $12.7 million. Two of these investments were sold during the six months ended June 30, 2021.

 

As of June 30, 2021 and December 31, 2020, residential property held for sale included capitalized transaction costs of approximately $376,000 and $25,000, respectively, which includes cumulative acquisition fees paid to the Sponsor of approximately $130,000 and $0, respectively.

 

5.

Investments in Real Estate Debt Investments

 

The following table describes our real estate debt investments activity (amounts in thousands):

 

Real Estate Debt Investments For the Six Months
ended June 30, 2021
  For the Year ended
December 31, 2020
 
Beginning balance $                             -  $                       5,243 
Investments  -   - 
Principal repayments (1)  -   (5,243
Ending balance $-  $- 

 

 (1)On September 2, 2020, the Company executed a deed in lieu for each of the two underlying properties of the real estate debt investments. In full satisfaction of the loans, the transfers of title both occurred on December 15, 2020. One property was subsequently sold on March 18, 2021 and as of June 30, 2021, one property remains classified with investments in real estate held for improvement in the consolidated balance sheets.

 

As of June 30, 2021 and December 31, 2020, the Company held no real estate debt investments.

 

F-13 

 

 

Credit Quality Monitoring

 

The Company’s real estate debt investments are typically secured by senior liens on real estate properties, mortgage payments, mortgage loans, or interests in entities that have interests in real estate similar to the interests just described. The Company evaluates its debt investments at least annually and differentiates the relative credit quality principally based on: (i) whether the borrower is currently paying contractual debt service or guaranteed preferred equity payments in accordance with its contractual terms; and (ii) whether the Company believes the borrower will be able to perform under its contractual terms in the future, as well as the Company’s expectations as to the ultimate recovery of principal at maturity. The Company considered investments for which it expects to receive full payment of contractual principal and interest payments as “performing.” Through September 2, 2020, the Company held two real estate debt investments, which were both deemed non-performing and in default. On September 2, 2020, the Company executed a deed in lieu for each of the two underlying properties of the real estate debt investments. In full satisfaction of the loans, the transfers of title both occurred on December 15, 2020. During the year ended December 31, 2020, the Company recognized a loss on troubled debt restructuring of approximately $185,000 related to both property acquisitions. As of June 30, 2021 and December 31, 2020, the Company held no real estate debt investments.

 

6.Other Assets

 

The balance in other assets is as follows (amounts in thousands):

 

  As of
June 30,
2021
  As of
December 31, 2020
 
In-place lease asset, net of amortization $32  $158 
Accounts receivable, net  257   329 
Prepaid expenses  15   280 
Retainers and prepaid improvement costs  -   10 
Total other assets $304  $777 

 

For the six months ended June 30, 2021 and 2020, the Company recognized approximately $126,000 and $0, respectively, of amortization expenses on in-place lease assets.

 

As of June 30, 2021 and December 31, 2020, accounts receivable were recorded net of an allowance for credit losses of approximately $79,000 and $53,000, respectively. For the six months ended June 30, 2021 and 2020, the Company recorded approximately $27,000 and $0, respectively, in bad debt expense related to tenant receivables, which is recorded within rental revenue on the consolidated statements of operations.

 

7.Investments in Equity Method Investees

 

The table below presents the activity of the Company's investments in equity method investees as of and for the periods presented (amounts in thousands):

 

Investments in Equity Method Investees: For the Six Months
Ended June 30, 2021
  For the Year
Ended December 31, 2020
 
Beginning balance $2,567  $4,611 
Investments in equity method investees  80   194 
Distributions received  -       (2,652
Equity in earnings (losses) of equity method investees  (75  414 
Ending balance $2,572  $2,567 

 

As of June 30, 2021, the Company's investments in companies that are accounted for under the equity method of accounting consist of the following:

 

 1)Acquired in 2018, a 99.0% non-controlling member interest in RRE F1, LLC, whose activities are carried out through the following wholly-owned asset: Square One 867 10th Street, a small lot townhome entitlement project.

 

 2)Acquired in 2018, a 93.9% non-controlling member interest in Marathon 12, LLC, whose activities are carried out through the following wholly-owned asset: P Joseph Marathon 12, a twelve townhome construction project. On August 24, 2020, we received our final cash flow distribution from the Marathon 12 Controlled Subsidiary. This completed the sale of the Marathon 12 Property and hence, the liquidation of the Marathon 12 Investment.

 

F-14 

 

 

As of and for the period ending June 30, 2021, the condensed financial position and results of operations of the Company’s equity method investments are summarized below (amounts in thousands):

 

  RRE F1 LLC 
Condensed balance sheet information: As of
June 30, 2021
 
Real estate assets, net $2,597 
Other assets  9 
Total assets $2,606 
     
Mortgage notes payable $- 
Other liabilities  11 
Equity  2,595 
Total liabilities and equity $2,606 
Company’s equity investment $2,572 

 

  RRE F1, LLC 
Condensed income statement information: For the Six Months Ended
June 30, 2021
 
Total revenue $          - 
Total expenses  79 
Net income (loss) $(79) 
Company’s equity in net income (loss) of investee $(75) 

 

As of December 31, 2020 and for the period ending June 30, 2020, the condensed financial position and results of operations of the Company’s equity method investments are summarized below (amounts in thousands):

 

  RRE F1 LLC  Marathon 12
LLC
 
Condensed balance sheet information: As of
December
31, 2020
  As of
December
31, 2020
 
Real estate assets, net $2,598  $            - 
Other assets  8   2 
Total assets $2,606  $2 
         
Mortgage notes payable $-  $- 
Other liabilities  10   - 
Equity  2,596   2 
Total liabilities and equity $2,606  $2 
Company’s equity investment $2,567  $- 

 

  RRE F1,
LLC
  Marathon 12, LLC 
Condensed income statement information: For the Six
Months
Ended
June 30, 2020
  For the Six
Months
Ended
June 30, 2020
 
Total revenue $           -  $    5,383 
Total expenses  49   5,290 
Net income (loss) $(49) $93 
Company’s equity in net income (loss) of investee $(48) $86 

 

8.Fair Value of Financial Instruments

 

We are required to disclose an estimate of fair value of our financial instruments for which it is practicable to estimate the value. The fair value of a financial instrument is the amount at which such financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. For certain of our financial instruments, fair values are not readily available since there are no active trading markets as characterized by current exchanges by willing parties.

 

We determine the fair value of certain investments in accordance with the fair value hierarchy that requires an entity to maximize the use of observable inputs. The fair value hierarchy includes the following three levels based on the objectivity of the inputs, which were used for categorizing the assets or liabilities for which fair value is being measured and reported:

 

Level 1 – Quoted market prices in active markets for identical assets or liabilities.

 

Level 2 – Significant other observable inputs (e.g., quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable such as interest rate and yield curves, and market-corroborated inputs).

 

Level 3 – Valuation generated from model-based techniques that use inputs that are significant and unobservable in the market. These unobservable assumptions reflect estimates of inputs that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow methodologies or similar techniques, which incorporate management’s own estimates of assumptions that market participants would use in pricing the instrument or valuations that require significant management judgment or estimation.

 

F-15 

 

 

As of June 30, 2021 and December 31, 2020, the Company’s significant financial instruments consist of cash and cash equivalents. The carrying amount of the Company’s financial instruments approximate their fair values due to their short-term nature.

 

Any changes to the valuation methodology will be reviewed by management to ensure the changes are appropriate. The methods used may produce a fair value calculation that is not indicative of net realizable value or reflective of future fair values. Furthermore, while we anticipate that our valuation methods are appropriate and consistent with other market participants, the use of different methodologies, or assumptions, to determine the fair value could result in a different estimate of fair value at the reporting date.

 

9.Related Party Arrangements

 

Fundrise Advisors, LLC, Manager

 

The Manager and certain affiliates of the Manager receive fees, reimbursements, and compensation in connection with the Company’s Offerings, and the acquisition, management and sale of the Company’s real estate investments.

 

The Manager is reimbursed for organizational and offering expenses incurred in conjunction with the Offering upon meeting the Hurdle Rate. See Note 2 – Summary of Significant Accounting Policies – Organizational and Offering Cost for amount of organizational and offering costs incurred and payable as of June 30, 2021 and December 31, 2020.

 

The Company will also reimburse the Manager for actual expenses incurred on behalf of the Company in connection with the selection, acquisition or origination of an investment, to the extent not reimbursed by the borrower, whether or not the Company ultimately acquires or originates the investment. The Company will reimburse the Manager for out-of-pocket expenses paid to third parties in connection with providing services to the Company. This does not include the Manager’s overhead, employee costs borne by the Manager, utilities or technology costs. Expense reimbursements payable to the Manager also may include expenses incurred by the Sponsor in the performance of services pursuant to a shared services agreement between the Manager and the Sponsor, including any increases in insurance attributable to the management or operation of the Company. For the six months ended June 30, 2021 and 2020, the Manager incurred approximately $69,000 and $159,000 of costs on our behalf, respectively. As of June 30, 2021 and December 31, 2020, approximately $7,000 and $26,000 were due and payable to the Manager, respectively.

 

An asset management fee of one-fourth of 0.85% is owed quarterly to the Manager. The Manager may in its sole discretion waive its asset management fee, in whole or in part. The Manager will forfeit any portion of the asset management fee that is waived. Beginning January 1, 2019, this fee has been based on our NAV at the end of the prior semiannual period.

 

The Manager waived the asset management fee from January 1, 2019 through June 30, 2021. Therefore, for the six months ended June 30, 2021 and 2020, we have incurred no asset management fees.

 

The Company may be charged by the Manager a quarterly development fee of 5% of total development costs, excluding land. However, such development fee is only intended to be charged if it is net of a fee being charged by the developer of the Single Family housing project or if there is no outside developer of the Single Family housing project. Our Manager may, in its sole discretion, waive its development management fee, in whole or in part. The Manager will forfeit any portion of the development management fee that is waived. No quarterly development fee has been charged for the six months ended June 30, 2021 and 2020, respectively. The Manager has waived all development fees from inception through June 30, 2021.

 

The Company will reimburse our Manager for actual expenses incurred on our behalf in connection with the special servicing of non-performing assets. The Manager will determine, in its sole discretion, whether an asset is non-performing. As of June 30, 2021 and December 31, 2020, no special servicing fees are payable to the Manager. For the six months ended June 30, 2021 and 2020, no special servicing fees have been incurred.

 

The Company will also pay the Manager a disposition fee in the event that a Single Family housing project is sold to a homebuyer investor or if our Manager is acting as the real estate developer. The fee may be up to 1.5% of the gross proceeds. As of June 30, 2021 and December 31, 2020, no disposition fees are payable to the Manager. For the six months ended June 30, 2021 and 2020, no disposition fees have been incurred.

 

F-16 

 

 

Fundrise Lending, LLC

 

As an alternative means of acquiring investments for which we do not yet have sufficient funds, and in order to comply with certain state lending requirements, Fundrise Lending, LLC, a wholly-owned subsidiary of our Sponsor or its affiliates may close and fund a loan or other investment prior to it being acquired by the Company. Fundrise Lending, LLC allows the Company the flexibility to deploy its offering proceeds as funds are raised. The Company then will acquire such investment at a price equal to the fair market value of the loan or other investment (including reimbursements for servicing fees and accrued interest, if any), so there is no mark-up (or mark-down) at the time of its acquisition. For the six months ended June 30, 2021 and the year ended December 31, 2020, the Company purchased no investments that were warehoused or owned by Fundrise Lending, LLC, respectively.

 

For situations where the Company’s Sponsor, Manager, or their affiliates have a conflict of interest with the Company that is not otherwise covered by an existing policy we have adopted or a transaction is deemed to be a “principal transaction,” the Manager has appointed an independent representative (the “Independent Representative”) to protect the interests of the members and review and approve such transactions. Any compensation payable to the Independent Representative for serving in such capacity on the Company’s behalf will be payable by the Company. Principal transactions are defined as transactions between the Company’s Sponsor, Manager or their affiliates, on the one hand, and the Company or one of its subsidiaries, on the other hand. The Company’s manager is only authorized to execute principal transactions with the prior approval of the Independent Representative and in accordance with applicable law. Such prior approval may include but not be limited to pricing methodology for the acquisition of assets and/or liabilities for which there are no readily observable market prices. During the six months ended June 30, 2021 and 2020, fees of approximately $12,000 and $8,000, respectively, were paid to the Independent Representative as compensation for those services and included as general and administrative expense in the consolidated statements of operations.

 

Fundrise, L.P.

 

Fundrise, L.P. is a member of the Company and holds 26,872 shares, respectively, as of both June 30, 2021 and December 31, 2020. One of our Sponsor’s wholly-owned subsidiaries is the general partner of Fundrise, L.P.

 

Rise Companies Corp, Member and Sponsor

 

Rise Companies Corp. is a member of the Company and holds 1,414 common shares as of both June 30, 2021 and December 31, 2020, respectively.

 

As a means to provide liquidity to fund redemption requests in anticipation of an increase in redemptions related to the Merger, on June 25, 2020, Rise Companies Corp. issued a promissory note to the Company at a 1.0% interest rate. The total principal amount of the note was approximately $2.0 million and matured on September 30, 2020. During both the six months ended June 30, 2021 and 2020, the Company incurred interest of approximately $0. The Company paid off the entire balance of the promissory note and related interest on September 25, 2020. Therefore, $0 of interest remained payable as of both June 30, 2021 and December 31, 2020.

 

For the six months ended June 30, 2021 and 2020, the Sponsor incurred $28,000 and $20,000 of costs on our behalf, respectively. As of June 30, 2021 and December 31, 2020, $9,000 and $16,000 was due and payable, respectively.

 

For the six months ended June 30, 2021 and 2020, there were no acquisition fees incurred or paid to the Sponsor.

 

10.Economic Dependency

 

Under various agreements, the Company has engaged or will engage our Manager and its affiliates to provide certain services that are essential to the Company, including asset management services, asset acquisition and disposition decisions, the sale of the Company’s common shares available for issue, as well as other administrative responsibilities for the Company including accounting services and investor relations. As a result of these relationships, the Company is dependent upon our Manager and its affiliates. In the event that these companies were unable to provide the Company with the respective services, the Company would be required to find alternative providers of these services.

 

11.Commitments and Contingencies

 

Legal Proceedings

 

As of the date of these consolidated financial statements we are not currently named as a defendant in any active or pending litigation. However, it is possible that the Company could become involved in various litigation matters arising in the ordinary course of our business. Although we are unable to predict with certainty the eventual outcome of any litigation, management is not aware of any litigation likely to occur that we currently assess as being significant to us.

 

F-17 

 

 

12.Subsequent Events

 

In connection with the preparation of the accompanying consolidated financial statements, we have evaluated events and transactions occurring through September 21, 2021 for potential recognition or disclosure.

 

Offering

 

The Company qualified an additional $30.7 million of common shares on July 26, 2021, which represents the value of shares available to be offered as of the date of its most recent offering circular out of the rolling 12-month maximum offering amount of $75.0 million.

 

As of September 21, 2021, we had raised total gross offering proceeds of approximately $86.9 million from settled subscriptions (including the $309,000 received in the private placements to our Sponsor, Rise Companies Corp., and Fundrise, L.P., an affiliate of our Sponsor), and had settled subscriptions in our offering and private placements for a gross aggregate of approximately 8,095,000 of our common shares.

 

New Investments

 

On August 18, 2021 the Company invested $1.0 million in a third party real estate related company through a derivative financial instrument.

 

F-18 

 

 

Item 4.Exhibits

 

INDEX OF EXHIBITS

 

Exhibit No. Description
2.1* Certificate of Formation (incorporated by reference to the copy thereof submitted as Exhibit 2.1 to the company’s Offering Circular on Form 1-A filed on March 31, 2017)
2.2* Certificate of Amendment to Certificate of Formation dated November 16, 2016 (incorporated by reference to the copy thereof submitted as Exhibit 2.2 to the company’s Offering Circular on Form 1-A filed on March 31, 2017)
2.3* Certificate of Amendment to Certificate of Formation (incorporated by reference to the copy thereof submitted as Exhibit 2.3 to the company's Form 1-K filed on April 19, 2021)
2.4* Form of Amended and Restated Operating Agreement (incorporated by reference to the copy thereof submitted as Exhibit 2.4 to the company's Form 1-K filed on April 19, 2021)
4.1* Form of Subscription Agreement (incorporated by reference to the copy thereof included as Appendix A to the company's Offering Circular filed on July 27, 2021)
6.1* Form of License Agreement between Fundrise eFUND, LLC and Fundrise LLC (incorporated by reference to the copy thereof submitted as Exhibit 6.1 to the company’s Offering Circular on Form 1-A filed on March 31, 2017)
6.2* Form of Shared Services Agreement between Fundrise Advisors, LLC and Rise Companies Corp. (incorporated by reference to the copy thereof submitted as Exhibit 6.3 to the company’s Offering Circular on Form 1-A filed on March 31, 2017)


 

*Filed previously.

 

 15 

 

 

SIGNATURES

 

Pursuant to the requirements of Regulation A, this issuer has duly caused this Semiannual Report to be signed on its behalf by the undersigned, thereunto duly authorized, in Washington, D.C. on September 21, 2021.

 

 Fundrise eFund, LLC
  
 By:Fundrise Advisors, LLC, a Delaware limited liability company, its Manager
    
  By:/s/ Benjamin S. Miller
   Name:Benjamin S. Miller
   Title: Chief Executive Officer

 

Pursuant to the requirements of Regulation A, this report has been signed below by the following persons on behalf of the issuer in the capacities and on the dates indicated.

 

Signature Title Date
     
/s/ Benjamin S. Miller Chief Executive Officer of September 21, 2021
Benjamin S. Miller Fundrise Advisors, LLC  
  (Principal Executive Officer)  
     
/s/ Alison A. Staloch Chief Financial Officer of September 21, 2021
Alison A. Staloch Fundrise Advisors, LLC  
  

(Principal Financial Officer and

Principal Accounting Officer)