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Fundrise Growth eREIT 2019

Filed: 27 Sep 21, 2:08pm

 

 

 

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 Fiscal Semiannual Period ended June 30, 2021

 

Fundrise Development eREIT, LLC

(Exact name of issuer as specified in its charter)

 

Delaware 83-3430017
(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  3 
Other Information  12 
Index to the Unaudited Consolidated Financial Statements of Fundrise Development eREIT, LLC  13 
Exhibits  14 

 

 2 

 

 

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 the Statements Regarding Forward Looking Information contained in our latest offering circular (the “Offering Circular”) qualified by the Securities and Exchange Commission (“SEC”) as of June 30, 2021, which may be accessed here. Unless otherwise indicated, the latest results discussed below are as of June 30, 2021. The consolidated financial statements included in this filing as of June 30, 2021 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 Development eREIT, LLC (formerly known as Fundrise Growth eREIT 2019, LLC) is a Delaware limited liability company formed on February 1, 2019 to originate, invest in, and manage a diversified portfolio of commercial real estate investments and other real estate-related assets. We may also invest in real estate-related debt securities (including commercial mortgage-backed securities, collateralized debt obligations, and real estate investment trust (“REIT”) senior unsecured debt) and other real estate-related assets. We may make our investments through majority-owned subsidiaries, some of which may have rights to receive preferred economic returns.

 

The Company has one reportable segment consisting of investments in real estate. The use of the terms “Fundrise Development eREIT”, the “Company”, “we”, “us” or “our” in this Semiannual Report refer to Fundrise Development eREIT, LLC unless the context indicates otherwise.

 

Effective August 2, 2021, we changed our name from Fundrise Growth eREIT 2019, LLC to Fundrise Development eREIT, LLC. See Note 12, Subsequent Events for more information.

 

As a limited liability company, we have elected to be taxed as a C corporation. Commencing with the taxable year ending December 31, 2019, the Company operates in a manner intended to qualify for treatment as a REIT under the Internal Revenue Code of 1986, as amended.

 

We are externally managed by Fundrise Advisors, LLC (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. Accordingly, 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 as of June 30, 2021, 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, as amended (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 utilizing this increased offering amount in its current Offering. The Offering has been 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 June 30, 2021 and December 31, 2020, we had raised total gross offering proceeds of approximately $76.4 million and $57.1 million, respectively, from settled subscriptions (which includes $100,000 received in the private placements to our Sponsor, and Fundrise, L.P., an affiliate of our Sponsor, and approximately $739,000 and $370,000, respectively, received in private placements to third parties) and had settled subscriptions in our Offering and private placements for an aggregate of approximately 7,572,000 and 5,711,000, respectively, of our common shares. As of June 30, 2021, assuming the settlement for all subscriptions received as of June 30, 2021, approximately $13.1 million of our previously qualified common shares remained available for sale to the public (based on our current share price) under our Offering. Most recently, the Company qualified approximately $49.4 million of additional common shares for sale pursuant to Regulation A on July 26, 2021. Refer to “Recent Developments” for further information.

 

 3 

 

 

We expect to offer common shares in our Offering until we raise the maximum amount permitted based on the maximum number of common shares we are able to qualify under Regulation A at any given time, unless terminated by our Manager at an earlier time. Until December 31, 2019, the per share purchase price for our common shares was $10.00, an amount that was arbitrarily determined by our Manager. Thereafter, the per share purchase price for our common shares has been and will continue to be adjusted at the beginning of each semi-annual period (or such other period as determined by our Manager in its sole discretion, but no less frequently than annually). Our manager has initially determined to adjust the per share price semi-annually, as of January 1st and July 1st of each year (or as soon as commercially reasonable and announced by us thereafter), to 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 semi-annual 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, 2019 $10.00  Form 1-U
June 30, 2020 $9.97  Form 1-U
September 30, 2020 $10.00  Form 1-U
December 31, 2020 $10.43  Form 1-U
August 2, 2021 $10.72  Form 1-U

 

Distributions

 

To qualify as a REIT, and maintain our qualification as a REIT, we will be required to make aggregate annual distributions to our shareholders of at least 90% of our REIT taxable income (computed without regard to the dividends paid deduction and excluding net capital gain), and to avoid federal income and excise taxes on retained taxable income and gains we must distribute 100% of such income and gains annually. Our Manager may authorize distributions in excess of those required for us to maintain REIT status and/or avoid such taxes on retained taxable income and gains depending on our financial condition and such other factors as our Manager deems relevant. Provided we have sufficient available cash flow, we intend to authorize and declare distributions based on daily record dates and pay distributions on a quarterly or other periodic basis. We have not established a minimum distribution level.

 

While we are under no obligation to do so, we have in the past and expect in the future to declare and pay distributions monthly or quarterly in arrears; however, our Manager may declare other periodic distributions as circumstances dictate. In order that investors may generally begin receiving distributions immediately upon our acceptance of their subscription, we expect to authorize and declare distributions based on daily record dates. However, there may also be times when our Manager elects to reduce our rate of distributions in order to preserve or build up a higher level of liquidity at the Company level.

 

On October 8, 2020, we paid out our first distribution to shareholders of record as of the close of business on September 30, 2020, as shown in the table below:

 

Distribution Period  Daily Distribution 
Amount/Common 
Share
  Date of 
Declaration
 Payment Date (1) Annualized Yield  Link
 09/30/2020(5)  $0.0296863228  09/29/2020 10/08/2020  (5) Form 1-U
 10/01/2020 – 10/31/2020   0.0000000000  N/A N/A  -  N/A
 11/01/2020 – 11/30/2020   0.0000000000  N/A N/A  -  N/A
 12/01/2020 – 12/31/2020   0.0000000000  N/A N/A  -  N/A
 01/01/2021 – 01/31/2021   0.0000000000  N/A N/A  -  N/A
 02/01/2021 – 02/28/2021   0.0000000000  N/A N/A  -  N/A
 03/01/2021 – 03/31/2021   0.0000000000  N/A N/A  -  N/A
 04/01/2021 – 04/30/2021   0.0000000000  N/A N/A  -  N/A
 05/01/2021 – 05/31/2021   0.0000000000  N/A N/A  -  N/A
 06/01/2021 – 06/30/2021   0.0000000000  N/A N/A  -  N/A
 07/01/2021 – 07/31/2021   0.0000000000  N/A N/A  -  N/A
 08/01/2021 – 08/31/2021   0.0000000000  N/A N/A  -  N/A
 09/01/2021 – 10/01/2021   0.0004109589  08/27/2021 10/21/2021  1.50% Form 1-U
  Weighted Average  $0.0001156023(3)      0.42%(4)  

 

 4 

 

 

 (1)Dates presented are the dates on which the distributions were, or are, scheduled to be distributed; actual distribution dates may vary.
   
 (2)Annualized yield numbers represent the annualized yield amount of each distribution calculated on an annualized basis at the then current rate, assuming a $10.00 per share purchase price. While the Manager is under no obligation to do so, each annualized basis return assumes that the Manager would declare distributions in the future similar to the distributions for each period presented, and there can be no assurance that the Manager will declare such distributions in the future or, if declared, that such distributions would be of a similar amount.
   
 (3)Weighted average daily distribution amount per common share is calculated as the average of the daily declared distribution amounts from September 30, 2020 through October 1, 2021.
   
 (4)Weighted average annualized yield is calculated as the annualized yield of the average daily distribution amount for the periods presented, using a $10.00 per share purchase price.
   
 (5)On September 29, 2020, the Manager of the Company declared a distribution of $0.0296863228 per share (the “September 30, 2020 Distribution Amount”) for shareholders of record as of the close of business on September 30, 2020. The distribution was paid on October 8, 2020. As the September 30, 2020 Distribution Amount did not have a daily declared distribution amount over a period of time, it’s individual annualized yield is not presented; however, the September 30, 2020 Distribution Amount is included in the calculation for the weighted average annualized yield.

 

Any distributions that we may make directly impacts our NAV by reducing the amount of our assets. Our goal is to provide a reasonably predictable and stable level of current income, through quarterly distributions, while at the same time maintaining a fair level of consistency in our NAV. Over the course of your investment, your distributions plus the change in NAV per share (either positive or negative) will produce your total return.

 

Our distributions will generally constitute a return of capital to the extent that they exceed our current and accumulated earnings and profits as determined for U.S. federal income tax purposes. To the extent that a distribution is treated as a return of capital for U.S. federal income tax purposes, it will reduce a shareholder’s adjusted tax basis in the shareholder’s shares, and to the extent that it exceeds the shareholder’s adjusted tax basis will be treated as gain resulting from a sale or exchange of such shares.

 

Redemption Plan

 

Although we do not intend to list our common shares for trading on a stock exchange or other trading market, we have adopted a redemption plan designed to provide our shareholders with limited liquidity for their investment in our shares. The Company’s redemption plan provides that on a quarterly basis, subject to certain exceptions, a shareholder could obtain liquidity as described in detail in our Offering Circular. Our Manager may in its sole discretion, amend, suspend, or terminate the redemption plan at any time, including to protect our operations and our non-redeemed shareholders, to prevent an undue burden on our liquidity, to preserve our status as a REIT, following any material decrease in our NAV, 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 resumed the processing and payment of redemptions under our redemption plan as of June 30, 2020.

 

As of June 30, 2021, approximately 862,000 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 accounting principles generally accepted within the United States of America (“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.

 

 5 

 

 

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 judgments, 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 at least annually, or 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 in the consolidated financial statements for discussion of the relevant ASUs. We are currently evaluating the impact of the various ASUs on our consolidated 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, these 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 through rental operations from our real estate properties and from our investments in unconsolidated joint ventures. We may also seek to acquire investments which generate attractive returns without any leverage. See Note 2, Summary of Significant Accounting Policies – Revenue Recognition in our consolidated financial statements for further detail.

 

Results of Operations

 

On July 5, 2019, we substantially commenced operations. For the six months ended June 30, 2021 and 2020, we had net income (loss) of approximately $(278,000) and $(299,000), respectively.

 

 6 

 

 

Revenue

 

Rental Revenue

 

For the six months ended June 30, 2021 and 2020, we earned rental revenue of approximately $191,000 and $246,000, respectively, from the operations of rental real estate properties. Rental revenue stayed relatively consistent period over period due to minimal turnover in our rental real estate properties.

 

Expenses

 

Asset Management and Other Fees – Related Party

 

For the six months ended June 30, 2021 and 2020, we incurred asset management fees of approximately $214,000 and $193,000, respectively. The increase is directly related to an increase in NAV, as the asset management fee is calculated as a percentage of the prior period’s NAV. The overall increase in NAV was driven in part by the Company’s investments in real estate properties, which generally experienced modest increases in value based upon both the progress made on certain development related business plans, as well as recent sales of comparable properties in the market.

 

General and Administrative Expenses

 

For the six months ended June 30, 2021 and 2020, we incurred general and administrative expenses of approximately $140,000 and $150,000, respectively, which includes auditing and professional fees, bank fees, software and subscription costs, transfer agent fees, and other expenses associated with operating our business.

 

Depreciation and Amortization

 

For the six months ended June 30, 2021 and 2020, we incurred depreciation and amortization expenses of approximately $106,000 and $110,000, respectively.

 

Other Income (Expense)

 

Equity in Earnings (Losses)

 

For the six months ended June 30, 2021 and 2020, we had equity in earnings (losses) of approximately $32,000 and $(106,000) from our equity method investees, respectively. The increase in equity in earnings is primarily attributable to more income earned from our new and existing equity method investees during the six months ended June 30, 2021.

 

Interest Expense – Related Party

 

For the six months ended June 30, 2021 and 2020, we incurred interest expense of approximately $15,000 and $0, respectively. The increase in interest expense is due to the Company entering into a promissory note with National Lending in March 2021. See Note 9, Related Party Arrangements for more information.

 

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Our Investments

 

As of June 30, 2021, we had entered into the following investments. See “Recent Developments” for a description of investments we have made since June 30, 2021. Note that 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.

 

Loans Type of
Investment
 Date of
Acquisition
  Annual
Return

(1)
  Redemption
Date
(2)
 Total
Commitment

(3)
  Overview
(Form 1-U)
GlenLine Promissory Note (4) Promissory Note  09/25/2019   5.5% 03/01/2020 $7,500,000  Initial  Update 

 

 (1)Annual Return refers to the projected annual preferred economic return that we are entitled to receive with priority payment over the other equity invested in the property. The annual return presented does not distinguish between returns that are paid current and those that accrue to the redemption date, nor does it include any increases in annual return that may occur in the future.
 (2)Redemption Date refers to the initial redemption date of each asset, and does not take into account any extensions that may be available.
 (3)Total Commitment refers to the total commitment made by the Company in acquiring the asset, not all of which may have been funded on the acquisition date.
 (4)The GlenLine Promissory Note was paid off in full on December 16, 2019.

 

Real Property Controlled
Subsidiaries (JV Equity Investments)
 Location Property
Type
 Date of
Acquisition
 Purchase
Price
(1)
  Overview
(Form 1-U)
GlenLine Controlled Subsidiary Washington D.C. Land 09/25/2019 $5,850,000  Initial Update
Carmel Villas Controlled Subsidiary(2) Denton, TX Land 04/02/2021 $6,594,000  Initial N/A

 

 (1)Purchase Price refers to the total price paid by us for our pro rata share of the equity in the controlled subsidiary.
 (2)This asset is wholly-owned by Fundrise SFR DEV JV 1, LLC, a joint venture between the Company and Fundrise Real Estate Interval Fund, LLC. See Note 3, Investments in Equity Method Investees for more information.

 

Real Property
Controlled
Subsidiaries
(Wholly-Owned
Investments)
 Location Type of
Property
 Approx.
Square
Footage at
Acquisition
  Date of
Acquisition
 Approx.
Acquisition
Cost
  Projected
Renovation
Cost (1)
  Projected
Exit
Price (1)
  Projected
Hold
Period (1)
 Overview
(Form 1-U)
RSE W421 Controlled Subsidiary Los Angeles, CA Commercial  11,300  07/25/2019 $7,325,000  $610,000   7,935,000  7 years Initial
RSE C35 Controlled Subsidiary Los Angeles, CA Multifamily  5,300  07/31/2019 $4,195,000  $20,200,000   24,400,000  7 years Initial
RSE V40 Controlled Subsidiary Brentwood, MD Mixed-Used  60,000  11/08/2019 $4,120,000  $2,400,000   6,520,000  7 years Initial
RSE R450 Investment Brentwood, MD Multifamily  43,500  11/08/2019 $7,660,000  $-   7,660,000  10 years Initial
W420 Controlled Subsidiary Los Angeles, CA Mixed-Used  15,000  12/06/2019 $7,490,000  $4,890,000   12,410,000  7 years Initial
W372 Controlled Subsidiary Los Angeles, CA Multifamily  6,250  12/31/2019 $1,520,000  $900,000   2,420,000  7 years Initial
W422 Controlled Subsidiary Los Angeles, CA Mixed-Used  11,250  08/24/2020 $3,055,000  $4,170,000   7,225,000  10 years Initial

 

 (1)Projected renovation costs, exit prices, and hold periods presented are as of the date of acquisition by the Company, and have not been subsequently updated.

 

As of June 30, 2021, the Company's investments in companies that are accounted for under the equity method of accounting also included the contributions to National Lending, LLC (“National Lending”) and Co-Investment Arrangements in exchange for ownership interests. See Note 9, Related Party Arrangements for further information regarding National Lending and Co-Investment Arrangements.

 

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Liquidity and Capital Resources

 

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

 

We are dependent upon the net proceeds from our Offering to conduct our operations. We obtain the capital required to primarily originate, invest in and manage a diversified portfolio of real estate investments and conduct our operations from the proceeds of our Offering and from secured or unsecured financings from banks and other lenders and from any undistributed funds from our operations as well as our access to National Lending. As of June 30, 2021, we had deployed approximately $53.7 million for ten investments and had approximately $14.9 million in cash and cash equivalents. The Company has a continuous funding commitment to maintain a total contribution amount of up to 5% of its assets under management to National Lending. See Note 9, Related Party Arrangements for further information regarding National Lending. 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.

 

We may selectively employ leverage to enhance total returns to our shareholders through a combination of senior financing on our real estate acquisitions, secured facilities, and capital markets financing transactions. We have no outstanding unsecured Company level debt as of September 27, 2021 and June 30, 2021. 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 the periods when we are growing our portfolio, we may employ greater leverage on individual assets (that will also result in greater leverage of the portfolio) in order to quickly build a diversified portfolio of assets. We seek to secure conservatively structured leverage that is long-term, non-recourse, non-mark-to-market financing to the extent obtainable on a cost effective basis. To the extent a higher level of leverage is employed it may come either in the form of government-sponsored programs or other long-term, non-recourse, non-mark-to-market financing. 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 additional 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, which is now up over 30% through August 2021.

 

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. Apartment REITs have outperformed the broader REIT sector year-to-date, returning 45% through August 31, 2021 (vs. 30% for all sectors). This follows modest underperformance in 2020 (apartment REITs returned -15% vs. -8% for all sectors). 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 variants, the US economy is expected to continue on its strong growth trajectory thru 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:

 

 9 

 

 

“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 broadly to 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 Fed 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

 

The following table summarizes real estate investments acquired by the Company since June 30, 2021 through September 27, 2021:

 

Real
Property
Controlled
Subsidiaries
(Joint
Venture
Investments)
 Location Type of
Property
 Number
of Units (1)
 Date of Acquisition 

Purchase

Price (2) 

 Overview
(Form 1-U)
Kingsland Heights Controlled Subsidiary Brookshire, TX Single Family Rental 96 07/22/2021 $2,516,000 Initial

 

(1)Number of Units refers to the total number of homes acquired or anticipated to be acquired in tranches. The number of Units are presented as of the date of acquisition, and have not been subsequently updated.

 

(2)Purchase Price refers to the total price anticipated to be paid by us upon full delivery of all homes for our pro rata share of the equity in the controlled subsidiary. The Purchase Prices are presented as of the date of acquisition, and have not been subsequently updated.

 

Real
Property
Controlled
Subsidiaries

(Wholly-
Owned
Investments)

 Location Type of
Property
 

Approx.
Square
Footage at

Acquisition

  Date of
Acquisition
 

Approx.

Acquisition
Cost

  Projected
Renovation
Cost
  Projected
Hold Period
 Overview
(Form 1-U)
B19 Controlled Subsidiary (1) Landover, MD Unimproved Land  965,000  08/02/2021 $6,687,960  $52,800,000  10 years Initial
C20 Controlled Subsidiary (1) Alexandria, VA Mixed-Use  290,000  08/02/2021 $38,012,308  $-  5 years Initial

 

(1)These assets were acquired by the Company on August 2, 2021 in connection with the Merger. See Note 12 – Subsequent Events for more information about the Merger.

 

 10 

 

 

Other

 

Event Date Description
National Lending Contribution 07/15/2021 On July 15, 2021, the Company made an additional contribution of approximately $828,000 to National Lending, bringing its total contributions to approximately $3.5 million.
     
Offering Circular 07/26/2021 On July 26, 2021, we qualified an additional $49.4 million of common shares in our Offering, which represents the value of shares available to be offered as of the date of our most recent offering circular out of the rolling 12-month maximum offering amount of $75.0 million. More information can be found here.
     
Merger 08/02/2021 

Effective August 2, 2021, Fundrise Growth eREIT V, LLC, (the “Target eREIT”), merged with and into Fundrise Growth eREIT 2019, LLC, with the Company as the surviving entity (“the Merger”). For more information about the Merger, please see the offering circular filed on August 2, 2021 here

     
Share Purchase Price Update 08/02/2021 Beginning on August 2, 2021, the per share purchase price of our common shares was updated to $10.72 in connection with the Merger. For more information, please see the offering circular filed on August 2, 2021 here.
     
September 2021 Dividend Declaration 08/27/2021 On August 27, 2021, our Manager declared a daily distribution of $0.0004109589 per share for shareholders of record as of the close of business on each day of the period commencing on September 1, 2021 and ending on October 1, 2021. More information can be found here.
     
Status of our Offering 09/24/2021 As of September 27, 2021, we had raised total gross offering proceeds of approximately $123.3 million from settled subscriptions (including the $100,000 received in the private placements to our sponsor, and Fundrise, LP, an affiliate of our sponsor, and approximately $794,000 received in private placements to third parties), and had settled subscriptions in our Offering and private placements for an aggregate of approximately 11,946,000 of our common shares.

 

 11 

 

 

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.

 

 12 

 

 

Item 3.Financial Statements

 

INDEX TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF

 

Fundrise Development eREIT, LLC

 

Consolidated Balance Sheets  F-1 
     
Consolidated Statements of Operation  F-2 
     
Consolidated Statements of Members’ Equity  F-3 
     
Consolidated Statements of Cash Flow  F-4 
     
Notes to Consolidated Financial Statements  F-5 to F-17 

 

13

 

 

Fundrise Development eREIT, LLC

 

Consolidated Balance Sheets 

(Amounts in thousands, except share data)

 

  

As of
June 30,
2021

(unaudited)

  

As of
December 31,
2020

(*)

 
ASSETS        
Cash and cash equivalents $14,864  $7,895 
Other assets  263   555 
Investments in equity method investees  15,395   8,485 
Investments in rental real estate properties, net  7,802   7,849 
Investments in real estate held for improvement  30,143   29,640 
Total Assets $68,467  $54,424 
         
LIABILITIES AND MEMBERS’ EQUITY        
Liabilities:        
Accounts payable and accrued expenses $138  $190 
Due to related party  220   267 
Settling subscriptions  37   1,960 
Redemptions payable  1,405   1,267 
Rental security deposits and other liabilities  7   104 
Below-market leases, net  62   156 
Total Liabilities  1,869   3,944 
         
Commitments and Contingencies        
         
Members’ Equity:        
Common shares, net of redemptions; unlimited shares authorized; 7,571,517 and 5,710,922 shares issued and 6,709,567 and 5,123,148 shares outstanding as of June 30, 2021 and December 31, 2020, respectively  67,514   51,118 
Retained earnings (Accumulated deficit)  (916)  (638)
Total Members’ Equity  66,598   50,480 
Total Liabilities and Members’ Equity $68,467  $54,424 

 

* Derived from audited financial statements 

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

 

 F-1 

 

 

Fundrise Development eREIT, LLC

 

Consolidated Statements of Operation 

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

 

  

For the Six Months
Ended
June 30,
2021

(unaudited)

  

For the Six Months
Ended
June 30,
2020

(unaudited)

 
Revenue        
Rental revenue $191  $246 
Other revenue  -   15 
Total revenue  191   261 
         
Expenses        
Asset management and other fees – related party  214   193 
General and administrative expenses  140   150 
Depreciation and amortization  106   110 
Property operating and maintenance  26   1 
    Total expenses  486   454 
         
Other income (expense)        
Equity in earnings (losses)  32   (106)
Interest expense – related party note  (15)  - 
Total other income (expense)  17   (106)
         
Net (loss) income $(278) $(299)
         
Net (loss) income per basic and diluted common share $(0.05) $(0.07)
Weighted average number of common shares outstanding, basic and diluted  5,860,397   4,482,357 

 

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

 

 F-2 

 

 

Fundrise Development eREIT, 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(*)  5,123,148  $51,118  $(638) $50,480 
Proceeds from issuance of common shares  1,860,596   19,292   -   19,292 
Offering costs  -   (120)  -   (120)
Redemptions of common shares  (274,177)  (2,776)  -   (2,776)
Net income (loss)      -   (278)  (278)
June 30, 2021 (unaudited)  6,709,567  $67,514  $(916) $66,598 

 

  Common Shares  Retained
Earnings
(Accumulated
   Total
Members’
 
  Shares  Amount  Deficit)  Equity 
December 31, 2019(*)  4,507,160  $45,065  $(112) $44,953 
Proceeds from issuance of common shares  26,547   265   -   265 
Offering costs  -   (45)  -   (45)
Redemptions of common shares  (256,165)  (2,495)  -   (2,495)
Net income (loss)  -   -   (299)  (299)
June 30, 2020 (unaudited)  4,277,542  $42,790  $(411) $42,379 

 

*Derived from audited financial statements 

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

 

 F-3 

 

 

Fundrise Development eREIT, LLC

 

Consolidated Statements of Cash Flows

(Amounts in thousands)

 

  

 For the Six
Months
Ended June
 30, 2021

(unaudited)

  

For the Six
Months
Ended June
 30, 2020

(unaudited)

 
OPERATING ACTIVITIES:        
Net (loss) income $(278) $(299)
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:        
Amortization of below-market leases  (94)  (98)
Depreciation and amortization  106   110 
Bad debt expense  52   - 
Equity in earnings (losses)  (32)  106 
Changes in assets and liabilities:        
Net (increase) decrease in other assets  182   480 
Net increase (decrease) in accounts payable and accrued expenses  (52)  (72)
Net increase (decrease) in due to related party  34   161 
Net increase (decrease) in rental security deposits and other liabilities  (97)  - 
Net cash provided by (used in) operating activities  (179)  388 
INVESTING ACTIVITIES:        
Investment in equity method investees  (7,045)  (2,149)
Distributions received from equity method investees  167   101 
Capital expenditures related to rental real estate properties  -   (69)
Investment in real estate held for improvement  -   - 
Improvements to real estate held for improvement  (503)  (609)
Net cash provided by (used in) investing activities  (7,381)  (2,726)
FINANCING ACTIVITIES:        
Proceeds from note payable – related party  5,000   - 
Repayment of note payable – related party  (5,000)  - 
Proceeds from issuance of common shares  17,332   260 
Proceeds from settling subscriptions  37   - 
Redemptions paid  (2,638)  (875)
Reimbursements to related party  (167)  - 
Offering costs paid  (35)  (30)
Net cash provided by (used in) financing activities  14,529   (645)
         
Net increase (decrease) in cash and cash equivalents  6,969   (2,983)
Cash and cash equivalents, beginning of period  7,895   5,785 
Cash and cash equivalents, end of period $14,864  $2,802 
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
Interest paid – related party note $15  $- 

 

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

 

 F-4 

 

 

Fundrise Development eREIT, LLC

 

Notes to Consolidated Financial Statements (unaudited)

 

1.Formation and Organization

 

Fundrise Development eREIT, LLC (formerly known as Fundrise Growth eREIT 2019, LLC) was formed on February 1, 2019, as a Delaware limited liability company and substantially commenced operations on July 5, 2019. As used herein, the “Company,” “we,” “us,” and “our” refer to Fundrise Development eREIT, LLC except where the context otherwise requires. Effective August 2, 2021, we changed our name from Fundrise Growth eREIT 2019, LLC to Fundrise Development eREIT, LLC. See Note 12, Subsequent Events for more information.

 

The Company has one reportable segment consisting of investments in real estate. The Company was organized primarily to originate, invest in and manage a diversified portfolio of real estate investments, and may also invest in real estate-related debt securities and other real estate-related assets. The Company may make its investments through majority-owned subsidiaries, some of which may have rights to receive preferred economic returns.

 

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.

 

We believe we have operated in such a manner as to qualify as a real estate investment trust (“REIT”) for federal income tax purposes beginning with the taxable year ended December 31, 2019. We hold substantially all of our assets directly, and as of June 30, 2021 and December 31, 2020 have not established an operating partnership or any taxable REIT subsidiary, though we may form such entities as required in the future to facilitate certain transactions that might otherwise have an adverse impact on our status as a REIT. As of June 30, 2021, we elected to treat certain wholly-owned subsidiaries as qualified REIT subsidiaries (“QRSs”). See Note 2, Summary of Significant Accounting Policies - Income Taxes for further information on the QRSs. As of December 31, 2020, we had not established any QRSs.

 

The Company’s initial and subsequent offering of its common shares (the “Offering(s)”) is 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. As of June 30, 2021, a maximum of $50.0 million of the Company’s common shares could be sold to the public in its Offering during the rolling twelve-month period. 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. This amendment became effective March 15, 2021, and the Company intends to utilize this increased offering amount in the future. However, each Offering is subject to qualification by the SEC. The Manager has the authority to issue an unlimited number of common shares. As of June 30, 2021, the Company most recently qualified approximately $42.6 million of additional common shares on October 9, 2020, 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 $50.0 million.

 

As of June 30, 2021 and December 31, 2020, the total amount of equity outstanding by the Company on a gross basis was approximately $7,571,000 million and $5,711,000 million, respectively, including common shares issued to Rise Companies Corp. (the “Sponsor”), the owner of the Manager. As of June 30, 2021 and December 31, 2020, the Sponsor owned 500 common shares. In addition, as of June 30, 2021 and December 31, 2020, Fundrise, L.P., an affiliate of the Sponsor, had purchased an aggregate of 9,500 common shares at $10.00 per share in a private placement for an aggregate purchase price of $95,000. As of June 30, 2021 and December 31, 2020, third parties had purchased approximately 72,000 and 37,000 common shares, respectively, in private placements for an aggregate purchase price of approximately $739,000 and $370,000, respectively. As of June 30, 2021 and December 31, 2020, the total amount of equity outstanding by the Company on a gross basis was approximately $67.9 million and $57.1 million, respectively, and the total amount of settling subscriptions was approximately $37,000 and $2.0 million respectively. These amounts were offered at a $10.43 and $10.00 per share price, respectively.

 

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”). Shares purchased through such Reinvestment Plans are purchased at the effective price at the time of distribution issuance. For the six months ended June 30, 2021 and the year ended December 31, 2020, no distributions declared by the Company have been reinvested directly into the Company through such Reinvestment Plans.

 

 F-5 

 

 

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 financial statements prepared under U.S. GAAP have been condensed or omitted.

 

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 interim 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 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.

 

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 (“VIEs”) in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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 significant 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 may 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.

 

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 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.

 

 F-6 

 

 

Organizational and Offering Costs

 

Organizational and offering costs of the Company were initially paid by the Manager on behalf of the Company. These organizational and offering costs may include all expenses to be paid by the Company in connection with the formation of the Company and the qualification of the Offering, and the distribution of shares, including, without limitation, expenses for printing, and amending offering statements or supplementing offering circulars, mailing and distributing costs, telephones, internet and other telecommunications costs, 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 second 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. The Manager has decided that the Company shall only reimburse the Manager for the organizational and offering costs 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”), the Company is obligated to start reimbursing the Manager, without interest, for 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 provided. 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, there will be no liability recognized until the Company reaches the Hurdle Rate. When the Company’s NAV exceeds the Hurdle Rate, it will recognize a liability with a corresponding reduction to equity for offering costs, and a liability with a corresponding expense for organizational costs.

 

As of June 30, 2021 and December 31, 2020, the Manager had incurred cumulative organizational and offering costs of approximately $171,000 and $168,000, respectively, on behalf of the Company. The Hurdle Rate was met as of December 31, 2020, so approximately $167,000 of costs were reimbursed or reimbursable to the Manager as of June 30, 2021 and December 31, 2020.

 

During the six months ended June 30, 2021 and the year ended December 31, 2020, the Company directly incurred offering costs of approximately $120,000 and $106,000, respectively. As of June 30, 2021 and December 31, 2020, approximately $85,000 and $2,000 of directly incurred offering costs were payable, respectively.

 

Settling Subscriptions

 

Settling subscriptions presented on the consolidated balance sheets represent equity subscriptions for which funds have been received but common shares have not yet been issued. Under the terms of the Offering Circular for our common shares, subscriptions will be accepted or rejected within thirty days of receipt by us. Once a subscription agreement is accepted, settlement of the shares may occur up to fifteen days later, depending on the volume of subscriptions received; however, we generally issue shares the later of five business days from the date that an investor’s subscription is approved by our Manager or when funds settle in our bank account. We rely on our Automated Clearing House (ACH) provider to notify us that funds have settled for this purpose, which may differ from the time that cash is posted to our bank statement.

 

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. To do so, 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.

 

 F-7 

 

 

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.

 

Rental Real Estate 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, multifamily properties, 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. 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 (presented on the consolidated balance sheets 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 lease intangible value is written off. In-place lease assets have 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.

 

Costs capitalized in connection with rental real estate 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 – 15 years
Furniture, fixtures, and equipment 5 – 10 years
Lease intangibles Over lease term

 

 F-8 

 

 

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.

 

Real Estate Deposits

 

During the closing on a real estate investment, 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 generally 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.

 

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’s redemption plan provides that on a quarterly basis, subject to certain exceptions, a member could obtain liquidity as described in detail in our Offering Circular.

 

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 quarter to shares whose aggregate value (based on the repurchase price per share in effect as of the first day of the last month of such calendar quarter) 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 make a number of commercial real estate investments of varying terms and maturities, our Manager may elect to increase or decrease the amount of common shares available for redemption in any given quarter, as these commercial 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, to preserve our status as a REIT, following any material decrease in our NAV, or for any other reason. 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 our website to disclose such amendment. Our Manager may also, in its sole discretion, decline any particular redemption request if it believes such action is necessary to preserve our status as a REIT. Therefore, a member may not have the opportunity to make a redemption request prior to any potential termination of the Company’s redemption plan.

 

Due to the uncertainty caused by the new strain of coronavirus (COVID-19), our Manager had previously determined to suspend the processing and payment of redemptions under our redemption plan effective March 31, 2020. Effective as of June 30, 2020, our Manager resumed the processing and payment of redemptions under our redemption plan.

 

Income Taxes

 

As a limited liability company, we have elected to be taxed as a C corporation. Commencing with the taxable year ending December 31, 2019, the Company operates in a manner intended to qualify for treatment as a REIT under the Internal Revenue Code of 1986. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of the Company’s annual REIT taxable income to its members (which is computed without regard to the distributions paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with generally accepted accounting principles). As a REIT, the Company generally will not be subject to U.S. federal income tax to the extent it distributes qualifying distributions to its members. Even if the Company qualifies for taxation as a REIT, it may be subject to certain state and local taxes on its income and property, and federal income and excise taxes on its undistributed income. No material provisions have been made for federal income taxes in the accompanying financial statements during the six months ended June 30, 2021 and the year ended December 31, 2020. No gross deferred tax assets or liabilities have been recorded as of June 30, 2021 and December 31, 2020.

 

 F-9 

 

 

As of June 30, 2021 and December 31, 2020, we elected to treat certain wholly-owned subsidiaries as QRSs. The QRSs are corporations that are wholly-owned by the Company and are disregarded for both federal and state income tax purposes. A corporation that is a QRS shall not be treated as a separate corporation, and all assets, liabilities, and items of income, deduction, and credit of a QRS shall be treated as assets, liabilities and such items (as the case may be) of the REIT.

 

All tax periods since inception remain open to examination by the major taxing authorities in all jurisdictions where we are subject to taxation.

 

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 tenant receivables and record an allowance for doubtful accounts for any estimated probable losses.

 

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.

 

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.

 

 F-10 

 

 

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, 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 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 $8,485  $6,515 
New investments in equity method investees  7,045   2,149 
Distributions received  (167)  (182)
Equity in earnings (losses) of equity method investees  32   3 
Ending balance $15,395  $8,485 

 

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 2019, a 90% non-controlling member interest in GlenRise 4th Street LLC, whose activities are carried out through the following wholly-owned asset: GlenLine 4th Street Property, a dual tenant industrial flex building with redevelopment potential in Washington, DC.
 (2)Acquired in 2019, the contributions to National Lending, LLC (“National Lending”) in exchange for ownership interest. See Note 9, Related Party Arrangements for further information regarding National Lending.
 (3)Acquired in 2021, a 40% non-controlling member interest in Fundrise SFR DEV JV 1, LLC, whose activities are carried out through the following wholly-owned asset: Carmel Villas which is land located in Denton, Texas.

 

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

 

Condensed balance sheet information: 

GlenRise 4th

Street LLC

As of

June 30, 2021

  

National
Lending, LLC

As of

June 30, 2021

  

Fundrise SFR
DEV JV 1, LLC

As of

June 30, 2021

 
Real estate assets, net $13,466  $-  $16,519 
Other assets  438   62,995   1 
Total assets $13,904  $62,995  $16,520 
             
Mortgage notes payable $7,000  $-   - 
Other liabilities  78   3   10 
Equity  6,826   62,992   16,510 
Total liabilities and equity $13,904  $62,995  $16,520 
Company's equity investment $6,068  $2,723  $6,604 

 

 F-11 

 

 

 

Condensed income statement information: GlenRise 4th
Street LLC
For the Six
Months Ended
June 30, 2021
  National
Lending, LLC
For the Six
Months Ended
June 30, 2021
  Fundrise SFR
DEV JV 1, LLC
For the Period
March 17, 2021
(Inception) to
June 30, 2021
 
Total revenue $451  $588  $- 
Total expenses  439   21   10 
Net income (loss) $12  $567  $(10)
Company’s equity in net income (loss) of investee $11  $25  $(4)

 

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

 

Condensed balance sheet information: 

GlenRise 4th

Street LLC

As of

December 31, 2020

  

National
Lending, LLC

As of

December 31, 2020

 
Real estate assets, net $13,521  $- 
Other assets  494   52,950 
Total assets $14,015  $52,950 
         
Mortgage notes payable $6,931  $- 
Other liabilities  86   - 
Equity  6,998   52,950 
Total liabilities and equity $14,015  $52,950 
Company's equity investment $6,225  $2,260 

 

Condensed income statement information: 

GlenRise 4th

Street LLC

For the Six
Months Ended
June 30, 2020

  

National
Lending, LLC

For the Six
Months Ended
June 30, 2020

 
Total revenue $313  $311 
Total expenses  346   14 
Net income (loss) $(33) $297 
Company’s equity in net income (loss) of investee $(120) $14 

 

4.Investments in Rental Real Estate Properties and Real Estate Held for Improvement

 

As of June 30, 2021 and December 31, 2020, we had invested in one rental real estate property.

 

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

 

  As of
June 30, 2021
  As of
December 31, 2020
 
Land $5,213  $5,213 
Building  2,614   2,614 
Post-acquisition capitalized improvements  132   132 
Total gross investment in rental real estate properties  7,959   7,959 
Less: Accumulated depreciation  (157)  (110)
Total investment in rental real estate properties, net $7,802  $7,849 

 

As of both June 30, 2021 and December 31, 2020, the carrying amount of the rental real estate properties above included cumulative capitalized transaction costs of approximately $187,000, which includes cumulative acquisition fees paid to the Sponsor of approximately $75,000.

 

For the six months ended June 30, 2021 and 2020, the Company recognized approximately $47,000 and $48,000 of depreciation expense on rental real estate properties, respectively.

 

As of June 30, 2021 and December 31, 2020, we had invested in six real estate properties held for improvement.

 

 F-12 

 

 

The following table presents the Company’s investments in real estate held for improvement (amounts in thousands):

 

  As of
June 30, 2021
  As of
December 31, 2020
 
Land $14,834  $14,834 
Building  12,842   12,842 
Work-in-progress  2,467   1,964 
Total investment in real estate held for improvement $30,143  $29,640 

 

As of both June 30, 2021 and December 31, 2020, our investments in real estate held for improvement included cumulative capitalized transaction costs of approximately $590,000, which includes cumulative acquisition fees paid to the Sponsor of approximately $271,000.

 

5.Above- and Below-Market Leases

 

The Company recognizes acquired in-place “above-” and “below-market” leases as rental revenue over the original term of the respective leases. The impact of the acquired below-market leases increased revenue by approximately $94,000 and $97,000 for the six months ended June 30, 2021 and 2020, respectively. For the remainder of the current year, 2021, the Company will recognize the remaining balance of the below-market amortization of approximately $62,000.

 

6.Other Assets

 

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

 

  As of
June 30, 2021
  As of
December 31, 2020
 
Tenant receivables, net $63  $147 
Accounts receivable, net  9   - 
Prepaid expenses  30   188 
In-place lease asset, net of amortization  38   97 
Real estate deposits  123   123 
Total other assets $263  $555 

 

For the six months ended June 30, 2021 and 2020, the Company recognized approximately $59,000 and $63,000, respectively, of amortization expense on in-place lease assets.

 

As of June 30, 2021 and December 31, 2020, tenant receivable were recorded net of an allowance for credit losses of approximately $67,000 and $15,000, respectively. For the six months ended June 30, 2021 and 2020, the Company recorded approximately $52,000 and $0, respectively, in bad debt expense.

 

7.Distributions

 

Distributions are calculated based on members of record each day during the distribution period. There were no distributions declared during the six months ended June 30, 2021.

 

The table below outlines the Company’s total distributions declared to members, the Sponsor and its affiliates for the year ended December 31, 2020 (all tabular amounts are in thousands except per share data):

 

  Members
Distributions for the Period: Daily
Distribution
Per-Share
Amount
  Total
Declared
  Date of
Declaration
 

Total

Paid/Reinvested

as of December

31, 2020

  Payment
Date
September 30, 2020  0.0296863228  $128  09/29/2020 $128  10/08/2020
Total     $128(1)   $128   

 

 (1)Total distributions declared to related parties are included in total distributions declared to all members. For the year ended December 31, 2020, total distributions declared to related parties were approximately $1,000.

 

 F-13 

 

 

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.

 

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

 

9.Related Party Arrangements

 

Fundrise Advisors, LLC, Manager

 

The Manager and certain affiliates of the Manager will receive fees and compensation in connection with the Company’s Offering, 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 Costs for the amount of organizational and offering costs incurred and payable for the six months ended June 30, 2021 and 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 $14,000 and $19,000, respectively, of such costs on our behalf. Approximately $2,000 and $5,000, respectively, were due and payable as of June 30, 2021 and December 31, 2020.

 

The Company will pay the Manager a quarterly asset management fee of one-fourth of 0.85%, which until December 31, 2019 was based on our net offering proceeds as of the end of each quarter, and thereafter will be based on our NAV at the end of each prior semi-annual period. This rate is determined by our Manager in its sole discretion, but cannot exceed an annualized rate of 1.00%. In addition, 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.

 

During the six months ended June 30, 2021 and 2020, we have incurred asset management fees of approximately $214,000 and $193,000, respectively. As of June 30, 2021 and December 31, 2020, approximately $107,000 and $91,000, respectively, of asset management fees remained payable to the Manager.

 

 F-14 

 

 

The Company may be charged by the Manager a development management fee of 5.00% of total development costs, excluding property. However, such development fee is only intended to be charged if it is net of a fee being charged by the developer of the direct equity investment project or if there is no outside developer of the direct equity investment 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. For the six months ended June 30, 2021 and 2020, approximately $27,000 and $57,000, respectively, of development fees have been incurred. Approximately $20,000 was due and payable as of June 30, 2021 and December 31, 2020. These amounts are capitalized and are included in Investments in Rental Real Estate Properties and Investments in Real Estate Held for Improvement in the consolidated balance sheets.

 

The Company will also reimburse the 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, the Manager has not designated any asset as non-performing and 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 or paid to the Manager.

 

The Company will also reimburse the Manager for actual expenses incurred on our behalf in connection with the liquidation of any of our equity investments in real estate and will also pay the Manager an equity disposition fee of up to 1.50% of the gross proceeds from such sale if our Manager is acting as the real estate developer or is engaged by the developer to sell the project. For the six months ended June 30, 2021 and 2020, no disposition fees have been incurred or paid to the Manager. As of June 30, 2021 and December 31, 2020, no disposition fees were payable to the Manager.

 

Fundrise Lending, LLC

 

As an alternative means of acquiring loans or other 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 us. This allows us the flexibility to deploy our offering proceeds as funds are raised. We 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 interest revenue in kind, if any), so there is no mark-up (or mark-down) at the time of our acquisition. During the six months ended June 30, 2021 and 2020, the Company did not purchase any investments that were owned by Fundrise Lending, LLC

 

For situations where our Sponsor, Manager or their affiliates have a conflict of interest with us 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 our behalf will be payable by us. Principal transactions are defined as transactions between our Sponsor, Manager or their affiliates, on the one hand, and us or one of our subsidiaries, on the other hand. Our 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 $3,000 and $5,000, respectively, were paid to the Independent Representative as compensation for those services and are included as a general and administrative expense in the consolidated statements of operations.

 

Fundrise, L.P., Member

 

Fundrise, L.P. is a member of the Company and held 9,500 shares as of 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 held 500 shares as of June 30, 2021 and December 31, 2020.

 

For the six months ended June 30, 2021 and 2020, the Sponsor incurred approximately $40,000 and $63,000, respectively, of operational costs on our behalf. As of June 30, 2021 and December 31, 2020, approximately $10,000 and $4,000 of operational costs were due and payable, respectively.

 

 F-15 

 

 

Investment in National Lending, LLC

 

In July 2019, our Manager formed a self-sustaining lending entity, National Lending, which is financed by each of the eREITs affiliated with our Sponsor. National Lending is managed by an independent manager (the “Independent Manager”) through a management agreement at a market rate that is customary for the industry. Each eREIT contributes an amount to National Lending in exchange for ownership interests, originally not to exceed 3% of its assets under management to National Lending. On March 23, 2020, the Company entered into an Amended and Restated Operating Agreement with National Lending, which increased the maximum contribution for partnership interest from 3% to approximately 5% of a partner’s assets under management. Accordingly, the Company has a continuous funding commitment to maintain a total contribution amount of up to 5% of its assets under management to National Lending. As of June 30, 2021 and December 31, 2020, the Company has contributed approximately $2.7 million and $2.2 million for a 4.34% and 4.29% ownership in National Lending, respectively.

 

National Lending then may provide short-term bridge financing through promissory notes to any of the eREITs who have contributed to it in order to maintain greater liquidity and better finance such eREIT’s individual real estate investment strategies. The promissory notes bear a market rate of interest and are generally repaid via the capital raised by each of the borrowing eREITs’ Offerings. All transactions between National Lending and the borrowing eREITs are reviewed by the Independent Manager.

 

During the six months ended June 30, 2021 and 2020, the Company entered into one and zero promissory notes with National Lending, respectively, in the amounts of approximately $5.0 million and $0, respectively, all of which was repaid as of June 30, 2021. The Company incurred approximately $15,000 and $0, respectively, in related interest for the six months ended June 30, 2021 and 2020.

 

Co-Investment Arrangements

 

The Company may gain exposure to real estate investments through co-investment arrangements (“Co-Investments”) with other eREITs and Funds affiliated with our Manager. Through a Co-Investment, the Company acquires partial interests rather than full ownership of an investment. The Company’s ownership percentage in the Co-Investment will generally be pro rata to the amount of money the Company applies to the origination or commitment amount for the underlying acquisition.

 

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

 

Reimbursable Organizational and Offering Costs

 

The Company has a contingent liability related to potential future reimbursements to the Manager for organizational and offering costs that were paid by the Manager on the Company’s behalf. As of June 30, 2021 and December 31, 2020, approximately $4,000 and $1,000, respectively, of organizational and offering costs incurred by the Manager may be subject to reimbursement by the Company in future periods, based on achieving specific performance hurdles as described in Note 2, Summary of Significant Accounting Policies – Organizational and Offering Costs.

 

Legal Proceedings

 

As of the date of the 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.

 

12.Subsequent Events

 

In connection with the preparation of the accompanying consolidated financial statements, we have evaluated events and transactions occurring through September 27, 2021 for potential recognition or disclosure.

 

Offering

 

On July 26, 2021 the Company qualified approximately $49.4 million of additional common shares, to be issued in exchange for common shares of Fundrise Growth eREIT V, LLC. See below for further details.

 

 F-16 

 

 

As of September 27, 2021, we had raised total gross offering proceeds of approximately $123.3 million from settled subscriptions (including the $100,000 received in the private placements to our Sponsor and Fundrise, L.P., an affiliate of our Sponsor, and approximately $794,000 received in private placements to third parties), and had settled subscriptions in our Offering and private placements for a gross aggregate of approximately 11,946,000 of our common shares.

 

Merger

 

Effective August 2, 2021, Fundrise Growth eREIT V, LLC (the “Target eREIT”), merged with and into Fundrise Growth eREIT 2019, LLC (which was renamed Fundrise Development eREIT, LLC), with the Company as the surviving entity (the “Merger”). In connection with the Merger, we issued to the shareholders of the Target eREIT common shares based on an agreed upon exchange ratio (“Exchange Ratio”). The Exchange Ratio was based on the Target eREIT’s NAV per share that was effective as of the date of the Merger, August 2, 2021. For more information about the Merger, please see the offering circular filed on August 2, 2021 here.

 

New Investment 

 

As of September 27, 2021, the Company contributed an additional approximately $1.6 million to Fundrise SFR DEV JV 1, LLC.

 

National Lending Contribution

 

On July 15, 2021, the Company contributed an additional $828,000 to National Lending in accordance with the subscription agreement, for a total cumulative contribution of approximately $3.5 million, which is equivalent to approximately 5.2% ownership as of July 15, 2021.

 

 F-17 

 

 

Item 4.Exhibits

 

INDEX OF EXHIBITS

 

Exhibit No. Description
2.1* Certificate of Formation (incorporated by reference to Exhibit 2.1 of the Company's Form DOS submitted to the SEC on March 7, 2019)
2.2** Certificate of Amendment to Certificate of Formation dated August 3, 2021
2.3** Second Amended and Restated Operating Agreement
4.1* Form of Subscription Agreement (incorporated herein by reference to Appendix A of the Company’s Offering Circular filed with the SEC on October 2, 2020)
6.1* Form of License Agreement between Fundrise Growth eREIT 2019, LLC and Fundrise LLC (incorporated by reference to Exhibit 6.1 of the Company's Form DOS submitted to the SEC on March 7, 2019)
6.2* Form of Shared Services Agreement between Fundrise Advisors, LLC and Rise Companies Corp. (incorporated by reference to Exhibit 6.3 of the Company's Form DOS submitted to the SEC on March 7, 2019)

 

*Previously filed.
**Filed herewith.

 

14

 

 

SIGNATURES

 

Pursuant to the requirements of Regulation A, the issuer has duly caused this Semiannual Report to be signed on its behalf by the undersigned, thereunto duly authorized, in Washington, DC on September 27, 2021.

 

 Fundrise Development eREIT, 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 Semiannual 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  
Benjamin S. Miller Fundrise Advisors, LLC September 27, 2021 
  (Principal Executive Officer)  
     
/s/ Alison A. Staloch Chief Financial Officer of  
Alison A. Staloch Fundrise Advisors, LLC September 27, 2021
  (Principal Financial Officer and  
  Principal Accounting Officer)