Real Estate Investment Platform Fundrise Explains how Long-Term Net Return Is Most Appropriate Way to Measure their Performance for Investors
Fundrise, a real estate investment platform that uses Reg A + to gain access to “eREITs and eFunds,” notes that it is hard to imagine a single person or industry affected by the unprecedented events of 2020 (following the COVD-19- Outbreak) has remained unaffected. .
Fundrise is “no different,” the company admitted. While it has always been one of their “deepest” beliefs that they must prepare for the unpredictable, as if it were “inevitable,” the events of the past year were “beyond anything we could have imagined,” Fundrise admitted .
As a result of these events, 2020 turned out to be the “so far truest test” of the Fundrise platform, the “durability” of the business model they developed and the overall quality of our preparation, according to the company.
They also mentioned that ultimately, net return (long term) “is arguably the most appropriate way to measure our performance for investors, and that last year we saw the worst property downturn in over a decade, again thanks to the resilience of the.” Portfolios promoted. “
The company confirmed that the Fundrise platform’s net return for the year was around + 7.42%, compared to around + 20.95% for the stock market (as measured by the Vanguard Total Stock Market ETF) and -4.72% for the public traded REITs (measured by the Vanguard Real Estate ETF).
The Fundrise team added that while they view these results as “further validation” of their long-term, “technology-enabled” long-term approach to direct investors, a single number “fails to paint a complete picture of all that has turned out to be exposed. “They also found that if they take this time to reflect and evaluate their work, they hope that transparency in their decisions and actions will keep their investors well informed and ‘clear’ about what they are up for in Fundrise Expect future.
Fundrise’s 2019 year-end letter to investors (January 16, 2020) noted that “some consider this approach too conservative, but we believe that investors who have consistently achieved success over several decades tend to spend more time with it spend protecting themselves against investors’ disadvantage than regretting the advantage they may have missed. “
Fundrise confirmed that they started the year “in awe” of a stock market that “seemed increasingly disconnected from reality and was concerned that we thought a general bubble had formed across many different asset classes”. For this reason, they have turned their attention to reminding investors “what to expect in the event of a sudden market downturn and developing investment strategies” that they believe are sustained by “significant short-term headwinds as a result of strong long-term fundamentals to have. “
The Fundrise market report published on February 12, 2021 states:
“Much like the stock market, the real estate industry saw a K-shaped recovery, with some asset classes like suburban housing and industrial logistics facilities actually seeing increased demand due to the effects of the virus, as well as improved funding due to lower overall interest rates. Meanwhile, urban apartments, retail centers, office buildings, and hotels have struggled to weather a dramatic decline in demand. “
The report continued:
“Unlike the stock market, distressed properties were not revalued – in other words, they weren’t available for purchase at a price 30% lower than the previous price. Given that such assets would likely be offered by the market at lower prices, most of the assets were not put up for sale at all. Instead, as is logical, they have been held in a state of limbo by their owners when lenders and banks offered temporary indulgence. “
The report added that in the face of “less general opportunities” and in many cases of assets that “arguably not yet factored in the impact of the pandemic on their businesses, we have chosen to be patient”. Fundrise also mentioned that they “generally held onto cash rather than investing it in overpriced assets,” and when they actually transacted, they focused their acquisition efforts mostly on the “same strategies” they felt were well-positioned to “be successful.” to be “long-term, regardless of short-term price inefficiencies. “
The 7.42% return posted last year, while equating to the weighted average performance of around 150,000 unique Fundrise investor accounts (as a number), does not capture the nuances of both the reasons for those returns and the distribution of those returns among our growing ever larger emerging companies and diverse investor base, ”explained the company.
They made it clear:
“Our managed funds, which together make up the Fundrise portfolio, ended the year with cash on hand of approximately $ 265 million, which corresponds to approximately 20% of the collective equity of approximately $ 1.3 billion. And while much of that is slated to be invested in the coming months (we closed the year with more than $ 350 million in deals and are expected to close in the first half of 2021), holding that amount of cash will help add to the return lower in the short term. “
The Fundrise report added:
“While this is not representative or indicative of actual or potential net performance for our investors, calculating the same returns and appreciation from our real estate investments over the past year against a denominator that is equal to the historical cash level would produce a hypothetical return approaches much closer to our historical average platform performance. “
Fundrise notes that much of this success can be attributed to their consistent adherence to a “disciplined value” investment approach guided by their “most active strategy” of investing in affordable shared apartments in “growing cities across the sunbelt.”
The Fundrise team concluded:
“We believe that in the next decade, the use of technology will transform the real estate industry, one of the last sectors of the old industry that is still largely undisturbed. As a company built on the synthesis of real estate and technology, we believe we are in a unique position to make this change happen, transform operating costs, use data more effectively and challenge status quo practices – all for the benefit of our investors . “