Fundrise Flagship Real Estate Interval Fund, LLC
MANAGED BY
Rise Companies Corp.
CLASS
Common Stock
Net Asset Value $1.32B*
Legal Construction LLC
Investment Style Core
Inception May 2021
Amount Raised $1.35B*
Asset Class Fine Art
Headquarters Washington, DC
Min. Investment $1,000
Fee Load 0.85%
Net Return (YTD) -1.96%*
Annualized Distribution Rate 0.81%*
Distributions Quarterly
Carried Interest 0%
Holding Period Permanent Capital
Advisor Fundrise Advisors, LLC
Auditor KPMG, LLP
Counsel Goodwin Procter, LLP
µ*As of year-end 2022
Investment Strategy
The Fundrise Flagship Real Estate Interval Fund seeks to generate current income while secondarily seeking long-term capital appreciation with low to moderate volatility and low correlation to the broader markets. The Manager pursues its investment objective by investing in a diversified portfolio of private commercial real estate in the form of equity and debt, as well as publicly traded real estate debt and equity securities. The underlying real estate assets currently include a majority of single-family rental properties (58% of portfolio), along with some multifamily (27%) and industrial properties (15%), all of which are commercially owned, financed and managed. Core Plus investments currently make up 72% of the portfolio. Through its Core Plus strategy, the Fund aims to generate income by strategically selecting and managing stabilized real estate with a long term horizon and moderate leverage, unlocking additional value through focused asset management.
| Value | Core | Growth | |
| Large | |||
| Mid | |||
| Small |
Score Breakdown
BULLS SAY
Diversification: prioritizes importance of diversification as a means of balancing risk with target goals. Claims to utilize the golden cross of both asset type diversification as well as risk profile diversification.
Regular income: Intention to generate a blend of income from tenant rent payments and asset appreciation.
Strong demand: The strong buyer demand and shortage of homes for sale create a prime opportunity to invest in private real estate. Industrial facilities involved in manufacturing, and distribution have also created lucrative opportunities in conjunction with the recent boom in electronic commerce.
BEARS SAY
Poor diversification: though Fundrise claims a balanced strategy, 85% of the portfolio is invested in residential properties. Further, most of the assets are in the South or Southeast regions which leaves the Fund geographically exposed.
Risk misalignment: several value-add properties held require extensive repositioning, siphoning off cash from shareholder distribution.
Competition: the residential real estate market in the Southeast region is becoming increasingly competitive. There is a plethora of new entrants and increased supply, which can lead to reduced rental income.
Managers
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Industry Experience 26 years of investment experience in commercial real estate, private equity, and venture capital.
Career highlights Co-Founder of Fundrise LLC, President of Western Development Corporation- one of the largest mixed-use real estate companies in the DC metro area, co-founder and Managing Partner of US Nordic ventures- a private equity company hoping to help Scandinavian green building firms enter the U.S. market.
Education B.A. Economics, University of Pennsylvania.
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Industry Experience 12 years of experience in real estate investing and development.
Career highlights Director of Capital at WestMill Capital, a real estate investment company focused on acquiring, financing, and developing retail and urban mixed-use real estate. Co-founded and leads Product Development at Popularise, an online platform allowing local communities to build new places in their neighborhoods.
Education B.A. Economics & Public Policy, Duke University.
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Industry Experience 12 years of experience in real estate finance and investing.
Career highlights Progressively taken on roles of increased responsibility at Fundrise and its affiliates over the last 9 years. Currently leads the Multifamily Acquisitions Team at RSE Capital Partners. Previously worked as a residential mortgage-backed security consultant for Navigant and as a debt underwriter for the commercial real estate finance company Walker & Dunlop.
Education B.S. University of Virginia, MBA University of Pennsylvania Wharton School.
Full Review
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Scary bad actually. Since inception in May, 2021, the net investment losses have totaled $17.5 million without depreciation. Why? The management fees, just management fees, totaled $12.3 million! Then their legal fees alone for 2022 were $841K; what?!?
It's also worth mentioning that all three portfolio managers have relatively limited skin in the game as each manager owns equity securities in the Fund worth below $30K.
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Since inception, Fundrise's Flagship Real Estate Interval Fund has performed poorly. Losses in two years have totaled $17.5 million without depreciation. And the fund's stated primary objective - generate income - has definitely not been met: only 2.8% total in 20 months! But if they had so many losses where did the cash come from to pay any dividends? NOYACK analysts have calls into Fundrise requesting comment and will update this report once we receive. For reference, all financial statements are available here.
So how can they show high total return figures and then have some large amount of operating losses? Because they use internal valuations to increase the value of their portfolio without any third-party appraisals. This is suboptimal and not transparent to new investors.
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The residential real estate market especially in the Southeast region is becoming increasingly competitive. There is a plethora of new entrants and increased supply, which can lead to reduced rental income. The fund's heavy concentration in properties located in the Southeast region also leaves the Fund geographically exposed.
Additionally, macroeconomic conditions may influence operating performance. Recent increases in interest rates can impact the value of the interval fund's properties and the income they generate considering the preponderance of residential properties.
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The Manager's Core Plus strategy leverages resource-intensive methods to create value for the acquired assets. Many of the value-add properties included in the portfolio require extensive strategic repositioning and operational improvements, siphoning off cash from shareholder distribution.
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The Fund operates as an "interval fund" pursuant to which it will conduct quarterly repurchase offers for between 5% and 25% of the Fund's outstanding common shares at NAV. The repurchase offer policy allows the Fund to provide a limited degree of liquidity to shareholders. In 2022, it repurchased about 5.4M shares, which amounted to approximately 10% of outstanding shares at year-end.
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Fundrise discloses a lot on their website. Their online dashboard provides an organized and interactive interface to display relevant information and analytics, allowing users to quickly access and understand critical data points regarding the fund and its investments.
The Interval Fund has an investor relations department to provide investors with increased transparency and accessibility to information about the Fund and its portfolio. After contacting their team, we were able to confirm that their REIT election was indeed effective. When questioned about their portfolio's concentration risk and failure to achieve its primary goal of generating income, the IR team acknowledged their unbalanced portfolio and poor performance: "We hope to do better", they said.
Peer Group Comparison
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|---|---|---|---|
| Vehicle Name | Fundrise Flagship Real Estate Interval Fund, LLC | RealtyMogul Apartment Growth REIT, Inc. | NOYACK Logistics Income REIT, Inc. |
| Minimum Investment | $1,000 | $5,000 | $20,000 |
| Holding Period | Permanent capital | Permanent capital | 7 years |
| Fee Structure | 0.85% management fee | 1% management fee + 0.5% service fee | 0.75% management fee |
Bottom Line
Flagship crashes. The principles of diversification and income are admirable aspirations but this offering fails spectacularly to achieve those goals. We cannot recommend this fund for any type of investor. First, the Fund is losing money hand over fist, as shown above. Second, they are charging investors through the nose for the privilege to suffer those losses.
There has been poor income generation; this fund has only generated a total of 2.8% in the past 2 years. Maybe if the interest rate environment improves, then their portfolio, with assets of good quality, may rebound. But it seems that overpaying and some large dollar repositioning are hurting them.
At this time, NOYACK cannot endorse or provide a suitability opinion for the fund, given its poor income generation. However, if the economy and execution improves, there may be long-term capital appreciation if your investment time horizon is long enough. Overall, while the Fundrise Flagship Real Estate Interval Fund sounds good on paper, it's not living up to its aspirations.
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