1326 Florida Ave. NE architectural drawings. Image from BZA documents.
Ditto Residential, a boutique real estate development firm, has decided to expand their circle of investors for a new H Street, NE apartment they are building to include smaller, short-term investors through crowd-financing site, Fundrise. This is Ditto’s first time using Fundrise for a development project.
The project at 1326 Florida Ave., NE will be a four-story, 45-unit apartment with 18 bicycle spaces and 16 parking spaces. The project sits just north of the bustling H Street corridor and at the southern end of the Trinidad neighborhood.
Brian Burke, the CFO for Ditto Residential, said his company is excited about creating more “places for people to live on H Street.”
“[H Street has] been a really exciting entertainment and nightlife district, but there hasn’t been many good options for living right there, so we’re excited about the opportunity to develop something,” added Burke.
Ditto will close on the property in September. Before then they are pursuing a hybrid financing approach that will rely on traditional pillars–bank loans and common equity investors–and a new source–small and first-time real estate investors from Fundrise.
The bank loan should finance about 80% of the project and normally the remaining 20% in common equity comes from the developers, friends and family, according to Burke. Common equity is a long-term investment that in theory results in a higher return over time.
Fundrise opens the option for short-term investments in smaller amounts over a fixed period of time with a set rate of return. The average rate of return for a Fundrise investment is 12-14%, according to the company website.
Burke said they realized their new H Street, NE corridor project was a good opportunity for them to try out the Fundrise platform. From the developer’s perspective, this crowd-financing option expands their investor base by including people who may not be interested in a long-term, common equity investment.
The Fundrise investors will be paid some of the interest during the term of the loan–most likely two years–and the remaining interest and their equity will be disbursed at the end of the investment period.
Fundrise investors will be paid back first, before the developer or the common equity investors, explained Burke.
Ben Miller, CEO of Fundrise, told District Source his company has switched to investments that return to their investors first in part because of the simplicity of the arrangement.
“You get all your money and all of your profit before the developer gets anything,” said Miller.
It answers the constant question: how much money am I going to make?
Miller said another DC development project–1819 Riggs Pl. NW* in Dupont Circle–recently used this format. In that case, Lock 7 Development personally guaranteed both the equity and interest to the Fundrise investors.
Ditto is still working with Fundrise to develop the terms of their offering.
In case you are wondering, it’s not easy for a developer to get their project this sort of financing. Fundrise gets about 200 pitches a week for a funding partnership, according to Miller. But they only choose the best; they do the vetting for their platform users.
Fundrise goes through a normal underwriting process looking at where a project will be located, which lender they are working with, etc.
“The most important thing is the person who is doing the project,” said Miller, because anything can happen and that relationship and person make all the difference.
Burke said he and company owner Martin Ditto met with the Millers (Ben and his brother Dan are the force behind Fundrise) several times to discuss possibly working together over the course of the last several years. For Ditto and Burke this project made sense and Fundrise agreed.
“We’re very excited about where H Street is going and that we’re one of the people contributing to the continuing opening up of H Street in terms of having more apartment and condo opportunities,” said Burke.
The investment page should appear here several weeks before the September closing. You can get more information about the project here. Construction will begin this fall and the building should deliver by late 2015.
*Editor’s Note: Lindsay Reishman, the principal broker for Lindsay Reishman Real Estate, sold the Riggs Place units for Lock 7. Reishman is the sponsor of District Source. Here’s how that works.