By Datta Khalsa, Broker
The second half of 2021 was a busy time for our local real estate fund. At our midway point through the year, we were carrying 19 investments, 10 of which had stopped accruals due to challenges ranging from supply-chain and other Covid-related delays to situations requiring our legal council’s heft to resolve.
We managed to trim much of our non-performing inventory along the way, resulting in a more manageable total of five properties where we hold the majority stake, along with three in which we hold a minor share, plus four notes. In addition to consolidating our real estate holdings, we liquidated one other note to free up additional capital to meet unexpected cost increases due to supply chain issues and lender pull-back.
As returns were down for most of the year, there was a corresponding decline in new capital coming into the fund which required directing our existing equity to cover expenses for both of our large development projects, with the help of the management team and partners actively providing solutions for the funding challenges as they came up.
We are pleased to report our 20 townhome development in Phoenix is nearing completion, and our 15-townhome development in Aptos has finally been able to break ground. It’s exciting in particular to see construction start on this local legacy project that our investors can drive by for years to come, knowing the team effort that helped make it happen.
We were also able to prevail in a legal battle that single handedly allowed the fund to be freed of four non-performing assets in Texas and Pennsylvania, receiving the final settlement payment in full after a long and bitterly-contested contractual dispute to resolve a broken partnership around those investments.
On several hotel development and redevelopment projects where we hold a lesser stake, we became increasingly involved in daily oversight as the hospitality industry climbed back from the pandemic abyss. This included weekly Zoom meetings when necessary, but after putting in the effort it is good to see these projects back on track to where they can start generating revenue after repeated delays.
The temporary impacts from many of these setbacks had led us to reduce the fund’s accruals to very conservative levels during the majority of the year as we navigated considerable obstacles without any guarantees of how things would resolve, but we are pleased to report with the efforts and victories over the past six months the fund has started a clear recovery which has allowed us to bring our annualized profits back up to a respectable 7.81% annualized return.
Given the number of challenges we have faced over the past two years, there is a sense of satisfaction in having weathered the storm, and moving into the new year we at last find ourselves once again in a position to start actively pursuing new investments, while continuing to streamline our current portfolio.