RealtyShares subordinate secured loan Palo Alto

I noticed this house on RealtyShares. Quoting directly "This investment opportunity is to participate in the ground-up construction of an approximately 7,395 square foot single-family home in Palo Alto, CA, an affluent, family-oriented community situated between San Francisco and Silicon Valley. The Sponsor’s objective is to (1) recapitalize a portion of the acquisition costs from when the Sponsor originally acquired the existing 3,758 square foot single-family home in 2016, (2) raze the existing structure, (3) develop an approximately 7,395 square foot custom single-family residence, and (4) sell the home within an estimated total project timeline of 18 months. "

Apparently the completed house will be valued at 16.5 M$ . Can that zip support this kind of price? Note that the house is on a 0.34 acre lot.

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Palo Alto is home of Billionarres, building 7395 is huge opportunity. If it is brand new home, it will go 16.5M

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Can it support 16.5? Possibly. However, this is the very top of the market. It might take forever to clear. Who is the sponsor? What are the terms of the investment? Look at 2203 South Ct as an example.

I think the numbers put forward are optimistic.

2203 South Ct is now valued at 10M$

Right, but it’s a much more standard high-end spec. The one you are looking at if I’m guessing correctly is a high-end modern interpretation of a traditional English home. I believe this one is done by Arcanum Architecture. They are responsible for some of the high end work done in Atherton.

Not putting down South in any way. I’m sure it’s a very nice build and well executed.

If you can share, can we see the details of this investment?

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Wow.

14.75 is the total cost. The original purchase was around 8. Where are those guys that think they can build for 150/sf :slight_smile:!

The returns aren’t outsized on the costs. They believe it will sell for more than 19.5.

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Very hard to say. I have investors still able to snatch up PA land with a house under 1.6M off the market. They can turn in a tidy profit in 2-3 months w/o a tear down.

Those wanting to pay that wishful price can pay what he wants. The valuation may be optimistic. I was in not good part of Fremont near Ardenwoods, KB wants $1.9M new home under construction. Nearby, I showed homes (used ranch) when they were $375K not long ago.

I guess nothing surprises me if it is sold for projected…

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@druid,

If you look at investment angle, there are few issues.

  1. 13.5% is attractive, but this is 2nd lien which is risky

  2. Liquidity is not easy

  3. You can earn better or equal in stocks

Why do we need to choose this reality shares?

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Thanks @Jil.
I too had thoughts about the 2nd lien and if that final selling price was possible.
Usually my realty shares investments are capped at 10k per investment and about 10% on avg. I also keep my maturities at 12 months to 15 months max.

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If you keep your investments 12-15 months and getting such 13.5% rate, it looks attractive.

Reg " if that final selling price was possible", is there anything linked to final sale price or just being cautious over the project?

This home sales 16.5M implies $2230/sqft appx. The current range is $2200/sqft or above. It looks like the sale price is fine. But, some good Palo Alto specialist can vouch such statement as I do not know exactly.

Here are some past sales I reviewed.

Redfin is wrong, using old sqft and valuation. See the home is rebuilt completely. see using google view, check further county records.

@Jil, there is a personal guaranty on this loan. Also, they only need to sell for 13.5 to be able to pay off this second lien+interest. A completed project like this is worth more than 13.5. I think a completed project like this is harder to come by in Palo Alto than one in Atherton. The percentage of lots in PA with this type of size and frontage is really small compared to Atherton.

I reviewed all the details again, and the underwriting looks alright. The selling price is possible. I wonder who is the first lien holder who will end up loaning 10.

Also, 2203 South is worth 10+. Redfin is showing old info at the top, but if you look at the Public Facts section you will see they know the current official information. I don’t know why the old transaction in 2016 isn’t appearing in Redfin history.

The sponsor and common equity investors have a chance to hit a home run in terms of IRR. It is possible that this could fetch a lofty 18+ valuation. That would give them a 140%+ return. Return on costs is much more pedestrian looking.

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I tried to sign up for this home, but skeptical about the fees ($200/transfer) and service charges (1-3%) they say.

Do you have any idea how much they actually charge?

When you say they you mean realtyshares?

I dont think there is a fee for funds transfers but realty shares usually does charge investors a small management fee per loan.

Oh boy!

I thought you guys knew that in anything where money is lent, transferred, borrowed, loaned, invested by your manager, etc, there are fees that you don’t even know exist, even though you see your statement every month.

Alert: Nothing is free.

Palo Alto is Palo Alto, and surprises abound. People can buy this property over $20M just for the sake of telling others they are rich. You should know this by now.

Yes.

They (realtyshares) provided 90 pages agreement, too much to read and understand.

I am reading $200/transfer from bank account to borrower (need to clarify) and service 1%-3% (they call small fee). In such case, it becomes 10% Return instead of 13.5%.

I need to verify both , going to talk to realtyshares person tomorrow when I have some time.

High risk low return…stay away

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High end real estate is too risky…Volatile and not liquid…In NYC it is in decline. .The new tax bill could kill it
“The luxury market in 2018 will continue to favor the buyer, who will likely encounter increasingly anxious sellers willing to slash prices as more new construction hits the market,” Mr. Long said.

Take for example the two-unit spread at Trump International Tower that’s currently listed for $27.5 million, a 31% price cut from the $40 million wanted for the combined apartments last year. Or the Plaza Hotel apartment that listed Monday for $25 million, an almost 50% discount from its original asking price in 2014.

my investment group received a $5m house in Park City Utah in a legal settlement. .5 years later we are selling it for $3m…These high end homes are not safe investments

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