Dear Valued Investor,
As an important part of the Colonial Impact Fund II (the “Fund”) family, we are pleased to share with you the quarterly investor newsletter from Q2, 2020. The Fund has completed its 21st full quarter of operations. Operating in a profitable and well-managed way continues to be our highest priority.
Since its inception, the Fund has strived to acquire single family real estate, performing and non-performing notes secured primarily by single family residential properties valued under $125,000 located throughout the United States. By completing these acquisitions consistent with our philosophy and process, the Fund was able to maintain its assets under management to just over $13.8MM at the end of Q2, represented by the total unpaid principal balance of loans held plus the value of the real estate owned by the Fund.
The Fund’s disposition model (which is to sell individual assets to the downstream retail buyer network) delivered continued, albeit it slower, results. The buyers in this network purchased 41 assets this past quarter, which in part contributed to the Fund’s 9.61% quarterly return, and which also created a “return since inception” of 11.28% (both annualized figures).
We continue to welcome existing and prospective Fund investors to attend the 3-day training classes offered by our sister company, NoteSchool (NoteSchool.com), to learn more about real estate, performing and non-performing notes. While it is by no means a requirement to attend these as an investor in the Fund, we continue to hear meaningful feedback from both existing and prospective Fund investors as they learn more about these assets that the Fund invests in. Particularly as a passive investor, you may find these to be of value, so you have more insight not only into the asset class itself, but how they are managed. What we teach investors through NoteSchool mirrors how we manage and operate the Fund on a daily basis.
In an effort to keep the Fund diversified, the Fund’s assets are spread over 25 states, reducing the overall exposure to any one market. Additionally, the average acquisition price per asset in Q2 was approximately $48,679.51 thereby minimizing capital exposure to any one particular asset. Because the Fund can purchase assets at attractive discounts, the “investment to value” (ITV) ratio stays at levels that the Fund desires. The Fund was able to resume minimal acquisition activity with the purchase of 26 assets.
With the impacts of covid-19 and the ensuing deterioration of domestic and global market conditions, the Fund has suspended accepting any new investor capital, redemption requests as well as quarterly investor distributions. These steps will allow the Fund to preserve as much cash as possible. It is unknown at this time as to how the overall market conditions, new regulations and borrower behavior will ultimately impact the operations and Fund assets. While we have no idea what the overall ramifications will be, or how long the effects will last, we are taking the steps we deem prudent and important, in our best assessment of the order of their importance to safeguard, preserve and protect your investment to the best of our ability.
We expect to continue increasing loss reserves, see an increase of borrower defaults and otherwise slowing of overall income to the Fund for the foreseeable future. This will have significant and ongoing implications to the Funds operations, performance and investor distributions. As a result, we expect to make amendments to the offering of the Fund and will communicate those directly to all investors. These amendments will require the signed acceptance by more than 60% of the Funds investors as of April 1, 2020.
We have engaged Verivest (formerly known as Redwood Real Estate Administration) to administer the day to day accounting, statement production and process investor capital. Through this third-party administration company, there is additional transparency and accounting support, amongst other services provided to the Fund and its investors. All of our strategic vendors remain operational although we may experience delays in communications and other deliverables as they work through their contingent operational backup plans.
These unprecedented market conditions will require a significant amount of patience from all stakeholders, including borrowers, vendors, investors and managers. Our entire management team continues to be fully operational and will be providing ongoing periodic updates.
Thank you for your continued interest, trust and confidence. Be well and safe.
Ryan Parson, MBA, CFP®, ChFC
Neither this document nor its contents are an offer to sell or distribute securities in any jurisdiction.