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 Q3, 2020. The Fund has completed its 22nd 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 $9.3MM at the end of Q3, 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 87 assets this past quarter, which in part contributed to the Fund’s 8.97% quarterly return, and which also created a “return since inception” of 11.18% (both annualized figures).
We continue to welcome existing and prospective Fund investors to attend the 3-day training classes (virtually) 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 Q3 was approximately $110,075 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 continue minimal acquisition activity with the purchase of 4 assets.
With the ongoing impacts of covid-19 on domestic and global markets, the Fund has suspended accepting any new investor capital. Based on borrower behavior amongst many other factors, the Fund was able to process quarterly distributions last quarter and expects to in Q4 as well. Additionally, limited redemption requests are being accepted from existing investors and carefully monitored in order to maintain adequate cash levels in the Fund.
It is still unknown how the overall market conditions, new regulations and borrower behavior will ultimately impact the operations and Fund assets. With government stimulus legislation in flux, regulatory moratoriums on foreclosures and evictions, employment levels and ongoing concerns about covid-19, we have no idea what the ramifications to the Fund will ultimately be.
The proposed amendments to the Fund offering documents were accepted by more than 65% of investors. These amendments went into effect on July 1, 2020 and apply to all investors in the Fund as of July 1, 2020 as well as any new capital for new and existing investors, including reinvestments into existing accounts. We feel this amendment will allow the Fund to manage the existing headwinds and anticipated headwinds while allowing it to be a credible contender in a post-pandemic marketplace.
We expect to continue increasing loss reserves, adjusting asset valuations, see an increase of borrower defaults and otherwise continued slowing of overall income to the Fund for the foreseeable future. All of this, and other factors, will have significant and ongoing implications to the Funds operations, performance and investor distributions. We are assessing operations and 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 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. We are working diligently to return to more ‘normal’ operations as overall market conditions allow.
Thank you for your continued interest, trust and confidence. Be well and safe.
Neither this document nor its contents are an offer to sell or distribute securities in any jurisdiction.