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, 2017. The Fund has completed
its tenth full quarter of operations. Growing in a profitable and well-managed way
continues to be our highest priority.
Since its inception, the Fund has strived to acquire performing and non-performing notes
secured by single family residential properties valued under $100,000 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
$19.3MM 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 results. The buyers in this network purchased 90
assets this past quarter, which in part contributed to the Fund’s 10.67% quarterly return,
and which also created a “return since inception” of 12.31% (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 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 36 states,
reducing the overall exposure to any one market. Additionally, the average acquisition
price per asset in Q3 was approximately $22,761 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
currently has about a 52% ITV, meaning that on average, the Fund purchased the real
estate notes at fifty-two cents on the dollar of current market value of the properties
securing those notes. (Of course, the ITV is an assessed or approximate ratio and is not in
any way certain or guaranteed).
Market conditions continue to be favorable in terms of the amount of available inventory
of discounted mortgage notes. Q3 reports showed over $2 Billion of discounted notes
being released into the market. Based on the waterfall of how these assets work through
the marketplace, Colonial Impact Fund II is firmly positioned to see the types of assets we
seek out and meet our underwriting guidelines. The Fund continues to be routinely
approached by institutions looking to trade their loans, secured by properties valued
under $100,000. This price point serves as a significant source of deal flow for the Fund
because these tend to be the mostly costly assets for the larger institutions to hold.
Additionally, with continued signs of market volatility in both domestic and global
markets, it’s possible to see a correction in real estate values and prices associated with
the purchase of discounted notes over the next several quarters. While we have no idea
what the overall ramifications of such a correction 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.
Our management team has built relationships with the key sellers of these assets over
several decades. Additionally, our management team works consistently with both
existing and new investors as a source of additional capital to take advantage of
opportunities in the market. With less than five percent of the total capital raised coming
into the debt vertical of the Fund, the vast majority of capital raised is unlevered equity.
As of September 30, 2017, the Fund has deployed $13,373,539 of net investor capital.
While the Fund can secure a credit facility or institutional type debt, the Managers have
not opted to do so at this point. In large part, thanks to our valued investors, the Equity
Vertical has been well received from a fundraising standpoint, reducing the need to
secure a credit facility. So long as the equity capital market conditions continue to be
robust, it keeps the need for an institutional lender low.
As of the writing of this newsletter, we are in the process of conducting due diligence on
more than 100 assets which will result in investor capital deployment of more than
$4MM. While not all of these assets will pass through the underwriting process, we
continue to see tremendous opportunities for the Fund.
For those of you newer to the private placement fund arena, we have engaged Redwood
Real Estate Administration to administer the day to day accounting, statement production
and process investor capital. Through a third-party administration company, there is
additional transparency and accounting support, amongst other services provided to the
Fund and its investors.
We continue to be very active in the marketplace meeting with existing investors and
meeting new investors. We will see many more of you throughout the 2017 Motorhome
and Money Tour this fall. The annual investor meeting will be held in Dallas, Texas on
October 19. Additionally, the discounted note industry event of the year, NoteExpo, will
be held November 3-4 in Dallas, Texas. All of these events are in addition to the regular
informational webinars we offer for investors to learn more about the market, asset class
and our offering. We certainly appreciate your referrals to your friends and family that
are accredited investors that may have an interest in including the Fund in their portfolio
Thank you for your continued interest, trust and confidence.
Ryan Parson, MBA, CFP®, ChFC