Fund III Tranche 1 targets 20 to 24 percent compounded over a four year hold. Here is exactly what that looks like on a $100K, $250K, $500K, and $1M subscription. Where the return comes from, and why Tranche 1 is the only tranche private LPs get.
PV, Mit & Jeff
The one number every investor asks about, run four ways on four subscription sizes. Then where that return actually comes from, and why Tranche 1 is the only tranche private LPs will ever be offered on Fund III.
This week we sent out the Q&A letter answering the seven questions every investor has asked us on Fund III calls. The one that generated the most replies, by a wide margin, was the first one: "what does the targeted return actually look like on a real cheque?"
Fair question. And the honest answer requires the math on paper, not marketing language. So today's letter is exactly that. Four cheque sizes. Two compounded return scenarios (low end and high end of the target). Four year projected hold. In dollars. Then a walkthrough of where the return actually comes from inside a development file like this one, and why Tranche 1 is structured the way it is.
Foundation Development Fund III Tranche 1 is structured to target 20 to 24 percent compounded annually over an approximately four year hold. That is the same range Foundation Development Fund II Tranche 1 was structured at when it closed fully subscribed.
Compounded over the projected four year life of the fund, that math works out to roughly 2.07 times your capital at the low end and 2.36 times at the high end. A total return in the range of 107 percent to 136 percent over the life of the fund. Distributed at project end from the eventual asset sale or refinance.
The founding story. From CPA to real estate operator. Why housing. What building Foundation Capital has actually looked like from the inside.
A development return in this range is not the product of one lucky bet. It is the product of three stacked value creation steps, each one earning a portion of the total. This is how a project like this generates the numbers above.
1. Land uplift on entitlement.
Fund III is buying land at raw or lightly zoned value. The moment municipal approval lands and the site is entitled for the full purpose built rental density, the land itself is worth materially more than what we paid for it. That uplift is captured inside the project economics before a single shovel goes in the ground and rolls into the eventual exit value that LPs are paid out of.
2. Construction margin.
The spread between all in cost to build (land plus hard costs plus soft costs plus financing) and appraised value at completion is the construction margin. In workforce purpose built rental in Southern Ontario right now, that spread is meaningfully positive because rents are strong and appraisals are grounded in a legitimate CMHC eligible income stream. This is where the majority of the projected LP return is created.
3. Stabilization and exit.
Once the building is built and fully leased at a stabilized income, the exit event is either an asset sale to a long term owner (a pension plan, an institutional investor, an aggregating REIT) or a permanent refinance out that returns capital to LPs. That is the final return event and the point at which projected profit is distributed to Tranche 1 investors.
Those three steps stacked together, over a projected four year hold, are what deliver the 20 to 24 percent compounded target on the table above.
Fund III's total capital raise is $6.5 million. That total splits into two tranches, and the structure matters because it determines who gets which economics.
Tranche 1 is $1.5 million. That is the tranche our investor community is being offered right now, at the targeted 20 to 24 percent compounded return, structured for accredited private LPs and existing FC investors. It closes August 28th.
Tranche 2 is the remaining $5 million, and that tranche is structured to be filled by government and not for profit capital as those partnerships close over the next few months. Different economics. Different structure. Deeper affordability in exchange.
Two consequences fall out of that. First, Tranche 1 is the only tranche in Fund III where private accredited capital participates at the targeted return. Once Tranche 1 closes, the private LP window on Fund III is closed. Second, more government capital in Tranche 2 means more affordable units in the project without any dilution to the private LP economics in Tranche 1. Public capital in Tranche 2 deepens the community outcome. Private LPs in Tranche 1 keep the return structure they signed for.
In plain language, if you want the 20 to 24 percent target on Fund III, Tranche 1 is the only door. And it closes August 28th.
500 Units · Southern Ontario Transit Corridor · Workforce Rent
Targeted 20% to 24% compounded · $100K minimum · $1.5M Tranche 1 closes August 28th · Accredited investors and existing FC investors only.
On the livestream this week, the three of us went completely off script and spent the full episode on alternative investments. Pokemon cards, sports cards, the Logan Paul Rip It economy, Kevin O'Leary wearing a Dual Logo Man LeBron card to red carpets, PSA grading and its 12.4 million card backlog. Then we tied all of it back to what a boring, income producing real estate portfolio actually gives you that a shelf full of collectibles never can.
If you want the fun conversation version of a real portfolio construction lesson, watch this one.
PV, Mit, and Jeff sit down for the full conversation. Logan Paul, Kevin O'Leary, PSA grading, the greater fool theory, and how the whole thing loops back to how you actually build a portfolio.
$10K Minimum · RRSP / TFSA / RESP / LIRA Eligible · Also Cash
Targeted: 15% Annualized (7% cash monthly + 8% appreciation)
If Fund III is not the right fit, FCPRET is the workforce housing thesis on a $10K minimum, on registered accounts, with a monthly cash distribution.
Talk soon,
PV, Mit & Jeff
P.S. If the math above lines up for you, the fastest path is a 30 minute call. From that call, offering docs land in your inbox within 24 hours and subscription can happen in days.
