The Real Estate Company, along with property manager Wehner Multifamily, recently acquired, renovated, and stabilized a comparable multifamily asset in Killeen in under 24 months.
The Real Estate Company is purchasing the Property for $20,270 per unit which compares favorably to recent transactions in the market.
Below-market occupancy and rents coupled with the Property's attractive basis creates a compelling value-add opportunity.
$4,500,000
Productive Capital Associates
Productive Capital Associates ("PCA" or the "Sponsor") was founded in 2014 and acquires and operates large, off-market value-add apartment communities, located in stable or growing US markets, with a primary focus on Texas markets. PCA improves properties and their surrounding communities through vetted operational efficiencies supported by strategic capital expenditures that are led by curated business plans based on the location, demographics, condition, and comps of the target property. PCA’s goal is to drive value and exit relatively quickly so as to maximize return on equity and IRR for its investors, returning the properties to the market as nicer assets, and much better places to live and work. As of January 2022, PCA will have owned and operated nearly 2,000 multifamily units, with a value of over $175 million.
Some of PCA’s investment highlights include the following:
• Achieved 150%+ ROI within ~2 years for multiple commercial real estate projects, spanning multifamily, self-storage, and retail assets
• Tripled income within 12 months for a 220+ unit apartment community in Central Texas, adding millions of dollars of value in year one
• Doubled NOI in 7 months for a 250+ unit apartment community in Central Texas, adding millions of dollars in value in year one
• Repositioned a distressed self-storage facility in Central Texas, more than tripling occupancy, income, and value of the asset within 18 months
• Repositioned an apartment community in Columbus, OH, achieving 130%+ ROI within two years
• Repositioned a distressed retail strip center in Central Florida, more than doubling the value of the asset within two years
• Currently repositioning a large student housing project in Denver, in addition to multiple large apartment communities in AR and TX, with each asset projecting a deal-level equity multiple of ~2x on a 3-year hold
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David BarrFounding Principal
After buying his first investment property while in high school — a *tiny* condo near Aspen, CO — David was hooked, although it would be years before he would again invest in real estate.
Why? He'd sold his tiny condo during college for a nice profit and confidently rolled the gains into a red-hot stock market, which eventually crashed, eliminating both his hard-earned real estate gains and principal. It was a difficult lesson; however, he never forgot that real estate made him money and that the stock market took it away.
After spending time in Corporate America, where he had saved enough cash to buy income properties, David began investing in real estate full-time. Beginning with SFR’s, he parlayed cash flow from houses into down payments on more houses, eventually buying and repositioning self-storage, then retail, and now large multifamily (apartment complexes).
David is passionate about improving properties and their surrounding communities and thrives off of the sourcing, underwriting, negotiating, closing, repositioning, and eventually exiting projects, leaving them as much nicer assets, and much better places to live and work.
Named company-wide “Rookie of the Year” for the sales division of a $10+ billion company with over 60,000 employees, David has been recognized for sales, marketing, and finance accolades on a national level, and has led multiple commercial real estate projects to 150%+ ROI within ~2 years, spanning multifamily, self-storage and retail assets.
David holds a B.A. with High Honors from Emory University and studied Finance, Accounting, and Marketing at the UC Berkeley Haas School of Business via the BASE Program.
Specialties: Commercial Real Estate Investment and Repositioning, Strategic Deal-Structuring, Operations, Management, Finance, Sales, and Negotiation.
| City, State | Asset Type | Purchase Date | Units | Deal Status | Purchase Price | Sale Price/Est. Value |
| Killeen, TX | Multifamily | 10/24/2017 | 256 | Sold | $10,300,000 | $15,000,000 |
| Columbus, OH | Multifamily | 10/12/2017 | 64 | Sold | $3,300,000 | $4,510,000 |
| Killeen, TX | Multifamily | 9/17/2018 | 178 | Sold | $6,450,000 | $11,300,000 |
| Killeen, TX | Multifamily | 10/30/2019 | 222 | Sold | $4,500,000 | $12,800,000 |
| North Little Rock, TX | Multifamily | 7/20/2020 | 242 | Under Renovation | $6,150,000 | $9,075,000 |
| Killeen, TX | Multifamily | 8/14/2020 | 250 | Under Renovation | $6,500,000 | $11,250,000 |
| Killeen, TX | Multifamily | 8/30/2021 | 148 | Under Renovation | $6,145,000 | $8,800,000 |
| Denver, CO | Student Housing | 9/17/2021 | 120 | Under Renovation | $40,005,000 | $45,000,000 |
| Killeen, TX | Multifamily | 12/16/2021 | 266 | Under Renovation | $41,075,000 | $42,000,000 |
| Total | 1,746 | $124,425 | $157,935,000 |
The management overview and track record detailed above were provided by Productive Capital Associates and have not been verified by RealtyMogul.
In this transaction, RealtyMogul investors are to invest in RealtyMogul 140, LLC (the "Company"), which is to subsequently invest in 2812 Lake Road, LLC (the "Target"), a limited liability company that will directly or indirectly own interest in the Property. Productive Capital Associates (the "Real Estate Company") is under contract to acquire the Property for $4.5 million ($20,270 per unit). The total project cost is expected to be $6.5 million ($29,418 per unit).
The business plan is to implement a value-add strategy. This strategy assumes a renovation budget of approximately $1,330,274, or $5,992 per unit, and renovation schedule of 222 units over two to three years (approximately eight unit renovations per month). Per the below budget, interior upgrades are anticipated to include vinyl plank flooring, resurfaced countertops, backsplashes, ceiling fans, two-tone paint, and appliances as needed. Exterior upgrades are anticipated to include HVAC, paint, asphalt and roof repairs, security surveillance, upgraded landscaping, a dog park, pergola, grills, signage and branding.
As underwritten, the Real Estate Company intends to achieve an average rent premium of $102 per unit post renovation, or a 21% premium to in place. This represents a 20% return on cost. Additionally, the Real Estate Company plans to implement a RUBS program as well as a potential revenue-sharing agreement with a local cable and internet provider.
Wehner Multifamily will be engaged to oversee both property and construction management responsibilities. The below-market occupancy and rents, in addition to the Real Estate Company's successful undertaking of similar transactions in Killeen, is indicative of the feasibility of the business plan as well as the capacity for the market to support our projected post renovation rents.
| $ Amount | $ per Unit | |
| Unit interiors | $730,080 | $3,289 |
| HVAC | $250,000 | $1,126 |
| Paint | $86,400 | $389 |
| Asphalt | $62,740 | $283 |
| Parking stops | $20,150 | $91 |
| Roof | $11,895 | $54 |
| Metal work | $9,575 | $43 |
| Pergola | $8,500 | $38 |
| Signage | $7,500 | $34 |
| Grills | $5,500 | $25 |
| Landscaping | $5,000 | $23 |
| Security cameras | $5,000 | $23 |
| Concrete pad | $4,000 | $18 |
| Benches | $1,800 | $8 |
| Dog Park | $1,200 | $5 |
| Contingency (10%) | $120,934 | $545 |
| Grand Total | $1,330,274 | $5,992 |
Lake Road Apartments (the "Property") is a class C, garden-style apartment community situated in the Killeen-Temple, TX MSA. Built between 1976 and 1983, the 18 two-story buildings are comprised of one (210 units), and two-bedroom (12 units) floor plans combining to 222 total units. The seller, also the original developer, is in his 70's and historically self-managed the Property. Due to reportedly neglectful management, the Property is currently 55% occupied with in place rents of $488 per unit, significantly below submarket and comparable rates.
| Unit Type (In-Place) | # of Units | Unit (Square Feet) | In-Place Rent | Post-Reno Rent |
|---|---|---|---|---|
| 1 Bed, 1 Bath | 210 | 500 | $482 | $585 |
| 2 Bed, 1 Bath | 12 | 700 | $586 | $675 |
| Totals/Averages | 222 | 511 | $488 | $590 |
| Western Oaks | Twin Creek | The Enclave | The Remington | Stonehill | Heights at 701 | Bay Colony | Grandon Manor | Century Plaza | Total/Averages | Subject | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Submarket | Killeen/Fort Hood | Killeen/Fort Hood | Killeen/Fort Hood | Killeen/Fort Hood | Killeen/Fort Hood | Killeen/Fort Hood | Killeen/Fort Hood | Killeen/Fort Hood | Killeen/Fort Hood | Killeen/Fort Hood | |
| Occupancy | 100% | 95% | 96% | 100% | 98% | 91% | 100% | 97% | 96% | 55% | |
| Units | 102 | 160 | 112 | 200 | 340 | 208 | 182 | 144 | 254 | 189 | 222 |
| Year Built | 1969 | 1984 | 1972 | 1985 | 1986 | 1985 | 1978 | 1976 | 1972 | 1979 | 1976-1983 |
| # of Units (1x1) | 30 | 36 | 55 | 96 | 72 | 100 | 122 | 32 | 52 | 66 | 210 |
| Rent (1x1) | $719 | $754 | $572 | $759 | $660 | $685 | $615 | $660 | $645 | $674 | $585 |
| SF (1x1) | 660 | 637 | 591 | 600 | 596 | 600 | 684 | 644 | 525 | 615 | 500 |
| Rent/SF (1x1) | $1.09 | $1.06 | $0.97 | $1.27 | $1.11 | $1.14 | $0.90 | $1.02 | $1.23 | $1.09 | $1.17 |
| # of Units (2x1) | 72 | 104 | 28 | 88 | 112 | 60 | 32 | 56 | 69 | 12 | |
| Rent (2x1) | $869 | $785 | $665 | $889 | $726 | $750 | $750 | $740 | $772 | $675 | |
| SF (2x1) | 860 | 850 | 829 | 870 | 830 | 848 | 797 | 735 | 827 | 700 | |
| Rent/SF (2x1) | $1.01 | $0.89 | $0.80 | $1.02 | $0.87 | $0.88 | $0.94 | $1.01 | $0.93 | $0.96 | |
| Distance from Subject (mi.) | .3 miles | 1.6 miles | 1.2 miles | 1.1 miles | 2.8 miles | 6.3 miles | 1.1 miles | 2.4 miles | .6 miles | 1.0 miles | N/A |
| Commanders Palace | Indian Creek Apts | Ashton Park | Century Plaza | Total/Averages | Subject | |
|---|---|---|---|---|---|---|
| Date | Jul '17 | May '19 | Nov '17 | Oct '17 | Oct '19 | |
| Submarket | Killeen/Fort Hood | Killeen/Fort Hood | Killeen/Fort Hood | Killeen/Fort Hood | Killeen/Fort Hood | |
| Occupancy | 100% | 93% | N/A | 96% | 96% | 55% |
| Units | 117 | 60 | 148 | 256 | 145 | 220 |
| Year Built | 1965 | 1964 | 1974 | 1966 | 1967 | 1976-1983 |
| Average SF | 734 | 656 | 730 | 633 | 688 | 511 |
| Purchase Price | $3,900,000 | $2,400,000 | $7,200,000 | $10,600,000 | $6,025,000 | $4,500,000 |
| $/Unit | $33,333 | $40,000 | $48,649 | $41,406 | $40,847 | $20,455 |
| Cap Rate | N/A | N/A | N/A | N/A | N/A | 8.00% (exit cap rate) |
| Distance from Subject (mi.) | 1.6 miles | 2.1 miles | 4.6 miles | .8 miles | 2.3 miles | N/A |
(1) Cap rate data in Texas is largely unavailable.
Market Overview
Per CoStar, population growth in Killeen has been drastically increasing and is up over 60% since 2000. This growth is expected to continue and is fed by Fort Hood, which employs roughly 40,000 people. Therefore, fundamentals should continue to strengthen. An uptick in supply and even more demand has produced healthy rent growth as of late. Despite several institutional assets trading in 2014, sales volume remains close to historical averages with trades typically occurring between local players. Population growth has translated into an increase in jobs as of late. Overall job growth was slow early on in the cycle but has been relatively strong since 2015. Year-over-year employment growth was close to 2% as of July, well ahead of the national average. After losing jobs from 2012 to 2014, the government sector is finally showing signs of growth up about 5% from the prerecession peak.
Furthermore, the education and health services industries, which make up nearly 20% of the job market here, have also demonstrated strong expansion. Killeen has a low cost of living, compared with nearby metros such as Austin and Dallas, and average rents here only take up about 16% of the median household income. The Killeen metro also includes the nearby city of Temple, which is where most of the metro’s private sector employment is located. The largest employers here include Baylor Scott and White Healthcare (8,290 employees), McLane Company Inc. (1,600 employees), and Wilsonart International (895 employees).
Demographic Information
| 1 Mile | 3 Miles | 5 Miles | |
|---|---|---|---|
| Population (2019) | 13,279 | 65,333 | 141,657 |
| Population (2024) | 14,121 | 70,602 | 151,913 |
| Average Age | 31.0 | 31.4 | 31.4 |
| Median Household Income | $41,881 | $38,307 | $47,269 |
| Average Household Size | 2.5 | 2.4 | 2.6 |
| Median Home Value | $69,818 | $77,440 | $125,262 |
| Population Growth 2019-2024 | 6.34% | 8.06% | 7.24% |
Demographic information above was obtained from CoStar.
| Sources of Funds | Amount |
|---|---|
| Debt | $4,147,000 |
| Equity | $2,383,742 |
| Total Sources of Funds | $6,530,742 |
| Uses of Funds | Amount |
| Purchase Price | $4,500,000 |
| Real Estate Company Acquisition Fee | $90,000 |
| Broker Dealer Fee | $87,400 |
| Loan Fee | $82,940 |
| CapEx Budget | $1,330,274 |
| Working Capital | $30,000 |
| Interest Reserve | $275,000 |
| Tax/Insurance Reserve | $85,128 |
| Closing Costs | $50,000 |
| Total Uses of Funds | $6,530,742 |
Please note that the Real Estate Company's equity contribution may consist of friends and family equity and equity from funds controlled by the Real Estate Company
The expected terms of the debt financing are as follows:
- Estimated Proceeds: $4,147,000
- Estimated Rate (Floating): 30-Day LIBOR + 350 basis points
- Term: 3 years
- Interest Only: 3 years
- Amortization: None
- Extension Options: One (1) six-month extension (0.50% fee)
- Exit Fee: 2.0% of loan amount
There can be no assurance that a lender will provide debt on the rates and terms noted above, or at all. All rates and terms of the debt financing are subject to lender approval, including but not limited to possible increases in capital reserve requirements for funds to be held in a lender controlled capital reserve account.
The Target intends to make distributions to investors (the Company and Real Estate Company, collectively, the "Members") as follows:
- To the Members, pari passu, all excess operating cash flows to an 8.0% IRR;
- 70.0% / 30.0% (70.0% to Members / 30.0% to Promote) of excess cash flow to a 12.0% IRR;
- 50.0% / 50.0% (50.0% to Members / 50.0% to Promote) of excess cash flow and appreciation thereafter.
Note that these distributions will occur after the payment of the Company's liabilities (loan payments, operating expenses and other fees as set forth in the LLC agreement, in addition to any member loans or returns due on member loans).
The manager of The Company may receive a portion of the promote. Distributions are expected to start in June 2020 and are projected to continue on a quarterly basis thereafter. These distributions are at the discretion of the Real Estate Company, who may decide to delay distributions for any reason, including maintenance or capital reserves.
| Year 1 | Year 2 | Year 3 | Year 4 | |
|---|---|---|---|---|
| Effective Gross Revenue | $798,082 | $1,270,973 | $1,594,665 | $1,661,570 |
| Total Operating Expenses | $831,228 | $863,845 | $958,162 | $977,218 |
| Net Operating Income | -$33,146 | $407,128 | $636,504 | $684,352 |
| Year 0 | 2019 | 2020 | 2021 | 2022 | |
|---|---|---|---|---|---|
| Distributions to RealtyMogul 140, LLC Investors | ($2,240,000) | $0 | $826 | $213,851 | $3,412,890 |
| Net Earnings to Investor - Hypothetical $50,000 Investment |
($50,000) | $0 | $18 | $4,773 | $76,181 |
Certain fees and compensation will be paid over the life of the transaction. The following fees and compensation will be paid:
| Type of Fee | Amount of Fee | Received By | Paid From | Notes |
|---|---|---|---|---|
| Acquisition Fee | $90,000 | Real Estate Company | Capitalized Equity Contribution | 2.0% of the Property purchase price |
| Broker-Dealer Fee | $87,400 | North Capital (1) | Capitalized Equity Contribution | Greater of $50,000 or 4.0% of the equity raised by RealtyMogul 140, LLC |
| Type of Fee | Amount of Fee | Received By | Paid From | Notes |
|---|---|---|---|---|
| Management and Administrative Fee | 1.0% of amount invested in RealtyMogul 140, LLC | RM Manager, LLC | Distributable Cash | RM Manager, LLC is the Manager of RealtyMogul 140, LLC and a wholly-owned subsidiary of Realty Mogul, Co. (2) |
| Asset Management Fee | 1.5% of Effective Gross Income | Real Estate Company | Distributable Cash |
(1) North Capital Private Securities Corporation (“NCPS”), a registered broker-dealer who will act as placement agent for interests in the Company will be paid a fee as outlined above. NCPS will pay a referral fee to Mogul Securities, LLC (“MS”), an affiliate of the Manager and RealtyMogul, Co., for referring the transaction pursuant to a referral agreement between NCPS and MS. Certain employees of Realty Mogul, Co., an affiliate of Manager are registered representatives of, and are paid commissions by, NCPS.
(2) Fees may be deferred to reduce impact to investor distributions.
The above presentation is based upon information supplied by the Real Estate Company or others. Realty Mogul, Co., RM Manager, LLC, and The Company, along with their respective affiliates, officers, directors or representatives (the "RM Parties") hereby advise you that none of them has independently confirmed or verified any of the information contained herein. The RM Parties further make no representations as to the accuracy or completeness of any such information and undertake no obligation now or in the future to update or correct this presentation or any information contained herein.
Forward-Looking Statements
Investors should not rely on any forward-looking statements made regarding this opportunity, because such statements are inherently uncertain and involve risks. We use words such as “anticipated”, “projected”, “forecasted”, “estimated”, “prospective”, “believes”, “expects”, “plans”, “future”, “intends”, “should”, “can”, “could”, “might”, “potential”, “continue”, “may”, “will” and similar expressions to identify these forward-looking statements.
Non-Transferability of Securities
The transferability of membership interests in The Company are restricted both by the operating agreement for that entity and by U.S. federal and state securities laws. In general, investors will not be able to sell or transfer their interests. There is also no public market for the investment interests and none is expected to be available in the future. Moreover, the estimated investment holding period described herein is only a projection, and there can be no assurance when or if an investment may be liquidated. Persons should not invest if they require any of their investment to be liquid. This is particularly important for persons of retirement age, who should plan carefully to assure that their assets last throughout retirement.
Escrow Contingency
All funds from investors will be held in a non-interest-bearing escrow account with Broker-Dealer as escrow agent for the benefit of the investors in accordance with Rule 15c2-4 under the Exchange Act. All investor funds will be transmitted directly by wire or electronic funds transfer via ACH to the escrow account maintained by the escrow agent per the instructions in the Subscription Agreement. Upon certification by Broker-Dealer and acceptance by the Company that all contingencies have been met, the investor’s funds will be promptly transmitted to the Company. If the contingencies fail to be satisfied during the offering period, we will instruct the Broker-Dealer to return all funds to the investors without interest, deduction, or setoff, and all of the obligations of the investor hereunder shall terminate.
Interest-Only Loan Period
The loan being used to acquire the Property is expected to have an interest-only period during the first three (3) years of the loan term, which means that there will be no reduction in the principal balance during that interest-only period.
Floating Interest Rate
The loan being used to acquire the Property is expected to have a floating rate based on the One-Month Libor Rate. If the One-Month Libor Rate increases the interest payments due on the loan are expected to increase as well. This could adversely affect the Property’s financial results or business operations and thus the value of the Company’s investment.
Tornado Risk
The Property lies an area which can be subject to frequent and sometimes destructive tornadoes. There is no guarantee that the Target will obtain tornado insurance. If no insurance is obtained, a tornado could have a material adverse impact on the Target, and thus the Company. Further, even if tornado insurance is obtained, there can be no assurance that a tornado will not cause significant damage to the Property or otherwise interrupt its operations in a manner not covered by the Property’s insurance, in which case the business and financial condition of the Company may be negatively affected.
Renovation Risk
As of September 2019, the Property had a 55% occupancy level, and the Sponsor intends to implement a capital improvement plan involving the interior and exterior renovation of the Property, and a leasing program in its effort to add value to the Property. The Sponsor intends to renovate all or some of the units within the Property and increase the current rental rates of such renovated units. There can be no assurance that, (i) the renovations will be consummated on a timely basis, (ii) the renovations will be completed satisfactorily, (iii) such work will not materially adversely affect other aspects of the operation of the Property, and (iv) the planned rental rate increase will have favorable results to meet the goals the Sponsor projected. Any delays or negative results of the renovation work or rental increase efforts could adversely affect the Property’s financial results or occupancy levels, including its business operations and thus the value of the Company’s investment.
Lease Up Risk
As of September 2019, the Property had a 55% occupancy level, and the Sponsor intends to implement a capital improvement plan involving the renovations of certain units and a leasing program in its effort to increase its current occupancy level. The Sponsor intends to renovate some of the units within the Property, in order to increase the current rental rates. There can be no assurance that such renovations will be consummated on a timely basis, that such work will not materially adversely affect other aspects of the operation of the Property, or that the planned rental rate increase will have favorable results to meet the goals the Sponsor projected. Any delays or adverse effects of such renovation work or rental increase efforts could adversely affect the Property’s financial results or occupancy levels, including its business operations and thus the value of the Company’s investment.
Base Realignment and Closure Risk
The Property is located in Killeen, TX, which is anchored by Fort Hood, which employs approximately 40,000 people. Any base realignment or closure of the Fort Hood base could have a negative effect on the demand for rental real estate in the area, could materially and adversely affect the business and financial condition of the Sponsor Entity, and thus the Company would be materially and adversely affected.
The above is not intended to be a full discussion of all the risks of this investment. Please see the Risk Factors in the Issuer Document Package for a discussion of additional risks. The above presentation is based upon information supplied by the Real Estate Company and others. Realty Mogul, Co., RM Manager, LLC, and The Company, along with their respective affiliates, officers, directors or representatives (the "RM Parties") hereby advise you that none of them has independently confirmed or verified any of the information contained herein. The RM Parties further make no representations as to the accuracy or completeness of any such information and undertake no obligation now or in the future to update or correct this presentation or any information contained herein.