The Real Estate Company is highly experienced, having owned and operated more than 2,500 multifamily units. Additionally, the company is a repeat partner of RealtyMogul, with the partnership's only full cycle transaction achieving a 31.8% IRR earlier this year.
The area enjoys a strong demographic profile, with a population of 213,027 and median household income of $112,109 within a one-mile radius (according to CoStar). Additionally, Fremont has averaged 7.2% annual rent growth and 96.9% occupancy since 2011 (according to Axiometrics).
With in-place rents 15% below the average rent in the Fremont submarket (according to Axiometrics), there is attractive renovation premium potential. The Real Estate Company has a $4 million renovation budget to capture this premium.
New Standard Equities
New Standard Equities "NSE" was formed in 2010 to capitalize on the dislocation in the post‐financial crisis real estate investment market. With significant experience in buying and operating large, institutional-quality multifamily properties throughout the Western U.S., the company is deploying private and institutional capital to purchase and operate apartment assets that offer steady, long-term cash flow to its investors. New Standard Equities’ full-service real estate platform is actively engaged in property management, asset management, construction management and project consultation. NSE has successfully operated multifamily assets in major markets throughout the Western U.S.
The track record below includes all acquisitions completed by New Standard Equities.
RealtyMogul has invested in five prior transactions with NSE, (1) Oak Harbor, (2) Village Fair, (3) Walnut Place, (4) Elysian Glen, and (5) Majestic Bay Townhomes. Of these, only Oak Harbor has gone full cycle, achieving a 31.8% IRR after being sold in Q1 2019.http://www.newstandardequities.com/
With over 23 years of real estate and financial consulting experience, Ring’s expertise includes providing strategic leadership for all aspects of the investment process, including sourcing new projects, business plan development, optimizing capital structures and actively overseeing each project’s execution phase from soup to nuts.
Previously, Ring was chief operating officer at Kennedy Wilson Multifamily Management Group, where he was responsible for the acquisition and operation of approximately 11,000 apartment units. At the time of his departure, roughly half of those acquisitions had been sold for a project level profit of over $100 million and had achieved a 1.80 multiple on equity, a 28.5 percent IRR, and an ROI of 55.4 percent. Ring also forged key partnerships with institutional investors, such as The Dubai Investment Group, General Electric, Mitsubishi Corporation, General Motors, AIG, RREEF and Wachovia Securities, among others.
In addition to his background as a real estate professional, Ring is an Emeritus member of the Writers Guild of America (WGA). He wrote for a variety of television comedies for NBC, UPN, Saban Entertainment, VH1 and HBO, where he earned a Cable ACE nomination for his work on “The Larry Sanders Show.”
A graduate of U.C. Berkeley in 1988, Ring went on to earn his MFA from New York University in 1992 and his MBA from UCLA Anderson in 2003. Ring served on the Executive Committee of the Anderson School’s Alumni Association and currently serves on The Board of Governors at Cedars Sinai Medical Center in Los Angeles. He is also a member of Mensa.
Cyrus Blourtchi brings 26 years of financial accounting and senior management experience to the company, including 19 years in the multifamily industry. Prior to joining New Standard Equities, Cyrus served as Director of Accounting/Controller with Kennedy Wilson Multifamily for seven years. Prior to that, Cyrus held accounting positions at Welk Real Estate and RCMI in Southern California.
Mr. Blourtchi is responsible for maintaining all aspects of the accounting records for New Standard Equities' assets and management assignments. He is highly trained in GAAP accounting procedures and professional protocols, including a strict adherence to Sarbanes-Oxley regulatory compliance standards for public investors. Cyrus also provided financial accounting services for organizations outside the real estate sector, including spending two years as a finance officer for the United Nations.
Julie Blank brings 16 years of professional multifamily management and investment consulting experience to her role as Chief Operating Officer. Julie is also a Certified Public Accountant and a CA Licensed Real Estate Agent. She is a reputable leader and strategic thinker with a proactive approach to business and solutions. This allows her to be very effective in developing and executing very detailed asset improvement plans with an eye toward maximizing NOI. Julie has also spearheaded a volume of disposition, acquisition, reposition, and development deals, resulting in profitable execution on the part of ownership. Julie considers herself a professional partner with investors, working through the spirit of harmony to add value to the bottom line.
|Property||Location||Purchase Date||# of
|Fountain at Curson||Hollywood, CA||Jun-11||20||$4,000,000|
|Crossings at the Bay||Long Beach, CA||Nov-11||235||$34,500,000|
|Villa Olivos||Canoga Park, CA||Aug-12||53||$4,950,000|
|Parke Pasadena||Pasadena, CA||Aug-13||22||$3,400,000|
|Asana at North Park||San Diego, CA||Sep-14||132||$18,470,000|
|Anchor Pointe||Oak Harbor, WA||Aug-15||107||$7,500,000|
|Rancho Azul||San Diego, CA||Aug-15||74||$14,000,000|
|SeaGlass Village||Bremerton, WA||Mar-16||182||$13,000,000|
|The Venue||Renton, WA||Jun-16||284||$41,500,000|
|Village Fair||Bremerton, WA||Dec-16||120||$13,250,000|
|Atlas||Port Orchard, WA||Feb-17||276||$38,150,000|
|Elevate at Towngate||Moreno Valley, CA||Nov-17||227||$27,850,000|
|Walnut Place||Pasadena, CA||Oct-17||30||$14,000,000|
|Elysian Glen||Concord, CA||Jul-18||120||$34,700,000|
|Alterra||San Jose, CA||Jul-18||143||$52,500,000|
|The Mark||Hayward, CA||Dec-18||150||$44,000,000|
|Majestic Bay Townhomes||Des Moines, WA||Aug-19||81||$18,000,000|
The bio and track record were provided by the Real Estate Company and have not been verified by RealtyMogul or NCPS
In this transaction, RealtyMogul investors are to invest in RealtyMogul 138, LLC ("The Company"), which is to subsequently invest in NSE Fremont Manager, LLC ("The Target"), a limited liability company that will indirectly own interest in the Property. New Standard Equities (the "Real Estate Company") has purchased the Property for $60.0 million ($352,941 per unit) and the total project cost is expected to be $66.5 million ($391,344 per unit).
RealtyMogul is to invest into the GP, rather than its usual LP investment. The Real Estate Company plans to implement a value-add and mark-to-market strategy in which it will capitalize $4.0MM ($23,529 per unit) for capital improvements. These improvements will include renovations to all unrenovated and partially renovated units, the addition of washer/dryers to all units that do not currently have them, and common area improvements. Exterior and common area improvements have been budgeted at $820,767 ($4,828 per unit), and are to include new signage, new package lockers, and landscaping. Interior improvements have been budgeted at $2,855,800 ($16,799 per unit), and are to include new countertops, new cabinets, new fixtures, stainless steel appliances, and washer/dryers. There is also a 3.0% contingency and 5.0% construction management fee. Post-reno rents are expected to be $434 above in-place rents. The business plan calls for a five year hold, at which point the Property is expected to be sold at a 5.0% cap rate for $76.7MM ($450,918 per unit).
Below is a summary of the capital improvements budget:
|Common Area/Exterior Improvements||Total||Per Unit|
|Building Improvements/Environmental Remediation||$72,917||$429|
|Amenity/Common Area Improvements||$287,000||$1,688|
|Total Common Area/Exterior Improvements||$820,767||$4,828|
|Interior Unit Improvements|
|Washer/Dryer Equipment & Installation2||$727,800||$4,281|
|Total Interior Improvements||$2,855,800||$16,799|
|Construction Management Fee (5%)||$190,476||$1,120|
These amounts are subject to change at the discretion of the Real Estate Company
1 Applicable to 152 units
2 Applicable to 76 units
Built in 1969, Casa Serena, f.k.a. Marbaya, (the "Property") is a 170-unit garden-style community. It is located in Fremont, CA, approximately 17 miles north of the San Jose CBD. The Property contains studio (four units, 470 square feet), one-bed-one-bath (110 units, 610 square feet), and two-bed-one-bath (56 units, 835 square feet) floorplans. The current owner infused a total of $6.6 MM since buying the Property in 2004; 99 units have undergone some level of renovation, with 18 units completely renovated. Improvements include vinyl plank flooring, quartz countertops, and stainless steel appliances. Within one mile of the Property is a gym, two drug stores, several parks and retail/dining options, and the Quarry Lakes Regional Recreation Area, which offers swimming, fishing, bicycling, and hiking activities. The assigned elementary, middle, and high school are ranked 7/10, 10/10, and 8/10 respectively by greatschools.com. According to Trulia, the area has the lowest crime relative to the rest of Alameda County.
|Unit Type||# of Units||% of Total||Unit Size (square feet)||In-place Rent||Post-reno Rent|
|1 Bed, 1 Bath||110||65%||610||$1,968||$2,364|
|2 Bed, 1 Bath||56||33%||835||$2,306||$2,715|
|Camden Village||Creekside Village||Heritage Village||Rexford||Total/Averages||Subject|
|Average Rental Rate||$2,655||$2,601||$2,679||$2,730||$2,666||$2,472|
|Distance||1.7 miles||1.1 miles||1.5 miles||2.0 miles||1.6 miles|
|The District||Sofi Union City||Mosaic Apartments||3955 Adams Ave.||Total/Averages||Subject|
|Date||Jul '19||Dec '18||Dec '17||Jan '19||Sep '19|
|Distance||2.2 miles||3.2 miles||3.0 miles||4.3 miles||3.2 miles|
Sale and lease comps were obtained from CoStar and Axiometrics
Per CoStar, strong fundamentals in the market have triggered a wave of new multifamily construction. New apartments completed so far in the development cycle have been absorbed at a healthy rate. Vacancy rates are still trending near the 10-year historical average, despite more than 2,000 units being delivered over the past 12 months. However, with mounting levels of multifamily development set to reach completion over the next several years, CoStar’s forecast model calls for a moderately rising market vacancy rate with supply growth outpacing absorption.
Per Axiometrics, effective rent increased 1.6% from $2,326 in 1Q19 to $2,363 in 2Q19, and annual effective rent growth was 2.4% in 2018. Annual effective rent growth is forecast to be 2.6% in 2019, and average 2.2% from 2020 to 2024. Annual effective rent growth has averaged 4.8% since 1Q05. The market's annual rent growth rate was above the national average of 2.8% since 1Q05. The market's occupancy rate increased from 96.1% in 1Q19 to 96.4% in 2Q19, and was up from 96.1% a year ago. The market's occupancy rate is expected to be 96.3% in 2019, and average 96.0% from 2020 to 2024. The market's occupancy rate has averaged 96.1% since 1Q05.
The submarket is home to the Tesla Motors factory, the last major automaker producing cars in California, which makes it one of the industrial centers of the market. In addition to convenient freeway access, the submarket is serviced by eight BART stations providing residents with a number of accessible commuting options. New development will continue for the next few years as the submarket trails only Downtown Oakland in units under construction in the metro. More than 40% of submarket residents do rent, and a steady need for apartments throughout the metro has led to relatively tight vacancies and steady rent growth in recent years.
Per Axiometrics, effective rent increased 1.7% from $2,405 in 1Q19 to $2,447 in 2Q19. The submarket's annual rent growth rate of 2.8% was above the market average of 2.4% in 2018. Annual effective rent growth is forecast to be 2.5% in 2019, and average 2.0% from 2020 to 2024. The annual effective rent growth has averaged 5.4% per year since 1Q05. The submarket's occupancy rate increased from 96.8% in 1Q19 to 97.0% in 2Q19, and was up from 96.6% a year ago. The submarket's occupancy rate was above the market average of 96.4% in 2Q19. For the forecast period, the submarket's occupancy rate is expected to be 96.7% in 2019 and average 96.5% from 2020 to 2024. The submarket's occupancy rate has averaged 96.7% since 1Q05. Additionally, Yardi forecasts average annual rent growth of 3.2% over the next 10 years.
According to Zillow, Redfin, and Trulia, the median home price in Fremont is above $1MM.
|Sources of Funds||Amount|
|Total Sources of Funds||$66,528,435|
|Uses of Funds||Amount|
|Real Estate Company Acquisition Fee||$450,000|
|Broker Dealer Fee*||$0|
|Closing, Legal Fees and Due Dilligence||$472,310|
|Rate Cap Fee||$33,300|
|Total Uses of Funds||$66,528,435|
*Rather than being capitalized to the transaction, the North Capital Broker Dealer Fee will be paid by NSE outside of closing
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
Please note that the Real Estate Company will be keeping $60,000 of working capital in the operating account of NSE Fremont Manager, LLC; this amount will be taken pro rata from all contributions to the GP Equity, including that of RealtyMogul 138, LLC
The expected terms of the debt financing are as follows:
- Estimated Proceeds: $49,000,000
- Initial Funding: $45,000,000
- Future Funding: $4,000,000
- Estimated Rate (Floating): One Month Libor plus 2.40%
- Term: 3 years
- Interest Only: 5 years
- Prepayment Penalty: 18 months yield maintenance
- Extension Options: Two (2) one-year extension options (0.0% fee for the first, 0.2% fee for the second)
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 a 10.0% IRR to the Members;
- 87.5% / 12.5% (87.5% to Members / 12.5% to Promote) of excess cash flow to the greater of a 15.0% IRR or 1.6x equity multiple;
- 68.75% / 31.25% (68.75% to Members / 31.25% 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 March 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||Year 5|
|Effective Gross Revenue||$4,343,295||$4,663,276||$4,938,601||$5,276,404||$5,584,474|
|Total Operating Expenses||$1,615,876||$1,661,373||$1,706,465||$1,754,391||$1,802,409|
|Net Operating Income||$2,727,419||$3,001,903||$3,232,136||$3,522,013||$3,782,064|
|Distributions to RealtyMogul 138, LLC Investors||($1,920,000)||$9,108||$73,552||$110,393||$133,101||$154,677||$3,021,951|
|Net Earnings to Investor
- Hypothetical $50,000 Investment
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||$450,000||Real Estate Company||Capitalized Equity Contribution||0.75% of the Property purchase price|
|Broker-Dealer Fee||$76,000||North Capital (1)||Real Estate Company Acquisition Fee||Greater of $50,000 or 4.0% of the equity raised by RealtyMogul 138, LLC|
|Construction Management Fee||5.0% of costs||Real Estate Company||Capitalized Equity Contribution|
|Servicing Startup Fee||$150,000||Third Party Investor||Capitalized Equity Contribution|
|Type of Fee||Amount of Fee||Received By||Paid From||Notes|
|Management and Administrative Fee||1.0% of amount invested in RealtyMogul 138, LLC||RM Manager, LLC||Distributable Cash||RM Manager, LLC is the Manager of RealtyMogul 138, LLC and a wholly-owned subsidiary of Realty Mogul, Co. (2)|
|Asset Management Fee||0.5% of Effective Gross Income||Real Estate Company||Distributable Cash|
|Property Management Fee||3.0% of Effective Gross Income||Real Estate Company||Distributable Cash|
|Servicing Fee||$41,280 per year||Third Party Investor||Distributable Cash||0.3% of capital contribution by Third Party Investor|
(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.
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.
Floating Interest Rate
The loan being used to acquire the Property is expected to have a floating rate based on the London Interbank Offered Rate (“LIBOR”). If LIBOR 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.
Apartment Complex - Competition
Competition in the Property’s local market area is significant and may affect the Property’s occupancy levels, rental rates and operating expenses. The Property will compete with other residential alternatives to attract tenants, including but not limited to other apartment units that are currently available for rent, new apartments that are built and condominiums/houses that are for rent or sale. If development of apartment complexes by other operators were to increase, due to increases in availability of funds for investment or other reasons, then competition with the Property could intensify. If the Property is not able to successfully compete with the competitive residential alternatives in the local or regional area this could adversely affect the ability of Target Entity to sell the Property, rent its units as necessary to maintain occupancy, and/or to increase or maintain unit rental rates.
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.
Capital Call Risk
The amount of capital that may be required by the Target from the Company is unknown, and although the Target does not require that the Company and its members contribute additional capital to it, it may from time to time request additional funds in the form of loans or sell additional equity. The Company does not intend to participate in a capital call if one is requested by the Target, and in such event the manager of the Target may accept additional contributions from other members of Target or from new members. In the event that the manager of Target advances any capital on behalf of the Company, it will be deemed to be a manager loan at an interest rate that cannot be determined at this time. Amounts that are contributed by existing or new members will be deemed to be additional capital contributions, in which case the Company's interest in Target will potentially suffer a proportionate amount of dilution.
The Property was 99% occupied as of September 2019, and the Target 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 Target 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 Target 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.
Interest-Only Loan Period
The loan being used to acquire the Property is expected to have an interest-only period during the first 5 years of the loan term, which means that there will be no reduction in the principal balance during that interest-only period.
California Rent Control Risk
On September 11, 2019, the California State Assembly approved AB-1482: Tenant Protection Act of 2019, which limits annual rental increases on existing leases to CPI plus 5% or 10% per annum, whichever is lower. However, the legislation does not eliminate vacancy decontrol. The Tenant Protection Act, or any new State or local rent control measures, could have a material adverse effect on the rents that the Sponsor Entity is able to collect, which would affect the Sponsor Entity's operations, which could materially and adversely affect the Company and its investors.
The loan being used to acquire the Property is expected to have an initial three (3) year term with two (2) one-year extensions. However, the Sponsor Entity anticipates the investment term to be approximately 5 years. The investment term length potentially creates capital markets risk in the event that market conditions deteriorate over the next three (3) years impacting the Sponsor’s ability to sell the Property or obtain replacement financing. There can be no assurance that the Property would qualify for a loan extension.
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.
(877) 781-7062Contact Investor Relations