At A Glance

(1) - The Series A Preferred Return Rate stated in the Sponsor Entity Limited Liability Company Agreement (“Sponsor Operating Agreement”) is equal to thirteen percent 13% per annum, cumulative and compounded monthly to the extent not paid on a Distribution Date. Upon receipt by the Company of a distribution from the Sponsor Entity, and after fees, the Company expects to distribute twelve percent 12% per annum to investors in the Company. In addition, pursuant to the Sponsor Operating Agreement, if any Changeover Event has occurred, the rate applicable in calculating the preferred return shall automatically increase an additional five percent (5%) per annum to be paid to the Company by the Sponsor Entity. All capitalized terms used in this footnote are defined in the Sponsor Operating Agreement which is attached as Exhibit A in the Issuer Document Package.

Investment Details

Helios Properties ("Sponsor") plans to stabilize 1600 Corporate Center ("the Property"), a 255,440 square foot, 12-story office building located in Rolling Meadows, IL. RealtyMogul.com investors are being provided the opportunity to invest in Realty Mogul 55 LLC ("Investor Entity" ,which is now a preferred equity/Series A member of 1600 Preferred, LLC).  Realty Mogul 55, LLC will be making a Preferred Equity investment into 1600 Preferred LLC ("Property Holding Entity"), which indirectly holds title to the Property. The Sponsor plans to hold the property for two (2) years before exiting the investment, but the hold period could be longer or shorter, with a maximum of five (5) years. Investors may expect to receive quarterly updates, with the first distribution expected in February 2016 and on a monthly basis thereafter.

Through 1600 Preferred LLC, the Sponsor will indirectly own the Property and make various decisions and actions including implementing an operational improvement plan to reduce expenses, the addition of a conference center and workout facility, leasing up the currently vacant space, and ultimately selling the Property. The Sponsor purchased the asset from C-III who previously purchased the asset out of foreclosure in 2013 from a receiver. 

The Sponsor specializes in acquiring and improving underperforming office and commercial assets. With over 700,000 SF of assets under management in the Chicago area, the Sponsor has extensive experience in the market and has demonstrated the ability to manage similar assets, often times reducing historical expenses by 20% to 30%. The Sponsor has underwritten a plan to reduce the over-market operating expenses down to market through the replacement of cancellable union labor in exchange for cheaper non-union labor as well as the use of his own in-house management company.  For example, the Sponsor has new contracts for engineering and janitorial that will save approximately 25% and 33%, respectively, over the in-place operator. Additionally, the Sponsor plans to reduce security from 24/7 (hours per day/days per week) down to the market standard of 16/6 (hours per day/days per week). The Sponsor’s underwritten budget is in line with market comparables and the appraiser’s expenses. ​

In addition to operational improvements, the Sponsor intends to add a conference center and workout facility to the Property, which should assist them in maintaining current occupancy via tenant retention, as well as assist in the lease-up of currently vacant space. 

Investment Highlights

• Diversified Tenant Roster With Credit Tenancy: Tenants at the Property include investment grade and national tenants including Bank of America (rated A‐ by S&P and A by Fitch), Alliant Credit Union, Fleetmatics USA LLC, HQ Global Workplaces (Regus) and the General Services Administration (US Government AA+ by S&P).
• Experienced Local Sponsorship With Proven Track Record
• Stabilized Occupancy
• Well Located: The Property is located in Rolling Meadows, adjacent to the city of Schaumburg, which is the largest center of economic development in the State of Illinois outside of the City of Chicago
• Minimal Rollover During the Loan Term: Leases representing 5.8% and 13.24% of the current rentable space expires during the initial and extended loan terms. Additionally, another 8.6% (23,140 square feet) of the rentable square footage could become available if Alliant exercises their termination option effective October 31, 2017. 
• Significant Protective Equity Junior to the Preferred Equity: The Project has $1,500,000 in preferred equity invested in this transaction which is senior in distribution rights to the common equity of $4,100,000. 
• "Interest" Reserve set up for Preferred Equity: Realty Mogul 55, LLC has retained $62,300 as an "interest" reserve for the four months (January-April 2016) during which the projected property level cash flows are not expected to cover the distributions to the preferred equity holder(s).  
• Preferred Equity Has 12 Months of Payment Maintenance:  Payment maintenance attempts to give investors the same rate of return or interest that they would have received if the Borrower did not prepay the loan early. Payment maintenance is based on the calculation of the extra funds a Borrower would have to pay to make the yield the same if the borrower made all payments through the projected maturity date.
• Well Reserved Senior Loan:  Of the total loan proceeds of $16,875,000, the senior lender has required a reserve of $5,135,000 for leasing costs, a $350,000 operations reserve, and a $150,000 interest reserve. 

Risks and Risk Mitigation*

• 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.
• Potential Conflict of Interest Risk Regarding Debt Financing: An affiliate of Realty Mogul 55, LLC (“Lender Affiliate”) has originated the debt financing (“Loan”) for the acquisition of the Property.  The Lender Affiliate earned certain fees including a fee at closing and may be entitled to fees upon extensions or other events. The Lender Affiliate sold the Loan at closing to an unaffiliated third party, at which point the Lender Affiliate had no ownership of the Loan or decision making authority with regard to the Loan. 
• Illiquid Investment - Transfer Restrictions The transferability of membership interests in the Investor Entity 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. 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.
• Interest-Only Loan: The loan being used to acquire the Property is interest-only for the first two years of operation and during the first extension year, which means that there will be no reduction in the principal balance during that period. The second two extensions are subject to amortization on a 30-year schedule. 
• "Interest" Reserve set up for Preferred Equity: The projected cash flow from the Property does not appear to be sufficient to pay the expected distribution to the preferred equity holder for a number of months after acquisition. The Investor Equity has retained $62,300 as a payment reserve for the four months (January-April 2016) during which the projected property level cash flows are not expected to cover the distributions to the preferred equity holder(s).   
• Senior Loan Cash Trap/Cash Management Provision: The Senior Loan has a provision ("Cash Management Provision") that could prevent cash flow from being distributed to the Borrower in the event that certain events occur ("Trigger Events") including, but not limited to the debt yield for the Lender falling below a certain threshold and certain key tenants failing to pay rent or an event of default under the Loan. If this were to occur it would likely prevent or delay the ability of the Sponsor to make distributions to the preferred equity holder (Series A Holder) as contemplated by the 1600 Preferred, LLC Operating Agreement, despite the fact the property may be generating sufficient cash flow to make such distributions to the preferred equity holder if it were not for the Cash Management Provision. In the event of a Trigger Event, all excess cash flow after reserves and senior loan debt service would be held in the deposit account controlled by the lender or servicer and would be released only once the property met the conditions for release. This is a brief summary of the Cash Management Provision and does not include all the relevant information; the Loan Agreement, the Cash Management Agreement and the Lockbox Account Agreement are available upon request and potential Investors should review these agreements for additional information on this risk prior to making an investment decision. 
• Debt With a Five-Year Term: The senior loan on the Property can be extended such that the total term could be up to five (5) years, subject to pre-negotiated conditions to extend including, but not limited to (1) meeting a minimum debt yield threshold on the senior loan; (2) renewal of an interest rate cap; and (3) payment of an extension fee. The term length potentially creates capital markets risk in the event that market conditions deteriorate over the next five years impacting the Sponsor’s ability to sell the Property or obtain replacement financing.  Although there can be no assurance that the property would qualify for a loan extension under such circumstances, the Sponsor believes that it is likely that the property would qualify for such an extension based on the projected stabilized net operating income of the property, with no reliance of any future leasing of vacant space. 
• Lease-Up of Vacant Space: There is a risk that the leasing team will be unable to lease up the currently vacant units at the Property. This would have an adverse impact on future cash flow and projected value for the Property to the extent that such vacancies were to remain higher than projected.  This risk is partially mitigated by the nominal rollover of space during the hold period and the experience of the Sponsor in managing properties of a similar type.
• Local Market Conditions May Impact Rental Rates: Local conditions may significantly affect occupancy, rental rates, and the operating performance of a property. Such risks include (but are not limited to): (i) plant closings, industry slowdowns and other facts that affect the local economy; (ii) an oversupply of, or a reduced demand for, similar properties; (iii) a decline in household formation or employment or lack of employment growth, (iv) laws that could inhibit the ability to raise rents or to sell a property; and (v) other economic conditions that might cause an increase in operating expenses, such as increases in property taxes, utilities, compensation of on-site personnel and routine maintenance.
• Preferred Equity is Not Secured:  Preferred Equity is not secured by any collateral. In the event that a sponsor fails to make any payments to the Preferred Equity, the Investment Entity has limited remedies to require or encourage payment.  Preferred Equity holders are generally not entitled to pursue a collection action against the Sponsor as a lender may be entitled to do.  Preferred equity investors may generally only look to the LLC in which it has invested for payment.
• Preferred Equity is Subordinate to Existing and Future Debt:   Preferred equity will generally constitute equity interests in the LLC in which it has invested, not indebtedness. Thus, with respect to assets available to satisfy claims, including in its liquidation, preferred equity is subordinate to all indebtedness and other non-equity claims. Further, preferred equity may potentially rank junior to other classes of equity of in the LLC in which it has invested.   Obligations to existing and future indebtedness, and potentially other classes of equity, may limit payment of preferred return on preferred equity. Preferred equity returns are payable solely pursuant to the terms of the controlling agreements, including the 1600 Preferred, LLC operating agreement.  Restrictions on the LLC and/or Sponsor’s business, operations, and its ability to acquire indebtedness are often limited.
• Redemption Risks:   Preferred equity typically will provide for periodic preferred return payments (often at the discretion of the Sponsor) with a large redemption payment due on the mandatory redemption date. Sponsors may be unable or not obligated to make principal or redemption payments out of their own funds and therefore are generally obligated to refinance or sell their property to redeem preferred equity. Further, fluctuations in real estate value, interest rates and the unavailability of mortgage funds may adversely affect the ability of Sponsors to refinance their loans at maturity or successfully sell the property for enough money to redeem the corresponding preferred equity.
• Management Risk: Investors will be relying solely on the Sponsor for the execution of its business plan. The Sponsor may in turn rely on other key personnel with relevant experience and knowledge, including contractors and consultants. Members of the Property Holding Entity (including the Investor Entity) will agree to indemnify the manager in certain circumstances, which may result in a financial burden if any litigation results from the execution of the business plan.
• Uncertain Exit Timing: Although it is anticipated that the Property will be sold at the end of the maximum five (5) year loan term, the Investor Entity will not have full control over the timing of the sale of the Property, and therefore we cannot offer assurances of when the exit will occur.
• Lease Expirations:  Leases expirations and downsize options for space representing approximately 5.8% of the net rentable area for the Property will occur on or before December 2016.  Leases expirations and downsize options for space representing approximately 21.8% of the net rentable area for the Property will occur within the five (5) year period after the date the 1600 Preferred, LLC Operating Agreement was executed.  Although reserves have been required by the senior lender in case some or all of the tenants do not continue to occupy their existing space, reductions by current tenants could negatively impact the cash flow and value of the Property.
• Lender Approval Required for Investor Entity to Take Control of 1600 Preferred, LLC:   In the 1600 Preferred, LLC, the Investor Entity is entitled to take over as the manager of such LLC if certain events occur.  However, prior to Investor Entity taking over as the manager of such LLC the Investor Entity must obtain approval from the Senior Lender or it could trigger an event of default under the terms of the senior loan.  So, it is possible that the Investor Entity will not be able to effectively exercise its right to take over as manager of such LLC in a timely manner or at all.
• Sponsor Principal Credit History: One of the principals of the Sponsor, within the last three years, entered into a loan workout with two lenders on his personal residence, and while foreclosure did not occur, each lender did initial a foreclosure action on the property. Both actions were dismissed when the loan workout was completed (including a substantial paydown of the loan principal balance)  and the reinstated loan has been paid as agreed. RealtyMogul.com's due diligence included lender reference checks with lenders the Principal has borrowed from over the last several years with RealtyMogul.com receiving what it believes was favorable lender responses on the Sponsor’s payment history as well as his management performance.
• Guarantor Credit History: In addition to the above described Sponsor Principal Credit History, one of the guarantors of the Senior Loan had four single-family residences (both primary and held for investment – acquired between 2005 and 2007) which were subject to defaults under the senior loans. On two of the defaults, the guarantor was able to effectuate short-sale settlements with the senior lenders, and in the other two, the senior lenders successfully prosecuted a foreclosure against those properties. In its due diligence, RealtyMogul.com ran its typical litigation searches and found no material issues other what than has been disclosed above. 
• General Economic and Market Risks:   While the Sponsor has conducted significant research to justify the intended rental rates and sales price relative to comparable properties in the market, its best efforts to forecast economic conditions cannot state for certain whether or not investor sentiment and the capital markets will be favorable to the property at the intended disposition date. The real estate market is affected by many factors, such as general economic conditions, the availability of financing, interest rates and other factors, including supply and demand for real estate investments, all of which are beyond the control of the Sponsor​​.

*The above is not intended to be a full discussion of all the risks of this investment. Please see the Risk Factors in the Investor Document Package for a discussion of additional risks.