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Funded
Multifamily
Sheridan-Edgewater Apartments
Chicago, IL
INVESTMENT STRATEGY
Value-Add
INVESTMENT TYPE
Equity
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100% funded
Offered By Spirit Bascom Ventures
16.5%* TARGET IRR 16.5%-21.3%
1.8%* TARGET AVG CASH ON CASH
1.75* TARGET EQUITY MULTIPLE
Estimated Hold Period 3 to 5 years
Estimated First Distribution 3/2018
*Please carefully review the Disclaimers section below, including regarding Sponsor’s assumptions and target returns
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Explore this Project
Overview
Property At A Glance
Year Built 1920
Number of Units 223 multi-family units / 8,850 square feet retail (post-reno)
Current Apartment Occupancy 97%
Apartment Ceiling Heights 9 ft.
Future Amenity Offerings Resident Lounge, Rooftop Deck, Parking Garage, Common Area Laundry Room, Fitness Center, Doorman
Acquisition Price

$21,600,000

Investment Highlights
Urban infill Chicago, one block from Lake Michigan and three blocks from the Berwyn "L" train station
Two properties in the immediate area have recently completed similar business plans and are currently 97% and 98% leased
Post-renovation cost basis is estimated to be 32% below replacement cost
Experienced Sponsor that has owned over 71,000 units
Management
Cumulative Distributions

Spirit Bascom Ventures

Spirit Bascom Ventures is a co-sponsorship joint venture between The Bascom Group and Spirit Investment Partners that invests in opportunistic and value-add multifamily throughout the eastern half of the United States. 

Spirit Investment Partners (www.spiritinvestors.com) is a Connecticut-based real estate investment and development company, owned and operated by principals David Nachman, Scott Zwilling, and Ian Hafner. The company owns and operates a portfolio of multifamily assets ranging from New England to Florida, the Midwest and California. Spirit has closed over $350 million in transactions since inception, with over $40 million in renovations currently in process.

The Bascom Group (www.bascomgroup.com) is one of the most active and seasoned buyers and operators of apartment communities in the United States.  Formed in 1996 by Jerome Fink, Derek Chen, and David Kim, The Bascom Group is a private equity firm that specializes in multifamily, commercial, non-performing loans, and real estate related investments and operating companies.  The company has owned over 196 multifamily properties and 52,000 units (as of November 2015).  In 2016, Bascom was awarded the prestigious Ernst & Young Entrepreneur Of The Year award.

  • David A. Nachman
    Principal, Spirit Investment Partners
  • Scott D. Zwilling
    Principal, Spirit Investment Partners
  • Ian M. Hafner
    Principal, Spirit Investment Partners
  • Jerome A. Fink
    Co-Founder and Managing Partner, The Bascom Group
  • David S. Kim
    Co-Managing Partner, The Bascom Group
  • Derek Ming-Dar Chen
    Co-Founder and Chairman, The Bascom Group
David A. Nachman
Principal, Spirit Investment Partners

Prior to co-founding Spirit Investment Partners in 2009, Mr. Nachman was a founding partner and principal of AMS Real Estate Partners (‘AMSREP’), a New York based real estate investment fund formed to invest in both private and publicly traded real estate assets throughout the capital structure, across all asset types and primary US markets. Mr. Nachman was jointly responsible for all of AMS Real Estate Partners I, LP capital raising, investment decisions, and overall Fund management. From 2002 to 2007, Mr. Nachman was a Vice President of Hall Financial Group, a private investment company based in Dallas where he helped launch the company’s Structured Finance Group and had direct responsibility for originating, underwriting, and structuring of value added equity and debt real estate investments across all asset types and multiple geographic regions. In addition, Mr. Nachman maintained asset management responsibility for a $200 million structured loan portfolio as well as the Company’s approximately $1.0 billion real estate investment portfolio, including over 7,000 multifamily units. Mr. Nachman received a B.S. from Cornell University.

Scott D. Zwilling
Principal, Spirit Investment Partners

Prior to co-founding Spirit Investment Partners in 2009, Mr. Zwilling was previously the Director of Northeast Acquisitions for JPI, a large national multi-family developer, where he covered the territory from New York to Maine. Prior to JPI, he held a similar role as an Acquisitions Manager with Crescent Heights, one of the nation's premier condominium developers. Over the past ten years, Mr. Zwilling has been responsible for the acquisition, development and disposition of over $1.0 billion of property located throughout the Northeast. In addition, he currently serves as a Professor of Real Estate Finance at Columbia University. Prior to JPI and Crescent Heights, Mr. Zwilling was a real estate investment banker at Wells Hill Partners, Ltd., where he participated in numerous deals, including various residential, hotel and office assets. Other experiences include working as a consultant in the real estate groups of Arthur Andersen and Ernst and Young. Mr. Zwilling is a Certified Public Accountant and holds a Bachelor of Science in Business Administration from The Ohio State University, Columbus, OH and a Masters in Real Estate Development from Columbia University, New York, NY.

Ian M. Hafner
Principal, Spirit Investment Partners

Prior to joining Spirit Investment Partners in 2011, Mr. Hafner co-founded MHF Real Estate Group a full service real estate investment firm. Prior to forming MHF, Mr. Hafner served as Director of Development and Investments at Equity One, Inc. where he managed investment opportunities throughout the United States. Equity One is a $3.7 billion publicly traded REIT that principally owns, manages, acquires and develops neighborhood and community shopping centers. Mr. Hafner’s thirteen years of experience in the real estate and finance industries includes serving as Acquisitions Director at Westrust, Acquisition Associate for Cornerstone Real Estate Funds, Inc., and President of his own residential development company, Hafner Realty Group, Inc. Mr. Hafner started his career working in fixed income sales and trading for Lehman Brothers, Inc. in New York City where he transacted in Government, Agency, Interest Rate Derivative and Commercial Mortgage Back Securities, successfully underwriting over $1.25 billion in new issues Agency Securities. Mr. Hafner holds a B.S. in City and Regional Planning from Cornell University’s College of Architecture, Art & Planning. Mr. Hafner is a Licensed Real Estate Broker in the State of California, License #01858890, and a Member of California Receivers Forum.

Jerome A. Fink
Co-Founder and Managing Partner, The Bascom Group

Mr. Fink is a co-founder & Managing Partner of The Bascom Group, LLC. Bascom has completed over $8.0 billion in multi-family and commercial value-added transactions since 1996 including more than 220 multifamily properties and 60,000 units. Bascom’s subsidiaries and joint ventures include the Southern California Industrial Fund, Rushmore Properties, Bascom Portfolio Advisors, Shubin Nadal Associates, Spirit Investors, REDA Bascom Ventures, MHF RM Holdings, and the Realm Group. Bascom’s subsidiaries also include Premier Business Centers, the largest privately held executive suite company in the US.

Prior to founding Bascom, Mr. Fink acted as Senior Acquisitions and Sales Manager from 1991 to 1995 for Pacific Mutual Life Insurance Company. His responsibilities included market assessment, property identification and negotiation, and the acquisition and disposition of real estate investments. Mr. Fink holds a Bachelor of Science in Electrical and Computer Engineering and a Master of Business Administration in Real Estate and Finance from the University of Wisconsin-Madison. He is a member of the Institute of Real Estate Managements (IREM) and Turnaround Management Association (TMA). Mr. Fink is a licensed real estate broker in the state of California, a Certified Commercial Investment Member (CCIM), a Certified Property Manager (CPM), a Certified Mergers & Acquisitions Advisor (CM&AA), and a Certified Turnaround Professional (CTP).

David S. Kim
Co-Managing Partner, The Bascom Group

Mr. Kim oversees the development, portfolio management and overall operations for The Bascom Group. His responsibilities include supervising Bascom’s portfolio team in key revenue growth initiatives and expense programs, as well as lender and equity relationships, new ventures, market expansion, and business development.  Prior to founding The Bascom Group, Mr. Kim served as a Senior Analyst and Development Associate, from 1989 to 1995, for the Disney Development Company, a wholly owned subsidiary of The Walt Disney Company, where he was responsible for business development and analysis of more than $400 million in retail, office, entertainment, and residential projects.

Derek Ming-Dar Chen
Co-Founder and Chairman, The Bascom Group

Mr. Chen oversees corporate finance and strategic development. Mr. Chen is the founder and Chairman of Chenco Holding Company, a firm specializing in real estate and venture capital investment as well as the founder of various subsidiaries investing in and managing assets in Greater China.  Mr. Chen serves as the President of The International Leadership Foundation, as a member of the Finance Executive Advisory Board of the College of Business, University of Nevada Las Vegas, as a trustee of the Center for Real Estate at University of Wisconsin, Madison, and as a board member of National Asian Pacific Center on Aging. Mr. Chen studied Chemical Engineering at the National Taiwan University, holds a Bachelor of Science in Business Management, from Eastern Michigan University, and holds a Master of Business Administration degree in Real Estate and a Master of Science degree in Finance from the University of Wisconsin‐Madison.

Track Record

Spirit Investment Partners Track Record

Currently Owned Assets
Asset Name Location Purchase Date Year Built # of Units Purchase Price Total Capitalization Price/Unit CapEx Budget
Arlington Village Fairborn, OH 11-Aug 1965 164 $6,000,000 $6,800,000 $36,585 $462,000
Sheffield SONO South Norwalk, CT 12-Dec 2007 138 $43,250,000 $50,136,333 $313,406 $4,290,908
Arlington Flats Fairborn, OH 13-May 1967 150 $1,100,000 $4,375,000 $7,333 $2,347,377
The Henry Pomona, NY 13-Dec 2001 168 $33,050,000 $38,931,033 $196,726 $3,300,000
946-954 Flushing Avenue Brooklyn, NY 14-Jun 1931 n/a $6,000,000 $7,000,000    
The Westcott Tallahassee, FL 14-Jul 20,002,005 444 $36,979,000 $44,400,912 $83,286 $5,094,600
The Adair Sandy Springs, GA 14-Oct 2001 232 $30,000,000 $34,435,333 $129,310 $3,233,000
285 W 12th Street New York, NY 15-Jun 1841 11 $9,350,000 $11,100,905 $850,000 $634,600
Sheridan Edgewater Chicago, NY 15-Nov 1920 223 $21,600,000 $38,978,613 $96,861 $14,015,000
Bellevue West Nashville, TN 16-Feb 1986 560 $63,250,000 $71,695,085 $112,946 $5,118,896
Highlands at the Lake Nashville, TN 16-Feb 1986 278 $30,250,000 $33,452,371 $108,813 $1,812,776
Total/Average       2,368 $280,829,000 $341,305,585 $118,593 $40,309,157
                 
Sold Assets
Asset Name Location Purchase Date Year Built # of Units Purchase Price Total Capitalization Sale Date Sale Price
2146-48 Second Avenue New York, NY Aug-06 1900 35 $5,900,000 $6,219,500 May-12 $8,756,000
Winchester Square Murrieta, CA Oct-12 1987 7 (retail) $1,400,000 $1,637,129 Dec-13 $2,416,366
1818 Clay Avenue Bronx, NY May-10 1937 25 $1,550,000 $1,850,000 Jun-14 $2,400,000
Total/Average     1987 30 $8,850,000 $9,706,629   $13,572,366
                 
Portfolio Total       2,398 289,679,000 351,012,214    

The Bascom Group Track Record

Sale Yr. # of Units Avg. Yrs. Held Total Cost Basis
1999 58 3.60 $456,189
2000 504 3.15 $10,091,732
2001 1,049 3.05 $15,654,528
2002 840 3.80 $14,649,840
2003 2,508 2.77 $48,261,908
2004 1,503 3.16 $28,416,433
2005 1,097 2.84 $36,340,001
2006 1,087 3.35 $30,774,104
2007 7,292 2.48 $121,284,998
2008 1,299 3.54 $29,611,326
2009 3,734 3.33 $39,477,443
2010 4,242 4.85 $74,516,529
2011 5,550 4.65 $105,514,167
2012 7,482 6.07 $151,110,359
2013 4,902 6.43 $107,294,343
2014 4,517 7.53 $80,420,118
2015 4,585 7.15 $69,256,592
Total/Avg. 52,249 4.22 $963,130,610

 

*Sponsor information and track record were provided by the Sponsor and have not been independently verified by RealtyMogul.com

Business Plan

In this transaction, RealtyMogul.com investors will invest in Realty Mogul 56, LLC. Realty Mogul 56, LLC will subsequently invest in North Sheridan Property Investor, LLC (the "Company"), the entity that holds title to the Property. The Property was purchased in November 2015 for a price of $21.6 million ($96,861 per unit), negotiated from an original asking price of $25.0 million ($122,108 per unit). The Sponsor is syndicating $1.3 million of their initial investment through RealtyMogul.com, leaving them with approximately $1.0 million (about 16% of total equity) in the deal.

The Sponsor is planning a $14.0 million ($62,845 per unit) rehabilitation project that they believe should bring the Property in line with other renovated properties in the market that are currently achieving higher rents.  The objective is to convert the Property to a Class A building by creating a wholly new and modern living environment while retaining the building’s historic design. Common area upgrades will include a remodeled lobby, leasing office, fitness center, resident lounge, new signage, and potentially a rooftop common area borrowing design and space planning inspiration from some of the hippest boutique hotels in Chicago and New York.  To facilitate the transformation, the Sponsor has commissioned Julie Purpura, a Chicago-based designer who has developed an extensive background in numerous high-profile and award winning hospitality projects.  Julie acted as Lead Designer in the historic renovation of the Fairmont Hotel in Vancouver, B.C., and was a designer of Brush Creek Ranch, ranked #1 Resort in the U.S. and #2 Hotel & Resort in the World by Conde Nast in 2015.  Julie has held senior positions at Studio K and EDG Interior Architecture + Design in Chicago and was a 2014 "Boutique 18" award-winner, Boutique Design's yearly roster of on-the-rise designers of hospitality interiors.  A sample of Julie’s work can be seen on her website at www.juliepurpura.com.

As part of the renovations, all deferred maintenance will be cured, including façade repair, windows, elevators, electrical, life safety and plumbing.  A portion of the ground floor will be converted into indoor garage space to allow for up to 20 parking spaces which are projected to be leased for approximately $200/month, in line with prices being charged by other properties in the market. On-site parking is a luxury in the submarket. Of the two closest comps, only Somerset Apartments offers parking with a total of 18 spaces currently leasing at $200/month.  The remaining 8,850 square feet of retail space will be leased to a service oriented retailer that will cater well to the new resident profile.

In addition to the exterior and common area improvements, the Sponsor has budgeted $19,800 per unit for interior unit renovations to update the units to a contemporary urban aesthetic that will include new stone countertops, stainless-steel appliances, original refinished hardwood flooring, modern lighting and fixtures, two-tone paint, modern cabinetry, and new bathroom vanity upgrades. Unit renovations will occur as the units vacate and are expected to be completed within 30 months (seven units per month).  The Sponsor has budgeted a $1.2 million interest reserve to pay debt service on the senior loan during the renovation period. After the renovations are complete, the Sponsor plans to raise rents by 45-82% (depending on the unit type) to match rents of comparable properties in the market. 

Unit Mix
Unit Type # of Units % of Total Average Size Avg. Effective Rent Rent / SF Proforma Rent Proforma Rent/ SF % Lift
Studio 42 19% 300 $657 $2.19 $950.00 $3.17 45%
Studio 67 30% 456 $750 $1.64 $1,110.00 $2.41 48%
1 BD / 1 BA 109 49% 675 $892 $1.32 $1,625.00 $2.41 82%
2 BD / 1 BA 4 2% 900 $1,040 $1.16 $1,850.00 $2.06 78%
2 BD / 2 BA 1 0% 1,350 $1,180 $0.87 $1,995.00 $1.48 69%
Total / Avg 223 100% 546 $809 $1.58 $1,348.83 $2.54 65%

Two rent comparable properties within three blocks of the subject Property have recently completed similar business plans. Uptown Regency, which was renovated in 2011 with an estimated budget of $8,000 - 10,000 per unit for interior finishes (compared to $19,800 per unit at the subject Property) is 97% occupied and is achieving rents that are 67% higher than rents that were in place at the time of acquisition​.  Somerset Place, which began post-renovation leasing in October 2014, is currently 98% leased at rents that are over 75% higher than current rents at the subject Property.  The third comparable, The Belmont by Reside, is located 2.9 miles to the south and is a simlar removated mid-rise brick construction.  The property has similar finishes and amenities as proposed for the subject including ground floor parking but commands a locational rent premium being closer to Lincoln Park and downtown Chicago.

Property

RealtyMogul.com, along with Spirit Bascom Ventures, LLC (the "Sponsor"), a joint venture between The Bascom Group and Spirit Investment Partners, is providing the opportunity to invest in the ownership and repositioning of a 223-unit Class B multi-family property in Chicago, IL (the "Property").  

The primary objective of this investment is to implement an extensive renovation program, reposition, stabilize, and sell the property as quickly as construction and the market permits, estimated to be in approximately three to five years.

The Edgewater neighborhood and surrounding areas, such as Andersonville and Uptown, are in a period of transition attracting a young and active millennial demographic who seek the area's numerous walkable amenities.  According to the Sponsor, the Property has been mismanaged by a non-institutional ownership group that was unwilling to invest the capital necessary to remain competitive within the changing market. Due to its condition, the Property has lagged the performance of institutional quality assets as the submarket is demanding more high-end, Class A rental housing.  The Sponsor is planning a $14 million ($62,845/unit) renovation to improve the property to Class A finishes and amenities to compete with comparable assets within the market.

Property Details

Sheridan-Edgewater Apartments is a 223-unit mid-rise apartment building with approximately 25,000 square feet of ground-floor retail space.  Currently 97% occupied, the nine foot ceiling apartments are a mix of studio (49%), one-bedroom (49%), and two-bedroom (2%) units. Approximately 40% of the units have unobstructed and protected views of Lake Michigan. The first floor commercial space has been strategically vacated by the previous owners so that new ownership can re-purpose the space for new specialty commercial tenancy, parking, or additional amenities.

Originally built as an Art Deco luxury hotel in the 1920s, the eight-story building features classic design elements such as detailed exterior limestone ornamentation, terracotta tiled flooring, arched and Moorish style doorways with Solomonic columns, thick crown moldings and coffered ceilings. Although the units and current amenities are dated, some capital improvements have been performed at the property over the last six years including roof replacement, eighth floor window replacement, tuck-pointing and partial reconstruction of the façade.

Current community amenities include a common area laundry room, a fitness center, and a doorman.  Unit finishes are typical of a Class B/B- property including linoleum countertops, oak cabinetry, and lower cost appliances and hardware. More marketable features of the current units are nine foot ceilings, real hardwood floors, and good natural light through large windows.

Comparables

Rent Comparables
      Studio 1 x 1 2 x 1 2 x 2 
Property Dist. From Subj. Built Rents PSF Rents PSF Rents PSF Rents PSF
Renovated                    
Somerset Place 0.22 1920 $1,350 $2.74 $2,100 $2.51 - - $2,170 $2.20
Uptown Regency 0.14 1924 - - $1,275 $2.04 $1,573 $2.17 - -
Pensacola Place 1.08 1982 $1,288 $2.30 $1,560 $1.86 $1,870 $1.82 - -
The Belmont by Reside 2.90 1967 $1,489 $3.88 $1,809 $2.47 $2,230 $2.09 $2,810 $2.27
Average   1958 $1,355 $2.81 $1,650 $2.24 $1,916 $1.90 $2,635 $2.25
Subject - Post Reno   1920 $1,042 $2.70 $1,625 $2.41 $1,850 $2.06 $1,995 $1.48
Variance     -23% -4% -2% 7% -3% 8% -24% -34%
                     
Unrenovated                    
The Wyndham 0.10 1927 $987 $2.02 $1,087 $1.58 - - - -
Sheridan Towers 0.60 1962 $998 $1.65 $1,295 $1.62 - - $1,575 $1.58
The Sovereign 1.30 1920 $755 $1.51 $1,050 $1.53 $1,205 $1.26 - -
Average   1936 $906 $1.69 $1,094 $1.56 $1,205 $1.26 $1,575 $1.58
Subject - Un-reno   1920 $714 $1.85 $892 $1.32 $1,040 $1.16 $1,180 $0.87
Variance     -21% 10% -18% -15% -14% -8% -25% -45%

 

Sales Comparables
Property Dist. From Subj. Built Renovated Stories Units Sale Date Sale Price Price / Unit
Elaine Place 2.31 1924 2012 3 174 Jun-15 $50,500,000 $290,230
Pensacola Place 1.08 1981 2008 18 264 Apr-15 $65,750,000 $249,053
5731-5733 N Winthrop 0.68 1887 1906 4 35 Apr-15 $10,500,000 $300,000
4641 N Paulina 1.05 1930 - 3 48 Feb-15 $5,800,000 $120,833
Atrium Village 5.17 1978 - 9 309 Jun-14 $50,000,000 $161,812
Andersonville Apts 0.61 1916 - 3 30 Mar-14 $5,225,000 $174,167
Park Lincoln 3.48 1969 2000 15 139 Jan-14 $15,500,100 $111,512
4739 N Hermitage Ave 1.05 1932 2013 4 38 Jan-14 $5,375,000 $141,447
Total / Average   1940     130   $26,081,263 $201,205
Subject   1920   8 223 Nov-15 $21,600,000 $96,861
Subject Total Cost Basis             $39,030,613 $175,025
Location

The Property is located one block from Lake Shore Drive and Foster Beach on Lake Michigan, three blocks from the Berwyn “L” station on the Red Line, and across the street from a CTA bus stop and a new Mariano’s Fresh Market, a high-end specialty grocery store. Transit time to Chicago’s CBD is approximately 30 minutes by train and 15 minutes by car. The property is within walking distance to two major entertaining corridors – Argyle Street and Clark Street. Argyle Street, located in the Uptown neighborhood, is a regional destination for Asian food and shopping. Clark Street, a bustling restaurant and bar district, is filled with popular shops, cafes, restaurants and pubs.

Multiple universities are within a short commute of the Property. Loyola University Chicago, 1.5 miles north of the Property, is the largest Jesuit University in the US, with a total current enrollment of 15,902 and over 150,000 alumni. Northeastern Illinois University, a public college with 10,000 students, is 3.5 miles to the west. DePaul University, 3.8 miles away in Lincoln Park, has 24,000 students, and Northwestern University, a 30-minute ride via the "L", has 19,000 students among its Evanston and Downtown Chicago campuses.

Nearby major employers, aside from the universities, include Chicago Lakeshore Hospital, Weiss Memorial Hospital, and Downtown Chicago’s eight Fortune 500 companies.

Demographic Information

A driver of the Sponsor's decision to acquire the property was the growth of the city's millennial demographic. According to a Redfin survey, Chicago was ranked third in the U.S. for cities with the highest percentage of millennials, containing seven of the country’s 14 most densely millennial-populated zip codes. In 2014, Forbes named Chicago as the fourth best city in the U.S. for millennials, behind New York City, Austin, and Washington, D.C.

Demographics 1 Mile 3 Miles 5 Miles
Population (2015) 70,213 400,672 803,519
Growth (2010-2015) 0.29% 0.30% 0.36%
Growth (2015-2020) 0.34% 0.33% 0.36%
Median Age (2015) 38.7 34.3 34.1
Median HH Income (2015)  $38,665 $52,624 $55,224

Demographic information above was obtained from Esri Business Analyst

Market Overview

Chicago is the third largest city in the U.S. by population with approximately 2,722,400 residents per the U.S. Census Bureau. In 2015, the "Inc. 5000" list ranked Chicago second in the U.S. for fastest-growing small business. According to the Bureau of Labor Statistics, total nonfarm employment in the greater Chicago-Naperville-Elgin, IL-IN-WI Metropolitan Statistical Area stood at 4,613,800 in November 2015, up 47,000 or 1.0 percent over the year. World Business Chicago, a non-profit economic development organization focused on increasing jobs in Chicago, stated that the city of Chicago added 18,997 jobs in the year ending July 2015, with over 51% of these in the professional and business services sectors, with the transportation, education and health sectors significantly represented.

Submarket Overview

An Axiometrics Market Performance Summary report published in the Fourth Quarter of 2015 shows the Property’s Rogers Park/Uptown submarket to have the highest occupancy rate in the entire Chicago MSA along with the highest projected occupancy for the next four years. The report forecasts a 97.4% occupancy rate for the submarket for 2016-2019, compared to an average of 95.6% for all Chicago MSA submarkets over the same period. Axiometrics also forecasts average five year rent growth for the Rogers Park/Uptown submarket at 4.3%.

Axiometrics Submarket Rent Growth and Vacancy Rate
  2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Rent Growth -0.83% 1.67% 0.82% 4.01% 1.79% 4.26% 4.11% 4.67% 3.79% 4.07% 4.75%
  2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Vacancy Rate 2.71% 1.98% 2.15% 2.04% 1.74% 2.15% 2.23% 2.59% 2.94% 2.74% 2.61%

According to a CBRE survey, Chicago was reported as having the lowest cap rates in the Midwestern Region for infill and urban multifamily properties, with cap rates for Class A properties sitting between 4.0 - 4.5% and cap rates for Class B properties between 5.25 - 5.50%.

CBRE Cap Rate Survey, Second Half 2014
  Class A Class B
City Stabilized Cap Rates (%) Return on Cost for Value-Add (%) Stabilized Cap Rates (%) Return on Cost for Value-Add (%)
Chicago 4.00 - 4.50 4.50 - 4.75 4.75 - 5.25 5.25 -5.50
Cincinnati 5.50 - 6.00 6.00 - 7.00 6.00 - 6.50 7.00 -8.00
Cleveland 6.50 - 7.50 N/A 7.00 -8.00 N/A
Columbus 5.50 - 6.25 6.00 - 6.50 6.25 -7.25 7.00 -7.50
Detroit 7.25 - 8.00 7.75 - 8.50 7.50 - 8.25 8.25 - 9.25
Indianapolis 5.00 - 5.50 6.00 - 7.50 5.50 - 6.00 6.50 - 8.00
Kansas City 5.25 - 5.75 5.75 - 6.25 5.75 - 6.25 6.50 - 7.00
Minneapolis 4.50 - 4.75 4.75 - 5.25 5.00 - 5.50 5.50 - 6.00
St. Louis 5.50 - 6.25 N/A 6.50 - 7.25 N/A
Photos
Financials
Sources & Uses

Total Capitalization
Senior Loan $32,700,000
Equity 6,330,613
Total Sources of Funds $39,030,613
   
Purchase Price $21,600,000
CapEx 14,014,435
Closing Costs 692,784
Working Capital 613,000
Interest Reserve 1,182,000
Acquisition Fee 356,144
Loan Broker Fees 245,250
Senior Loan Fees 327,000
Total Uses of Funds $39,030,613
Debt Assumptions

  • Lender: MidCap Financial
  • Principal Balance: $32,700,000
  • Term: 48 Months, with a 12 month extension option
  • Rate: Floating, 525 basis points over 30-day LIBOR. Borrower has purchased 2.25% interest rate cap for the 4 yr term
  • Amortization: Interest only for term of loan.  Extension option is amortized over 30 years
  • Prepayment Penalty: The loan can be paid off any time subject to the Lender earning 24 months of interest
  • Recourse: Non-recourse except a completion guaranty provided by the Managing Member of the Borrower.
Distributions

North Sheridan Property Investor, LLC will make distributions to Realty Mogul 56, LLC per the priority order below. Realty Mogul 56, LLC will distribute 100% of its share of excess cash flow (after expenses) to the members of Realty Mogul 56, LLC (the RealtyMogul.com investors). The manager of Realty Mogul 56, LLC will receive a portion (up to 10%) of the Sponsor's promoted interest.

Order of Distributions to Realty Mogul 56, LLC (Operating Cash Flow)

  • First, to the Members to pay a 10% cumulative non-compounded annual return;
  • Second, 70% to the Members pro-rata and 30% to the Managing Member until cumulative distributions to each Member equal a 15% cumulative non-compounded annual return; and
  • Thereafter, 60% to the Members pro rata and 40% to the Managing Member.

Order of Distributions to Realty Mogul 56, LLC (Refinance, and Sales Proceeds)

  • First, to the Members to pay a 10% cumulative non-compounded annual return;
  • Second, to the Members pro rata until all capital contributions have been returned
  • Third, 70% to the Members pro-rata and 30% to the Managing Member until cumulative distributions to each Member equal a 15% cumulative non-compounded annual return; and
  • Thereafter, 60% to the Members pro rata and 40% to the Managing Member.

Distributions are projected to start in March of 2018 and are projected to continue on a quarterly basis thereafter. These distributions are at the discretion of the Sponsor, who may decide to delay distributions for any reason, including maintenance or capital reserves. 

Cash Flow Projections
  Year 1 Year 2 Year 3
Effective Gross Revenue $1,678,666 $2,772,593 $3,782,015
Total Operating Expenses ($1,245,376) ($1,297,811) ($1,552,329)
Interest Reserve Release $741,835 $180,091 $0
Net Operating Income (including Interest Reserve) $1,175,125 $1,654,873 $2,229,686
Distributions to Realty Mogul 56, LLC Investors $0 $0 $2,333,432
Fees

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
One-Time Fees:
Acquisition Fee 1.0% Sponsor Capitalized Equity Contribution (Already Paid) 1.0% purchase price plus hard costs
Broker-Dealer Fee 4.0% North Capital(1) Capitalized Equity Contribution 4.0% based on the amount of equity invested by Realty Mogul 56, LLC
Construction Management Fee 5.0% Sponsor

Capitalized Equity Contribution

5.0% of total hard costs
Recurring Fees:
Property Management Fee 2.75% Third Party Property Manager Operating Cash Flow 2.75% of Effective Gross Income
Asset Management Fee 0.5% Sponsor Operating Cash Flow 0.5% of Effective Gross Income
Management and Administrative Fee
2.0% 
RM Manager, LLC
Distributable Cash

2.0% of amount invested in Realty Mogul 56, LLC. RM Manager, LLC is the Manager of Realty Mogul 56, LLC and a wholly-owned subsidiary of Realty Mogul, Co.(2)

Notes:
(1) Certain employees of Realty Mogul, Co. are registered representatives of, and are paid commissions by, North Capital Private Securities Corp., a Delaware corporation ("North Capital"). In addition, North Capital pays a technology provider services fee to Realty Mogul, Co. for licensing and access to certain technology, reporting, communications, branding, entity formation and administrative services performed from time to time by Realty Mogul, Co., and North Capital and Realty Mogul, Co. are parties to a profit sharing arrangement.

(2) Fees may be deferred to reduce impact to investor distributions

The above presentation is based upon information supplied by the Sponsor or others.  Realty Mogul, Co., RM Manager, LLC, and Realty Mogul 56, LLC, 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.

Documents
Offering Documentation
Disclaimers/FAQs
Disclaimers

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.


Illiquid Investment - Transfer Restrictions & No Public Market

The transferability of membership interests in Realty Mogul 56, LLC 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.


Uncertainty Surrounding Future Sales Price

There is risk associated with the Sponsor being unable to sell the Property as projected.


Interest-Only Loan

The loan being used to acquire the Property is expected to have an interest-only period during the first four years of the term, which means that there will be no reduction in the principal balance during that interest-only period.


Interest Rate Risk

The Federal Reserve has methodically reduced the amount of stimulus it was earlier injecting into the U.S. economy, and has signaled that increases in the federal funds rate may be forthcoming. This could potentially lead to rising interest rates offered by other lenders and could have a negative effect on the future value of the Property (since higher loan interest rates might mean that potential buyers would face proportionately higher debt service expenses).


Co-Terminus Debt Risk

The loan on the Property has a term of four (4) years plus a one (1) year extension, potentially creating a refinancing risk should market conditions deteriorate over the next five years.


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.


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 North Sheridan Property Investor, LLC​ (including Realty Mogul 56, LLC) 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. While the Sponsor has significant operating experience, North Sheridan Property Investor, LLC​ is a newly formed company and has no operating history or record of performance. Realty Mogul 56, LLC is pursuing a venture capital strategy through its investment in North Sheridan Property Investor, LLC​, and the manager of Realty Mogul 56, LLC is expected to be treated as an investment adviser exempt from federal or state registration under this strategy.


Manager of Realty Mogul 56, LLC Will Participate in Sponsors' Promote Interest

The manager of Realty Mogul 56, LLC will be entitled to a participation in the value of any excess distributable cash flow and any appreciation of the Property realized upon its sale. This could lead to a potential conflict of interest between the manager and Realty Mogul 56, LLC. Investors must recognize and agree to waive and bear the risk of this conflict of interest. 


Uncertain Distributions

The Sponsor cannot offer any assurances that there will be sufficient cash available to make distributions to its members (including Realty Mogul 56, LLC) from either net cash from operations or proceeds from the sale or refinancing of the asset. Sponsor, in its discretion, may retain any portion of such funds for tenant improvements, tenant refurbishments and other lease-up costs or for working capital reserves. Sponsor has chosen to make distributions quarterly. 


Risk of Interest Charges for Sponsor Capital Calls

The amount of capital that may be required by North Sheridan Property Investor, LLC​ from Realty Mogul 56, LLC is unknown, and although North Sheridan Property Investor, LLC does not require that its members contribute additional capital to it, it may from time to time request additional funds in the form of loans or additional capital. Realty Mogul 56, LLC does not intend to participate in a capital call if one is requested by North Sheridan Property Investor, LLC​, and in such event the manager of North Sheridan Property Investor, LLC may accept additional contributions from other members of North Sheridan Property Investor, LLC​. Amounts that the manager of North Sheridan Property Investor, LLC​ advances on behalf of Realty Mogul 56, LLC will be deemed to be a manager loan at an expected interest rate of 8%. Amounts that are contributed by existing or new members will be deemed to be additional capital contributions, in which case Realty Mogul 56, LLC's interest in North Sheridan Property Investor, LLC​ will suffer a proportionate amount of dilution.


Uncertain Exit Timing

Although it is anticipated that the Property will be sold at the end of the expected three (3) year to five (5) year hold period, Realty Mogul 56, LLC 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.  


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 rental rates will be achieved or 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​​.


Apartment Complex Competition Risks

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 other apartment units that are available for rent, as well as new and existing apartment residences. 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.  Competitive apartment residences in a particular area could adversely affect the ability of Sponsor Entity to sell the property, rent its units as necessary to maintain occupancy, and/or to increase or maintain unit rental rates.


Renovation Risk

The sponsor intends to renovate the Property in order to be able to demand the significantly higher rents it is projecting to receive at the Property following such renovations. Such renovations are expected to cost approximately $62,845 per unit and are projected to take around 30 months to complete.  There can be no assurance that such renovations will be consummated on a timely basis or that such work will not materially adversely affect other aspects of the operation of the Property.  Any delays or adverse effects of such renovation work could adversely affect the Property’s financial results or business operations and thus the value of the Company’s investment.  

Following the renovations, the sponsor expects to be able to rent the apartment units at average rates that would represent an increase over the existing rental rates. Although the sponsor believes that comparable properties are currently achieving rental rates that are greater than the future rental rates expected from the Property, there can be no assurance that such increased rental rates will be achieved.  Failure to realize such increased rental rates could adversely affect the Property’s financial results or business operations and thus the value of the Company’s investment.


Lease-up Risks

The Property currently has a 97% 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 maintain that occupancy level.  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 lease-up program will result in the Property maintaining its occupancy level at rental rates in line with those projected.  Any delays or adverse effects of such renovation work or lease-up efforts could adversely affect the Property’s financial results or business operations and thus the value of the Company’s investment.

Although the sponsor believes that comparable properties are currently achieving rental rates that are in line with those expected from the Property, there can be no assurance that such increased occupancy levels or rental rates will be achieved.  Failure to realize such increased rental rates could adversely affect the Property’s financial results or business operations and thus the value of the Company’s investment.


Equity Invested

The manager of the Sponsor Entity (“Sponsor Manager”) is expected to invest certain equity in the Sponsor Entity.   However, the principals of the Sponsor Manager may have raised some of this equity from third parties and the principals of the Sponsor Manager may be permitted to sell a portion of their equity interest at a later time.  Thus, either at closing or at a later time, the principals of the Sponsor Manager may not have a significant portion of their own personal funds invested in this transaction.


No Operating Agreement Changes

Although the Company may prefer to have certain provisions inserted in the existing operating agreement of the Sponsor Entity, the operating agreement for the Sponsor Entity is likely to remain unchanged (except to reflect a change in ownership).  All potential investors should review the operating agreement of the Sponsor Entity to determine if it is acceptable to them.


The Company is Subscribing for an Interest in a Pre-Existing Entity

The Company’s investment the Company will effectively recapitalize that entity, which has been in existence (and held title to the property) for a short period.  The Company expects to receive assurances from the Sponsor as to any prior acts or omissions concerning the Property, but there can be no certainty that any such assurances will sufficiently reduce the risk of any pre-existing liabilities connected with the Property.


Sponsor’s Agreements with Affiliates

The Company’s operating agreement does not prohibit, nor require member consent for, agreements between the Sponsor and its affiliates. This could result in such agreements having non-market terms, which may negatively impact the investment’s performance and the returns to investors.


Sponsor’s Prior Transactions

One of the principal investors in the managing member has sponsored one or more prior transactions that have been foreclosed upon and/or involved loss of principal to investors. Investors should consider the track record of Sponsor and its investors prior to making an investment decision. Past results may not be indicative of future performance.


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 Sponsor and others. Realty Mogul, Co., RM Manager, LLC, and Realty Mogul 56, LLC, 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.

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