Crawford Park Financial and Apts Mgmt, LLC
Crawford Park Financial ("CPF") is a company that is dedicated to finding opportunities in real estate, investing in urban rentals, and originating and buying debt.
CPF's strategy is to purchase multifamily assets in supply constrained markets with high barriers to entry. These properties are located in areas with a limited supply of land to build and a restrictive, costly and lengthy entitlement process. CPF focuses on properties that are below replacement cost and where the alternatives to renting are high cost, for sale housing. In addition, the targeted locations are near numerous job centers and public transportation options. By adding value to the property through capital improvements and a professional management program designed to maximize net operating income, CPF has been able to realize increased rents and higher occupancy rates. CPF actively manages and executes all aspects of a property's life cycle: acquisition, financing, rehab, property operation and final disposition.
The CPF portfolio located in Southern California includes 20 buildings totaling 324 apartment units, with an annual cash flow of over $3.9 million and a market capitalization in excess of $39.0 million. From January 2008 to December 2013, CPF has invested $41.0 million on behalf of its clients in real estate debt investments. From June 2011 to December 2013, CPF has invested over $11.0 million for its clients in Los Angeles apartment buildings.
Apts Mgmt, LLC
Apts Mgmt, LLC is 50% owned by Mark Crawford and 50% by Steve Bram. Mark and Steve met several years ago at the Moriah Real Estate Group. In 2011, they realized that the time was appropriate to acquire multifamily properties and started Apts Mgmt, LLC. Mark's primary responsibilities include identifying the properties and managing the operations. Steve consults with Mark on the acquisitions, provides capital and finances the purchases.
A detailed track record for Apts Mgmt, LLC can be found as an attachment at the bottom of this page.
Mashcole Property Management
Mashcole Property Management ("Mashcole") is strictly a third party property management company focused on the California, Nevada, Arizona, and Texas markets. The company is hired by a variety of third-party clients to oversee the day-to-day operations and management responsibilities of their multifamily properties and portfolios. Mashcole's key personnel have extensive experience in the management of assets which include projects requiring repositioning, strong resident retention requirements and lease-ups. Mashcole also coordinates renovation projects, which have included projects ranging from $2,000 per unit to $20,000 per unit. The company was formed in 2004 and currently manages approximately 100 apartment communities totaling more than 3,000 units.
Management bios for the Mashcole team can be found as an attachment at the bottom of this page.
Sample Transaction - 4112-4114 Palmwood
| Purchase Date: | March 6th, 2012 |
| Total Units: | 55 units |
| Purchase Price: | $3,918,000 / $71,236 per unit |
| Equity Raised: | $1,325,000 |
| Financing: | 4.10-4.25% rate for 7 years, Opus Bank |
| Renovation Budget: | $550,000 / $10,000 per unit |
| Capital Improvements: | Roof replacement, landscaping, facade work, security cameras, deck replacement, window repairs, addition of laundry rooms, new appliances, new paint, ceiling fans, flooring, countertops, plumbing repairs, blinds, lighting |
| Eneregy Conservation Improvements: |
Outdoor and hallway LED installations, low flow toilets and shower heads, upgraded water system for landscaping, upgraded laundry appliances |
| Before CPF Purchase: | 1b/1b - $700-800, 2b/2b - $800-$1,000 |
| After CPF Purchase: | 1b/1b - $950, 2b/2b - $1,250 |
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Mark Crawford - Managing Partner -
Steve Bram - Principal -
Joanna Crawford - Vice President -
Jonathan Dannenfelser - VP of Operations
Mark Crawford brings 30 years of experience in the real estate business to his ventures. His primary focus as the President of Crawford Park Financial is syndicating funds to purchase and renovate apartment units. He currently owns 50% of Apts Mgmt, LLC. His experience includes development, brokerage, mortgages, and investments of residential and commercial properties. In addition, he has obtained government approvals for over 1,000 apartments and subdivisions.
Steve Bram is a co-founder of George Smith Partners and currently owns 50% of Apts Mgmt, LLC. He has served as the President of George Smith Partners for over 6 years and is widely recognized as one of the nation's leading real estate investment banking professionals. During his more than two-decade tenure at the George Smith Partners, he has arranged billions of dollars in financing. He is a specialist in the area of structured financing and is recognized nationally for his expertise in the hotel and hospitality sector. Prior to joining George Smith Partners, he worked in management for Hyatt Hotels and also in financial consulting. He lectures regularly on finance to UCLA Extension classes.
Joanna Crawford is a Certified Public Accountant. As Vice President of Crawford Park Financial, she manages the finance, compliance, and operational functions. Prior to joining Crawford Park in 2007, she was a Senior Vice President of Compliance with Countrywide Home Loans, where she acted as a liaison between internal support groups (legal, compliance, and audit) and the loan origination divisions regarding development and implementation of best practices, corrective actions, and system enhancements to achieve optimal quality and compliance for HMDA and Fair Lending. Prior to that, she was in Countrywide's internal audit group, auditing the loan origination and administrative divisions. Before Countrywide, she practiced as a public accountant at Price Waterhouse. Joanna has a BBA in Accounting from the University of Texas at Austin.
Jonathan Dannenfelser is Vice President of Operations at Crawford Park Financial where he oversees the acquisition, rehabilitation and disposition of apartment building investments. Jonathan started his real estate career in Long Island, NY in the mid 1990’s where he worked for a contractor who would purchase, renovate and sell residential properties for profit. During that tenure, Jonathan learned construction including: framing, electrical, plumbing, roofing, siding, windows, landscaping, finish work and reading blueprints. In addition to working with Crawford Park, Jonathan works as a regional property manager, and has gained extensive experience with short sale negotiations, foreclosures and acquiring properties at auction.
At A Glance
| Investment Strategy: | Buy and Hold |
| Hold Period: | 7-10 years |
| Total Project Budget: | $7,415,829 |
| Property Type: | Multifamily |
| Number of Units: | 65 units across three (3) buildings |
| Net Rentable Area: | 60,674 square feet |
| Distributions to Realty Mogul 14, LLC: | 7% preferred return with excess cash flow and appreciation shared 70/30 |
Investment Details
Crawford Park Financial and Apts Mgmt, LLC (collectively "the Managers") plan to acquire three (3) apartment buildings in the Baldwin Hills neighborhood of Los Angeles through Gelber Apts, LLC, an entity controlled by the principals of the two companies.
Realty Mogul investors are being provided the opportunity to invest in Realty Mogul 14, LLC. Realty Mogul 14, LLC, is making an investment in Gelber Apts, LLC, which will acquire these three (3) apartment buildings located at 4005 Ursula Avenue, 4029 Gelber Place, and 4030-4036 Gelber Place in Los Angeles, California.
The three (3) apartment buildings have been identified as a value-add opportunity because the properties currently suffer from deferred maintenance and depressed operations. The goal is to bring property rents up to current market rates. Since Los Angeles County imposes rent control, existing tenant rental prices can only be raised 3% per year but a vacant unit can be immediately raised to market rent. For current tenants with low rents, the Managers plan to identify any lease violations (i.e. delinquency, poor housekeeping, too many occupants, non-lessee tenants, etc) and begin the eviction process. The Managers also plan to buy out the lease, if appropriate, for existing tenants with very low rents. As vacancies and evictions occur, the Managers plan to upgrade the unit interiors.
In addition, garages are not included in the rent control ordinance, and this creates an opportunity to obtain higher income even on rent controlled units via garage rent. The rentals of the parking spaces are not covered by rent control unless it is included in the tenant's current lease. With each completed unit renovation and/or each new lease, the parking space will be rented for $50 per space. Existing lease agreements will be monitored to ensure allowable rent increases are implemented by rent control anniversary dates. The rent control ordinance allows for capital improvements pass-through to increase rental income in addition to the annual standard.
The Managers will be responsible for implementing a capital improvement program designed to meet residents' needs and bolster the properties' ability to compete in the surrounding housing marketplace. The Managers plan to first address deferred maintenance and then move to interior renovations.
- The exterior renovations will include work on the exterior facade, landscaping, interior courtyards, secure fencing, lighting, roofs, and paint. Cameras may be added to the entries and parking areas. The parking garages will be cleaned, painted, lighted, secured and fees will be charged for parking spaces. Each of the laundry rooms will be renovated and painted. The primary goal will be to improve curb appeal, safety and the overall aesthetic of the properties.
- The interior renovation budget calls for the projected turnover and renovation of 50% of the units. The renovation of the units will include new paint, a laminate and carpet mix on the floors, upgraded kitchens, new countertops (if needed), and repaired or new cabinet hardware. A self-cleaning stove will also be added to all vacant units. New light fixtures, ceiling fans, water saving toilets, shower heads, and plumbing fixtures will be added if appropriate.
- The Managers will also implement an energy conservation program, which would include items such as low flow toilets, LED lighting, replacement of the landscape sprinkler system, aerators, low flow shower heads, and recirculating water heaters.
Mashcole Property Management ("Mashcole") will be retained to manage the renovation and to maintain day-to-day activities of the property. Maschole is experienced with assets of this size and in this location, having just completed a renovation for the Managers in the same sub-market just a few blocks away. Mashcole currently manages over 3,000 units in the Los Angeles area.
The Managers plan to acquire the property, complete the renovation program, and operate the property for cash flow while working towards driving higher rent rates through improved, renovated units. The Managers plan on holding the property for 7-10 years before exiting the investment, although the hold period may be longer or shorter. Realty Mogul investors have the opportunity to participate as equity stakeholders and earn a share of the cash-flow and appreciation.
Investment Highlights
- Highly Occupied Property With a Diversified Tenant Base: The three (3) apartment buildings encompass 65 units and is currently 98.5% occupied (only one vacancy), providing investors with cash flow from a diversified working class tenant base in a stabilized and highly occupied set of properties.
- Discount to Replacement Cost: The Managers estimate that the replacement cost for similar multifamily properties is $252,000 per unit. The Manager's purchase price of $6,565,000 or $101,000 per unit represents a significant discount of approximately 60% to replacement cost.
- Potential Value-Add and Upside Due to Renovations and Under Market Rents: As part of the total capitalization, the Managers plan to complete a renovation plan of roughly $9,300 per unit that includes interior and exterior improvements across the entire property, making this opportunity the purchase of a stabilized apartment complex with value-add upside potential due to the renovations. In addition, the Managers believe that this property is currently averaging rental rates below market rates and that investors can benefit from future rent increases.
- Strong Sponsor / Market Presence: Crawford Park Financial ("CPF") and Apts Mgmt, LLC are experienced multifamily operators in California. They have completed four other similar transactions in the Baldwin Hills neighborhood and are currently in the middle of renovating 141 units in nearby properties just a few blocks away. CPF's portfolio in Southern California includes 20 buildings totaling 324 apartment units, with an annual cash flow of over $3.9 million and a market capitalization in excess of $39.0 million. From June 2011 to December 2013, the Managers have invested over $11.0 million for their clients in Los Angeles apartment buildings.
- Favorable Purchase Price and Exit Potential: The uncertainty and volatility of the capital markets has enabled the managers to secure these properties at a purchase price that provides investors with immediate cash distributions while retaining the flexibility to sell the properties when appropriate. The properties are expected to be financed by a 73% loan-to-purchase price loan, enabling the project to utilize leverage. The low purchase price mitigates the residual risk and should allow the project to be ideally situated to appeal to the broadest investor pool upon sale.
Risks and Risk Mitigation*
- Illiquid Investment - Transfer Restrictions & No Public Market: The transferability of membership interests in Realty Mogul 14, 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.
- Possible Decrease in Rents or Occupancy: Another risk associated with this transaction is the potential occurrence of a significant decrease in rents or occupancy; if enough effective vacancies occur, the property may not generate sufficient funds with which to meet any required loan payments and operating expenses. The three (3) properties are currently 98.5% occupied, but the renovation work and turnover involved with the value-add strategy may result in increased vacancy rates. This risk is partially mitigated by the fact that the Managers are currently underwriting a vacancy of 5% throughout the investment term.
- Rent Control: In Los Angeles County, ordinances set price controls limiting rises in existing tenant rents to just 3% per year. Vacant units can be immediately raised to market rent, but the eviction process can be slow and may not be possible for some units, in which lease buy-outs would need to be arranged but are not guaranteed. The Managers are currently projecting that 50% of the units will turnover and that those units will be renovated, a success rate they have seen recently at their nearby renovation project just a few blocks away.
- 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) rent control or rent stabilization laws, or other laws regulating similar properties, 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.
- Rising Interest Rates and General Economic Conditions: The multifamily investment market has been bolstered over the past few years by historically low interest rates. This trend is likely in the process of changing course, however, and rising interest rates may adversely affect future property valuations and the ability to obtain any necessary refinancing. The Managers expect to mitigate the risk of rising interest rates by locking in a 10-year loan term at a fixed rate of 4.375% (fixed rate for 6 years only).
- Interest-Only Financing: This transaction employs interest-only financing. By delaying principal payments, interest-only mortgages can make refinancing more difficult at maturity and increase risk of the investment opportunity.
*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.
| Address: | Various - see chart below Los Angeles, CA 90008 |
| Year Built: | 1957-1960 |
| Current Occupancy: | 98.5% (one vacant unit) |
| Number of Units: | 65 units across 3 buildings |
| Net Rentable Area: | 60,674 square feet |
| Buildings: | Three two-story residential buildings |
| Parking: | 51 spaces |
| Effective Rent Per Unit: | $908 |
| Effective Rent PSF: | $0.97 |
| Address | Studio | 1b/1b | 2b/1b | 2b/2b | 3b/2b | Units | Avg. Size SF | Total SF | |
|---|---|---|---|---|---|---|---|---|---|
| 4029 Gelber Place | 0 | 16 | 11 | 0 | 0 | 27 | 974 | 26,288 | |
| 4030-4036 Gelber Place | 0 | 3 | 13 | 2 | 0 | 18 | 924 | 16,636 | |
| 4005 Ursula | 1 | 14 | 0 | 3 | 2 | 20 | 888 | 17,750 | |
| Total/Avg | 1 | 33 | 24 | 5 | 2 | 65 | 933 | 60,674 |
Gelber Apts, LLC will be acquiring a set of three (3) multifamily garden-style apartments, each constructed in the late 1950's. Each building includes covered parking and laundry facilities. Two of the properties - 4005 Ursula Avenue and 4029 Gelber Place - have a pool. The tenant base is typically looking for a residence that is clean, functional, and safe.
Although the properties are currently 98.5% occupied, the buildings are suffering from deferred maintenance and depressed operations. Crawford Park Financial ("CPF") believes that the current property rents are below market rates, and the goal will be to increase those rents through a capital improvement program that will make the complexes more competitive in the marketplace.
A property overview is available for download below the map on the right side of this page.
Below are a few before and after pictures from two projects in the same neighborhood that the sponsor recently redeveloped. The "before" pictures are on the left and the "after" pictures are on the right.
The Baldwin Hills neighborhood is located in the heart of Los Angeles. The area is home to hundreds of small and larger businesses including a major shopping mall, the Magic Johnson Theater complex, and a planned multi-building Kaiser Permanente outpatient facility. Baldwin Hills is in roughly equal proximity to each of the 405, 10, and 110 freeways and enjoys nearby access to the Los Angeles Metro system of bus and light rail transportation. It is also close to the University of Southern California (USC), a private university.
There are numerous redevelopment projects currently planned or under construction in or near the Baldwin Hills neighborhood. Kaiser Permanente, the nation's largest nonprofit health plan and hospital system, plans to build three 100,000 square foot medical office buildings, two parking structures, and 120,000 square feet of retail space close by, bringing thousands of jobs to the area. The District Square redevelopment project at nearby Crenshaw Boulevard and Rodeo Road will create a 300,000 square foot retail center anchored by a Target, Ross and Marshall's. The new Angeles Plaza development was recently completed, housing a Union Bank branch and 17,000 square foot space for grocery and retail tenants.
- Baldwin Hills Crenshaw Mall: This 43-acre, 858,000 square foot regional shopping center recently underwent a $35 million renovation that brought a new movie theater, several new restaurants, and a new interior design to the space. This renovation was the first step in a long-term master plan that embraces phased transit-oriented development, including a proposed Metro Rail transit center on Crenshaw Boulevard. The mall currently houses 115 stores and is anchored by Macy's Wal-Mart, and Sears.
- Metro Light Rail System: Phase I of the Expo Line of Los Angeles' Metro light rail system opened in April 2012. It connects the Baldwin Hills area with Culver City in the west side of Los Angeles and the financial district in the downtown area to the east. The line includes a station at the intersection of Exposition and La Brea Boulevards, just blocks away from the apartment complexes. Ridership has increased steadily since the line's opening, and a second phase of construction extending the line to the waterfront at Santa Monica is already underway and scheduled for completion in 2015. Another planned branch of the system, the Crenshaw Line, is scheduled to begin construction in spring of 2014 and will provide better access for the area to the Los Angeles International Airport.
- University of Southern California: USC is a world-renowned private research institution enrolling more international students than any other U.S. university. It serves as a significant economic engine, responsible for $4 billion annually in economic activity in Los Angeles County alone. USC has worked closely with neighborhoods to create better schools, safer streets, and a greener environment locally. Its planned redevelopment of the current University Village is anticipated to create a more vibrant, walkable mix of retail shops and restaurants in addition to student housing and academic space.
Los Angeles Multifamily Overview
Occupancy
The vacancy rate in Los Angeles during the first quarter of 2013 was 3.2%, which is down 10 basis points from the prior quarter and 50 basis points from a year earlier. The current Class A multifamily vacancy rate is 4.5%, up 10 basis points year-over-year. The Class B/C market (similar to Metro Apartments) is currently seeing a 2.6% vacancy rate, down 20 basis points from the previous quarter and down 80 basis points from a year prior. Since a rate of 5.0% is generally considered full occupancy, Los Angeles has been and remains a landlord's market.
Rents
Transaction Pricing
Purchase Price vs. Replacement Cost
A map of major developments in the Baldwin Hills neighborhood market and rent comparables are available for download below the map on the right side of this page.
