$4,750,000
Inception Investors
Inception Investors is a private real estate investment and operating company that was founded in 2012. The company is headquartered in New York City and has offices in Brooklyn and Manhattan.
The Sponsor’s investment strategy is to acquire properties with attractive growth potential through either a combination of active property and asset management and market growth. They generally target cash flowing Class-B multifamily and give key consideration to the following criteria:
- Gentrifying Tri-state area markets with high population density and strong market fundamentals.
- Capitalize on shifts in demographic trends and property investments that include an increased preference for urban living by baby boomers, millennials, and young professionals as well as assets that are in close proximity to transit or places of employment.
The Sponsor is an affiliated entity to The Clairmont Group – the same sponsor who transacted on the 23-Unit New Jersey Multifamily deal with RealtyMogul.com in March 2016. Two of the three principals with Inception are also principals of the Clairmont Group. The two companies share asset management, accounting, and back office operations and invest together as principals, so it truly is one company at this time. They have maintained their respective names due to legacy and relationship reasons.
Sponsor Track Record (includes transactions the management team completed as Principals of other firms prior to joining Clairmont and Inception Investors)
http://www.inceptioninvestors.com-
Ryan Colbert, Managing Partner -
Chesky Engel, Managing Partner -
David Lubin, Managing Partner
Mr. Colbert has over a decade of institutional real estate equity investment experience in both domestic & international markets and has acquired over $1 billion worth of commercial real estate. His experience includes investments in distressed real estate & note purchases, recapitalizations, JV partner buy-outs and direct secondary investing across all major asset classes.
Mr. Colbert was a Director at Madison Marquette and formerly a Vice President at the Lightstone Group, one of the nation’s largest real estate investment firms. While at Madison Marquette, he closed over $400 million of multifamily, office and retailacquisitions. While at the Lightstone Group, he was responsible for rebuilding the firm’s hospitality portfolio as well as expanding its existing multifamily portfolio, closing over $100 million of acquisitions during his tenure. Prior to joining Lightstone Group, Mr. Colbert was a member of the investment team at Madison International Realty, a real estate private equity firm focused on the acquisition of direct secondary’s and structured equity investments. While at Madison International Realty he was involved in the recapitalization of over $200 million of real estate.
Mr. Colbert holds a Series 7 & 63 license and completed his dual-undergraduate degree in Political Science & Finance with minors in German Studies & Law at Cornell University.
Mr. Engel is Co-Founder & Managing Member of Inception Investors with primary responsibility for operational excellence, transaction sourcing, construction and development. Mr. Engel is responsible for daily operations, transaction sourcing, construction and development of Inception Investor's transactions in the Tri-state area. Mr. Engel brings 20 year's investing experience in New York City real estate and is a Brooklyn native. Mr. Engel has been involved in numerous high-profile re-development and re-positioning projects which have been featured in the Real Deal, Brownstoner, and Crain's New York Business. Mr. Engel has also completed over $1 billion of transactions in the New York City area including investments in distressed real estate & note purchases, recapitalizations and JV partner buy-outs across all asset classes. Mr. Engel holds a Bachelor's Degree from Gateshead Talmudical College in Gateshead, United Kingdom.
David Lubin has over decade of real estate private equity, investment banking and strategy consulting experience. He has closed over 50 transactions valued in excess of $2.0 billion.
David has worked at large institutional investment companies such as MetLife, Allianz, AREA Property Partners (formally Apollo Management) and C-III Capital Partners. His experience includes investments in core, value-add, opportunistic, distressed real estate, note purchases, development, fund investments, and coinvestments across all major asset classes including: multifamily, hospitality, office, industrial, retail, senior living and real estate operating companies. At C-III Capital Partners, he oversaw investments in multifamily and hospitality.
Additionally, David has worked as a real estate investment banker at BMO Capital Markets. At BMO, he was involved in over $3.6 billion in capital raising and advisory engagements including a $1.6 billion IPO of Douglass Emmett REIT (DEI).
David started his career at Accenture in the Corporate Strategy and M&A group. At Accenture he advised large fortune 500 companies on new market entry strategies, shareholder value analysis, and operational efficiencies.
David Lubin holds a Master’s Degree in Real Estate Development from Columbia University and a Bachelor’s Degree from Cornell University. David also has a New York state real estate broker license and series 7 & 63.
| Inception Investors Track Record | |||||||||||
| Projected Investment Performance | |||||||||||
| April 1, 2016 | |||||||||||
| Investment | Date of Initial Investment |
Date of Liquidation |
Property Type | Property Location | Market Value (a) | Invested & Committed Capital (b) |
Actual / Forecasted Distributions(c) |
Actual / Forecasted Gross MOI (d)(e) |
Actual/ Forecasted Gross IRR (d)(e) |
Actual/ Forecasted Cash on Cash (d)(e) |
|
| Fairfield Inn | Jul-10 | TBD | Hotel | East Rutherford, NJ | $18,700,000 | $3,940,983 | $15,972,441 | 4.1x | 35.8% | 17.1% | |
| Everson Pointe(f) | Dec-10 | Jan-15 | Retail | Atlanta, GA | 9,000,000 | 4,664,000 | 7,360,784 | 1.6x | 13.0% | 8.1% | |
| TownePlace Suites | Jan-11 | TBD | Hotel | Metairie, LA | 15,300,000 | 6,055,449 | 11,539,613 | 1.9x | 16.3% | 12.1% | |
| Rego Park(f) | Mar-11 | TBD | Multifamily | Queens, NY | 19,000,000 | 15,132,500 | 21,653,125 | 1.4x | 17.9% | 17.9% | |
| Crowne Plaza Boston North Shore(f) | Mar-11 | TBD | Hotel | Danvers, MA | 27,000,000 | 23,590,184 | 39,653,850 | 1.7x | 17.6% | 16.6% | |
| Holiday Inn Express(f) | Jun-11 | TBD | Hotel | East Brunswick, NJ | 9,000,000 | 6,196,498 | 9,907,256 | 1.6x | 19.3% | 11.0% | |
| Crowe's Crossing | Oct-11 | TBD | Retail | Atlanta, GA | 12,000,000 | 2,069,210 | 3,981,828 | 1.9x | 15.2% | 9.1% | |
| Marriott Courtyard(f) | Nov-11 | TBD | Hotel | Parsippany, NJ | 10,000,000 | 11,925,000 | 20,369,819 | 1.7x | 22.2% | 13.7% | |
| DePaul Plaza Shopping Center | Nov-11 | TBD | Retail | St. Louis, MO | 20,000,000 | 8,745,154 | 14,350,297 | 1.6x | 14.5% | 7.6% | |
| Shasta Crossroads | Dec-11 | Dec-14 | Retail | Redding, CA | 9,000,000 | 6,954,373 | 22,040,445 | 3.2x | 79.2% | 5.7% | |
| Hampton Inn | Mar-12 | TBD | Hotel | Woodbridge, VA | 10,500,000 | 4,021,019 | 8,776,364 | 2.2x | 20.6% | 15.0% | |
| Meridian Village | Apr-12 | TBD | Retail | Bellingham, WA | 15,000,000 | 4,225,100 | 8,452,080 | 2.0x | 17.6% | 12.0% | |
| Washington Business Park | Sep-12 | Dec-12 | Office | Lanham, MD | 45,000,000 | 11,000,000 | 17,741,688 | 1.6x | 579.2% | 15.8% | |
| The Center Building | Dec-12 | Mar-15 | Office | Queens, NY | 84,500,000 | 18,947,840 | 70,142,157 | 3.7x | 82.6% | 9.7% | |
| Cotton Exchange Hotel | Mar-13 | Jun-13 | Hotel | New Orleans, LA | 30,000,000 | 13,600,130 | 17,774,073 | 1.3x | 199.0% | N/A | |
| 331 Carroll Street | Aug-13 | TBD | Multifamily | Orange, NJ | 1,250,000 | 725,000 | 1,667,500 | 2.3x | 25.0% | 10.0% | |
| 7000 Central Park | Sep-13 | TBD | Office | Atlanta, GA | 75,000,000 | 13,264,192 | 24,427,831 | 1.8x | 16.5% | 6.7% | |
| The Edge | Dec-13 | TBD | Retail | Brooklyn, NY | 45,500,000 | 19,445,772 | 53,519,412 | 2.8x | 13.0% | 9.0% | |
| Free Market Portfolio | Dec-13 | TBD | Multifamily | Brooklyn, NY | 5,000,000 | 916,187 | 4,116,143 | 4.5x | 52.9% | 14.4% | |
| Paces Village Apartments | Dec-13 | TBD | Multifamily | Greensboro, NC | 15,000,000 | 4,379,994 | 8,748,421 | 2.0x | 15.8% | 7.4% | |
| Marina Shores Apartments | Mar-14 | TBD | Multifamily | Virginia Beach, VA | 54,000,000 | 18,292,593 | 36,195,585 | 2.0x | 18.3% | 8.0% | |
| 23 Harvard Street | Jul-14 | TBD | Multifamily | East Orange, NJ | 1,000,000 | 500,000 | 1,500,000 | 3.0x | 25.0% | 15.0% | |
| Broad Street Apartments | Sep-14 | TBD | Multifamily | Richmond, VA | 11,000,000 | 3,144,136 | 6,421,681 | 2.0x | 17.5% | 10.4% | |
| BankNote Building | Sep-14 | TBD | Office | Bronx, NY | 120,000,000 | 28,204,512 | 61,261,186 | 2.2x | 19.2% | 10.9% | |
| Eastern Parkway Portfolio | Oct-14 | TBD | Multifamily | Brooklyn, NY | 10,000,000 | 2,287,600 | 8,408,604 | 3.7x | 42.3% | 13.6% | |
| Brooklyn 9 Portfolio | Aug-15 | TBD | Multifamily | Brooklyn, NY | 30,000,000 | 7,137,217 | 11,759,579 | 3.1x | 28.4% | 9.1% | |
| Park Avenue Apartments | Mar-16 | TBD | Multifamily | Plainfield, NJ | 3,000,000 | 1,100,000 | 3,187,156 | 2.9x | 26.0% | 11.3% | |
| Subtotal | $704,750,000 | $240,464,643 | $510,928,916 | 2.1x | 26.5% | 11.4% | |||||
| Total Portfolio | $704,750,000 | $240,464,643 | $510,928,916 | 2.1x | 26.5% | 11.4% | |||||
(a) Purchase price, UPB, or appraised value, whichever is greater at time of acquisition.
(b) Includes capitalized expenses allocated to each investment and co-investments made by third parties.
(c) All estimates are forward looking and are provided by the Sponsor.
(d) Performance for investments is based on future performance of each investment as projected. The projections assess factors including but not limited to: net asset values, liquidation timing, interim cash flow distributions, transaction expenses that materially affect the projection of cash flows and Gross IRR for each investment. There can be no assurance that these investments will produce values equal to or in excess of such reported values.
(e) Unless otherwise indicated, all references in this document to rates of return are to gross internal rates of return, meaning aggregate, compound, annual gross internal rates of return on investments. Gross IRRs are calculated as of projected realization dates, and are before expenses, fees and carried interest. IRRs are calculated on an annualized basis and reflect the actual timing of daily cash inflows and outflows. Cash on Cash calculation includes refinance distributions in the denominator as reduction to actual investment basis and are annualized (when applicable).
(f) Invested & committed capital represents Day 1 equity investment. Performance projections include assumed refinancing distribution upon asset stabilization.
In this transaction, RealtyMogul.com investors will invest in Realty Mogul 67, LLC. Realty Mogul 67, LLC will subsequently invest in 330 22nd, LLC, a limited liability company that holds title to the Property. Inception Investors, the "Sponsor", is under contract to purchase the Property for $4,750,000 ($175,926 per unit).
The Sponsor views the purchase as an opportunity to acquire the Property at a price below market, in a neighborhood where ongoing gentrification and the subsequent impact on rental increases will coincide with their projected hold period. All 27 units are currently subject to rent stabilization rules as determined by the City of New York Rent Guidelines Board(1). The Sponsor has budgeted $12,000 to $20,000 for renovations for each unit that becomes vacant. There are presently two vacant units which the Sponsor will begin renovations on immediately following closing. There are an additional seven units that the Sponsor anticipates renovating during the hold period. The rent guidelines limit rent increases to 1/40th of the cost of construction(2). The renovations are projected to drive an increase in cash flow and value for investors during the hold period and the stabilized rents project to be below market to comparable units in similar buildings.
The renovations will include a full kitchen renovation including new appliances, stove and counter tops as well as bathroom renovations with new shower heads and toilets. The Sponsor will also replace the dated flooring, improve the lighting, and will install new video intercoms for the tenants.
The Sponsor plans to engage EPP Management to manage the asset. EPP Management is a wholly owned subsidiary of Inception Investors and they currently manage over 400 units in the New York market. The management company is run by Cheskel Engel, one of the principals of the Sponsor. Inception engages EPP Management for all of its assets. The Sponsor intends to sell the Property in five (5) years.
(1) Per the New York State Division of Housing and Community Renewal Office of Rent Administration, the Rent Guidelines Board sets rent increases in stabilized apartments. These guidelines are set once a year and are effective for leases beginning on or after October 1st of each year. Rents can be increased during the lease period in any one of three ways as described here.
(2) - Rents for renovated units are subject to the Individual Apartment Improvement (IAI) rules which limit rent increases to 1/40th of the cost of construction (for properties with 35 units or less) as described here. Vacant units are subject to 20% increases over the last legal rent per the Board guidelines as described here.
RealtyMogul.com, along with Inception Investors (the "Sponsor"), is providing the opportunity to invest in the acquisition and renovation of a 27-unit multi-family property located in the Flatbush neighborhood of Brooklyn, New York (the "Property").
The primary objective of this investment is to acquire the Property, perform interior renovations, increase rents on renovated units, and sell the Property within approximately five (5) years.
The Sponsor sees this investment as an opportunity to acquire a well located multi-family property in a gentrifying market where they are an experienced owner and manager of over 600 units in the Tri-State area. The Flatbush neighborhood has seen a recent influx of young professionals and the neighborhood's growth has coincided with the increase in rents in the Crown Heights and Prospect Park neighborhoods to the north of the Property.
The Property is a 27-unit walk-up building located at 330 E. 22nd Street in the Flatbush neighborhood of Brooklyn, NY. The Property was built in 1926 and is currently 93% leased. The unit mix consists of six 2-bedroom units, twenty 3-bedroom units, and one 4-bedroom unit. Average in-place rents are $1,053 per unit, ranging from $743 per unit to $1,450 per unit. Due to the rent stabilized nature of the units, in-place rents are currently below the similar properties in the neighborhood.
The current amenities at the property are consistent with those of buildings constructed in that era. Recently completed common area and building improvements by the current owner include: a new roof, electric paneling, masonry repairs, pointing, new hot water heater, security doors, and a new TV/security system. The sponsor’s proposed renovations should bring the units and building in-line with modern amenities found in newer construction.
Unit Mix
| Unit Type | # of Units | Avg In-Place Rent/Unit |
| 2/1 | 6 | 1,156 |
| 3/1.5 | 20 | 1,016 |
| 4/2 | 1 | 1,175 |
| Total | 27 | 1,053 |
| Pre-Renovation Rental Comparables | Subject | 835 Ocean Ave | 1135 Flatbush Ave | 1140 Flatbush Ave | 2112 Dorchester Rd | Total / Averages |
| 2/1 | $1,156 | $1,750 | - | - | - | $1,750 |
| 3/1.5 | $1,166 | - | $1,800 | $1,795 | $1,750 | $1,782 |
| Location Relative to Subject | SW | S | SW | SW | - | |
| Blocks From Subject | - | 3 | 1 | 1 | 2 | 2 |
| Post-Renovation Rental Comparables | Subject | 447 E 21st | 252 E 23rd Street | 1137 Flatbush Ave | 1066 Flatbush | 2503 Clarendon |
| 2/1 | $1,456 | - | - | - | - | $2,500 |
| 3/1.5 | $1,616 | $2,500 | $2,100 | $2,075 | $2,300 | - |
| 4/2 | $1,675 | - | - | - | - | - |
| Location Relative to Subject | - | E | E | S | NW | E |
| Blocks From Subject | - | 2 | 1 | 1 | 2 | 3 |
| 2434 Bedford Ave | 711 Ocean Ave | 810 Ocean Ave | 2395 Bedford Ave | 2149 Cortelyou Rd | Total / Averages | |
| 2/1 | $2,000 | $2,250 | - | $1,850 | $1,700 | $2,060 |
| 3/1.5 | - | - | $2,610 | $2,317 | ||
| 4/2 | - | - | $2,900 | $2,900 | ||
| Location Relative to Subject | E | NW | W | NE | N | - |
| Blocks From Subject | 2 | 5 | 2 | 3 | 0 | 2 |
Source: Zillow/Costar
| Sales Comparables | Subject | 485 E 21st St | 2505 Bedford Ave | 531 E 22nd St | 17 East 17th St | 398 E 18th St | Total / Averages |
| Date | June-16 | April-15 | December-15 | January-16 | June-15 | May-15 | |
| # of Units | 27 | 28 | 48 | 35 | 20 | 16 | 29 |
| Year Built | 1926 | 1922 | 1931 | 1934 | 1931 | 1927 | 1929 |
| Average SF (per bed) | 711 | 893 | 775 | 1,026 | 773 | 1,094 | 912 |
| Purchase Price | $4,750,000 | $5,025,000 | $8,550,000 | $7,000,000 | $4,900,000 | $3,250,000 | $6,436,054 |
| $/Unit | $175,926 | $179,464 | $178,125 | $200,000 | $245,000 | $203,125 | $201,162 |
| Cap Rate | 5.32% | N/A | 4.00% | N/A | 4.10% | 4.50% | 4.20% |
| Location Relative to Subject | - | SW | SE | SW | NW | W | |
| Blocks from Subject | - | 2 | 3 | 6 | 9 | 5 | 5 |
Source: RCA/Costar
The asset is located in the Flatbush neighborhood of Brooklyn, just south of the corner of Cortelyou Road and E. 22nd Street. Prospect Park, one of New York's most highly rated parks, is less than one mile to the north. Manhattan is less than 30 minutes away by the subway and tenants can walk nine blocks to the east to the Beverly Rd train stop to ride the 2 & 5 trains. Tenants can also easily catch the Q train from two different stops as the Beverley Road and Cortelyou Road train stations are both walking distance. With convenient access to the subway, the location provides a lower cost alternative to the traditionally more expensive neighborhoods such as Crown Heights, Prospect Heights, and greater downtown Brooklyn without a substantial change in travel time to Manhattan.
The asset is located two blocks away from the historic Kings Theatre. Built in 1929 and suffering from decades of neglect, the theater recently underwent a $95 million restoration and re-opened in January 2015. The theater's interior spaces were restored to their 1929 appearance and its stage facilities were completely rebuilt to modern standards.
Brooklyn College is a little more than one mile south of the property. There is a thriving retail corridor near the college including a Target, the rest of the Triangle Junction Plaza, and the site of Nike's first New York Community store that opened in May.
Market Overview
Brooklyn is located in the New York-Jersey City-White Plains, NY-NJ Metropolitan Statistical Area (MSA).
Effective rent dropped 0.5% in the first quarter of 2016 to $2,961 per unit which resulted in an annual growth rate of 1.3% for the Metro. Effective rent per unit ranks second nationally of all markets. The market's occupancy rate remained at 96.6% for the first quarter of 2016, a figure that ranks thirteenth for all markets at the national level.
The Bureau of Labor Statistics reported that job growth was 2.2% in April 2016 for the metro. The job growth figure was above the national number of 1.9%.
The Metro's two largest job sectors are the Education & Health Services Sector (20.0% of employment) and the Trade, Transportation, and Utilities sector (17.3% of employment). The Education & Health Services Sector grew by 3.4% for the 12 months ending April 2016 and the Trade, Transportation, and Utilities sector grew by 1.1% over the same period.
Market Overview information above was obtained from AxioMetrics
Submarket Overview
The Property is located in the Brooklyn (aka Kings County) submarket of the New York-Jersey City-White Plains, NY-NJ MSA.
Of the 21 total submarkets in the market, Kings County ranks as follows:
- Effective Rent Growth: fifth. Effective rent growth is forecasted at 3.0% for 2016 and is projected to be an average of 5.6% for the period of 2017-2020
- Occupancy: seventeenth. Occupancy is currently at 95.9% for 2016 and is projected to be an average of 96.2% for the period of 2017-2020
Over the past 12 months, 2,006 units were absorbed across the market with 271 units of them in the submarket.
Submarket Overview information above was obtained from AxioMetrics
Demographic Information
| Demographic Information (2015) | 1 mile radius | 3 mile radius | 5 mile radius |
| Population | 213,223 | 1,290,129 | 2,548,460 |
| Population Projection (2020) | 227,435 | 1,352,387 | 2,675,334 |
| Average Age | 37 | 36 | 37 |
| Median Household Income | $47,143 | $51,860 | $49,265 |
| Average Household Size | 2.8 | 2.7 | 2.7 |
| Median Home Value | $465,460 | $603,125 | $589,766 |
| Owner Occupied Households | 12,886 | 125,384 | 252,195 |
| Renter Occupied Households | 62,776 | 332,661 | 676,880 |
| Population Growth 2015 -2020 | 6.67% | 4.83% | 4.98% |
Demographic information above was obtained from CoStar and Census.gov
| Total Capitalization | |
| Sources of Funds | |
| Senior Loan | $3,320,000 |
| Equity | $1,834,940 |
| Total Sources of Funds | $5,154,940 |
| Uses of Funds | |
| Purchase Price | $4,750,000 |
| Cap Ex Reserves | $160,000 |
| Closing Costs | $164,940 |
| Broker Dealer Placement Fee | $40,000 |
| Sponsor Acquisition Fee | $40,000 |
| Total Uses of Funds | $5,154,940 |
The projected terms of the debt financing are as follows:
- Lender: Oritani Finance Company
- Principal Balance: $3,320,000
- Term: 36 months
- Extension Term: 36 months (RM assumes Sponsor executes)
- Rate: 2.75%. Initial 3-year term at the greater of i) the Federal Home Loan Bank of New York (FHLB) Amortizing Advance Indication for 3-Year Final Maturities plus 125 basis points and ii) 2.75%
- Rate on Extension Term: The interest rate shall reset to the then current FHLB New York 3-year Fixed Rate Advance plus 125 basis points, subject to a floor of 2.75%.
- Interest Only: 12 months
- Amortization: 29 years thereafter
- Loan to Cost: 64%
- Loan to Purchase Price: 70%
- Prepayment Penalty: 3%, 2%, 1% last 90 days open, resets after 3 year initial loan term
- Reserves: Borrower will fund a reserve account of $48,000 from either 1) loan proceeds or 2) a monthly contribution of $4,000 for the renovation of vacated units
Realty Mogul has underwritten that the Sponsor exercises their 3-year option to extend the initial loan term.
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.
Order of Distributions to Realty Mogul 67, LLC (Operating Income, Sale or Refinance)
- First, to investors for any accumulated unpaid preferred return
- Second, a cumulative non-compounded 7% annual preferred return
- Then, any excess balance will be split 75% to members pari passu and 25% to Sponsor
Realty Mogul 67, LLC will distribute 100% of its share of excess cash flow (after expenses) to the members of Realty Mogul 67, LLC (the RealtyMogul.com investors). The manager of Realty Mogul 67, LLC will receive a portion (up to 10%) of the Sponsor's promote interest.
Distributions are projected to start in December 2016 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 | Year 4 | Year 5 | |
| Effective Gross Revenue | $417,698 | $439,164 | $460,131 | $483,264 | $497,762 |
| Total Operating Expenses | $157,125 | $162,108 | $167,299 | $172,709 | $177,891 |
| Net Operating Income | $260,573 | $277,056 | $292,832 | $310,555 | $319,872 |
| Distributions to Realty Mogul 67, LLC Investors | $61,419 | $36,338 | $44,075 | $52,768 | $1,431,081 |
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 | $40,000 | Sponsor | Capitalized Equity Contribution | $40,000 fixed |
| Broker-Dealer Fee | $40,000 | North Capital (1) | Capitalized Equity Contribution | $40,000 fixed |
| Recurring Fees: | ||||
|
Asset Management Fee |
$10,000 annually | Sponsor | Operating Cash Flow | $10,000 fixed annually |
| Property Management Fee | 4.0% of monthly gross rental receipts | Sponsor | Operating Cash Flow | 4.0% of monthly gross rental receipts |
| Management and Administrative Fee | 1.0% of amount invested in Realty Mogul 67, LLC | RM Manager, LLC | Distributable Cash | RM Manager, LLC is the Manager of Realty Mogul 67, 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 67, 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.
Project Regulated by New York Rent Stabilization Laws
Local rent stabilization and control laws are subject to The City of New York Rent Guidelines Board and may affect proposed rental increases. Furthermore, before rental increases can be instituted, renovations may have to be approved by The City of New York Rent Guidelines Board. Neither the expediency, nor the ultimate receipt of these approvals can be guaranteed. Additional regulations regarding zoning and rent control also have the potential to prevent the Sponsor Entity from raising rents or modifying the Property.
Renovation Risks
The Sponsor intends to renovate individual units at the Property in order to be able to demand the higher rents it is projecting to receive at the Property following such renovations. Such renovations are expected to cost between $12,000-$20,000 per unit. 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. Additionally, there is no guarantee that units will become available to be renovated as they are all subject to the Rent Stabilization rules as described above. In this even, there is no guarantee that the Sponsor will be able to renovate as many units as projected during the hold period. 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 Realty Mogul 67, LLC's investment.
Lease-Up Risks
The Property currently has a 93% 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 significantly increase rental rates. The Sponsor intends to incrementally renovate the units at the Property, and then to offer prospective tenants an attractive leasing package and to use both external and internal leasing resources in its efforts to lease up vacant space at the Property. 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 successfully increasing its 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.
Repairs May be Required
The improvements on the property were built in 1926. Older buildings may require significant repairs. Required repairs could have a significant adverse impact on the investment returns to the Company.
HPD Violations
The Property is currently assessed with certain Housing Preservation & Development (“HPD”) violations that, if left uncured, may increase the interest rate on the loan for the Property by 50 basis points; such an occurrence would have a negative impact on the financial performance of the Property. HPD violations are the result of variances from New York city and state laws and codes related to housing quality and safety. Depending on the class of violation, Sponsor has an allotted time to cure the violations. There is no guarantee that Sponsor will cure the violations within the allotted time.
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 Sponsor Entity to sell the Property, rent its units as necessary to maintain occupancy, and/or to increase or maintain unit rental rates.
Small Building
The Property contains fewer units than many other multi-family investment properties. As a result, the negative impact of the loss of rent in a few units or other adverse events may have a more significant impact on the results of the property on a percentage basis than at other larger properties.
Hurricane Risk
Brooklyn is located near the Atlantic Ocean, which is subject to frequent and sometimes destructive hurricanes. There can be no assurance that a sizable hurricane will not cause significant damage to the Property, in which case the business and financial condition of the Sponsor Entity, and thus the Company, would be materially adversely affected. There is no guarantee that the Sponsor Entity has or will obtain hurricane or flood insurance for the Property.
Vacancies and Tenant Defaults May Reduce the Property's Revenues
A vacancy or default of a tenant on its rent will cause Sponsor Entity to lose the revenue from that unit and, if enough effective vacancies occur, it could cause Sponsor Entity to have to find an alternative source of revenue to meet any loan payments and other operating expenses for a particular property and it may not be possible to have to find a viable alternative source of revenue. If the company managing the investment property does not employ sufficiently aggressive marketing campaigns and/or lease incentive programs, vacancies may increase and an investment in the Company may be adversely affected.
Interest-Only Loan
The loan being used to acquire the Property is expected to have an interest-only period during the first year of the term, which means that there will be no reduction in the principal balance during that interest-only period.
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.
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.
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 330 22nd LLC (including Realty Mogul 67, 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, 330 22nd LLC is a newly formed company and has no operating history or record of performance. Realty Mogul 67, LLC is pursuing a venture capital strategy through its investment in 330 22nd LLC, and the manager of Realty Mogul 67, LLC is expected to be treated as an investment adviser exempt from federal or state registration under this strategy.
Manager of Realty Mogul 67, LLC Will Participate in Sponsors' Promote Interest
The manager of Realty Mogul 67, 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 67, 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 67, 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 330 22nd LLC from Realty Mogul 67, LLC is unknown, and although 330 22nd 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 67, LLC does not intend to participate in a capital call if one is requested by 330 22nd LLC, and in such event the manager of 330 22nd LLC may accept additional contributions from other members of 330 22nd LLC. Any member may make a loan to 330 22nd LLC under such terms and conditions as may be agreed to by the member and 330 22nd LLC. Such loans will not be considered capital contributions and shall not have an interest rate of higher than 10%. Amounts (other than member loans) that are contributed by existing or new members will be deemed to be additional capital contributions, in which case Realty Mogul 67, LLC's interest in 330 22nd 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 five (5) year hold period, Realty Mogul 67, 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. Sponsor’s decision to hold the Property for longer than five (5) years will require a vote of a majority of the then current members of 330 22nd LLC.
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.
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 67, 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.
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 67, 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.