We run extensive background checks, criminal checks, bad actor checks, and reference checks on sponsors. In addition to never allowing a sponsor with a criminal history / any securities related issue to use the platform, we may also turn down sponsors due to poor reference checks even if background and criminal checks come back clear.
We require unaffiliated sponsors to use an unaffiliated third-party escrow agent. When an investor makes an investment with unaffiliated sponsors using the RealtyMogul platform, the investor’s money is transferred directly into a third-party escrow account. All closing conditions in connection with a sponsor’s offering need to be met before the third-party escrow agent will approve releasing investor funds to the issuer or general partner. For example, if an issuer or general partner plans to use funds for a real estate acquisition that does not ultimately transact, the third-party escrow agent will not transfer investor funds to the issuer or general partner, and funds will be returned to investors.
Our controls include visiting every property (or a subset of properties if it’s a fund) to confirm the real estate is what and where the real estate is supposed to be.
We have robust quality controls with detailed checklists and a review of third-party reports.
Brennan Investment Group
Brennan Investment Group, LLC (“Brennan Investment Group” or the “Company”) is a private real estate investment company headquartered in Chicago, Illinois. Brennan Investment Group was formed in 2010. Its Managing Principals are comprised primarily of former First Industrial Realty Trust (NYSE: FR) founders and executives. Since 2010, the Company has purchased more than $800 million in industrial real estate, partnering with institutional capital providers such as California State Teachers Retirement System (CalSTRS), Gatehouse Bank and DLJ Real Estate Capital Partners.
The Company’s current portfolio spans 21 states, encompasses over 12.8 million square feet (with an additional 3 million under management), and currently has an occupancy rate of 98.7%. Brennan Investment Group acquires, develops and operates industrial real estate in select major metropolitan markets throughout the United States, including Central Florida, Chicago, Northern New Jersey, Southern California, Texas and Washington, D.C. The Company’s experienced principals utilize a disciplined investment approach in selectively identifying opportunities that look to achieve risk-adjusted returns for investors. Brennan Investment Group believes that industrial real estate is a large, stable and diversified investment class that offers a compelling opportunity for both current income and appreciation across a variety of industrial property types.
Track Record
http://brennaninvestmentgroup.com/At A Glance
Investment Strategy: | Buy, Stabilize and Sell |
Projected Hold Period: | 3 years |
Total Project Budget: | $8,727,778 |
Property Type: | Industrial |
Net Rentable Area: | 260,400 Square Feet |
Distributions to Realty Mogul 22, LLC: | 10% IRR hurdle rate, with excess cash flow and appreciation shared 60/40 |
Going-In Cap Rate: | 8.6% (based on Year 1 income) |
Investment Details
Brennan Investment Group ("BIG" or "the Sponsor") plans to acquire and lease up Jackson Industrial Park ("the Property"), a 260,400 square foot light industrial portfolio comprised of four buildings located in the East submarket of Indianapolis, IN. The property is located in close proximity to the intersection of I-465, which provides access to downtown Indianapolis and the surrounding suburbs, and I-70, which connects Indianapolis to Ohio, Illinois and beyond (ideal for regional distributors). Realty Mogul investors are being provided the opportunity to invest in Realty Mogul 22, LLC. Realty Mogul 22, LLC will be making an investment in Jackson Industrial LLC, which will hold title to the Property.
Through Jackson Industrial LLC, BIG will handle all aspects of the investment including acquiring the property, implementing a property management and leasing program, and ultimately selling the property. The operating plan includes improving the appeal of the property to current and prospective tenants with parking lot repairs and cosmetic upgrades to the common areas, as well as hiring a local leasing team to leverage the strong submarket fundamentals and bring the Property to stabilization. The Property has been institutionally owned, managed, and is in good condition and has a variety of suites ranging from 1,600 to 32,000 square feet in size.
BIG plans to hold the property for three (3) years before exiting the investment, but the hold period could 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. Investors may expect to receive quarterly updates and quarterly distributions, with the first distribution expected in February 2015 and on a quarterly basis thereafter.
Jackson Industrial Park represents a unique opportunity to invest in an well-located industrial portfolio in a strong submarket of Indiana. Because the property is currently 77% occupied, this transaction provides an opportunity for value creation through lease-up over the anticipated three (3) year hold period.
Investment Highlights
- Experienced Sponsorship: Founded in 2010, Brennan Investment Group is a private real estate investment company that specializes in acquiring, developing and operating industrial real estate in major metro markets throughout the United States. They have partnered with institutional capital partners such as Trigate, Gatehouse Bank and DLJ Real Estate Capital Partners, and have purchased over $800 million of industrial real estate. Their current portfolio spans 21 states, encompasses over 12.8 million square feet of industrial product, and has an occupancy rate of 98.7%.
- Location Near Major Transportation Routes: The Property is strategically located near major transportation arteries that connect the Property to major local and national destinations. The buildings are situated at the Northeast intersection of I-465 (the outer “loop” on Indianapolis, which provides for excellent access to downtown and the surrounding suburbs) and I-70 (the east/west interstate that connects Indianapolis to Ohio to the east and Illinois and Missouri to the west which is ideal for regional distributors). Access to these interstates provides excellent connectivity to many major Midwest transportation routes, including I-65, I-70 and I-74, providing access to 75% of the US population within a one day drive.
- Value Enhancement Potential: Due to the fact that the Property is not currently stabilized, this transaction provides investors the opportunity to participate in a value add transaction of an industrial portfolio. By leasing the existing vacancy of the Portfolio at market rents, the income can be increased by approximately $250,000, representing an opportunity to enhance the value of the Portfolio.
- Recent Leasing: Recent leasing at the Property has been strong, with leases being signed at $5.95-7.15 per square foot, which on a weight average basis, are significantly higher than the underwritten market rents of approximately $5.00 per square foot.
- Leasing Upside With a Diversified Tenant Base: The Portfolio is 77% percent leased to 25 tenants with expirations spread over the next five years. Many tenants have histories of multiple one-year renewals that escalate each year, maintain the prior base year stop and are completed on a direct basis with ownership. Although they are not considered long-term tenants, these habitual renewal tenants provide stability and low cost renewals to the Portfolio.
- Recurring Distributions to Investors and Upside Potential: The Property is being purchased at an 8.6% cap rate based on Year 1 NOI and the Property is expected to generate cash on cash returns ranging from 8-11% per annum, with an average of 9.6%. Distributions are expected to begin in February 2015 and continue on a quarterly basis thereafter.
- Low Market Vacancy: The 223 million square foot Indianapolis industrial market has been steadily improving since the recession, and as of 1Q2014, the city’s vacancy rate stands at 6.1%. The Property is located in the East Indianapolis submarket, which contains 43 million square feet of product, a vacancy rate slightly above the city average as a whole at 6.8%; however, when only mid-sized warehouse properties are reviewed, the vacancy rate falls to 5.3%.
Risks and Risk Mitigation*
- Forward-Looking Statements: Investors should not rely on any forward-looking statements made regarding this opportunity, because such statements are inherently uncertain and involve risks. We use words such as “anticipated,” “projected”, “forecasted”, “estimated”, “prospective”, “believes,” “expects,” ”plans” “future” “intends,”, “should,” “can”, “could”, “might”,“potential,” “continue,” “may,” “will,” and similar expressions to identify these forward-looking statements.
- Illiquid Investment - Transfer Restrictions & No Public Market: The transferability of membership interests in Realty Mogul 22, 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.
- Low Occupancy Compared to Submarket: Two (2) tenants recently vacated the Property which dropped the occupancy from 89% down to 77%. Since 2005, the Property has averaged 85% occupancy, with some years achieving in excess of 95% occupancy. Recent leasing at the Property has been strong, with leases being signed significantly higher than the projected market rents. In addition, the budget has a tenant improvement allowance of $2 per square foot, which should adequately address any tenant improvement costs. Additionally, the vacant space has recently been updated with new carpet, lights and paint. Lastly, this risk is mitigated by the fact that BIG is an experienced group of industrial specialists with a current portfolio of 12.8 million square feet, with a vacancy rate of 1.3%.
- Heavy Rollover: Due to a number of short term leases being in place, the Property’s rollover schedule is heavy, with 100% of the space rolling over the next five (5) years. The seller has been in contact with tenants whose leases are set to expire in 2014 and 2015, and 65% of the 138,200 square feet have indicated a high likelihood of renewing, with some of the tenants expressing a desire to expand their space. It is common in the market for small tenants to consistently sign leases with terms of one to three years, and to sign short term renewals year after year, rather than signing longer term leases. This is evidenced by the fact that the short term leases are mostly concentrated in the heavily multi-tenant building #6. Larger tenants are expected to sign leases with terms of five to seven years. The average tenant at the Property has been an occupant since 2009, and recent leasing momentum has been positive.
- Debt With a Five Year Term: The loan on the Property is expected to have a term of five (5) years, potentially creating a refinancing risk should market conditions deteriorate over the next five years. As mentioned above, the Sponsor will be focused on signing/renewing leases at the Property, and the larger tenants' leases are expected to carry terms of five to seven years, assisting in mitigating the refinance risk. Lastly, this risk is further mitigated by the fact that the Sponsor is projecting a three (3) year hold period.
- Debt With Two Year Interest Only Period: There is a two year period after closing where the debt is interest only, and therefore the principal balance will not be amortized during this time. This risk is partially offset by the increase in estimated returns to investors during the life of the deal due to the lower debt service.
- Lease Up of Vacant Space: There is a risk that the leasing team will be unable to lease up the vacancy in the portfolio. This would have an impact on future cash flow and projected value for the Property. This risk is partially mitigated by an experienced leasing team - BIG intends to retain one of the major leasing firms in Indianapolis. Additionally, the Sponsor's current portfolio has an occupancy rate of 98.7%.
- 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 manager of Jackson Industrial LLC for the execution of its business plan. That manager in turn may rely on other key personnel with relevant experience and knowledge, including contractors and consultants. Members of Jackson Industrial LLC (including Realty Mogul 22, 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 manager of Jackson Industrial LLC has significant operating experience, Jackson Industrial LLC is a newly formed company and has no operating history or record of performance.
- Rising Interest Rates: The Federal Reserve has announced plans over time to methodically reduce the amount of stimulus it will inject into the U.S. economy. This could potentially lead to rising interest rates and have an effect on the future value of the property. This risk is partially mitigated by the steadily increasing rental rates and income for the property that should be beneficial in offsetting the effects of future interest rate increases. The loan on the Property will have a interest rate that is locked at close, further mitigating this risk, and lastly, the Sponsor is projecting a hold period of three years.
- Uncertain Distributions: The manager of Jackson Industrial LLC cannot offer any assurances that there will be sufficient cash available to make distributions to its members (including Realty Mogul 22, LLC) from either net cash from operations or proceeds from the sale of the asset. That manager, 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.
- General Economic and Market Risks: While BIG has conducted significant research to justify the intended rental rates and sales price relative to comparable properties in the market, its best efforts to forecast economic conditions cannot state for certain whether or not investor sentiment and the capital markets will be favorable to the property at the intended disposition date. The real estate market is affected by many factors, such as general economic conditions, the availability of financing, interest rates and other factors, including supply and demand for real estate investments, all of which are beyond the control of the manager of Jackson Industrial LLC.
*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.
Addresses: | 3316-3346 N. Pagosa Court 8402-8440 E. 33rd Street 8520-8630 E. 33rd Street 8710-8768 E. 33rd Street Indianapolis, IN 46226 |
Submarket: | East Indianapolis |
Years Built: | 1977 & 1979 |
Current Occupancy: | 77% |
Net Rentable Area: | 260,400 square feet |
Total Suites: | 32 units |
Parking: | 392 spaces, 1.5 per 1,000 square feet of rentable area |
Dock Doors: | 58, 2.2 per 10,000 square feet of rentable area |
Drive In Doors: | 14 |
% Office: | 16% |
Property Highlights
- Strategic Location: The Portfolio is strategically located near the intersection of Interstates 70 and 465 with two separate access points via either Post Road or Shadeland Avenue. Access to these interstates provides excellent connectivity to many major Midwest transportation routes, including I-65, I-70 and I-74, providing access to 75% of the US population within a one day drive.
- Differentiated Product: Tenants that require smaller suite sizes with access to dock doors have few high-quality options within the Indianapolis market. The Portfolio provides an attractive solution to this segment of the market that would not otherwise be accommodated in larger facilities.
- Product Diversification: The Portfolio provides diversity in finish levels and suite sizes, predominantly ranging from 1,600 square feet to 22,500 square feet. These suite sizes, with good opportunities for signage, are ideally suited to this market as the largest segment of tenant demand in Indianapolis is for suites under 25,000 square feet.
- Institutional Ownership: The Portfolio has been institutionally owned by a professional operator and has been well maintained over the years, resulting in limited deferred maintenance and near-term capital requirements. The seller, First Industrial, has also implemented an initiative in the vacant spaces, installing new carpet, paint, lights etc. to make the spaces more marketable to prospective tenants.
- Attractive and Diverse Tenant Base: The tenancy in the portfolio represents a broad spectrum of industries, protecting the income stream from a downturn in any single industry. The Property is leased to 25 tenants consisting of middle market companies with a need or desire to be in this market. There is only one tenant who accounts for more than 10% of the Property’s net rentable area and income, and they have occupied the Property since 2010. The average tenant has occupied the Property since 2009.
Jackson Industrial Park is located in the East Indianapolis submarket of Indianapolis. The buildings are situated at the Northeast intersection of I-465 (the outer “loop” on Indianapolis, which provides for excellent access to downtown and the surrounding suburbs) and I-70 (the east/west interstate that connects Indianapolis to Ohio to the east and Illinois and Missouri to the west which is ideal for regional distributors).
The market information below was provided by various Jones Lang LaSalle industrial market reports, including the 1Q2014 Indianapolis Industrial Statistics report.
Indianapolis Industrial Overview
The Indianapolis metro area continues to experience tremendous success and recovery due to its favorable business climate, skilled and affordable labor force, and competitive pricing dynamics. The overall market has approximately 223.2 million square feet of stock with 107.8 million in bulk/distribution product. Demand continues to trend upward as positive net absorption reached over 2.2 million square feet for bulk/distribution in 2013 and over 4.0 million square feet for the overall market. Leasing activity is brisk with approximately 12.0 million square feet of leases signed in 2013 with vacancy tightening across a number of submarkets while overall vacancy has compressed to 6.1 percent. The surge in leasing activity has been led by occupiers throughout the consumer goods, technology, and logistics industries. Indianapolis is seeing a surge in speculative industrial development with more than 2.4 million square feet of new construction. The traditional strengths of the market such as central location and affordable raw land, as well as market dynamics such as minimal vacancy rates coupled with rising rents, have led to increased Indianapolis building activity.
Market Outlook
- Central Indiana is forecast to continue to outperform the U.S and Midwest relative to absorption and vacancy.
- Warehouse space is forecast to be in high demand.
- The ongoing economic recovery should continue to fuel consumer demand for goods leading to related occupiers seeking space and/or purchasing local product for distribution facilities and manufacturing operations throughout the metro.
- A number of leases between 250,000 and 750,000 square feet are in the pipeline and are expected to be signed in the first half of 2014.
- While large leases grab headlines, the largest component of lease demand is in the spaces of less than 100,000 square feet, representing approximately 60 percent of the demand as measured by number of requirements.
- As leasing velocity remains vibrant, the trend in asking rents for the overall market, and especially mid-sized warehouse product, is anticipated to steadily increase in most submarkets such as the East.
East Submarket Overview
The East submarket is home to approximately 42.9 million square feet of stock, of which approximately 25 percent or 10.5 million square feet, is categorized as Mid-Sized Warehouse space. Mid-Sized Warehouse space consists of warehouse buildings that are less than 100,000 square feet in size. As evidenced by the vacancy rate of just 5.3%, this space is in high demand in the East submarket, which is characterized by many small-to-mid sized tenants. The majority of the submarket consists of second and third generation facilities that provide the necessary space at more affordable rates than in newer facilities. These facilities, especially those similar to the Portfolio that provide dock doors for even small suite sizes, are difficult to find in larger, more modern spaces, and fill an important need in the market.