At A Glance

Investment Details

Arenda Capital Management (the "Sponsor") acquired Lakeside at Town Center Apartments, a 358 unit Class A multifamily property (the "Property") located in Marietta, GA in March 2014. Realty Mogul investors are being provided the opportunity to invest in Realty Mogul 23, LLC. Realty Mogul 23, LLC will be making an investment in Lakeside Town Center Partners, LLC, which holds 50% of the ownership interest in Lakeside 358, LLC, the entity that holds title to the property. The other 50% interest in Lakeside 358, LLC is held by an entity wholly owned by Loma Linda University. The Sponsor is the manager of each of these entities.

The Sponsor has and will handle all aspects of the investment including purchasing the Property, completing a minor renovation program, re-positioning the asset, and ultimately selling the property. The Sponsor has budgeted $300,000 for minor cosmetic upgrades to the Property including repainting, refreshing the clubhouse/leasing office, landscaping/lighting upgrades, parking lot repairs, new fitness equipment, new pool furniture and some mechanical upgrades. This capital improvement plan, along with the $272,000 in capital improvements invested in the Property from 2012-2013, should enhance the Property’s overall appearance and curb appeal.

In addition to the benefits generated by capital improvements, the Sponsor plans to reduce expenses at the Property through several avenues:

• Administrative Expenses: Prior ownership charged various administrative expenses to the Property using an allocation based on the total portfolio expense. This will no longer be in place under new ownership.
• Software: Prior ownership used software with an annual expense of $14,262. The Sponsor will not be using this software and will therefore be eliminating this expense.
• Insurance: Prior ownership’s insurance was priced on a portfolio basis, and the pricing was above what the Sponsor was able to procure a policy for.
• Management Efficiencies: The Sponsor owns a similar size and vintage property in the submarket and expects to be able to implement management efficiencies across the two properties.
• New Service Contracts: All service contracts have been rebid, and budgets will be revamped going forward.   

The Sponsor intends to hold the property for 7-10 years before exiting the investment, though 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 can expect to receive quarterly updates and distributions starting February 2015.

This Property represents a unique opportunity to invest in a well occupied, cash flowing multifamily property alongside a major institution. The Property has existing in-place cash flow while also offering investors value-add potential through a minor renovation and implementation of an aggressive leasing and management strategy by an experienced multifamily owner and operator.

Investment Highlights

• ​Experienced Sponsorship: The principals of Arenda have been involved in the acquisition of over 12,000 multifamily units in the past 12+ years, focused mainly on properties throughout the southeast. Since 2011, Arenda Capital Management has acquired approximately $500 million of commercial real estate, while placing over $160 million of equity. The Sponsor also owns a similar vintage property in the same submarket, which should allow for the sharing of market knowledge, as well as provide the opportunity to implement operational efficiencies across the two properties. 
• Opportunity to Invest Alongside a Major Institution: Loma Linda University is a 50% equity partner in the transaction, indicative of the institutional nature of the deal, the quality of the real estate and the experience of the Sponsor. 
• Class A Features and Construction: Lakeside at Town Center includes high quality features and construction. Exteriors consist of primarily HardiePlank (lap siding) and brick with low maintenance PVC railings and stone retaining walls throughout. The grounds are well kept and manicured and the porte-cochere with brick pavers at the front of the leasing office helps to make an inviting first impression. The leasing office overlooks a resort-style pool below, which leads to a large stocked lake with fountain and lighted boardwalk. A full array of common amenities also includes a cyber café, updated fitness room, lighted tennis court, playground, business center, movie library, laundry facility, car care facility and controlled access gates. Large floor plans average 1,091 square feet and feature nine foot ceilings, double crown moulding, open kitchens with gourmet islands, ceramic tile backsplash, wine racks, computer nooks and more.
• Favorable Basis Compared to Recent Trades: The Sponsor purchased the asset for $38.2 million ($107k/unit) at a 6.1% cap rate (based on Year 1 NOI), which compares favorably with other trades in the market. Parkside at Town Center, a similar vintage product located near the Property, sold for $116k/unit at a 5.32% cap rate in March 2014, the same month that the Sponsor purchased the Subject. In addition, the recently completed appraisal estimated an as-is value of $39.0 million, which is $800,000 or 2% above the purchase price of $38.2 million. 

• Dynamic Town Center Location: Lakeside at Town Center offers its residents convenience and accessibility to major demand generators. Location attributes include:
  • Town Center Mall: A 1.3 million square foot mall anchored by Macy’s, Sears, JC Penny and a wide variety of specialty stores. The surrounding area consists of more than 6.4 million square feet of retail. Town Center has experienced several retail expansions/additions since 2012 (see Location Section for details) reflecting a healthy submarket.
  • Kennesaw State University (KSU): With 24,600 students and 3,000 employees, KSU’s ever-expanding student population and facilities provide an economic impact of $926 million to metro Atlanta. A new football program (and stadium expansion) was recently announced and will kick-off for the 2015 season which should provide a dramatic boost to local businesses.
  • 6.6 Million Square Feet of Office Space: Significant office parks include Barrett Lakes Center, Barrett Business Center, Barrett Summit, Town Park and Chastain Meadows Business Park. WellStar Kennestone Hospital with 633 beds is also nearby.
  • Continuous infrastructure improvements and local investment make the area attractive to residents and business alike. Current projects include Noonday Park Trail, Skip Spann Connector (over I-75), KSU facilities, and the just-approved Northwest Corridor Project (I-75/I-575 toll lanes).

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 23, 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.
• Lakeside Town Center Partners, LLC Will Not Hold the Property Directly: Lakeside Town Center Partners, LLC holds a 50% interest in Lakeside 358, LLC, a Delaware limited liability company that is the actual title-holding entity for the Lakeside at Town Center apartment complex. The other 50% interest in that entity is held by LLU Lakeside, LLC, a Georgia limited liability company whose sole member is Loma Linda University, a California nonprofit religious corporation. Although the manager of Lakeside Town Center also serves as the manager of Lakeside 358, LLC, that entity has its own buy/sell procedures for resolving any decision deadlocks and is otherwise a separate legal entity with its own operating agreement. Despite the multiple entity structure and its potential to limit the liability of investing entities, it remains possible that multiple claims may still be filed against the various legal entities if such claims relate to the underlying investment.
• Decrease in Rents or Occupancy: One of the risks associated with this transaction is the possibility of a significant decline in rents or occupancy. This risk is mitigated by three (3) things: 1) historical occupancy at the Property has averaged over 95% and the Property is currently 95% occupied, 2) once completed, the renovation should increase the attractiveness of the Property to potential renters which should allow the Sponsor to push rents further, and 3) the Sponsor is an experienced group that currently owns another property in the submarket which is currently 94% occupied. 
• Loan Is Interest Only for 10 Years: The loan is interest only for a period of 10 years 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. Additionally, despite the absence of principal loan balance reduction, it is estimated that the loan will be 52% loan-to-value in year 10 given the projected financial assumptions. 
• Prepayment Penalty Risk: Subject to the terms of the loan agreement, if the loan is prepaid prior to 90 days before maturity, the loan is subject to a prepayment fee in the amount of the greater of 1) a 1% prepayment fee, or 2) yield maintenance through maturity. This risk is partially mitigated by the assumption that in a rising interest rate environment, a loan with a fixed rate of 4.9% would be attractive for a buyer to assume, with the option to place additional supplemental financing behind the first mortgage. Additionally, assuming a hold period of 7-10 years, a buyer would be likely interested in assuming a loan with up to three years of interest-only payments. 
• Management Risk: Investors will be relying solely on the manager of Lakeside Town Center Partners (which manager is also the manager of Lakeside 358, LLC, the title-holding entity) 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 Lakeside Town Center Partners, LLC (including Realty Mogul 23, 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 Lakeside Town Center Partners, LLC has significant operating experience, Lakeside Town Center Partners, LLC was formed only six months ago and has no significant operating history or record of performance. 
• Manager of Realty Mogul 23, LLC Will Participate in Sponsor's Promote Interest: The manager of Realty Mogul 23, LLC will have a consent right regarding certain major decisions for Lakeside Town Center Partners, LLC and will have a vote on major decisions involving Lakeside Town Center Partners, LLC. The manager (or one of its affiliates) will also 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 23, LLC. Investors must recognize and agree to waive and bear the risk of this conflict of interest. 
• Uncertain Distributions: The manager of Lakeside Town Center Partners, LLC cannot offer any assurances that there will be sufficient cash available to make distributions to its members (including Realty Mogul 23, 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 property operations or capital improvements. 
• General Economic and Market Risks: While the Sponsor has conducted significant research to justify the intended rental rates and sales price relative to comparable properties in the market, its best efforts to forecast economic conditions cannot state for certain whether or not investor sentiment and the capital markets will be favorable to the property at the intended disposition date. The real estate market is affected by many factors, such as general economic conditions, the availability of financing, interest rates and other factors, including supply and demand for real estate investments, all of which are beyond the control of the manager of Lakeside Town Center Partners, 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.