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Completed Equity
Multifamily
Walnut Place Apartments
Pasadena, CA
INVESTMENT STRATEGY
Value-Add
INVESTMENT TYPE
Equity
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100% funded
Offered By New Standard Equities
16.0%* TARGET IRR 15.0%-17.0%
1.6%* TARGET AVG CASH ON CASH
1.55* TARGET EQUITY MULTIPLE
Estimated Hold Period 3 years
Estimated First Distribution 6/2018
*Please carefully review the Disclaimers section below, including regarding Sponsor’s assumptions and target returns
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Project Summary
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Overview
Value-add acquisition of a well located multifamily property by an experienced, repeat Real Estate Company in an affluent suburb of Los Angeles.
Property At A Glance
Year Built 2004
Total Square Feet 34,994
Number of Units 28 Multifamily / 2 Retail
Current Occupancy 100%
Amenities Landscaped outdoor courtyard, gated subterranean parking (56 resident spaces plus nine retail spaces), and side-by-side washers and dryers in each unit. 
Acquisition Price

$14,000,000

Investment Highlights
Experienced Repeat Real Estate Company: The Real Estate Company owns and manages over $190 million in multifamily assets overall, comprising over 1,500 units and has transacted with RealtyMogul.com on two previous transactions.
Strong Leasing Demand: The Property is 100% occupied and similar properties in the immediate neighborhood are commanding significant rental premiums
Well Located: The Property is situated in a major Southern California market with favorable demographics; in close proximity to retail amenities, public transportation and public facilities
Management
Cumulative Distributions

New Standard Equities

New Standard Equities was formed in 2010 in an effort to capitalize on the extraordinary dislocation in the post‐financial crisis real estate investment market. With significant experience in buying and operating large, institutional-quality multifamily properties throughout the Western U.S., the company is deploying private and institutional capital to purchase and operate apartment assets that offer steady, long-term cash flow to its investors. New Standard Equities’ full-service real estate platform is actively engaged in property management, asset management, construction management and project consultation.

New Standard Equities has successfully operated multifamily assets in major markets throughout the Western U.S. There are inherent risks in the task of operating apartment assets, but the firm’s strict philosophy is to minimize those risks by targeting markets it knows and understands. In-fill, supply-constrained markets that offer long-term job growth potential are among the most important dynamics. 

RealtyMogul.com has invested in two prior transactions with the Real Estate Company - Village Fair and Oak Harbor Apartments. As of Q2 2017, the Real Estate Company has renovated three units at Village Fair since inception and all three have been leased at proforma rents. In addition, the current average in-place rent is 5.1% higher than the in-place rent at acquisition. The Real Estate Company has been closely monitoring property expenses while efforts are being made to increase rents. As a result of lower than projected expenses, Net Operating Income since inception is 6.4% above proforma. As of Q2 2017, Oak Harbor is performing well as the Real Estate Company has been able to outperform proforma rents without doing any unit renovations. The current average in-place rent of $988/month is 6.8% above the proforma post-renovation rent of $928/month. Furthermore, the average in-place rent is 28.4% above the average rent at acquisition. Oak Harbor's performance is trending upwards as Q2 2017 experienced the highest Net Operating Income since acquisition, an increase of 52.2% year-over-year.

http://www.newstandardequities.com/
  • Edward Ring – Founder & Chief Executive Officer
  • Cyrus Blourtchi – Executive Vice President & Chief Financial Officer
  • Lisa Moore - Executive Vice President of Operations
  • Todd Weiss – Managing Director of Construction Management
  • Pauline Imamura – Director of Training and Compliance
Edward Ring – Founder & Chief Executive Officer

With over 24 years of real estate and financial consulting experience, Ring’s expertise includes providing strategic leadership for all aspects of the investment process, including sourcing new projects, business plan development, optimizing capital structures and actively overseeing each project’s execution phase from soup to nuts.

Previously, Ring was chief operating officer at Kennedy Wilson Multifamily Management Group, where he was responsible for the acquisition and operation of approximately 13,000 apartment units. At the time of his departure, roughly half of those acquisitions had been sold for a project level profit of over $100 million and had achieved a 1.80 multiple on equity, a 28.5 percent IRR, and an ROI of 55.4 percent. Ring also forged key partnerships with institutional investors, such as The Dubai Investment Group, General Electric, Mitsubishi Corporation, General Motors, AIG, RREEF and Wachovia Securities, among others.

In addition to his background as a real estate professional, Ring is an Emeritus member of the Writers Guild of America (WGA). He wrote for a variety of television comedies for NBC, UPN, Saban Entertainment, VH1 and HBO, where he earned a Cable ACE nomination for his work on “The Larry Sanders Show.”

A graduate of U.C. Berkeley in 1988, Ring went on to earn his MFA from New York University in 1992 and his MBA from UCLA Anderson in 2003. Ring served on the Executive Committee of the Anderson School’s Alumni Association and currently serves on The Board of Governors at Cedars Sinai Medical Center in Los Angeles. He is also a member of Mensa.

Cyrus Blourtchi – Executive Vice President & Chief Financial Officer

Cyrus Blourtchi brings 26 years of financial accounting and senior management experience to the company, including 19 years in the multifamily industry. Prior to joining New Standard Equities, Cyrus served as Director of Accounting/Controller with Kennedy Wilson Multifamily for seven years.  Prior to that, Cyrus held accounting positions at Welk Real Estate and RCMI in Southern California.

Mr. Blourtchi is responsible for maintaining all aspects of the accounting records for New Standard Equities' assets and management assignments.  He is highly trained in GAAP accounting procedures and professional protocols, including a strict adherence to Sarbanes-Oxley regulatory compliance standards for public investors.​  Cyrus also provided financial accounting services for organizations outside the real estate sector, including spending two years as a finance officer for the United Nations. ​

Lisa Moore - Executive Vice President of Operations

Lisa brings over 25 years of experience in multifamily property management on the West Coast. Prior to joining NSE, she was a regional manager for the Laramar Group, JB Partners, Pinnacle, Legacy Partners and AIMCO. Ms. Moore is an industry-recognized leader in the property management space and has a first-class reputation for integrity and responsiveness to rapidly changing market dynamics. Ms. Moore is responsible for all aspects of property operations, including business plan implementation, asset management and investor reporting.

Todd Weiss – Managing Director of Construction Management

Todd Weiss joined New Standard Equities in 2013 and is primarily responsible for NSE's acquisitions, asset management and construction management activities. In addition, he is involved with sourcing new debt and equity for all of NSE’s acquisitions. 

Prior to joining New Standard Equities, Todd was an independent commodities trader at The Chicago Board of Trade where he specialized in agricultural commodities. Todd received his BA from The University of Arizona’s College of Agriculture in 2000.  Todd co-chaired the 2007 Maccabi USA golf team to successful gold medal victories in the youth, open and senior divisions.

Pauline Imamura – Director of Training and Compliance

Pauline Imamura has served NSE since its inception, following 15 years of site and multi-site management for Fore Properties, Kennedy Wilson Multifamily, and FPI Management.  She has supervised over $3,000,000 in unit-level property improvements, spearheaded successful marketing and repositioning programs in properties throughout California, and produced same-store income growth of above 6% on stabilized assets, and nearly 20% on value-add repositioning projects.

At New Standard Equities, Ms. Imamura is responsible for all site-level operations, including enforcing standard operating procedures, preparing week and monthly operational reports, conducting quarterly asset inspections and conducting regular safety training seminars to ensure properties are compliant with company policies, Fair Housing Standards and OSHA regulations.​

Track Record

The below track record for Edward Ring includes all the apartment acquisitions completed by New Standard Equities, as well as those Mr. Ring was responsible for while at Kennedy Wilson Multifamily.

Address Location Date Acquired # of Units Purchase Price
New Standard Equities (2011 - Present)      
Fountain at Curson Hollywood, CA Jun-11 20 $4,000,000
Crossings at the Bay Long Beach, CA Nov-11 235 $34,500,000
Villa Olivos Canoga Park, CA Aug-12 53 $4,950,000
Parke Pasadena Pasadena, CA Aug-13 22 $3,400,000
Asana at North Park San Diego, CA Oct-14 132 $18,470,000
Anchor Pointe Oak Harbor, WA Aug-15 107 $7,500,000
Rancho Azul San Diego, CA Aug-15 74 $14,000,000
SeaGlass Village Bremerton, WA Mar-16 182 $13,000,000
Village Fair Bremerton, WA Dec-16 120 $13,100,000
Atlas Port Orchard, WA Feb-17 276 $37,874,000
Venue Renton, WA Jun-16 284 $41,500,000
Subtotal     1,505 $192,294,000
         
Kennedy Wilson Multifamily (2002 - 2008)      
Woodstone Lompoc, CA Mar-05 204 $20,600,000
Rutherford Townhomes Napa, CA Aug-05 66 $7,400,000
College Square Davis, CA Aug-05 240 $24,000,000
Bayside Pinole, CA Aug-05 148 $19,600,000
Villas at La Mesa La Mesa, CA Dec-05 86 $11,100,000
Arbor Creek Beaverton, OR Mar-06 440 $32,800,000
The Courtyards Norwalk, CA Mar-06 153 $18,200,000
Bay Village Vallejo, CA Mar-06 260 $32,000,000
Shorepark at Riverlake Sacramento, CA Mar-06 393 $51,250,000
Mariposa Anaheim, CA Jun-06 286 $46,000,000
Hidden Creek Martinez, CA Sep-06 168 $21,500,000
Cascade Ridge Federal Way, WA Nov-06 518 $58,000,000
The Enclave Paramount, CA Dec-06 306 $51,500,000
Chadwick Los Angeles, CA Feb-07 687 $120,000,000
The Reserve Federal Way, WA Mar-07 401 $46,500,000
The Mill at Mill Creek Mill Creek, WA Jul-07 516 $80,000,000
The Grove San Jose, CA Jul-07 331 $45,750,000
James Street Crossing Kent, WA Feb-08 300 $35,720,000
Indigo Springs Kent, WA Jun-08 278 $36,000,000
Avalon at Redmond Redmond, WA Jun-08 400 $81,250,000
The Lexington Montclair, CA Aug-08 165 $29,250,000
Saybrook Pointe San Jose, CA Sep-08 324 $84,000,000
Plaza del Sol Santa Ana, CA Jan-02 196 $16,675,000
Windwood West Covina, CA Dec-02 116 $11,250,000
Rancho Solana Oxnard, CA Mar-03 168 $22,750,000
La Serena Santa Ana, CA Dec-02 188 $18,000,000
Lakewood Manor Lakewood, CA Aug-04 661 $68,000,000
Andorra & Andalucia Indio & Palm Springs, CA Sep-03 362 $26,200,000
Arrowhead Apartments Stanton, CA Jan-04 168 $19,750,000
Waterbrook Rancho Cucamonga, CA May-04 624 $66,600,000
The Crest Grand Terrace, CA Mar-04 228 $19,305,000
Verona Woods West Covina, CA Mar-04 196 $22,000,000
Somerset on Garfield Montebello, CA Dec-04 256 $31,750,000
Country Oaks Santa Maria, CA May-05 208 $22,800,000
Windscape Village Lompoc, CA Sep-03 328 $27,000,000
Creekside San Jose, CA Nov-05 200 $26,600,000
Westwood Portfolio Westwood Village, CA Mar-05 153 $32,100,000
Summer House Alameda, CA Sep-05 615 $86,750,000
Subtotal     11,337 $1,469,950,000
         
Total     12,842 $1,662,244,000

The above track record information was provided by the Real Estate Company and has not been independently verified by RealtyMogul.com​.

Business Plan

In this transaction, RealtyMogul.com investors will invest in Realty Mogul 96, LLC ("The Company"). Realty Mogul 96, LLC will subsequently invest in Pasadena Investors, LLC ("The Target"), the entity that will directly or indirectly hold title to the Property. New Standard Equities (the "Real Estate Company") purchased the Property for $14.0 million ($466,667 per unit) on 10/24/2017 and the total project cost was approximately $15.2 million ($505,069 per unit).

The Real Estate Company’s business plan is to implement a value-add strategy by completing strategic renovations at the Property and introducing new professional management. The Real Estate Company plans to renovate 25 units over 18 months (1.4 units per month), which they state is a comfortable pace given their track record, and sell the Property in three (3) years at a 4.50% cap rate. The Real Estate Company plans to invest $10,000 per unit in interior renovations to achieve expected rental premiums of approximately $997 per unit per month upon completion. The Real Estate Company also intends to enhance the overall operations of the Property through improved management, and by leveraging the economies of scale provided by their local multifamily portfolio.

Property
Property Details

Built in 2004, the Property consists of 28 multifamily units and two retail units, combining to 34,994 square feet across five floors, all located on a 0.35-acre lot. The multifamily unit mix is comprised of 21 two-bedroom units and seven three-bedroom units with a weighted average size and rent per unit of 1,146 square feet and $2,108 per unit ($1.84 per square foot), respectively. The commercial rent roll is comprised of two suites totaling 2,915 square feet with a weighted average base rent of $3,516 ($2.39 per square foot). The Property is currently 100% occupied.

The Property features wood-frame construction on concrete slab foundations, with flat roofing, gas utilities, exterior breezeways, and an individual patio or balcony for each unit. Amenities at the Property include a landscaped outdoor courtyard, gated subterranean parking (56 resident spaces plus nine retail spaces), and side-by-side washers and dryers in each unit. 

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Multifamily Unit Mix
Unit Type # of Units Unit Square Feet Total Square Feet Rent per Unit Rent per Square Foot
2 Bed, 2 Bath (Section 8) 2 1,116 2,232 $1,154 $1.03
2 Bed, 2 Bath 19 1,063 20,197 $2,125 $2.00
3 Bed, 2 Bath (Section 8) 1 1,322 1,322 $1,300 $0.98
3 Bed, 2 Bath 6 1,388 8,328 $2,500 $1.80
Total 28 1,146 32,079 $2,108 $1.84
Commercial Rent Roll
Tenant Square Feet Rent Rent per Square Foot Lease Expiration
Project Beauty  1,540 $4,050 $2.63 August 31,2018
EU World 1,375 $2,917 $2.12 October 31, 2018
Total 2,915 $3,516 $2.39  
Comparables

Sale Comparables
Property Transaction Date Transaction Type Units (#) Year Built Price $ per Unit
Trio Pasadena October-16 Sale 306 2005 $154,000,000 $503,268
144 N Michigan Avenue August-17 Sale 15 1987 $6,300,000 $420,000
888 Magnolia Avenue May-17 Sale 8 1965 $2,850,000 $356,250
4951 Rosemead Boulevard May-17 Refinance 24 2008 $8,030,000 $334,583
1752 N Kingsley Drive Nov-15 Refinance 13 2006 $6,700,000 $515,385
296 N Oakland Avenue June-17 Sale 25 1957 $6,100,000 $244,000
Average     65 1988 $30,663,333 $395,581
Subject October-16   30 2004 $14,000,000 $466,667
Lease Comparables
Property Submarket Occupancy Units (#) Year Built Square Foot Per Unit Rent per Unit Rent per Square Foot
Avalon Pasadena 95% 120 2004 855 $2,673 $3.13
Trio Pasadena Pasadena 96% 306 2005 888 $2,547 $2.87
Andalucia Pasadena 75% 118 2017 951 $3,014 $3.17
Westgate Pasadena 99% 480 2010 938 $2,853 $3.04
Average   97% 256 2009 908 $2,772 $3.05
Subject - In-Place   100% 30 2004 1,146 $2,108 $1.84
Subject - Projected Post-Renovation   100% 30 2004 1,146 $3,105 $2.74

The comparables included in the above tables exclude all retail space at the Property and were either sourced from CoStar, Real Capital Analytics, or they were provided by the Real Estate Company. 

Location

The Property is located in the Playhouse District, in the Pasadena Submarket within the greater Los Angeles-Long Beach-Glendale​ MSA as defined by Axiometrics​. The Property is proximate to Lake Avenue and the Metro Gold Line, with restaurants, bars, cafes, and a rich amenity base of shopping and entertainment options in both the Playhouse and Lake Avenue districts of Pasadena, just south of the 210 freeway. 

Market Overview 

Per Costar, Los Angeles continues to be a favorite target of multifamily investors and developers. Supply constraints and community opposition prevent most submarkets from being overbuilt, and a high degree of investor interest means that the market will remain liquid. More than 50% of residents rent their homes, the highest ratio of renters to owners of any major metro in the country. The deep renter pool helps to guarantee steady demand and healthy rent growth potential. The improving economic picture, coupled with a widespread housing shortage in LA County, should ensure that fundamentals remain stable for the foreseeable future, and high-profile projects like the NFL stadium in Inglewood and the Lucas Museum of Narrative Art in Exposition Park should help jump-start development in the formerly neglected southern part of the metro. Los Angeles' recent selection as the host of the 2028 Summer Olympics should also help boost infrastructure spending and development across the metro.

Submarket Overview

Per Costar, the delivery of several large communities around the turn of the year caused a brief spike in vacancies, but demand for these units has been robust. Pasadena retains its status as one of the San Gabriel Valley's premier employment and entertainment hubs, which helps drive multifamily demand. Average rents are above the metro average, but the rate of growth appears to be slowing, mirroring a metrowide trend. Median unit prices have continued a multiyear climb, but total volume through August 2017 was well off of 2016's pace.

Per Axiometrics, annual effective rent growth in Pasadena is forecast to average 2.4% from 2017 to 2019. The annual effective rent growth has averaged 3.2% per year since Q1 1999. Pasadena's occupancy rate is expected to decrease to 95.6% in 2017 and average 95.8% from 2017 to 2019. The submarket's occupancy rate has averaged 95.6% since Q1 1999.

Demographic Information

Demographics
Distance from Property 1 Mile 3 Miles 5 Miles
Population (2017) 47,302 190,709 498,383
Population (2022) 48,771 196,207 512,077
Projected Growth (2017-2022) 3.11% 2.88% 2.75%
Median HH Income  $61,167 $81,124 $74,350
Median Home Value $503,393 $791,775 $736,004
Average HH Size 2.1 2.5 2.7

Demographic information above was obtained from CoStar.

Photos
Financials
Sources & Uses

Total Capitalization
Sources of Funds Cost
Debt $11,250,000
Equity $3,902,062
Total Sources of Funds $15,152,062
Uses of Funds Cost
Purchase Price $14,000,000
CapEx Budget $360,400
Real Estate Company Acquisition Fee $92,200
North Capital Broker Dealer Fee $47,800
Lender Origination Fee $240,000
Prepaid/Expense Reserves $39,650
Interest Reserve $150,000
Closing Costs $97,771
Working Capital $124,241
Total Uses of Funds $15,152,062
Debt Assumptions

The terms of the debt financing are as follows:

  • Lender: Resource Real Estate
  • Estimated Proceeds: $11,250,000
  • CapEx Reserve: $385,000
  • Interest Reserve: $150,000
  • Estimated Rate (Floating): 380 basis points over the 1-Month LIBOR (1.23% Floor), estimated to be 5.03% as of 10/13/17
  • Amortization: None, three (3) years of interest-only
  • Term: Three (3) years
  • Extension Option: Two, one (1) year extension options
  • Prepayment Penalty: None

An interest rate cap with a 3-year term is required and included in the transaction capitalization (within closing costs).

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.

Distributions

The Target will make distributions to investors (The Company and Real Estate Company, collectively, the "Members") as follows:  

Operating Income, Refinance, and Sales Proceeds

  1. To the Members, in proportion to their respective percentage interests, until each Member has received aggregate distributions such that it has received a 6.0% Preferred Return;
  2. To the Members, in proportion to their respective percentage interests, until each Member has received aggregate distributions such that it has received a return of its capital contribution;
  3. 70.0% / 30.0% (70.0% to Members / 30.0% to the Real Estate Company) of excess cash flows and appreciation thereafter. 

Note that these distributions will occur after the payment of the Company's liabilities (loan payments, operating expenses and other fees as set forth in the LLC agreement, in addition to any member loans or returns due on member loans).

The Company will distribute 100% of its share of excess cash flow (after expenses) to the members of The Company (the RealtyMogul.com investors). The manager of The Company will receive a portion (up to 10% pro-rata) of the Real Estate Company's promote interest. Distributions are expected to start in June 2018 and are projected to continue on a quarterly basis thereafter. These distributions are at the discretion of the Real Estate Company, who may decide to delay distributions for any reason, including maintenance or capital reserves. 

Cash Flow Summary
  Year 1 Year 2 Year 3
Effective Gross Revenue $838,780 $1,084,461 $1,177,772
Total Operating Expenses $337,295 $354,224 $365,239
Net Operating Income $501,486 $730,236 $812,533

Realty Mogul 96, LLC Cash Flows

  Year 0 2017 2018 2019 2020
Distributions to
Realty Mogul 96, LLC Investors
($1,215,000) $0 $4,046 $22,244 $1,862,753
Net Earnings to Investor
- Hypothetical $50,000 Investment
($50,000) $0 $166 $915 $76,656
Fees

Certain fees and compensation will be paid over the life of the transaction. The following fees and compensation will be paid:

Type of Fee Amount of Fee Received By Paid From Notes
One-Time Fees:
Acquisition Fee $92,200 Real Estate Company Capitalized Equity Contribution 1.0% of the Property purchase price
Broker-Dealer Fee $47,800 North Capital (1) Capitalized Equity Contribution 4.0% based on the amount of equity invested by Realty Mogul 96, LLC
Construction Management Fee $21,624 Real Estate Company Capitalized Equity Contribution 6.0% of CapEx budget
Recurring Fees:
Property Management Fee 4.0% of Effective Gross Income Real Estate Company Operating Cash Flow  
Management and Administrative Fee 1.0% of amount invested in Realty Mogul 96, LLC RM Manager, LLC Distributable Cash RM Manager, LLC is the Manager of Realty Mogul 96, 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 Real Estate Company or others.  Realty Mogul, Co., RM Manager, LLC, and The Company, 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.

Disclaimers/FAQs
Disclaimers

Forward-Looking Statements

Investors should not rely on any forward-looking statements made regarding this opportunity, because such statements are inherently uncertain and involve risks. We use words such as “anticipated”, “projected”, “forecasted”, “estimated”, “prospective”, “believes”, “expects”, “plans”, “future”, “intends”, “should”, “can”, “could”, “might”, “potential”, “continue”, “may”, “will” and similar expressions to identify these forward-looking statements.


Non-Transferability of Securities

The transferability of membership interests in The Company 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. Moreover, the estimated investment holding period described herein is only a projection, and there can be no assurance when or if an investment may be liquidated. 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.


Credit Risk

The Company's investment in The Target will relate to a Property that will undergo some degree of renovation, a situation that does not always meet the financing criteria for conventional financing from institutional sources. Credit risk is inherent in the real estate financing industry, and there can be no assurance that the credit worthiness of the Real Estate Company will be sufficient to assure the full repayment of the The Company's common equity investment and thus The Company's ability to provide returns (or even repayment of principal) to investors.


Mortgage Risk

The Real Estate Company has a signed term sheet with a lender to provide the debt financing for the acquisition of the Property, but there can be no assurance that the lender will complete financing on the rates and terms included in the underwriting being presented in the model for this investment opportunity. All rates and terms of the debt financing are subject to final lender committee approval, including but not limited to a modification in lender held capital reserve requirements that may result in a corresponding movement of certain funds currently projected as being held in a Real Estate Company controlled capital escrow account.


Management Risk

Investors will be relying solely on the Real Estate Company for the execution of its business plan. The Real Estate Company may in turn rely on other key personnel with relevant experience and knowledge, including contractors and consultants. Members of The Target (including The Company) 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 Real Estate Company has significant operating experience, The Target is a newly formed company and has no operating history or record of performance. The Company is pursuing a venture capital strategy through its investment in The Target, and the manager of The Company is expected to be treated as an investment adviser exempt from federal or state registration under this strategy.


Manager of The Company May Participate in Real Estate Company's Promote Interest

The manager of The Company may 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 The Company. Investors must recognize and agree to waive and bear the risk of this conflict of interest.


Capital Call Risk

The amount of capital that may be required by The Target from The Company is unknown, and although The Target 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. The Company does not intend to participate in a capital call if one is requested by The Target, and in such event the manager of The Target may accept additional contributions from other members of The Target. Amounts that the manager of The Target advances on behalf of The Company will be deemed to be a manager loan at an expected interest rate of 10%. Amounts that are contributed by existing or new members will be deemed to be additional capital contributions, in which case The Company's interest in The Target will suffer a proportionate amount of dilution.


Real Estate Market Risk

The Target's economic performance and value, and thus the value of investors’ investment in The Company, is subject to various risks associated with the Property. Real estate markets are affected by many factors, such as general economic conditions, supply and demand for real estate investments, interest rates, the availability of financing, and other factors. Investments related to real estate are also subject to market valuation risks that may be caused by changing economic and local market conditions such as local real estate market conditions. The Property’s economic performance and value, and thus the value of investors’ investment in The Company, is subject to such risks, all of which are beyond the control of both The Company and The Target.


Interest-Only Loan

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


Floating Interest Rate

The loan being used to acquire the Property is expected to have a floating rate based on the one-month London Interbank Offered Rate (“LIBOR”). If LIBOR increases the interest payments due on the loan are expected to increase as well. This could adversely affect the Property’s financial results or business operations and thus the value of the Company’s investment.


Co-Terminus Debt Risk

The loan on the Property is expected to have a term of three (3) years, potentially creating a refinancing risk should market conditions deteriorate over the next three years.


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 Real Estate Company and others. Realty Mogul, Co., RM Manager, LLC, and The Company, along with their respective affiliates, officers, directors or representatives (the "RM Parties") hereby advise you that none of them has independently confirmed or verified any of the information contained herein. The RM Parties further make no representations as to the accuracy or completeness of any such information and undertake no obligation now or in the future to update or correct this presentation or any information contained herein.

 

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