$8,420,000
Redline Property Partners
Redline Property Partners, LP ("Redline") is a recently-formed privately owned commercial real estate investment, management and advisory firm with concentration in office, industrial and retail properties. Redline’s projects are sized between $10 million and $35 million. Additionally, on behalf of their institutional clients, Redline will pursue certain core-plus transactions sized over $30 million. On behalf of its investors and clients, Redline specializes in the acquisition and management of real estate projects located in select primary and secondary U.S. markets, as well as providing corporate real estate advisory services for its clients. Initially, Redline is only targeting Minneapolis, the Southeast, Central Florida, Atlanta and Chicago, all cities where the Principals have in-depth market knowledge, substantial relationships and a history of successful performance. With over 75 years of combined experience including over $5 billion of transactions, Redline’s Principals maintain expertise in identifying underperforming real estate assets and executing successful turn-around strategies. Additionally, neither Redline, nor its Principals, have ever had an asset lost to foreclosure or exited an investment resulting in an investor loss.
Wedgwood Commerce Center represents RealtyMogul.com's second transaction with Redline. The first was 2 Sun Court which closed in August 2017.
http://www.redlinepropertypartners.com/-
Andrew WebbPrincipal
Mr. Webb is a founding partner and President of Redline. His career encompasses more than 17 years of diverse experience in real estate financing, investment management, acquisitions, operations and leasing.
Mr. Webb began his real estate career with the commercial real estate agency Transwestern as a corporate broker where he specialized in repositioning underperforming office, industrial and retail buildings. After completing nearly one million square feet of transactions for Transwestern, Mr. Webb joined the real estate firm Hines Interests where he focused on asset management and acquisitions of office and retail buildings throughout the Midwest and Southeast U.S. Following Hines, Andrew was Vice President and Senior Investment Manager with KeyBank Real Estate Capital where he was directly responsible for the investment management of a $1.1 billion real estate portfolio comprised of performing and non-performing equity and debt investments in office, retail and multifamily assets. The geographically disbursed investment positions included direct ownership, preferred equity, whole loan debt and various subordinate debt positions.
Prior to founding Redline Property Partners, Mr. Webb was Managing Director of ICM Realty Group, a Canadian-based real estate investment firm. He was responsible for sourcing investment opportunities, structuring investment partnerships, overseeing the U.S. real estate portfolio and directing the company’s activities in the U.S.
Mr. Webb holds Bachelor’s Degrees in Urban Land Economics and Land-Use Planning from the University of North Carolina, and a Master’s Degree in Real Estate Finance from the University of St. Thomas. Andrew is an active member in the National Association of Industrial and Office Properties (including serving on its Capital Markets National Forum) and the International Council of Shopping Centers.
| Property | Location | Product Type | Total SF | Year Acquired | Total Investment |
|---|---|---|---|---|---|
| 2 Sun Court | Norcross (Peachtree Corners), GA | Office | 98,040 | 2017 | $13,841,111 |
| Total | 98,040 | $13,841,111 |
*Sponsor information and track record were provided by the Real Estate Company and have not been independently verified by RealtyMogul.com.
| Property | Location | Product Type | Total SF | Year Acquired | Total Investment |
|---|---|---|---|---|---|
| Cypress Executive Center | Fort Lauderdale, FL | Office | 140,000 | 2015 | $13,500,000 |
| 220 Congress Park | Delray Beach, FL | Office | 55,000 | 2014 | $8,500,000 |
| Atrium at Broken Sound | Boca Raton, FL | Office | 97,000 | 2016 | $17,500,000 |
| Mill Place | Minneapolis, MN | Office | 90,000 | 2016 | $13,250,000 |
| One Corporate Center | Edina, MN | Office | 110,000 | 2016 | $11,580,000 |
| 6101 Congress | Charlotte, NC | Office | 100,000 | 2016 | $27,700,000 |
| International Plaza | Minneapolis, MN | Office | 290,000 | 2006 | $38,000,000 |
| Gulfstream Plaza | West Palm Beach, FL | Office | 80,000 | 2014 | $9,400,00 |
| Total | 962,000 | $139,430,000 |
*Sponsor information and track record were provided by the Real Estate Company and have not been independently verified by RealtyMogul.com. Track record includes past transactions of Andrew Webb at prior firms and not Redline Property Partners.
In this transaction, RealtyMogul.com investors are to invest in Realty Mogul 98, LLC, which is to subsequently invest in WCC Partners, LP, a limited partnership that will hold title to the Property.
The business plan is to acquire the Property, lease vacant space and bring the rolling leases up to market rates while performing various renovations to the common areas totaling $550,000. The capital improvements to the Property are to include updating the overall feel of the building with more with more modern finishes and furniture, as well as the creation of much needed amenities. The previous owner completed minor renovations but did not fully realize the Property's potential. For example, the previous owner did not remove the dated green and brown marble and installed less than desirable furniture. Additionally, the Real Estate Company is exploring the possibility of taking half of the currently vacant space on the first floor off-line and creating an amenity space which could include food service, a fitness center and conference center. Another benefit of taking space offline for the amenities will be an increase in the parking ratio. The Real Estate Company sees this investment as an opportunity to acquire a well-located office asset that, upon renovation, has upside potential due to above market vacancy and below market rents in-place.
This investment will be RealtyMogul.com's second transaction with the Real Estate Company.
RealtyMogul.com, along with Redline Property Partners ("Real Estate Company"), is providing the opportunity to invest in the acquisition of Wedgwood Commerce Center ("Property" and “Transaction”), an 85,404 SF, Class A midrise office building in Maple Grove, MN, a suburb of Minneapolis. Included in the investment group are principals of Blackwood Partners, a Canada-based real estate investment firm with approximately $2 billion of real estate currently under ownership/management.
The primary objective of this investment is to acquire the Property at an attractive going-in yield and basis, implement exterior and interior capital improvements, increase rental rates while maintaining occupancy, and sell the Property within four years.
The Property is an institutional quality, Class A midrise office building located in the Wedgwood Business Park development in Maple Grove, Minnesota. Originally built in 1987, the Property is currently 76% leased to 13 tenants at a below-market average rate of $13.53 PSF.
The Property is of institutional quality and should continue to draw and retain larger, creditworthy tenants. It boasts efficient 20,000 SF floor plates that are attractive to users of all sizes and space layouts. The appeal of the floor plates is demonstrated by the broad range of sizes (1,400 SF to 11,200 SF) and industries currently in occupancy. The broad appeal enables Wedgwood Commerce Centre to accommodate most space requirements and places the landlord in an advantageous position in the marketplace. The Property is located in the heart of highly affluent Maple Grove, Minnesota, home to both high ranking executive decision makers and the skilled work force that is sought after by employers. The surrounding area includes a large supply of executive and working-class housing as well as higher-end retail including Arbor Lakes. The average household income is above $123,000 within three-miles of the Property according to CoStar.
Major Tenant Summary
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Established in 1981, Henningson & Snoxell, Ltd. is a prestigious law firm focused on providing outstanding legal representation that is dedicated to understanding the needs of its clients. Today, the firm includes 15 attorneys focusing on an array of practice areas including real estate, litigation, estate planning, personal injury, and family law. In addition, the firm has developed an impressive practice related to nonprofit organizations. The firm has been located at Wedgwood since 2004 and recently expanded and extended its lease through March 2022. (Source: Cushman & Wakefield)
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Grace Management, Inc. was established in 1984 to develop, manage, and market residential communities for seniors and has been responsible for more than 90 Senior and Multifamily Communities. The company has expanded into operational and marketing consulting services and produces operational studies for various housing communities. The company is headquartered at the Wedgwood Commerce Centre, and has regional support staff in eight states. Grace Management moved into Wedgwood Commerce Centre in 2016. (Source: Cushman & Wakefield)
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PartnerRe Ltd. is a leading global reinsurer that provides multi-line reinsurance to insurance companies. The firm offers capital markets products that included weather and credit protection to financial, industrial and service companies. PartnerRe provides reinsurance services for multiple risks including property, casualty, motor agriculture, aviation/space, catastrophe, credit/surety, engineering, energy, marine, specialty property, and specialty casualty. PartnerRe is headquartered in Bermuda and first moved into Wedgwood in 2008. (Source: Cushman & Wakefield)
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McKinstry Essention, Inc. is a full-service design, build, operate and maintain firm with over 1,800 employees across the United States. The firm provides engineering services across multiple disciplines including construction, consulting, energy, and facility services. The firm achieves over $500 million annually in revenue and has 25 offices throughout the country. McKinstry moved into Wedgwood Commerce Centre in 2012. (Source: Cushman & Wakefield)
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| Property | Sale Date | Size (SF) | Price | $/Square Foot | Cap Rate | Dist. from Subject (mi.) | |
|---|---|---|---|---|---|---|---|
| Valley Creek Office Park | Feb-16 | 128,628 | $22,700,000 | $176 | 7.8% | 9.4 | |
| Valley Square | Oct-17 | 83,290 | $11,700,000 | $140 | 7.9% | 9.8 | |
| City West Financial Center | Nov-16 | 56,652 | $7,000,000 | $124 | 8.0% | 15.4 | |
| Crosstown Corporate Center | Mar-17 | 59,487 | $8,175,000 | $137 | 8.1% | 15.5 | |
| Rosedale Corporate Plaza | Mar-17 | 149,116 | $18,900,000 | $127 | 8.1% | 17.5 | |
| Grandview Square | Oct-15 | 96,248 | $19,000,000 | $197 | 7.4% | 18.2 | |
| Average | 95,570 | $16,435,086 | $150 | 7.9% | 14.3 | ||
| Subject | 85,404 | $8,420,000 | $99 | 7.3% | |||
| Property | Size (SF) | Avg. Rental Rate | Occupancy | Lease Type | Dist. from Subject (mi.) |
|---|---|---|---|---|---|
| 6885 Sycamore | 33,852 | $16.75 | 76% | NNN | 0.5 |
| Bell Tower South | 53,945 | $15.00 | 100% | NNN | 2.5 |
| Quadrant Office Building | 103,387 | $12.00 | 85% | NNN | 4.8 |
| Atria Corporate Center | 360,119 | $18.50 | 94% | NNN | 5.2 |
| Plymouth Woods | 85,232 | $15.00 | 95% | NNN | 5.5 |
| Average | 127,307 | $15.45 | 90% | NNN | 3.7 |
| Subject (Asking) | 85,404 | $13.00 - $14.00 | 76% | NNN |
The comparables included in the above tables were either sourced from CoStar, Real Capital Analytics or they were provided by the Real Estate Company
The Property is strategically located at the intersection of Interstate 494 and Bass Lake Road and is part of Wedgwood Business Park which includes over 600,000 SF of office, office showroom/flex, retail, medical office and hospitality space. Wedgwood Commerce Centre offers a premier amenity package that includes underground parking, bicycle storage and close proximity to the 2.8 million SF Arbor Lakes retail trade area. The project enjoys efficient access throughout the Twin Cities of Minneapolis and St. Paul via multiple interstates and highway systems. I-494, I-694, I-94, Highway 55, Highway 169, and Highway 610 are all within close proximity to the project. The advantageous transportation options enable tenants at the building to draw from multiple, quality labor pools and service clients throughout the Twin Cities region.
Wedgwood Business Park, a 71-acre master planned business park, contains over 370,000 SF of med/tech space, 185,000 SF of office, 35,000 SF of newly developed retail, 10,000 SF of medical and a recently developed 120-room Hilton Garden Inn. The combination of product types makes Wedgwood Business Park truly unique in the market and elevates it above other business parks.
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Market Overview
The Northwest submarket's office stock is concentrated in Brooklyn Center and Maple Grove, both of which offer good freeway access to I-94 and I-494. Most properties are older, low-rise buildings occupied by local tenants, medical offices, or any user in need of office space near well-to-do suburbs like Maple Grove or Golden Valley. Target made news when it more than doubled its footprint with a 650,000 SF expansion in 2014, cementing its position as the submarket's most important tenant. Now, the construction pipeline is cooling off after a number of large deliveries significantly expanded inventory between 2008 and 2014. Sales volume returned to more typical levels in 2016, after 16 trades in 2015 generated $41 million in sales, a submarket record. While volume has slowed in 2017, pricing remains slightly above the historical average for the submarket. There are currently no plans for new spec development per the Cushman & Wakefield listing broker and the potential JLL leasing team.
Demographic Information
| Demographics | 1 Mile | 3 Miles | 5 Miles |
|---|---|---|---|
| Population (2017) | 6,864 | 61,610 | 182,032 |
| Population Growth (2010-2017) | 9.1% | 14.7% | 10.0% |
| Population Growth (2017-2022) | 5.1% | 5.9% | 5.2% |
| Average Household Income (2017) | $94,362 | $122,997 | $103,169 |
Source: CoStar
| Sources of Funds | Cost |
|---|---|
| Debt | $7,066,816 |
| Equity | $3,555,555 |
| Total Sources of Funds | $10,622,371 |
| Uses of Funds | Cost |
| Purchase Price | $8,420,000 |
| Real Estate Company Acquisition Fee | $84,200 |
| Broker Dealer Fee | $64,000 |
| Capital Expenditures | $550,000 |
| TI/LC Reserves | $1,216,858 |
| Working Capital | $22,250 |
| Closing Costs & Fees | $265,063 |
| Total Uses of Funds | $10,622,371 |
The terms of the debt financing are as follows:
- Lender: MidwestOne Bank
- Loan Type: Bank
- Proceeds: $7,066,816
- Initial Loan Funding: $5,299,958
- Term: Five (5) years
- Rate: One-Month LIBOR + 275 bps floating; 4.0% rate floor
- Amortization: 25 years
- Interest-Only Period: Two (2) years
- Extensions: None
- Prepayment: 4% in year one, 3% in year two, 2% in year three, 1% in year four, 0% in year five; waived if property is sold
- Recourse: Non-recourse
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.
WCC Partners, LP intends to make distributions of all available cash and capital proceeds to investors (Realty Mogul 98, LLC, Other LP investors and Real Estate Company, collectively, the "Members") as follows:
Operating Cash Flow
- Pro rata share of cash flow
Capital Events (Sale or Refinance)
- Return of capital;
- Pro rata share of cash flow to a 7% annual return, which will take into account previous distributions of Operating Cash Flow
- Excess balances will be split pro rata 70% to Members and 30% to the Real Estate Company
Note that these distributions will occur after the payment of the WCC Partners, LP's liabilities (loan payments, operating expenses and other fees as set forth in the LP agreement, in addition to any member loans or returns due on member loans).
Distributions are expected to start in September 2018 and are targeted 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. Realty Mogul 98, LLC is to distribute 100% of its share of excess cash flow (after expenses and fees) to the Members of Realty Mogul 98, LLC (the RealtyMogul.com investors).
| Year 1 | Year 2 | Year 3 | Year 4 | |
|---|---|---|---|---|
| Effective Gross Revenue | $1,383,534 | $1,543,051 | $1,812,154 | $1,877,522 |
| Total Operating Expenses | $773,349 | $797,680 | $826,843 | $848,318 |
| Net Operating Income | $610,185 | $745,371 | $985,311 | $1,029,204 |
| Year 0 | 2018 | 2019 | 2020 | 2021 | |
|---|---|---|---|---|---|
| Distributions to Realty Mogul 98, LLC Investors | ($1,620,000) | $136,362 | $160,817 | $183,892 | $2,330,347 |
| Net Earnings to Investor - Hypothetical $50,000 Investment | ($50,000) | $4,209 | $4,963 | $5,676 | $71,924 |
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 |
|---|---|---|---|---|
| Acquisition Fee | $84,200 | Real Estate Company | Capitalized Equity Contribution | 1.0% of the Property purchase price |
| Debt Financing Fee | $63,601 | Real Estate Company | Capitalized Equity Contribution | 0.9% of total loan proceeds |
| Broker-Dealer Fee | $64,000 | North Capital (1) | Capitalized Equity Contribution | 4.0% of equity raised by RealtyMogul.com ($50,000 minimum) |
| Type of Fee | Amount of Fee | Received By | Paid From | Notes |
|---|---|---|---|---|
| Asset Management Fee | 2.5% of Net Operating Income | Real Estate Company | Distributable Cash | |
| Management and Administrative Fee | 1.0% of amount invested in Realty Mogul 98, LLC | RM Manager, LLC | Distributable Cash | RM Manager, LLC is the Manager of Realty Mogul 98, LLC and a wholly-owned subsidiary of Realty Mogul, Co.2 |
(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 Realty Mogul 98, 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.
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 Realty Mogul 98 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. 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.
Office Properties
Office buildings are subject to market forces affecting supply and demand just like other types of commercial space, but the economic drivers for office space are sometimes different than those for other real estate investments. Rents and valuations for offices are primarily influenced not just by employment growth but also by a region’s economic focus. Office space tends to be leased for relatively long periods and such long leases could cause office properties to vulnerable to a lag in market rental rates. Relatively long lease agreements may cause an added -strain on rental rates’ catch-up which may not be imposed until a lease expires. Economic downturns can affect office buildings more than residential buildings, since businesses can go bankrupt even while people continue to need housing. Re-leases of office space can often require significant lead time to consummate.
Fluctuations in Interest Rates
A mortgage loan will be taken out on the Property. Mortgage loan interest rates may be significantly affected by economic downturns or general economic conditions beyond the Company’s control and beyond the control of the Sponsors. In particular, loss rates on mortgage loans may increase due to factors such as (among other things) local real estate market conditions, prevailing interest rates, the rate of unemployment, the level of consumer confidence, the value of the U.S. dollar, energy prices, changes in consumer spending, the number of personal bankruptcies, disruptions in the credit markets and other factors. Any change in interest rates may drastically affect the value of your investment in the Company.
Risks Related to the Property’s Mortgage
A mortgage loan is expected to exist on the Property with interest rates that may vulnerable to economic downturns or general economic conditions beyond the Sponsor Entity’s control. Any change in interest rates may drastically affect the value of your investment in the Company. The Sponsor Entity is seeking financing and is working with an appropriate lender to complete the debt portion of this transaction during the due diligence period provided for in the applicable purchase and sale agreement. Financing risk is inherent in the mortgage lending industry, and there can be no assurance that the lender will complete financing on the rates and terms including in the underwriting being presented in the model for this investment opportunity. If the debt financing on the subject Property does not occur as anticipated, and the Sponsor Entity needs an extension on the purchase contract, there can be no assurance that the seller of the Property may grant an extension or that the acquisition will close. The loan for the acquisition of the Property is expected to involve a prepayment penalty. Sponsor Entity may therefore be unable to take advantage of more favorable financing terms that may become available to it during the term of any such permanent loan. If Sponsor Entity seeks alternative financing, there can be no assurance that Sponsor Entity will be able to obtain such refinancing on a timely or favorable basis.
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 Realty Mogul 98, 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.