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EDIT IO DOCUMENTS
Canceled
Multifamily
Brooklyn Low-Rise Multifamily Portfolio
Multiple Locations
INVESTMENT STRATEGY
INVESTMENT TYPE
Equity
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Offered By Inception Investors, LLC
16.4%* TARGET IRR 15.4%-17.4%
4.6%* TARGET AVG CASH ON CASH
* 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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Explore this Project
Overview
Recapitalization of a Portfolio of Multifamily Properties in Brooklyn, NY.
Property At A Glance
Years Built 1920-1935
# of Units 112
# of Buildings Seven
Current Occupancy 99.1%  (as of 9/25/2017)
# of Stories Three to Four 
Acquisition Price

$26,300,000

Investment Highlights
Sponsorship: Repeat local Real Estate Company with experience purchasing and adding value to rent stabilized multifamily properties in Brooklyn.
Attractive Basis: Investors in Realty Mogul 97, LLC are Recapitalizing the Portfolio and Receiving an Equity Basis Equivalent to The Real Estate Company's 2015 Acquisition Basis.
Well Located: The Portfolio is Located in Gentrifying Neighborhoods of Brooklyn, New York.
Significant Sponsor Equity: The Sponsor Has Invested over $3.7 Million in the Portfolio.
Management
Cumulative Distributions

Inception Investors, LLC

Inception Investors is a private real estate investment and operating company that was founded in 2012. The company is headquartered in New York City and has offices in Brooklyn and Manhattan.

The Sponsor’s investment strategy is to acquire properties with attractive growth potential through a combination of active property and asset management and market growth. They generally target cash flowing Class-B multifamily properties and give key consideration to the following criteria:

  • Gentrifying Tri-state area markets with high population density and strong market fundamentals.
  • Capitalize on shifts in demographic trends and property investments that include an increased preference for urban living by baby boomers, millennials, and young professionals as well as assets that are in close proximity to transit or places of employment.

RealtyMogul.com has invested in three prior transactions with The Real Estate Company (New Jersey Multifamily, Brooklyn Multifamily and 497 Dean Street). As of Q2 2017, NOI over the previous year at New Jersey Multifamily is trending at 44.5% above proforma.  At Brooklyn Multifamily, the Real Estate Company has completed five unit buyouts and renovations since the purchase of the property in July 2016, outperforming underwritten expectation of three unit buyouts and renovations during this timeframe.  Renovated units are achieving a 57.6% increase in rents vs. previously in-place rent, which is greater than the 36.0% increase contemplated in the RM Estimated Financials for that property.  497 Dean Street was closed on in August 2017 and while no distribution was underwritten until March 2018 The Real Estate Company distributed to Realty Mogul in November 2017, approximately a quarter ahead of schedule.

The Real Estate Company's Track Record (includes transactions the management team completed as Principals of other firms prior to joining Clairmont and Inception Investors)

http://www.inceptioninvestors.com
  • Ryan Colbert, Managing Partner
  • Chesky Engel, Managing Partner
Ryan Colbert, Managing Partner

Mr. Colbert has over a decade of institutional real estate equity investment experience in both domestic & international markets and has acquired over $1 billion worth of commercial real estate. His experience includes investments in distressed real estate & note purchases, recapitalizations, JV partner buy-outs and direct secondary investing across all major asset classes.

Mr. Colbert was a Director at Madison Marquette and formerly a Vice President at the Lightstone Group, one of the nation’s largest real estate investment firms. While at Madison Marquette, he closed over $400 million of multifamily, office and retailacquisitions. While at the Lightstone Group, he was responsible for rebuilding the firm’s hospitality portfolio as well as expanding its existing multifamily portfolio, closing over $100 million of acquisitions during his tenure. Prior to joining Lightstone Group, Mr. Colbert was a member of the investment team at Madison International Realty, a real estate private equity firm focused on the acquisition of direct secondary’s and structured equity investments. While at Madison International Realty he was involved in the recapitalization of over $200 million of real estate. 

Mr. Colbert holds a Series 7 & 63 license and completed his dual-undergraduate degree in Political Science & Finance with minors in German Studies & Law at Cornell University.

Chesky Engel, Managing Partner

Mr. Engel is Co-Founder & Managing Member of Inception Investors with primary responsibility for operational excellence, transaction sourcing, construction and development. Mr. Engel is responsible for daily operations, transaction sourcing, construction and development of Inception Investor's transactions in the Tri-state area. Mr. Engel brings 20 year's investing experience in New York City real estate and is a Brooklyn native. Mr. Engel has been involved in numerous high-profile re-development and re-positioning projects which have been featured in the Real Deal, Brownstoner, and Crain's New York Business. Mr. Engel has also completed over $1 billion of transactions in the New York City area including investments in distressed real estate & note purchases, recapitalizations and JV partner buy-outs across all asset classes. Mr. Engel holds a Bachelor's Degree from Gateshead Talmudical College in Gateshead, United Kingdom.

Track Record

Inception Investors Track Record September 1, 2017
Investment Date of Initial Investment Date of Liquidation Property Type Property Location Market Value(a) Invested & Committed Capital(b)
Fairfield Inn Jul-10 TBD  Hotel   East Rutherford, NJ  $18,700,000 $3,940,983
Everson Pointe(c) Dec-10 Jan-15  Retail   Atlanta, GA  9,000,000 4,664,000
TownePlace Suites Jan-11 TBD  Hotel   Metairie, LA  15,300,000 6,055,449
Rego Park(c) Mar-11 TBD  Multifamily   Queens, NY  19,000,000 15,132,500
Crowne Plaza Boston North Shore Mar-11 TBD  Hotel   Danvers, MA  27,000,000 23,590,184
Holiday Inn Express(c) Jun-11 TBD  Hotel   East Brunswick, NJ  9,000,000 6,196,498
Crowe's Crossing Oct-11 TBD  Retail   Atlanta, GA  12,000,000 2,069,210
Marriott Courtyard(c) Nov-11 TBD  Hotel   Parsippany, NJ  10,000,000 11,925,000
DePaul Plaza Shopping Center Nov-11 TBD  Retail   St. Louis, MO  20,000,000 8,745,154
Shasta Crossroads Dec-11 Dec-14  Retail   Redding, CA  9,000,000 6,954,373
Hampton Inn Mar-12 TBD  Hotel   Woodbridge, VA  10,500,000 4,021,019
Meridian Village Apr-12 TBD  Retail   Bellingham, WA  15,000,000 4,225,100
Washington Business Park Sep-12 Dec-12  Office   Lanham, MD  45,000,000 11,000,000
The Center Building Dec-12 Mar-15  Office   Queens, NY  84,500,000 18,947,840
Cotton Exchange Hotel Mar-13 Jun-13  Hotel   New Orleans, LA  30,000,000 13,600,130
331 Carroll Street Aug-13 TBD  Multifamily   Orange, NJ  1,250,000 725,000
7000 Central Park Sep-13 TBD  Office   Atlanta, GA  75,000,000 13,264,192
The Edge Dec-13 TBD  Retail   Brooklyn, NY  45,500,000 19,445,772
Free Market Portfolio Dec-13 TBD  Multifamily   Brooklyn, NY  5,000,000 916,187
Paces Village Apartments Dec-13 TBD  Multifamily   Greensboro, NC  15,000,000 4,379,994
Marina Shores Apartments Mar-14 TBD  Multifamily   Virginia Beach, VA  54,000,000 18,292,593
23 Harvard Street Jul-14 TBD  Multifamily   East Orange, NJ  1,000,000 500,000
Broad Street Apartments Sep-14 TBD  Multifamily   Richmond, VA  11,000,000 3,144,136
BankNote Building Sep-14 TBD  Office   Bronx, NY  120,000,000 28,204,512
Eastern Parkway Portfolio Oct-14 TBD  Multifamily   Brooklyn, NY  10,000,000 2,287,600
Brooklyn 9 Portfolio Aug-15 TBD  Multifamily   Brooklyn, NY  30,000,000 7,137,217
Park Avenue Apartments Mar-16 TBD  Multifamily   Plainfield, NJ  3,000,000 1,100,000
330 E. 22nd St. Jul-16 TBD Multifamily Brooklyn, NY 5,000,000 1,859,504
509 Saratoga Avenue Jun-17 TBD Multifamily Brooklyn, NY 7,500,000 3,045,956
497 Dean Street Aug-17 TBD Multifamily Brooklyn, NY 2,875,000 1,645,500
Total Portfolio         $721,250,000 $246,993,699

(a) Purchase price, UPB, or appraised value, whichever is greater at time of acquisition.

(b) Includes capitalized expenses allocated to each investment and co-investments made by third parties.

(c) Invested & committed capital represents Day One equity investment. Performance expectations include assumed refinancing distribution upon asset stabilization.

Note: The management overview and track record detailed above was provided by the Sponsor and has not been verified by RealtyMogul.com or NCPS.

Business Plan

In this transaction, RealtyMogul.com investors are to invest in Realty Mogul 97, LLC ("The Company"), which is to subsequently invest in Vinegar Hill Asset, LLC ("The Target"), a limited liability company that will hold title to the Portfolio. Inception Investors, LLC (the "Real Estate Company") purchased the Portfolio in August 2015 for $26.3 million ($234,821 per unit) and the current total accrued project cost is approximately $28.25 million ($252,219 per unit).

The Real Estate Company has been executing on its business plan is to implement a value-add strategy by completing interior and exterior renovations across the Portfolio since its acquisition of the Portfolio in 2015.  The majority of the Portfolio is subject to New York City Rent Guidelines Board ("NYC RGB") rent stabilization code, which dictates the manners in which landlords may increase rents on rent stabilized units in New York City.  The most effective manner in increasing rents on rent stabilized units in New York City is to vacate units which have been occupied for greater than two years, either through tenant buyouts or natural tenant roll, then renovate and release those units.  Per the NYC RGB, a unit which has been occupied by the same tenant for a consecutive period of greater than two years is eligible for a 20% increase in rental rate upon releasing the unit (see 'NYC RGB Fact Sheet - Vacancy Leases' attached to the Financials tab of this offering).  Additionally, landlords may further increase rents for rent stabilized units by completing pre-approved capital improvements.  Rents for renovated units are subject to the Individual Apartment Improvement (IAI) rules which limit rent increases to 1/40th of the cost of construction for properties with 35 units or less (see 'NYC RGB Fact Sheet - Individual Apartment Improvements' attached to the Financials tab of this offering).  Since the acquisition of the Portfolio in 2015, The Real Estate Company has executed on 15 tenant rollover and renovations which have increased the income generated by those units by approximately $175,000.  While units are not turned the maximum allowable rental increase is dictated by the NYC RGB.  The maximum allowable rental increase guidelines are set once a year and are effective for leases beginning on or after October 1st of each year.  For the first year of the hold period of the Portfolio the maximum allowable rental increase for occupied units is to be 1.25%.  Historical maximum allowable increases per the NYC RGB may be found as 'NYC RGB Fact Sheet - Historical Orders' attached to the Financials tab of this offering.

The Company's investment into The Target will retire an existing preferred equity investment in the Portfolio and provide the Real Estate Company with approximately $950,000 to buyout and renovate an estimated additional 19 units over The Company's three year estimated hold period of the Portfolio.  The Real Estate Company intends to hold the Portfolio for three (3) years while executing the business plan before selling the Portfolio at an anticipated exit cap rate of 5.00%. 

Sponsor Standard Unit Renovation Budget - Three Bedroom
CapEx Item $ Amount
Sheetrock $3,000
Moldings $1,500
Electrical Work $2,800
Plumbing Work $2,400
Kitchen Cabinets $1,000
Kitchen Sink $500
Kitchen Faucet $400
Bathroom Tub & Plumbing $3,500
Toilet $350
Toilet Seat $100
Bathroom Vanity $350
Bathroom Faucet $150
Bathroom Medicine Cabinet $150
Flooring $2,900
Light Fixtures $650
Smoke Alarms $250
Closet Work $2,000
Intercoms in Apartments $1,000
Paint Entire Apartment $2,000
Total $25,000

Realty Mogul has invested in two prior transactions with The Real Estate Company (497 Dean Street and Brooklyn Multi-family). As of Q2 2017 the Sponsor has completed five unit buyouts and renovations since the purchase of the property in July 2016, outperforming underwritten projections of three unit buyouts and renovations during this timeframe.  Renovated units are achieving a 57.6% increase in rents vs. previously in-place rent, which is greater than the 36.0% increase contemplated in the RM Estimated Financials for that property. 497 Dean Street was closed on in August 2017 and as such no material operating history for this property is yet available.

Property
Property Details

Built between 1920 and 1935, the Portfolio consists of 112 multifamily units, comprising 99,680 rentable square feet, across seven separate properties located in various neighborhoods of Brooklyn, New York. The unit mix is comprised of 30 one-bedroom, 57 two-bedroom, and 25 three-bedroom apartments with a weighted average size and rent per unit of 895 square feet and $1,488 per unit ($1.67 per square foot), respectively (per the 09/25/2017 rent roll). The Portfolio was 99.1% occupied as of 9/25/17.  The Portfolio has no parking, but this is consistent with older, walk-up, low-rise properties in the Brooklyn market.

In-Place Portfolio Detail
Property 2015 Acquisition Price # of Units Unit (Square Feet) Total Square Feet Rent per Unit Rent per Square Foot
226 Pulaski Street $3,500,000 12 875 10,500 $1,606 $1.84
642 Wilson Avenue $2,700,000 6 813 4,875 $2,270 $2.79
1226 Lincoln Place $7,600,000 31 924 28,647 $1,587 $1.72
1639 Carroll Street $3,000,000 17 728 12,376 $1,111 $1.53
3013-3019 Newkirk Avenue $4,700,000 18 1,075 19,350 $1,686 $1.57
83-85 East 94th Street $2,400,000 16 875 14,000 $1,154 $1.32
436 East 34th Street $2,400,000 12 875 10,504 $1,408 $1.61
 Totals/Averages  $26,300,000 112 895 100,252 $1,488 $1.67
Comparables

Bedford-Stuyvesant/Bushwick

222-266 Pulaski Street & 642 Wilson Avenue

Lease Comparables
Lease Comparables 729 Lafayette Ave 1342 Hancock St 1334 Hancock St 1500 Bushwick Ave 638 Wilson Ave Total / Averages

642 Wilson Ave

226 Pulaski St

Occupancy 100 100 100 100 100 100 100 100
Units (#) 17 5 5 12 6 9 6 12
Year Built 1931 1906 1906 1906 1906 1911 1931 1931
Average SF (per unit) 1210 732 732 750 750 835 813

875

Average Rental Rate (unit) $3,214 $1,031 $985 $1,813 $1,251 $1,658 $2,118

$1,755

Average $/SF $2.66 $1.41 $1.35 $2.42 $1.67 $1.90 $2.82

$2.51

Distance from Subject 0.2 mi 0.4 mi 0.4 mi 0.4 mi 0.1 mi 0.3 mi - -
Sale Comparables
Sale Comparables 17-21 Woodbine St 255 Himrod St 96 Malcolm X Blvd 888 Flushing Ave 317 Putnam Ave Total / Averages 642 Wilson

226 Pulaski St

Date April - 15 January - 15 January - 15 June - 14 March - 15      
# of Units 6 6 8 8 6 7 6 12
Year Built 1930 1931 1931 1931 1931 1931 1931 1931
Average SF (per Unit) 812 750 793 875 1066 852 813 875
Purchase Price $2,750,000 $1,950,000 $2,1665,000 $2,720,000 $3,350,000 $2,587,000 $2,510,625 $3,776,400
$/Unit $458,333 $325,000 $270,625 $340,000 $558,333 $390,458 $418,438 $314,700
Cap Rate - - - 5.49% 5.28% 5.39% - -
Distance 1.2 mi 1.3 mi 1.7 mi 2.0 mi 1.0 mi 1.4 mi - -
                 

Lease and Sale Comparable information provided by 2015 acquisition appraisals completed for 226 Pulaski Street.

Crown Heights

1226 Lincoln Place & 1639 Carroll Street

Lease Comparables
Lease Comparables  Landing At Acworth Legacy At Acworth Walden Ridge Shiloh Green Greenhouse Total / Averages Subject Subject
Occupancy 92% 97% 94% 99% 94% 95% 96% 96%
Units (#) 234 192 210 235 489 272 216 216
Year Built 2001 1998 2002 1996 1985 1996 1988 1988
Average SF (per unit) 948 1,103 1,079 1,357 893 1,076 683 683
Average Rental Rate (unit) $1,132 $983 $1,263 $1,217 $1,039 $1,127 $817 $817
Average $/SF $1.19 $0.89 $1.17 $0.90 $1.16 $1.06 $1.20 $1.20
Distance from Subject 0.7 mi 0.8 mi 2.8 mi 3.8 mi 4.8 mi 2.6 mi - -
Sale Comparables
Sale Comparables Mountain Park Estates ARIUM Kennesaw  Bridges of Kennesaw Waldan Pond The 1800 At Barrett Lakes Total / Averages Subject Property Subject Property
Date March-16 September-15 August-15 August-15 November-14      
# of Units 450 324 296 124 500 339 216 216
Year Built 1999 1989 1996 1986 1988 1992 1988 1988
Average SF (per Unit) 1,181 925 1,162 957 1,080 1,061 683 683
Purchase Price $64,000,000 $29,250,000 $35,008,500 $7,800,000 $49,000,000 $37,011,700 $16,000,000 $16,000,000
$/Unit $142,222 $90,278 $118,272 $62,903 $98,000 $102,335 $74,074 $74,074
Cap Rate - - 5.70% 6.50% - 6.10% 7.84% 7.84%
Distance 4.0 mi 6.1 mi 2.5 mi 4.7 mi 8.6 mi 5.18 mi - -

Lease and Sale Comparable information provided by 2015 acquisition appraisals completed for 1226 Lincoln Place.

Ditmas Park/Flatbush

3013-3019 Newkirk Avenue, 83-85 East 94th Street & 436 East 34th Street

Lease Comparables
Lease Comparables  Landing At Acworth Legacy At Acworth Walden Ridge Shiloh Green Greenhouse Total / Averages Subject Subject Subject
Occupancy 92% 97% 94% 99% 94% 95% 96% 96% 96%
Units (#) 234 192 210 235 489 272 216 216 216
Year Built 2001 1998 2002 1996 1985 1996 1988 1988 1988
Average SF (per unit) 948 1,103 1,079 1,357 893 1,076 683 683 683
Average Rental Rate (unit) $1,132 $983 $1,263 $1,217 $1,039 $1,127 $817 $817 $817
Average $/SF $1.19 $0.89 $1.17 $0.90 $1.16 $1.06 $1.20 $1.20 $1.20
Distance from Subject 0.7 mi 0.8 mi 2.8 mi 3.8 mi 4.8 mi 2.6 mi - - -
Sale Comparables
Sale Comparables Mountain Park Estates ARIUM Kennesaw  Bridges of Kennesaw Waldan Pond The 1800 At Barrett Lakes Total / Averages Subject Property Subject Property Subject Property
Date March-16 September-15 August-15 August-15 November-14        
# of Units 450 324 296 124 500 339 216 216 216
Year Built 1999 1989 1996 1986 1988 1992 1988 1988 1988
Average SF (per Unit) 1,181 925 1,162 957 1,080 1,061 683 683 683
Purchase Price $64,000,000 $29,250,000 $35,008,500 $7,800,000 $49,000,000 $37,011,700 $16,000,000 $16,000,000 $16,000,000
$/Unit $142,222 $90,278 $118,272 $62,903 $98,000 $102,335 $74,074 $74,074 $74,074
Cap Rate - - 5.70% 6.50% - 6.10% 7.84% 7.84% 7.84%
Distance 4.0 mi 6.1 mi 2.5 mi 4.7 mi 8.6 mi 5.18 mi - - -

Lease and Sale Comparable information provided by 2015 acquisition appraisals completed for 3013-3019 Newkirk Avenue.

Location

Market Overview 

Per CoStar, New York vacancies are below 3% despite the delivery of nearly 25,000 units since 2016, which speaks to the market's impressive demand.

The expiration of 421-A was a paradigm shifter for New York. The market is projected to welcome around 50,000 units of supply in the near term, but a few years of absent tax abatement could mean a short break in the pipeline. A constricted lending environment could further limit supply growth in the outer years of the forecast. The replacement for 421-A, "Affordable New York," passed its final steps of the legislative process in April 2017. Although very similar to 421-A, the controversial new bill increases the minimum wages for construction workers. But developers paying those wages can receive a 35-year tax break versus the previous 25 years for 421-A.

Increased competition is already taking a toll at the top of the market. Rent growth for the metro decelerated by around 200 basis points from 2015-2016. Luxury assets in particular are feeling the pinch, with 4 & 5 Star rent growth over the previous 12 months more than 300 basis points below growth in the 3 Star segment. Despite rent growth decreasing, New York still contains seven of the nation's top 10 most expensive submarkets.

A low-interest-rate environment and global uncertainty are supporting lofty valuations across the metro. The market's median price tops $220,000/unit, and cap rates have compressed to less than 4%. Still, returns on residential investment in New York don't look too soft when compared with yields on government-issued bonds.

Instability stemming from Brexit, coupled with other global weaknesses, should further drive demand for residential assets in the metro. To be fair, uncertainty in the global economy has apparently instigated a decline in investment volume, with 2016 sales at just 75% of the previous year's volume, but on the balance, global unsteadiness could benefit owners here, because New York residential assets continue to be viewed as a global safe haven.

Submarket Overview - Bedford-Stuyvesant/Bushwick

222-266 Pulaski Street & 642 Wilson Avenue

Per CoStar, Affordability and various public transportation options are driving demand - and thus gentrification - in this submarket. And while new supply in 2015 was the highest it's been in the past 15 years, demand has outpaced the historic average and provided some counterbalance to the rapid inventory growth. As a result, 2016 ended with vacancies below the submarket's historical level. Still, about 15% of inventory is under construction in the submarket - with 3% of inventory delivered thus far in 2017 - and vacancies have already begun to inch upwards. Rent growth over 2016 superseded the submarket's historical average growth rate despite supply additions, though gains have slowed considerably relative to the year prior. Investors seem keen on Bed-Stuy/Fort Greene/Bushwick - the submarket logged more transactions in the four quarters ending 16Q4 than any other submarket in the New York metro, resulting in sales volume close to $625 million.

Demographics - Bedford-Stuyvesant/Bushwick
Distance from Property 1 Mile 3 Miles 5 Miles
Population (2017) 196,466 1,280,360 3,055,353
Population (2022) 204,636 1,334,139 3,162,929
Population Growth (2017-2022) 4.2% 4.2% 3.5%
Median HH Income  $40,710 $53,122 $62,854
Median Home Value $702,931 $738,490 $681,719

All demographic information above was obtained from CoStar.

Submarket Overview - Crown Heights 

1226 Lincoln Place & 1639 Carroll Street

Per CoStar, Despite a high concentration of renters and relatively affordable rents, supply and demand in Crown Heights/Prospect Lefferts Gardens have lagged behind the metro average, with residents and developers focusing on submarkets further north and west. However, as gentrification intensifies and potential zoning changes in East New York are implemented, developments to accommodate more residents may soon appear. Vacancy is below its historical average - registering at less than 2%. Rents here remain well below those of nearby submarkets, which has been a major draw for young residents. Construction was limited in the past few years, but several projects - accounting for about 750 units - are underway. Most of these developments will be in the western half of the submarket, but the potential rezoning of East New York may eventually lead to more development east of Broadway Junction. Year-to-date sales have been well distributed across the submarket, possibly in anticipation of future changes. Sales volume dropped off appreciably over the year ending in 16Q4 - clocking in at less than half the volume posted over the year ending in 15Q4. This is partially skewed by 2015's standout year, when close to 10% of inventory turned over. Median price per unit is appreciating rapidly, but remains roughly 20% below the metrowide median.

Demographics - Crown Heights
Distance from Property 1 Mile 3 Miles 5 Miles
Population (2017) 191,239 1,372,889 2,737,988
Population (2022) 198,896 1,426,296 2,832,482
Population Growth (2017-2022) 4.0% 3.9% 3.5%
Median HH Income  $38,949 $49,678 $55,838
Median Home Value $646,310 $619,454 $659,148

All demographic information above was obtained from CoStar.

Submarket Overview - Ditmas Park/Flatbush

3013-3019 Newkirk Avenue, 83-85 East 94th Street & 436 East 34th Street

Per CoStar, Like many parts of Brooklyn relatively close to Manhattan, Ditmas Park/Flatbush has drawn an inflow of new residents with higher salaries. However, the difference here is that they’re not driving demand for high-end product. This predominantly residential submarket has long been a destination for homebuyers, resulting in limited demand for multifamily properties, which is not altogether surprising given the extremely low vacancy here. This area has experienced much less growth than other parts of Brooklyn, despite rents that are roughly 30% lower than the metro area’s, and this can partially be attributed to the lack of retail and entertainment options.

While only 70 units delivered in 2016, about 350 are still under construction, the highest number since 2000. While this is just a fraction of the activity seen in other Brooklyn submarkets, construction may be worth watching here, particularly as prices in adjacent areas continue to rise and the population here continues to grow. In a submarket where local players have historically driven sales, institutional investors are increasingly getting involved. Sales volume for 2015 reflected this trend, nearing $355 million, more than twice the value in 2014. At about $240 million, sales volume in 2016 dropped off from its 2015 peak but is still roughly 50% above the submarket’s historical average.

Demographics - Ditmas Park & Flatbush
Distance from Property 1 Mile 3 Miles 5 Miles
Population (2017) 186,330 1,264,952 2,634,276
Population (2022) 193,900 1,310,438 2,727,332
Population Growth (2017-2022) 4.1% 3.6% 3.5%
Median HH Income  $47,798 $54,444 $53,019
Median Home Value $450,376 $663,213 $673,019

All demographic information above was obtained from CoStar.

Photos
Financials
Sources & Uses

Total Capitalization
Sources of Funds Cost
Debt $20,700,000
Equity $8,807,217
Total Sources of Funds $29,507,217
Uses of Funds Cost
Purchase Price $26,300,000
Buyout & Unit Renovation Reserve $954,236
MogulREIT II Acquisition Fee $143,993
North Capital Broker Dealer Fee $97,970
Existing Preferred Equity Accrued Payoff $411,301
Real Estate Company Initial Closing Costs and Reserves $1,549,717
Fresh Working Capital $50,000
Total Uses of Funds $29,507,217
Debt Assumptions

The general terms of the debt financing are as follows:

  • Lender: New York Community Bank
  • Loan Origination Date: August 2015
  • Initial Proceeds: $20,700,000
  • Rate: 3.00% Fixed (see Note below)
  • Interest Only Period:  Two (2) years
  • Amortization: 30 year schedule, commencing at the expiration of the Interest Only Period
  • Term: Five (5) years
  • Prepayment Penalty: 2.0% penalty through August 2018, then 1.0% through August 2020, none thereafter.

Note: The senior loan is a 10 year loan with an initial five year term at 3.0% fixed with two years I/O before a 30 year amortization schedule. At the conclusion of the fifth year of the senior loan the loan is open for prepayment at par. However, the interest rate on the loan increases to the Prime rate (4.25% as of 10.16.17) + a spread of 2.75%, with the amortization schedule of the loan decreasing to 27 years at such time. The expectation is that the Portfolio will be sold soon after the change in interest rate event occurs.

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 Cash Flow

  1. First, to Members for any accumulated unpaid 7% preferred return,
  2. Second, a cumulative quarterly-compounded 7% annual preferred return,
  3. Then, any excess balance will be split 75% to Members ​pari passu and 25% to Sponsor.

Capital Events (sale, refinance)

  1. First, to Members for any accumulated unpaid 7% preferred return,
  2. Second, return of capital,
  3. Then, any excess balance will be split 75% to Members pari passu and 25% to Sponsor to an 18% IRR Hurdle,
  4. Then, any excess balance will be split 55% to members ​pari passu and 45% to Sponsor.

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 projected 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 $2,106,430 $2,276,122 $2,361,070
Total Operating Expenses $636,009 $654,935 $670,735
Net Operating Income $1,470,421 $1,621,197 $1,690,335
Realty Mogul 97, LLC Cash Flows
  Year 0 2017 2018 2019 2020
Distributions to
Realty Mogul 97, LLC Investors
($2,095,000) $0 $72,131 $102,295 $3,151,371
Net Earnings to Investor
- Hypothetical $50,000 Investment
($50,000) $0 $1,722 $2,441 $75,212
Fees

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

One-Time Fees:
Type of Fee Amount of Fee Received By Paid From Notes
Acquisition Fee $143,993 RM Advisor, LLC Capitalized Equity Contribution 0.5475% of the Property purchase price.  RM Advisor, LLC is the Manager of MogulREIT II and a wholly-owned subsidiary of Realty Mogul, Co.
Disposition Fee 0.5475% of Gross Sale Proceeds RM Advisor, LLC Distributable Cash RM Advisor, LLC is the Manager of MogulREIT II and a wholly-owned subsidiary of Realty Mogul, Co.
Broker-Dealer Fee $97,970 North Capital (1) Capitalized Equity Contribution 4.85% based on the amount of equity invested by Realty Mogul 97, LLC.
Construction Management Fee 10.0% of total costs Real Estate Company Capitalized Equity Contribution  
Recurring Fees
Type of Fee Amount of Fee Received By Paid From Notes
Property Management Fee 4.0% of effective gross revenues EEP Management, LLC, a third party property management firm Operating Cash Flow  
Asset Management Fee $20,000 annually Real Estate Company Operating Cash Flow Paid on a monthly basis.
Management and Administrative Fee 1.25% of amount invested in Realty Mogul 97, LLC RM Manager, LLC Distributable Cash  RM Manager, LLC is the Manager of Realty Mogul 97, 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 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 Portfolio 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 Portfolio, 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 Portfolio 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 Portfolio. 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 Portfolio’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.


Apartment Complex - Competition

Competition in the Portfolio’s local market area is significant and may affect the Portfolio’s occupancy levels, rental rates and operating expenses. The Portfolio will compete with other residential alternatives to attract tenants, including but not limited to other apartment units that are currently available for rent, new apartments that are built and condominiums/houses that are for rent or sale. If development of apartment complexes by other operators were to increase, due to increases in availability of funds for investment or other reasons, then competition with the Portfolio could intensify. If the Portfolio is not able to successfully compete with the competitive residential alternatives in the local or regional area this could adversely affect the ability of The Real Estate Company to sell the Portfolio, rent its units as necessary to maintain occupancy, and/or to increase or maintain unit rental rates.


Lease-up Risks

The Portfolio currently has a 99.1% occupancy level (as of 9/25/2017), and the Sponsor intends to implement a capital improvement plan in its effort to maintain and/or increase that occupancy level. There can be no assurance that such renovations will be consummated on a timely basis, that such work will not materially adversely affect other aspects of the operation of the Portfolio, or that the plan will result in the Portfolio maintaining its occupancy level at rental rates in line with those projected. Any delays or adverse effects of such work could adversely affect the Portfolio's financial results or business operations and thus the value of the Company’s investment. Although the Sponsor believes that comparable properties are currently achieving rental rates that are in line with those expected from the Portfolio, there can be no assurance that such rental rates will be achieved. Failure to realize such increased rental rates could adversely affect the Portfolio’s financial results or business operations and thus the value of the Company’s investment.


Conflict of Interest Risk

MogulREIT II, Inc., which is managed by an affiliate of the manager intends to make an investment in The Target. MogulREIT II’s investment in The Target may be significantly greater than the investment by The Company, giving MogulREIT II and its manager more control and certain rights in the operating agreement of The Target. This could give rise to a conflict of interests of The Company and MogulREIT II that may have a material adverse effect on your investment.


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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