$26,300,000
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
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.
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.
| 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.
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 majority of the Portfolio consists of rent stabilized units, which are subject to the guidelines set forth by the New York Rent Stabilization Guidelines Board ("NYC RGB"). Since the acquisition of the Portfolio in 2015, The Real Estate Company has executed on 15 tenant rollover and renovations of rent stabilized units which have increased the income generated by those units by approximately $175,000. 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 which is budgeted 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 implement the business plan as follows:
- Approach current tenants in the Portfolio who pay rents which are under market and offer them a buyout payment to vacate the unit.
- Upon tenants accepting the buyout (or naturally vacating their units), The Real Estate Company will renovate units using a renovation budget consistent with the budget below.
- After renovating units, The Real Estate Company intends to release units at higher rental rates, increasing rents consistent with allowable increases regarding Individual Apartment Improvements and Vacancy Leases per the NYC RGB (see Note below for further detail).
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%.
| 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 |
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.
Note - 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) as described here. Vacant units are subject to 20% increases over the last legal rent per the Board guidelines as described here.
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.
| 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 | 698 | 11,175 | $1,154 | $1.32 |
| 436 East 34th Street | $2,400,000 | 12 | 875 | 10,500 | $1,408 | $1.61 |
| Totals/Averages | $26,300,000 | 112 | 870 | 97,416 | $1,488 | $1.67 |
The Portfolio is comprised of seven properties in three distinct submarkets within Brooklyn, New York, as follows:
- 222-266 Pulaski Street - Bedford-Stuyvesant/Bushwick
- 642 Wilson Avenue - Bedford-Stuyvesant/Bushwick
- 1226 Lincoln Place - Crown Heights
- 1639 Carroll Street - Crown Heights
- 3013-3019 Newkirk Avenue - Ditmas Park/Flatbush
- 83-85 East 94th Street - Ditmas Park/Flatbush
- 436 East 34th Street - Ditmas Park/Flatbush
A summary of lease and sales comparables for each of these submarkets may be found below.
Bedford-Stuyvesant/Bushwick
| Lease Comparables | 729 Lafayette Ave | 1342 Hancock St | 1334 Hancock St | 1500 Bushwick Ave | 638 Wilson Ave | Total / Averages |
222-226 Pulaski St (Subject) |
642 Wilson Ave (Subject) |
|---|---|---|---|---|---|---|---|---|
| Occupancy | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% |
| Units (#) | 17 | 5 | 5 | 12 | 6 | 9 | 12 | 6 |
| Year Built | 1931 | 1906 | 1906 | 1906 | 1906 | 1911 | 1931 | 1931 |
| Average SF (per unit) | 1,210 | 732 | 732 | 750 | 750 | 835 | 700 |
750 |
| Average Rental Rate (unit) | $3,214 | $1,031 | $985 | $1,813 | $1,251 | $1,658 | $1,755 |
$2,118 |
| Average $/SF | $2.66 | $1.41 | $1.35 | $2.42 | $1.67 | $1.90 | $2.51 |
$2.82 |
| Distance from Subject | 0.2 mi | 0.4 mi | 0.4 mi | 0.4 mi | 0.1 mi | 0.3 mi | - | - |
| Sale Comparables | 17-21 Woodbine St | 255 Himrod St | 96 Malcolm X Blvd | 888 Flushing Ave | 317 Putnam Ave | Total / Averages | 222-226 Pulaski St (Subject) |
642 Wilson Ave (Subject) |
|---|---|---|---|---|---|---|---|---|
| Date | April - 15 | January - 15 | January - 15 | June - 14 | March - 15 | |||
| # of Units | 6 | 6 | 8 | 8 | 6 | 7 | 12 | 6 |
| Year Built | 1930 | 1931 | 1931 | 1931 | 1931 | 1931 | 1931 | 1931 |
| Average SF (per Unit) | 812 | 750 | 793 | 875 | 1,066 | 852 | 700 | 750 |
| Purchase Price | $2,750,000 | $1,950,000 | $2,1665,000 | $2,720,000 | $3,350,000 | $2,587,000 | $3,500,000 | $2,700,000 |
| $/Unit | $458,333 | $325,000 | $270,625 | $340,000 | $558,333 | $390,458 | $291,667 | $450,000 |
| 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 compiled per CoStar and RCAnalytics.
Crown Heights
| Lease Comparables | 1500 Carroll St | 1178 Eastern Pky | 1505 Saint Johns Pl | 1081 Eastern Pky | 1710 Union St | Total / Averages | 1226 Lincoln Place (Subject) |
1639 Carroll Street (Subject) |
|---|---|---|---|---|---|---|---|---|
| Occupancy | 94% | 96% | 100% | 94% | 100% | 97% | 97% | 100% |
| Units (#) | 35 | 24 | 20 | 16 | 31 | 25 | 31 | 17 |
| Year Built | 1935 | 1922 | 1915 | 1912 | 1922 | 1921 | 1923 | 1920 |
| Average SF (per unit) | 812 | 788 | 793 | 925 | 648 | 793 | 924 | 728 |
| Average Rental Rate (unit) | $1,684 | $1,834 | $2,305 | $2,131 | $1,339 | $1,859 | $1,435 | $1,140 |
| Average $/SF | $2.07 | $2.33 | $2.91 | $2.30 | $2.07 | $2.34 | $1.55 | $1.57 |
| Distance from Subject | 0.3 mi | 0.2 mi | 0.4 mi | 0.2 mi | 0.1 mi | 0.2 mi | - | - |
| Sale Comparables | 412 East 51st St | 1153 President St | 15-21 Crooke Ave | 1068 Winthrop St | 216 Macon St | Total / Averages | 1226 Lincoln Place (Subject) | 1639 Carroll Street (Subject) |
|---|---|---|---|---|---|---|---|---|
| Date | May - 15 | March - 15 | March - 15 | February - 15 | November - 14 | |||
| # of Units | 31 | 41 | 54 | 42 | 17 | 37 | 31 | 17 |
| Year Built | 1928 | 1915 | 1938 | 1929 | 1900 | 1921 | 1923 | 1920 |
| Average SF (per Unit) | 612 | 1,034 | 980 | 727 | 934 | 869 | 924 | 728 |
| Purchase Price | $4,125,000 | $13,100,000 | $14,250,000 | $6,800,000 | $4775,000 | $8,610,000 | $7,600,000 | $3,000,000 |
| $/Unit | $133,065 | $319,512 | $263,889 | $161,905 | $280,882 | $231,851 | $245,161 | $176,471 |
| Cap Rate | - | 4.50% | 3.75% | - | 4.30% | 4.18% | - | - |
| Distance | 1.5 mi | 1.0 mi | 2.6 mi | 1.1 mi | 1.1 mi | 1.5 mi | - | - |
Lease and Sale Comparable information compiled per CoStar and RCAnalytics.
Ditmas Park/Flatbush
| Lease Comparables | 238 East 26th St | 1335 Eastern Pky | 584 East 29th St | 2022 Nostrand Ave | 1178 Eastern Pky | Total / Averages | 3013-3019 Newkirk Ave (Subject) | 83-85 East 94th St (Subject) | 436 East 34th St (Subject) |
|---|---|---|---|---|---|---|---|---|---|
| Occupancy | 100% | 97% | 96% | 73% | 96% | 92% | 83% | 88% |
100% |
| Units (#) | 24 | 30 | 23 | 11 | 24 | 22 | 18 | 16 | 12 |
| Year Built | 1925 | 1922 | 1931 | 1933 | 1922 | 1927 | 1935 | 1930 | 1931 |
| Average SF (per unit) | 875 | 770 | 1,000 | 911 | 788 | 869 | 1,075 | 875 | 875 |
| Average Rental Rate (unit) | $1,612 | $1,646 | $1,195 | $2,941 | $1,838 | $1,846 | $1,686 | $1,154 | $1,408 |
| Average $/SF | $1.84 | $2.14 | $1.20 | $3.23 | $2.33 | $2.15 | $1.57 | $1.32 | $1.61 |
| Distance from Subject | 0.4 mi | 0.4 mi | 0.3 mi | 0.3 mi | 0.4 mi | 0.4 mi | - | - | - |
| Sale Comparables | 146 Fenimore St | 1103 Carroll St | 15-21 Crooke Ave | 147 Ocean Ave | 990 President St | Total / Averages | 3013-3019 Newkirk Ave (Subject) | 83-85 East 94th St (Subject) | 436 East 34th St (Subject) |
|---|---|---|---|---|---|---|---|---|---|
| Date | July - 14 | November - 14 | March - 15 | September - 14 | March - 15 | ||||
| # of Units | 17 | 8 | 54 | 21 | 54 | 31 | 16 | 18 | 12 |
| Year Built | 1926 | 1912 | 1938 | 1927 | 1938 | 1928 | 1930 | 1935 | 1931 |
| Average SF (per Unit) | 944 | 1,400 | 833 | 846 | 880 | 981 | 1,075 | 875 | 875 |
| Purchase Price | $3,400,000 | $2,750,000 | $14,250,000 | $4,775,000 | $11,500,000 | $7,335,000 | $4,700,000 | $2,400,000 | $2,400,000 |
| $/Unit | $200,000 | $343,750 | $263,889 | $227,381 | $212,963 | $249,597 | $261,111 | $150,000 | $200,000 |
| Cap Rate | 4.96% | 4.50% | 3.75% | 3.60% | 5.00% | 4.36% | - | - | - |
| Distance | 1.5 mi | 1.5 mi | 1.5 mi | 1.8 mi | 1.9 mi | 1.6 mi | - | - | - |
Lease and Sale Comparable information compiled per CoStar and RCAnalytics.
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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, a program which gave developers a 10-year property tax abatement for building multifamily properties on vacant land, was a paradigm shifter for New York. The market is estimated 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.
Per CoStar, 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. Per CoStar, 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. 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.
| 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.
| 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.
| 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.
| 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 | $952,846 |
| MogulREIT II Acquisition Fee | $143,993 |
| North Capital Broker Dealer Fee | $99,360 |
| 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 |
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: 10 years
- Prepayment Penalty: 2.0% penalty through August 2018, then 1.0% through August 2020, none thereafter.
Note: The senior loan used to acquire the Portfolio was a ten-year loan at fixed 3.0% interest rate during the first five years of the loan term, with a two-year interest only term which started in August 2015, followed by a three-year term at a fixed 3.0% interest rate and an amortization schedule of 30 years. Upon the completion of the first five years of the loan, the interest rate is to increase to the Wall Street Journal Prime Rate (4.25% as of 10.16.17) with a spread of 2.75%. The expectation is that the Portfolio will be sold soon after the change in interest rate event occurs.
The Target will make distributions to investors (The Company and Real Estate Company, collectively, the "Members") as follows:
Operating Cash Flow
- First, to Members for any accumulated unpaid 7% preferred return,
- Second, a cumulative quarterly-compounded 7% annual preferred return,
- Then, any excess balance will be split 75% to Members pari passu and 25% to Sponsor.
Capital Events (sale, refinance)
- First, to Members for any accumulated unpaid 7% preferred return,
- Second, return of capital,
- Then, any excess balance will be split 75% to Members pari passu and 25% to Sponsor to an 18% IRR Hurdle,
- 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.
| 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 |
| 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 |
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 | $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 | $99,360 | North Capital (1) | Capitalized Equity Contribution | 4.8% 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 |
| Type of Fee | Amount of Fee | Received By | Paid From | Notes |
|---|---|---|---|---|
| Property Management Fee | 4.0% of effective gross revenues | EPP 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.
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.
New York State Risks
New York is subject to frequent and sometimes debilitating hurricanes, and other environmental factors or disasters. There can be no assurance that a hurricane or any other environmental factor will not cause significant difficulties for the Property and the Sponsor Entity, in which case the business and financial condition of the Sponsor Entity, and thus the Company, could be materially adversely affected.
Rent Stabilization Freeze on Rent Increases
The Property is subject to rent stabilization rules which have been established and enforced by the New York City Rent Guidelines Board (the “Guidelines Board”). The guidelines rates are set annually, to start each October 1st, and end the following September 30th. The Guidelines Board has previously not allowed rent increases for the periods ending on September 2016 and September 2017, allowing an increase for the period ending September 2018, which allowed increase was 1.25% for one-year leases and 2.00% for two-year leases. The Company has accounted for a rental increase of approximately 3.0%, annually. However, there is no assurance that the Guidelines Board will allow for maximum annual rental increases that may reach 3.0%, if any at all. Additionally, it is possible that the Guidelines Board may place another freeze on rental increases in the subject Property, which may have a materially
Apartment Complex - Competition
Competition in the Property’s local market area is significant and may affect the Property’s occupancy levels, rental rates and operating expenses. The Property 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 Property could intensify. If the Property is not able to successfully compete with the competitive residential alternatives in the local or regional area this could adversely affect the ability of Sponsor Entity to sell the Property, rent its units as necessary to maintain occupancy, and/or to increase or maintain unit rental rates.
Conflict of Interest Risk
Mogul REIT 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 Mogul REIT 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.