Evolution Real Estate Partners & Triumph Management Group
Evolution Real Estate Partners and Triumph Management Group, (together "the Sponsors") are serving as co-GPs with respect to the Property.
Evolution Real Estate Partners ("EREP") is a minority-owned emerging manager featuring a diversified investment platform, an experienced management team and over $63,000,000 in assets currently under management. Additionally, EREP's management team has been involved in closing $3.5+ billion in aggregate real estate transactions throughout their careers.
EREP employs a disciplined value-add investment methodology that seeks to maximize risk-adjusted returns across most major property types, including office, multifamily, hospitality, industrial, retail, mixed use, and land. EREP’s investment methodologies are to:
- Purchase assets “off-market” and at deep discounts to replacement cost
- Concentrate on small-to-medium sized assets in supply-constrained markets
- Exercise a prudent and disciplined use of leverage
- Establish portfolio aggregation / disaggregation designed to provide diversification by geographic footprint, property type, tenant credit-worthiness and economic segment
- Exploiting market inefficiencies and/or information asymmetries
- Having multiple exit strategies formulated at the time of acquisition
Triumph Management Group ("TMG") is a full-service institution designed for the acquisition, financing, construction, rehabilitation, development, and property management of real estate assets, particularly multi-family housing. TMG specializes in conventional, low income housing tax credit, HUD financed/insured, HUD Section 8, and cooperative housing communities. TMG (through its affiliate Triumph Housing Management) currently has approximately 46 buildings and 4,200 HUD / HAP units under management across nine states.
The below track record for EREP and TMG includes only acquisitions completed by the Sponsors as GPs:
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James Freeman - Senior Managing Partner - Evolution -
Jason Joseph - Managing Partner - Evolution -
Chris Hetherington - Vice President - Evolution -
Mike Nolan - Vice President - Evolution -
Paul Ponte - Co-Founder and CEO - Triumph -
Gregory B. Jones - Co-Founder, Director of Acquisitions and Finance - Triumph
Mr. Freeman is Senior Managing Partner, and a member of EREP’s Board of Directors and Investment Committee. Mr. Freeman is responsible for all facets of executive management including the development of EREP’s vision and strategy as well as the execution of this strategy to obtain the firm’s goals and objectives and that of its investors. Prior to EREP, Mr. Freeman acted as Managing Director of Evolution Capital Management (EVO), an investment advisory firm which historically managed a $1 billion+ balance sheet. Prior to EVO, Mr. Freeman was the Founder and Managing Partner of Iron Grove Realty Advisors (IGR), a full-service commercial real estate advisory firm whose client list included JP Morgan Chase, Wyndham Hotel Group, Mesirow Financial and Meridian Development Partners. Prior to IGR, Mr. Freeman held the position of Vice President, Business Development for Wyndham Hotel Group, one of the largest hotel companies in the world, with a 2006 market cap of $6.2 billion. Mr. Freeman graduated with a B.A. from Princeton University, and attended New York University’s Schack Institute of Real Estate.
Mr. Joseph is Managing Partner, Capital Markets and a member of EREP’s Board of Directors and Investment Committee. Mr. Joseph has direct executive oversight for EREP’s Capital Markets function which is responsible for sourcing US and European bank affiliates for both asset acquisitions and debt origination liquidity, while overseeing EREP’s execution of all capital markets and structured finance activities. Prior to joining EREP, Mr. Joseph was President & CEO of Hibernian Pacific Holdings (HPH), a real estate holdings and investment management company where he was responsible for all areas of the company’s executive leadership, while developing and implementing the vision and strategy of the business. He was the primary inventor of HPH’s proprietary financing structure, which created a competitive advantage for the company in acquiring distressed assets from US and European financial institutions. Prior to HPH, Mr. Joseph was founder and Managing Partner of X1 Capital Partners (X1), a full service Investment Banking & Advisory firm whose clients were located across the US, Mexico, Western Europe, and Asia. Prior to X1, Mr. Joseph was a Sr. Analyst for Andersen Consulting (Accenture) where he provided high-level business strategy to the financial services and banking industry. Mr. Joseph graduated Cum Laude from the University of South Carolina with a B.S. in Economics with a minor in Finance.
Mr. Hetherington is Vice President, Asset Management and a member of EREP’s Investment Committee. Mr. Hetherington has direct responsibility for property business plans, budgets and forecasts and the monitoring of property performance to maximize total return. In addition Mr. Hetherington manages all third-party service providers related to this function. Prior to EREP, Mr. Hetherington served as Managing Director of EVO Real Estate Opportunities, Inc. and was responsible for the firm’s proprietary real estate acquisitions on the west coast, overseeing all facets of the transaction including sourcing, underwriting, financing and closing. Prior to his career in investment management, Mr. Hetherington played fullback in the National Football League for 11 years for the Indianapolis Colts, Carolina Panthers, St. Louis Rams, Oakland Raiders and San Francisco 49ers. Mr. Hetherington graduated from Yale University with a B.A. in Psychology in 1996, and attended the NFL Business Management and Entrepreneurship Programs at Wharton School of Business in 2006 and Harvard Business School in 2007.
Mr. Nolan is Vice President of Acquisitions and Debt Originations and a member of EREP’s investment committee. Mr. Nolan has direct transaction oversight including due diligence, underwriting, and closing. Prior to EREP, Mr. Nolan was Vice President of Acquisitions for Evolution Capital Management (EVO), an investment advisory firm which historically managed a $1 billion+ balance sheet. In this role, Mr. Nolan was responsible for targeting distressed real estate investments and lending opportunities on the West Coast. Throughout his tenure with EVO, Mr. Nolan has worked in multiple capacities including finance, financial modeling, legal and risk management. Mr. Nolan graduated with Honors from Fordham University with a B.S. in Finance with a secondary concentration in Accounting and minor in Economics.
Mr. Ponte is responsible for the day-to-day administration, operation and management of personnel for both the real estate development and property management arms of TMG. Mr. Ponte brings to TMG over 20 years of financial management and multi-faceted business experience. Prior to joining TMG, Mr. Ponte was the President and Chief Operating Officer of Housing Systems, Inc. and HSI Management, Inc. During his tenure, HSI closed on several multi-million dollar real estate transactions and significantly increased its third-party management business. In addition, Mr. Ponte was instrumental in turning around the management operation to the point that HSI Management was recognized by Georgia HAP Administrators, Inc. as the “Best Management Company” for 2009-2010. The award states, “In recognition and appreciation of your outstanding efforts in providing superior affordable housing.“ Prior to HSI, Mr. Ponte was the Chief Financial Officer for an Atlanta-based middle-market technology company as well as a Vice President and Finance Director for Citizens Financial Group. He also held various financial analysis and management positions with several multi-billion dollar companies including Ocean Spray Cranberries, CVS, Bristol-Myers Squibb, Clairol and Ernst &Young. A native of Rhode Island, Mr. Ponte is a CPA and received a Bachelor of Science in Business Administration as well as a Master in Business Administration from the University of Rhode Island.
A founding member of Triumph Management Group, Mr. Jones is responsible for strategic planning, business development, acquisitions and finance.
As Director of Acquisitions and Finance, Mr. Jones underwrites and sources multi-family property acquisitions with a focus on affordable housing and C markets. From January of 2014 to present, he has closed over $50 million in project based, Section 8 assets. At this time, he has another $25 million in assets under contract, including both conventional and subsidized multi-family properties. Mr. Jones has forged a general partnership/sponsorship group that is backed by a $1 billion+ balance sheet.
Prior to Triumph, Mr. Jones was Co-Founder and Managing Partner of JGI Capital, a regional financial services firm operating a long/short equity investment strategy. As Managing Partner, he was accountable for over $20 million in investment purchasing power and served as chief strategist. He broke into the financial services industry with Oscar Gruss and Son, an Israeli market maker. He later became head trader and branch manager for E*TRADE Professional, LLC before Co-Founding Triumph in 2011.
Mr. Jones graduated with a B.A. from Emory University in 1992 and received his J.D. from the University of Louisville in 1995.
At A Glance
| Investment Strategy: | Buy and Hold |
| Hold Period: | 5 years |
| Total Project Capitalization: | $10,692,778 |
| Acquisition Price: | $10,125,000 |
| Implied Bristol Park Acquisition Value: | $9,265,000 ($82,723 per existing unit) |
| Bristol Park Number of Units: | 112 units |
| Entitled Excess Land Size: | 7.6 acres / 120 units |
| Est. Entitled Excess Land Basis: | $860,000 ($7,167 per entitled unit) |
| Distributions to Realty Mogul 43, LLC: | 10% IRR Hurdle 77.5/22.5 split thereafter |
| Projected First Distribution: | March 2016 |
| Distribution Schedule: | Quarterly |
| Investor Funding Deadline: | October 23, 2015 |
| Estimated Closing Date: | October 29, 2015 |
Investment Details
Evolution Real Estate Partners and Triumph Management Group ("EREP" and "TMG" respectively, and together the "Sponsors"), plan to acquire the Property, a 112-unit apartment community located in Fayetteville, NC approximately 6 miles southwest of US Army base Fort Bragg.
The Property's existing owner H&H Homes, an institutional home builder headquartered in North Carolina, acquired the unfinished Property from the original developer in 2013. Upon completing construction in 2014, the seller was successful in attracting tenants to the Property as seen by its current occupancy level of approximately 95%. To achieve this occupancy level, the seller gave tenants a lease concession package equivalent to approximately 1.1 month's rent (9.3% of potential rent revenue) per year.
While the seller completed the development of the Property and has achieved greater than 95% occupancy, the Sponsors believe there is remaining upside potential through the gradual reduction of the in-place lease concessions. With the Property having reached an occupancy in excess of 95%, the Sponsors do not intend to continue to offer significant concession packages as long as existing occupancy at the Property is maintained. The Sponsors intend to "squeeze down" concessions packages in light of this flexibility, trending towards eliminating/minimizing concession packages at the end of the hold period.
With the acquisition of the Property the Sponsors also acquired approximately 7.6 acres of land which is entitled for the development of an additional 120 units of multifamily. The land is located at the back of the Property and away from the street, making it a slightly inferior site to the Bristol Park Apartments site. The Sponsors do not intend to develop the site during the hold period. Instead, the Sponsors project to sell the land with the Property for $860,000, which is equivalent to approximately $2.60 per square foot of land or approximately $7,167 per entitled door. There could be additional upside if market conditions are favorable and the excess land is disbursed of earlier or for a higher selling price than is underwritten.
The Sponsors, after visiting the Property's operations, were impressed with the existing property manager, Wellington Advisors, which manages several similar properties in the Fayetteville market, and have elected to retain its services. However, should the Sponsors deem that Wellington Advisors is underperforming at any point the Sponsors will be able to replace Wellington Advisors with Triumph Housing Management.
The Sponsors intend to hold the Property for five (5) years before exiting the investment, though the hold period could be longer or shorter as it will largely be dictated by execution of the business plan and market conditions. RealtyMogul.com investors have the opportunity to participate as equity stakeholders and potentially earn a share of the cash flow and asset appreciation. RealtyMogul.com investors will invest in Realty Mogul 43, LLC. Realty Mogul 43, LLC will invest in Bristol Real Estate Holdings I, LLC (BREH I), which will hold a 100% ownership interest in Bristol Real Estate Holdings, LLC which will hold title to the Apartment Property (BREH I will hold a 99.5% interest directly and a 0.5% interest indirectly through Bristol Real Estate Holdings, Inc.). BREH I will also own a 100% ownership interest in Bristol Real Estate Holdings II, LLC which will hold title to the adjacent vacant land. Investors can expect to receive quarterly updates and distributions, with the first distribution expected in March 2016 and continuing on a quarterly basis thereafter.
Investment Highlights
- Newly Constructed Apartment Community with Upside Potential Through the Reduction of Lease Concessions and the Disposition of Additional 7.6 Acre Lot
- Military Basic Allowance for Housing Supports Property's Market Rent
- Effective Rents per square foot are Priced Competitively Relative to Other New Apartments in the Market
- Sales Price per Unit is Lower Relative to Most Other New Apartments in the Market
Risk Factors*
- Forward-Looking Statements: Investors should not rely on any forward-looking statements made regarding this opportunity, because such statements are inherently uncertain and involve risks. We use words such as “anticipated,” “projected”, “forecasted”, “estimated”, “prospective”, “believes,” “expects,” ”plans” “future” “intends,”, “should,” “can”, “could”, “might”, “potential,” “continue,” “may,” “will,” and similar expressions to identify these forward-looking statements.
- Illiquid Investment - Transfer Restrictions & No Public Market: The transferability of membership interests in Realty Mogul 43, LLC are restricted both by the operating agreement for that entity and by U.S. federal and state securities laws. In general, investors will not be able to sell or transfer their interests. There is also no public market for the investment interests and none is expected to be available in the future. Persons should not invest if they require any of their investment to be liquid. This is particularly important for persons of retirement age, who should plan carefully to assure that their assets last throughout retirement.
- High Military Tenant Concentration and Base Dependency: With approximately half of the tenant base directly related to the local military base there is risk associated with mass deployment or some other change occurring at the base and the impact it would have on the military-related population in town and the subsequent impact on the Property's operations.
- New Development: There is risk associated with potential new development and the impact it would have on the Property's operations.
- Lack of Operating History: There is risk associated with the lack of historical operating detail at the Property due to its newer construction.
- Uncertainty Surrounding Future Sales Price: There is risk associated with the Sponsor being unable to sell the Property as projected.
- Uncertainty Surrounding the Ability to Exit the Additional 7.6 Acres: There is risk associated with the Sponsor being unable to sell the 7.6 acres attached to the Property as projected.
- Interest-Only Loan Period: The loan being used to acquire the Property is expected to have an interest-only period during the first 36 months of the loan term, which means that there will be no reduction in the principal balance during that interest-only period.
- Rising Interest Rates: The Federal Reserve has methodically reduced the amount of stimulus it was earlier injecting into the U.S. economy, and has signaled that increases in the federal funds rate may be forthcoming. This could potentially lead to rising interest rates offered by other lenders and could have an effect on the future value of the Property (since higher loan interest rates might mean that potential buyers would face proportionately higher debt service expenses).
- Mortgage Risk and Prepayment Penalty: The Sponsor has a signed loan application with a lender to provide the debt financing for the acquisition of the Property, but there can be no assurance that the lender will complete financing on the rates and terms included in the underwriting being presented in the model for this investment opportunity. Should the terms of the debt financing change materially and adversely, investors will be notified. If the debt financing does not close as anticipated and the Sponsor needs an extension on the purchase contract, the seller of the Property may not so extend and the transaction may be canceled. The lender's due diligence may result in modifications of the proposed terms indicated in the executed loan application, which may result in the transaction being canceled. The Sponsor expects that the loan used to acquire the Property will be subject to a prepayment penalty and has underwritten that such a penalty is paid upon the disposition of the Property. However, should the prepayment penalty be more expensive than is underwritten it would be diminutive to investor returns compared to the Sponsor's projections.
- Potential Conflict of Interest Risk Regarding Debt Financing: An affiliate of Realty Mogul 43, LLC (“Lender Affiliate”) expects to originate the debt financing (“Loan”) for the acquisition of the Property. The Lender Affiliate expects to earn certain fees including a fee at closing and a fee if/when the Loan is securitized. Although the manager of Realty Mogul 43, LLC believes the fees and interest rate for the Loan will be in-line with market rates, if the fees or interest rate, at closing, are above-market rates this would decrease returns on equity as compared to current projections. The Lender Affiliate will sell the Loan at closing to an unaffiliated third party, at which point the Lender Affiliate will have no ownership of the Loan or decision making authority with regard to the Loan.
- Management Risk: Investors will be relying solely on the manager of Bristol Real Estate Holdings I, LLC for the execution of its business plan. That manager in turn may rely on other key personnel with relevant experience and knowledge, including contractors and consultants. Members of Bristol Real Estate Holdings I, LLC (including Realty Mogul 43, LLC) will agree to indemnify the manager in certain circumstances, which may result in a financial burden if any litigation results from the execution of the business plan. While the manager of Bristol Real Estate Holdings I, LLC has significant operating experience, Bristol Real Estate Holdings I, LLC was recently formed and has no significant operating history or record of performance.
- Sponsors have a Limited History Serving as Co-GPs on Projects: While Evolution is the majority partner in the GP entity and the operating agreement between the Sponsors provides for all major decisions to be made by Evolution, should the Sponsors have a dispute it could adversely affect the operations and/or cash flow characteristics of the Property.
- Manager of Realty Mogul 43, LLC Will Participate in Sponsor's Promote Interest: The manager of Realty Mogul 43, LLC (or one of its affiliates) will be entitled to a participation in the value of any excess distributable cash flow and any appreciation of the Property realized upon its sale. This could lead to a potential conflict of interest between the manager and Realty Mogul 43, LLC. Investors must recognize and agree to waive and bear the risk of this conflict of interest. Realty Mogul 43, LLC itself is pursuing a venture capital strategy through investments in operating companies that manage and develop real estate; under this strategy, the manager of Realty Mogul 43, LLC is expected to be treated as an investment adviser exempt from federal or state registration.
- Uncertain Distributions: The manager of Bristol Real Estate Holdings I, LLC cannot offer any assurances that there will be sufficient cash available to make distributions to its members (including Realty Mogul 43, LLC) from either net cash from operations or proceeds from the sale of the asset. That manager, in its discretion, may retain any portion of such funds for property operations or capital improvements.
- Risk of Interest Charges or Dilution for Capital Calls: The amount of capital that may be required by Bristol Real Estate Holdings I, LLC from Realty Mogul 43, LLC is unknown, and although Bristol Real Estate Holdings I, LLC does not require that its members contribute additional capital to it, it may from time to time request additional funds in the form of additional capital. Realty Mogul 43, LLC does not intend to participate in a capital call if one is requested by Bristol Real Estate Holdings I, LLC and in such event the Manager of Bristol Real Estate Holdings I, LLC may accept additional contributions from other members of Bristol Real Estate Holdings I, LLC. Amounts that the manager or other members of Bristol Real Estate Holdings I, LLC advance on behalf of Realty Mogul 43, LLC will be deemed to be either a loan at an interest rate of 10% or an additional capital contribution, in which case Realty Mogul 43, LLC's interest in Bristol Real Estate Holdings I, LLC will suffer a proportionate amount of dilution.
- General Economic and Market Risks: While the Sponsor has conducted research to justify the intended rental rates and sales price relative to comparable properties in the market, there can be no assurance that investor sentiment will be favorable, or that purchase financing to a buyer will be readily available, when the Sponsor attempts to sell the Property. The real estate market is 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, all of which are beyond the control of both RealtyMogul.com and Bristol Real Estate Holdings I, LLC.
*The above is not intended to be a full discussion of all the risks of this investment. Please see the Risk Factors in the Investor Document Package for a discussion of additional risks.
| Address: | 1141 Glen Iris Drive, Fayetteville, NC 28314 |
| Years Built: | 2013-2014 |
| Property Type: | Multifamily |
| Number of Units: | 112 units |
| Occupancy: | 95% |
| Major Amenities: | Fitness Center Swimming Pool Dog Park Playground Private Patios/Balconies |
The Property is located in Fayetteville, North Carolina, near the intersection of Cliffdale Road and Buhmann Road, approximately six miles from the US Army base Fort Bragg and two miles from US Route 401. There is a local grocery store and gas station within half a mile of the Property, along with numerous dining, entertainment, and shopping options available at Cross Creek Mall less than five miles away.
The city has a local population of approximately 200,000, with the greater metropolitan area having an estimated population of approximately 350,000. Fayetteville citizens enjoy a solid overall quality of life with its low cost of living, strong military-based job market, and several higher education opportunities.
Fort Bragg Overview
The population information listed above and the market information listed below are from the Military Installation's website, the Fort Bragg website and the Fayetteville City-Data website.
Operated by the United States Army, Fort Bragg is home of the 82nd Airborne. Fort Bragg was established in 1918 and is located just west of Fayetteville, North Carolina. It is the nation's largest military installation and one of the largest military installations in the world. Fayetteville is a "Community of History, Heroes, and a Hometown Feeling" with a total metropolitan population of approximately 350,000.
With approximately 52,300 active duty Soldiers, 12,600 Reserve Components and Temporary Duty students, 8,800 civilian employees, 3,500 Contractors, and 63,000 active duty family members, Fort Bragg is the largest US Army base by population. Additionally, there are approximately 98,500 Army retirees and family members in the area.
As the U.S. military continues to downsize after pulling out of Afghanistan and Iraq, Fort Bragg avoided deep cuts from Army force reductions. According to an official announcement in July 2015, Fort Bragg will see a net loss of 842 soldiers by the end of 2018, which is well below the worst-case scenario originally presented by Army officials. George Breece, board chairman of the Fayetteville Regional Chamber, said the 842 net loss was great news considering what could have been. "While we are disappointed for any losses at Fort Bragg, the small reduction we will see versus original estimates is further reinforcement that our community continues to be a blueprint of how a community supports its military neighbors," Breece said (Fayetteville Observer, 2015). Despite Fort Bragg's status as the largest military base in the world, seven installations will see deeper cuts than Fort Bragg from the July 2015 military cuts: Fort Benning (3,402) and Fort Stewart (947) in Georgia; Fort Bliss (1,219) and Fort Hood (3,350) in Texas; Joint Base Elmendorf-Richardson, Alaska (2,631); Joint Base Lewis-McChord, Washington (1,251); and Schofield Barracks, Hawaii (1,214). In the aftermath of the announcement, local leaders said they believed the relatively small troop reduction at Fort Bragg cements the post's position as one of the nation's most important military installations. With regional stability due to the notable importance of the base to the U.S. military, the Property may benefit from resistance to possible economic fluctuations.
Fayetteville, NC Apartment Market Overview
While overall vacancy levels for apartments in Fayetteville average around 11%, which is approximately double the average vacancy rate in major US markets per Costar Portfolio Strategy, newer product in the market has achieved high stabilized occupancy, as can be seen in the occupancy levels of the Property's leasing comps on the "Investment" tab.
