Acquisition basis is $56k per unit on purchase price and $70k per unit all-in in a submarket currently supporting similar asset quality trades at over $80k per unit.
Repeat Real Estate Company with whom RealtyMogul has previously invested on four deals.
Overall post-renovation rents for the Property are 9% below submarket average, per Axiometrics, leaving room for increasing rents during the hold period while still maintaining relative affordability.
NV2 Holdings, LLC
NV2 Holdings, LLC is a newly-formed multifamily acquisition venture established by Glenn Gonzales. Glenn Gonzales has previously acquired a multifamily portfolio of over 3,800 units at a cumulative purchase price of over $178 million via a partnership known as NAPA Ventures, LLC, of which Glenn was a Principal and Co-Founder.
In addition to his background with NAPA Ventures, LLC, Mr. Gonzales currently serves as the Chief Executive Officer for Place 10 Residential, Inc., a property management firm with over 6,000 units under management. Place 10 Residential, Inc. was established in 1969 and is headquartered in Renton, WA with satellite offices in Dallas and Austin Texas. Place 10 Residential, Inc. is a national U.S. community management firm committed to delivering exceptional service to its apartment communities and residents. Place 10 Residential, Inc. provides community and compliance management services that create positive living environments for residents and build value for clients. Place 10 Residential, Inc.'s corporate team has over 75 years of combined experience.
Glenn Gonzales of NV2 Holdings, LLC has, through predecessor entities, served as a Sponsor for four other real estate investments offered on the RealtyMogul platform. Those investments are known as Woodbridge Townhomes, Ravenwood Apartments, Yardarm Apartments, and Village Creek Townhomes.
As noted above, RealtyMogul investors previously invested alongside Glenn Gonzales in the Woodbridge Apartments acquisition in August 2016, the Ravenwood Apartments acquisition in October 2016, the Yardarm Apartments acquisition in July 2017, and the Village Creek Townhomes acquisition in August 2018.
As of the end of Q3 2018 both Woodbridge Apartments and Ravenwood Apartments have been sold, with those investments generating net IRRs to RealtyMogul investors of 21.8% and 48.5%, respectively.
As of the end of Q3 2018, Yardarm Apartments had achieved a stabilized occupancy of 98%. However, the Property has underperformed on an NOI basis since acquisition, with the NOI since inception only being 66% of the proforma NOI from the Issuer Document Package for that transaction. That property was acquired on August 9, 2017, and Hurricane Harvey made landfall in Corpus Christi, where that property is located, on August 25, 2017.
As of the end of Q3 2018, Village Creek Townhomes had an occupancy of 94%. Given the Property was acquired August 9, 2018, the Q3 2018 financials only represent 53 days of operations, but during that period that property outperformed the proforma NOI from the Issuer Document Package for that transaction by 35%.https://www.place10residential.com/our-people
Mr. Glenn Gonzales is an entrepreneurial individual able to leverage 25 years of commercial real estate experience. Glenn served as Treasurer on the Board of Directors for the Washington Multi-family Housing Association, and was elected as President of the association in 2006. From 1994 to 1998, Glenn was a board member for the Utah Apartment Association. He also served a two-year term as the Chairman of the Public Relations Committee and a one-year term as the Secretary-Treasurer for the Institute of Real Estate Management (IREM). Since 1994, Glenn has also been an instructor for the Apartment Associations in his local markets.
|Property Name||Location||Asset Type||Date Acquired||# of Units||Purchase Price|
|Encinal||San Antonio, TX||Multifamily||12/19/2013||201||$4,818,750|
|Lakeview Apartments||Killeen, TX||Multifamily||4/4/2014||62||$1,175,000|
|Morgan Manor||San Antonio, TX||Multifamily||9/26/2014||157||$3,650,000|
|Santa Fe||San Antonio, TX||Multifamily||6/30/2015||327||$7,300,000|
|Montecito Creek||Dallas, TX||Multifamily||9/30/2015||650||$34,000,000|
|Oates Creek||Mesquite, TX||Multifamily||6/30/2016||280||$15,700,000|
|Parkside Townhomes||Arlington, TX||Multifamily||7/14/2016||144||$11,500,000|
|Woodbridge Townhomes||Arlington, TX||Multifamily||8/24/2016||91||$6,225,000|
|Westwood Apartments||Dallas, TX||Multifamily||8/31/2016||187||$7,400,000|
|Ravenwood Apartments||Fort Worth, TX||Multifamily||10/12/2016||122||$4,900,000|
|Brandon Mill||Dallas, TX||Multifamily||9/26/2016||300||$12,160,000|
|Eagle Point||Dallas, TX||Multifamily||11/15/2016||156||$6,961,100|
|Pleasant Creek||Lancaster, TX||Multifamily||12/30/2016||159||$8,580,000|
|Oyster Creek||Lake Jackson, TX||Multifamily||2/28/2017||201||$15,900,000|
|Treasure Bay||Lake Jackson, TX||Multifamily||2/28/2017||200||$15,100,000|
|Prescott Woods||Tulsa, OK||Multifamily||5/12/2017||256||$8,300,000|
|Yardarm Apartments||Corpus Christi, TX||Multifamily||7/28/2017||150||$8,875,000|
|Village Creek Townhomes||Fort Worth, TX||Multifamily||8/9/2018||184||$11,000,000|
Note - The above track record represents a portfolio for which Glenn Gonzales of the Real Estate Company served as a Principal and Co-Founder. However, the above portfolio was and is not owned by NV2 Holdings, LLC. Prior to the acquisition of the Property, NV2 Holdings, LLC will not own any commercial real estate assets.
The Real Estate Company's bio and track record were provided by the Real Estate Company and have not been verified by RealtyMogul or NCPS.
In this transaction, Realty Mogul investors are to invest in RealtyMogul 127, LLC ("The Company"). The Company will subsequently invest in NV2 Sienna Villas, LLC ("The Target"), a limited liability company that will hold title to the Property. NV2 Holdings, LLC (the "Real Estate Company") is under contract to purchase the Property for $8,675,000 ($55,609 per unit), and the total project cost is expected to be $10,971,474 ($70,330 per unit).
The business plan for the Property entails acquiring the Property at a below-market acquisition basis of $55,609 per unit and subsequently executing on a $1.4 million capital expenditure plan. The capital expenditure budget is focused on curing deferred maintenance, improving the Property's curb appeal, and executing interior renovations for 68 of the 156 total units at the Property with a per unit renovation budget of approximately $7,400. Additionally, the business plan calls for increasing occupancy at the Property during the hold period and selling the Property within approximately three (3) years, market conditions permitting.
Major curb appeal improvements throughout the Property anticipated to be completed as part of the business plan include: repainting the brick facades, renovating and repainting stairwells and handrails, replacing pool furniture, renovating the interior of the leasing office, updating exterior lighting and signage, renovating the laundry room, and installing enclosures around the dumpsters at the Property.
|CapEx Item||$ Amount||Per Unit|
|Interior Unit Renovations ($7.4k per renovated unit for 68 units)||$523,600||$3,356|
|Immediate Repair Items (Deferred Maintenance)||$190,000||$1,218|
|AC Units & Handlers||$70,000||$449|
|Foundation and Plumbing||$50,000||$321|
|Balcony Wood Rot||$35,000||$224|
|Stairwell and Metal Railing Repair||$30,000||$192|
|Pool and Leasing Office Furniture||$30,000||$192|
|Leasing Office Interior Renovation||$20,000||$128|
|Laundry Room Improvements||$11,500||$74|
|Construction Management Fee 8.0%||$101,890||$653|
|CapEx Item||Per Unit|
|New Black Appliances||$1,600|
|New Faux Wood Flooring||$1,500|
|New Cabinet Doors and Hardware||$800|
|New Interior Paint||$750|
|New Light Fixtures||$550|
|Resurface or Replace Countertops||$500|
|Repaint Cabinet Boxes||$500|
|Replace Bathroom Vanity||$500|
|Add Backsplash in Kitchen||$350|
Sienna Villas ("The Property") is a 156-unit, Class C residential community built in 1977. The Property is located in the Brazosport area in the city of Freeport, Texas, approximately 55 miles south of downtown Houston, TX.
The Property includes a pool and various spacious grassy areas, as well as BBQ grills, washer and dryers, a laundry room and a deck/patio area with storage. The Property offers one, two and three-bedroom units with an average unit size of 727 square feet.
The Property is situated on 6.4 acres, providing for a density of 24.4 units per acre. The Property's 206 parking spaces equate to 1.32 spaces per unit. The Property consists of two-story, low-rise, wood-frame construction.
|Unit Type||# of Units||% of Total||Unit (SF)||Total SF||In-Place Rent||Post Renovation Rent|
|1 Bed, 1 Bath Small||68||44%||620||42,160||$710||$779|
|1 Bed, 1 Bath Small - Renovated||16||10%||620||9,920||$800||$800|
|1 Bed, 1 Bath Large||12||8%||650||7,800||$738||$789|
|2 Bed, 1 Bath||40||25%||850||34,000||$867||$925|
|2 Bed, 2 Bath||12||8%||960||11,520||$990||$1,075|
|3 Bed, 2 Bath||8||5%||1,000||8,000||$1,111||$1,175|
|Rental Comparables||Treasure Bay||Shadow Park Apartments||The Landing||The Lodge at Timbercreek||Averages||Subject|
|# of Units||200||168||256||248||218||156|
|1x1 - # of Units||78||30||46||64||55||96|
|1x1 - SF||655||660||676||625||654||624|
|1x1 - Rent||$730||$785||$871||$735||$780||$784|
|1x1 - $/SF||$1.11||$1.19||$1.29||$1.18||$1.19||$1.26|
|2x1 - # of Units||24||24||54||80||46||40|
|2x1 - SF||886||857||792||846||845||850|
|2x1 - Rent||$931||$950||$915||$900||$924||$925|
|2x1 - $/SF||$1.05||$1.11||$1.16||$1.06||$1.09||$1.09|
|2x2- # of Units||--||24||24||48||32||12|
|2x2 - SF||--||960||1,131||930||1,007||960|
|2x2 - Rent||--||$1,085||$1,215||$1,050||$1,117||$1,075|
|2x2 - $/SF||--||$1.13||$1.07||$1.13||$1.11||$1.12|
|3x2- # of Units||16||--||20||8||15||8|
|3x2 - SF||1,096||--||1,131||1,200||1,142||1,000|
|3x2 - Rent||$1,082||--||$1,215||$1,300||$1,199||$1,175|
|3x2 - $/SF||$0.99||--||$1.07||$1.08||$1.05||$1.18|
|Distance from Subject (mi.)||4.8||1.1||4.2||2.6||3.2||--|
Source - Axiometrics
*Note - Subject occupancy as of November 2018.
|Sales Comparables||LakeVue Apartments||Crescent Wood||Oak Park Town Homes||Averages||Subject|
|# of Units||360||216||20||199||156|
*Note: Subject Cap Rate is representative of T-12 NOI adjusted for taxes.
Source - CoStar
Per CoStar, the Houston Market has experienced significant volatility in the past few years thanks to a weakened energy industry, a bloated construction pipeline, and Hurricane Harvey. 96,000 units have come on line since 2010, placing significant supply-side pressure on the market. In the submarkets that have received heavy supply this cycle, average annual rent growth was significantly slower than growth in the previous cycle (2006-09). Before Hurricane Harvey hit in 3Q17, the market’s four-quarter trailing rent growth was still negative. However, the storm created a sharp increase in demand from displaced residents, which caused an immediate increase in rent growth and reversed the trend of decreasing occupancy. Despite this recent volatility, the outlook for the market appears to be favorable. Healthcare and the Port of Houston have been the primary drivers in diversifying the Houston economy -- once totally reliant on the energy sector. Job and population growth have improved the demand picture and the market is expected to add fewer than 10,000 units this year for the first time since 2013, alleviating some of the supply side pressure.
Per Axiometrics, annual effective rent increased 3.1% from $1,081 in 3Q18 to $1,115 in 4Q18, which resulted in an annual growth rate of 2.4%. Annual effective rent growth is forecast to be 4.2% in 2019, and average 2.6% from 2020 to 2022. Annual effective rent growth averaged 2.0% from 1996 - 2017. The market's annual rent growth rate was below the national average of 2.5% for that period.
The market's occupancy rate decreased from 94.0% in 3Q18 to 93.7% in 4Q18, and was down from 94.3% a year ago. The market's occupancy rate was below the national average of 95.4% in 4Q18. For the forecast period, the market's occupancy rate is expected to be 93.2% in 2019, and average 92.9% from 2020 to 2022. The market's occupancy rate has averaged 92.8% since 1Q96.
Per Axiometrics, annual effective rent increased 6.6% from $905 in 3Q18 to $965 in 4Q18, which resulted in a 4Q17-4Q18 annual growth rate of 7.3% in the Brazoria County submarket of the Houston-The Woodlands-Sugar Land, TX market. The submarket's 2018 annual rent growth rate of 4.0% was at the market average. Annual effective rent growth is forecast to be 6.4% in 2019, and average 4% from 2020 to 2022. The annual effective rent growth has averaged 1.8% per year since 1Q96.
The submarket's occupancy rate increased from 93.5% in 3Q18 to 93.9% in 4Q18, and was down from 94.5% a year ago. The submarket's occupancy rate was above the market average of 93.7% in 4Q18. For the forecast period, the submarket's occupancy rate is expected to decrease to 93.8% in 2019 and average 93.4% from 2020 to 2022. The submarket's occupancy rate has averaged 95.0% since 1Q96.
|1 Mile||3 Miles||5 Miles|
|Estimated Population (2023)||5,670||14,227||31,817|
|Estimated Population Growth (2018-2023)||9.52%||9.02%||9.22%|
|Average Household Income||$41,959||$58,311||$61,134|
|Median Household Income||$26,441||$37,944||$44,474|
|Median Home Value||$59,323||$61,487||$76,387|
|Average Household Size||3.1||3.1||2.8|
Demographic information above was obtained from CoStar.
|Sources of Funds||Cost|
|Total Sources of Funds||$10,971,474|
|Uses of Funds||Cost|
|Broker Dealer Fee||$110,400|
|Mortgage Broker Fee & Loan Origination Fee||$157,200|
|Buyer's Closing, Legal Fees & Due Diligence||$231,322|
|Tax and Insurance Escrows||$24,052|
|Cash Flow Reserve||$100,000|
|Total Uses of Funds||$10,971,474|
The summary of the terms of the debt financing are as follows:
- Lender: Ready Capital
- Loan Type: Bridge
- Total Proceeds: $7,860,000
- Initial Loan Proceeds: $6,500,000
- Future Loan Proceeds: $1,360,000
- Initial Loan Term: 3 years
- Extension Options: Two (2) One Year extension options, subject to Extension Conditions
- Rate: 1-Month LIBOR + 3.75%, with a LIBOR floor of 2.30%
- Interest Rate Cap: 2 year cap to be renewed prior to expiration at a strike rate of 1-Month LIBOR = 3.50%
- Interest Only Period: 3 Years
- Amortization: 25 years in Extension Periods
- Cash Management: Full lender sweep of free cash flow in event of De-Stabilization Trigger
- De-Stabilization Trigger: Minimum of a 6.00% Debt Yield on the Current Outstanding Balance for one quarter or a minimum physical occupancy of 75% for two out of three months in a quarter
- Cash Management Release: Minimum of a 9.25% Debt Yield on the Total Outstanding Commitment is achieved for two consecutive testing quarters and a minimum physical occupancy of 90.0% has been achieved
- Ongoing Reserves: None during Year One of the hold period - thereafter the ongoing reserves are expected to be equal to $159 per unit per year
- Prepayment: 21-months on the Average Outstanding Balance according to the projected funding requirements
- Recourse: Non-recourse except for carve-outs
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.
The Target intends to make distributions of all available cash and capital proceeds to investors (The Company, and the Real Estate Company, collectively, the "Members") as follows:
- Pari passu to the Members to a 8% IRR,
- 80% to the Members pari passu and 20% to the promote to a 15% IRR,
- 65% to the Members pari passu and 35% to the promote to a 20% IRR,
- 50% to the Members pari passu and 50% to the promote thereafter.
Note that these distributions will occur after the payment of The Company's liabilities (loan payments, operating expenses and other fees as set forth in the LLC agreement, in addition to any member loans or returns due on member loans).
The Company will distribute 100% of its share of excess cash flow (after expenses and fees) to the members of The Company (the RealtyMogul investors). The manager of The Company will receive a portion of the promote.
Distributions are expected to start in June 2019 and are expected 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||$1,451,971||$1,626,876||$1,695,098|
|Total Operating Expenses||$795,302||$841,118||$858,693|
|Net Operating Income||$656,668||$785,758||$836,405|
|Distributions to The Company||($2,780,000)||$210,581||$181,113||$3,880,303|
|Net Earnings to Investor -
Hypothetical $50,000 Investment
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||$173,500||Real Estate Company & RM Communities GP, LLC||Capitalized Equity Contribution||2.0% of the Property purchase price, split 50% / 50%|
|Disposition Fee||1.0% of Sales Price||Real Estate Company||Sales Proceeds||Subject to a full return of the Company's capital contributions|
|Broker-Dealer Fee||$110,400||North Capital (1)||Capitalized Equity Contribution||4.0% of equity raised by RealtyMogul|
|Construction Management Fee||8.0% of Total Costs||Real Estate Company||Capitalized Capital Expenditure Budget|
|Type of Fee||Amount of Fee||Received By||Paid From||Notes|
|Asset Management Fee||1.5% of Effective Gross Income||Real Estate Company||Distributable Cash|
|Management and Administrative Fee||1.0% of amount invested in the Target||RM Manager, LLC||Distributable Cash||RM Manager, LLC is the Manager of The Company 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, RM Communities GP, 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.
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.
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 the Company and its members contribute additional capital to it, it may from time to time request additional funds in the form of loans or sell additional equity. 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 Target or from new members. In the event that the manager of Target advances any capital on behalf of the Company, it will be deemed to be a manager loan at an interest rate that cannot be determined at this time. 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 Target will potentially suffer a proportionate amount of dilution.
Financial Past of Sponsor's Principal
Investors should consider that one of the Sponsor’s principals experienced personal bankruptcy in 2002 and a foreclosure on his primary residence in 2010. It should be noted that past financial events are not necessarily indicative of future performance or management ability.
All funds from investors will be held in a non-interest-bearing escrow account with Broker-Dealer as escrow agent for the benefit of the investors in accordance with Rule 15c2-4 under the Exchange Act. All investor funds will be transmitted directly by wire or electronic funds transfer via ACH to the escrow account maintained by the escrow agent per the instructions in the Subscription Agreement. Upon certification by Broker-Dealer and acceptance by the Company that all contingencies have been met, the investor’s funds will be promptly transmitted to the Company. If the contingencies fail to be satisfied during the offering period, we will instruct the Broker-Dealer to return all funds to the investors without interest, deduction, or setoff, and all of the obligations of the investor hereunder shall terminate.
Texas Hurricane Risk
Freeport is a major port city and lies near the Gulf of Mexico, which is subject to frequent and sometimes destructive hurricanes. There can be no assurance that a sizable hurricane will not cause significant damage to the Property, in which case the business and financial condition of the Target, and thus the Company, would be materially adversely affected. There is no guarantee that the Target will procure hurricane or flood insurance for the Property.
As of November 2018, the Property had an 88% occupancy level, and the Target intends to implement a capital improvement plan involving the interior and exterior renovation of the Property, and a leasing program in its effort to add value to the Property. The Target intends to renovate all or some of the units within the Property and increase the current rental rates of such renovated units. There can be no assurance that, (i) the renovations will be consummated on a timely basis, (ii) the renovations will be completed satisfactorily, (iii) such work will not materially adversely affect other aspects of the operation of the Property, and (iv) the planned rental rate increase will have favorable results to meet the goals the Target projected. Any delays or negative results of the renovation work or rental increase efforts could adversely affect the Property’s financial results or occupancy levels, including its business operations and thus the value of the Company’s 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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