SF Partners & Affiliates
SF Partners Mortgage, LLC ("SF Partners") is a Real Estate Investment firm established in 2009 for the sole purpose of purchasing and managing commercial real estate in the State of Florida. The principals of SF Partners, Charles Stuzin and Daniel Stuzin, have been involved in both the banking and real estate industries in Southern Florida for more than 40 years.
Since inception, SF Partners (through affiliates) has purchased and operated over twenty multi-tenant commercial properties primarily in the Southern Florida area. SF Partners’ strategy has been to identify commercial buildings where it can add value through increasing occupancy, raising rental rates, and reducing expenses. Many of the properties purchased by SF Partners have also required substantial investment in capital improvements in order to achieve the aforementioned objectives.
The investment strategy is based upon acquiring and managing “sub-performing” commercial real estate assets that offer attractive risk based returns in the following property types: office, retail, and light-industrial. Typical deal sizes range from $1,000,000 - $10,000,000. By focusing on smaller commercial properties, SF Partners believes it can find value as there are less sophisticated purchasers pursuing these type of deals. Transaction types are standard arms length buyer/seller purchases but have also included the acquisition of non performing notes, portfolio purchases, and REO assets. The management team has developed a strategy which they believe allows for quick stabilization of the asset (typically within 12-18 months). The “in-house” property management team also allows SF Partners to keep expenses to a minimum while providing superior value to its tenants. The following are examples of some of the recent transactions SF Partners has undertaken.
Charles is a principal of SF Partners. He has spent his 40 year career in the banking and real estate industries. Previously, he served as Chairman and President of CSF Holdings, Inc. (holding company for Citizens Federal Bank). He currently serves as Chairman of the Board for the Holding Company of Coconut Grove Bancshares. Charles holds a bachelors degree in accounting from the University of Florida and a J.D. from the University Of Miami School Of Law. Mr Stuzin’s experience has been great source of counsel for the operations of SF Partners.
Daniel is a founder and managing principal of SF Partners and is responsible for setting the investment strategy of the firm. He maintains overall responsibility for all operations of the firm. Daniel holds a bachelors degree in accounting from the University of Illinois and a J.D. from the University of Miami School of Law. Daniel was President and founder of SF Partners Mortgage LLC, a licensed commercial Florida lender that originated and managed commercial loans between 2003-2009.
At A Glance
|Investment Strategy:||Buy and Hold|
|Projected Hold Period:||5 years|
|Total Project Budget:||$8,800,000|
|Property Type:||Medical Office|
|Net Rentable Area:||57,815 Square Feet|
|Distributions to Realty Mogul 45, LLC:||Pari passu to an 8% IRR, then 70/30 split|
|Going-In Cap Rate (Year 1):||9.68%|
|Going-In Cap Rate (Trailing 12):||8.67%|
|Projected First Distribution:||May 2016|
|Distribution Schedule:||Semi Annual|
|Investor Funding Deadline:||September 23, 2015|
|Estimated Closing Date:||October 8, 2015|
SF Partners Mortgage, LLC ("Sponsor") plans to acquire and stabilize Hollywood Medical Office Building ("the Property"), a 57,815 square foot, five-story medical office building located in Hollywood, FL. The Property is located on the 280-bed Memorial Regional Hospital South campus and is attached via a covered walkway to the parking garage. The hospital is part of the Memorial Healthcare System, the largest healthcare operator in Broward County, Florida and is surrounded by multiple Senior/Nursing facilities. The area surrounding the hospital is densely populated and may see additional growth due to the rezoning and redevelopment of the adjacent Hillcrest golf course, which was recently approved by the city for residential redevelopment, and is in the process of being bid by residential developers. Preliminary plans are in place to develop the property with residential housing, which should increase the need for medical doctors and services in the area in the future. Realty Mogul investors are being provided the opportunity to invest in Realty Mogul 45, LLC. Realty Mogul 45, LLC will be making an investment in KAS Hollywood, LLC, which will hold title to the Property. The managing member of KAS Hollywood, LLC is an entity whose manager is the principal and founder of the Sponsor.
Through KAS Hollywood, LLC, the Sponsor will handle all aspects of the investment including acquiring the property, implementing a capital improvement, property management and leasing program, and ultimately selling the property. The Sponsor is purchasing the Property for $8.3 million ($144 per square foot) and plans to implement a minor capital improvement program to increase the attractiveness of the Property to potential tenants, use a local leasing team to manage rollover and lease up vacant space at the Property, and lastly, reduce expenses at the Property.
Although the building has been well maintained (the recently completed PCA indicated minimal suggested repairs), the Sponsor intends to implement a minor capital improvement program to increase the attractiveness of the Property and reduce operating expenses. The capital improvement plan involves continued improvements to the common areas (the building has upgraded restrooms on three of the five floors and received new energy efficient LED lighting in 2015 as well, which has resulted in lower electricity costs since installation), continued upgrades to the HVAC system via installation of new energy-efficient HVAC Air Handlers (the seller replaced two of the five air handler units in 2015), and new paint to freshen up the building's appearance.
In addition to capital improvements, the Sponsor intends to hire an experienced local broker to lease up the vacant space at the Property. The Property has historically suffered from ownership that was inexperienced in leasing medical office space and should benefit from the implementation of a professional leasing team experienced in the market and with medical office. Being 80% occupied, the Property presents a value-add opportunity to lease-up currently vacant space at market rents while managing rollover at the Property. Recent leasing/renewals at the Property are in line with the Sponsor's proforma rents, and the adjacent medical office building is currently well occupied, offering support to the desirability of the location. Many of the tenants at the Property have admitting rights to the hospital and are therefore unlikely to want to leave upon lease expirations.
The Sponsor also intends to reduce expenses at the Property through reduced property insurance costs, the reduction in one-off repair and maintenance costs that were being charged to the Property for renovations undertaken by the seller, and by continuing the utility expense savings offered by the installation of the energy efficient HVAC units and LED lighting.
The Sponsor plans to hold the property for five (5) years before exiting the investment, but the hold period could be longer or shorter. Realty Mogul investors have the opportunity to participate as equity stakeholders and earn a share of the cash-flow and appreciation. Investors may expect to receive quarterly updates and semi-annual distributions, with the first distribution expected in May 2016 and on a semi-annual basis thereafter.
- On Campus Location With Access to Covered Parking
- Well Maintained Building
- In Place Cash Flow With Value-Add Potential Through Lease-Up
- Diversified Tenant Base
- Memorial Healthcare System is the Third Largest Public Healthcare System in the Nation
Risks and Risk Mitigation*
- 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 45, 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.
- Interest Only Loan: The loan being used to acquire the Property is interest-only for the first two years of operation, which means that there will be no reduction in the principal balance during that period.
- Debt With a Five-Year Term: The loan on the Property is expected to have a term of five (5) years co-terminus with the investment period potentially creating capital markets risk in the event that market conditions deteriorate over the next five years impacting the Sponsor’s ability to sell the Property or obtain replacement financing. Although there can be no assurance that the lender would allow for a loan extension under such circumstances, the Sponsor believes that it is likely that the lender would allow for such an extension rather than forcing the Sponsor to sell the Property under unfavorable market conditions.
- Lease-Up of Vacant Space: There is a risk that the leasing team will be unable to lease up the currently vacant units at the Property. This would have an adverse impact on future cash flow and projected value for the Property to the extent that such vacancies were to remain higher than projected. This risk is partially mitigated by the experience of the Sponsor in managing properties of a similar type. The Sponsor intends to use one of the major local brokerage firms to assist in leasing up vacant space at the Property.
- Local Market Conditions May Impact Rental Rates: Local conditions may significantly affect occupancy, rental rates, and the operating performance of a property. Such risks include (but are not limited to): (i) plant closings, industry slowdowns and other facts that affect the local economy; (ii) an oversupply of, or a reduced demand for, similar properties; (iii) a decline in household formation or employment or lack of employment growth, (iv) laws that could inhibit the ability to raise rents or to sell a property; and (v) other economic conditions that might cause an increase in operating expenses, such as increases in property taxes, utilities, compensation of on-site personnel and routine maintenance.
- Management Risk: Investors will be relying solely on the Sponsor for the execution of its business plan. The Sponsor may in turn rely on other key personnel with relevant experience and knowledge, including contractors and consultants. Members of KAS Hollywood, LLC (including Realty Mogul 45, 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 Sponsor has significant operating experience, KAS Hollywood, LLC is a newly formed company and has no operating history or record of performance. Realty Mogul 45, LLC is pursuing a venture capital strategy through its investment in KAS Hollywood, LLC, and the manager of Realty Mogul 45, LLC is expected to be treated as an investment adviser exempt from federal or state registration under this strategy.
- Medical Office Experience: The Sponsor has meaningful experience with the ownership and management of medical office real estate. The majority of the office building properties currently controlled or managed by the Sponsor contain medical office suites. Also, the Sponsor controls or manages a number of office buildings in Florida where medical office constitutes half of the rentable space in such office buildings. However, the Sponsor has not previously controlled or managed office buildings where medical office represents all of the rentable space in the building. It is possible that the Sponsor’s experience is not sufficient to effectively control or manage the Property. If that were to be the case, the financial returns for the Property and for this investment would not achieve their potential.
- Manager of Realty Mogul 45, LLC Will Participate in Sponsors' Promote Interest:The manager of Realty Mogul 45, LLC 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 45, LLC. Investors must recognize and agree to waive and bear the risk of this conflict of interest.
- Uncertain Distributions: The Sponsor cannot offer any assurances that there will be sufficient cash available to make distributions to its members (including Realty Mogul 45, LLC) from either net cash from operations or proceeds from the sale or refinancing of the asset. Sponsor, in its discretion, may retain any portion of such funds for tenant improvements, tenant refurbishments and other lease-up costs or for working capital reserves. Sponsor has chosen to make distributions semi-annually.
- Risk of Interest Charges for Sponsor Capital Calls: The amount of capital that may be required by KAS Hollywood, LLC from Realty Mogul 45, LLC is unknown, and although KAS Hollywood, 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 loans or additional capital. Realty Mogul 45, LLC does not intend to participate in a capital call if one is requested by KAS Hollywood, LLC, and in such event the manager of KAS Hollywood, LLC may accept additional contributions from other members of KAS Hollywood, LLC. Amounts that the manager of KAS Hollywood, LLC advances on behalf of Realty Mogul 45, LLC will be deemed to be a manager loan at an interest rate of 10%. Amounts that are contributed by existing or new members will be deemed to be additional capital contributions, in which case Realty Mogul 45, LLC's interest in KAS Hollywood, LLC will suffer a proportionate amount of dilution.
- Uncertain Exit Timing: Although it is anticipated that the Property will be sold at the end of the expected five (5) year hold period, Realty Mogul 45, LLC will not have full control over the timing of the sale of the Property, and therefore we cannot offer assurances of when the exit will occur. If the Property is not sold after seven (7) years, Realty Mogul 45, LLC has the right to call for a vote of the members of KAS Hollywood, LLC. Such vote shall exclude the Sponsor and the immediate family members of the Sponsor.
- Healthcare Spending: A significant portion of healthcare expenditures and reimbursement rates in the United States are controlled or impacted by government policies and large corporations. It is possible that the government or others will decrease healthcare spending or reimbursement rates and this could have a material adverse impact on the financial viability of various healthcare providers including the healthcare providers who lease space in the Property now or in the future. If this were to happen the Property would likely experience a decrease in revenue and this could materially adversely impact the Property and this investment.
- General Economic and Market Risks: While the Sponsor has conducted significant research to justify the intended rental rates and sales price relative to comparable properties in the market, its best efforts to forecast economic conditions cannot state for certain whether or not investor sentiment and the capital markets will be favorable to the property at the intended disposition date. The real estate market is affected by many factors, such as general economic conditions, the availability of financing, interest rates and other factors, including supply and demand for real estate investments, all of which are beyond the control of the Sponsor.
*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:||3700 Washington St.
Hollywood, FL 33021
|Net Rentable Area:||57,815 square feet|
|Land Area:||1.39 +/- acres|
|Parking:||512 spaces available, 8.9 per 1,000 square feet of rentable area|
The Property is located on the southwest corner of Washington St. and S. 37th Ave., situated on the 280-bed Memorial Regional Hospital South campus. The hospital, part of the Memorial Healthcare System, is the home of the Memorial Rehabilitation Institute and also offers the community vital services, including the 24-hour Emergency Department. The Property’s location in Hollywood is central in the densely populated South Florida region.
Demographic information below provided by www.onboardnavigator.com.
Broward County Medical Office Overview
Source: Marcus & Millichap Office Research Market Overview
- The 39,000-square-foot Westside Medical Pavilion in Plantation came online in the first quarter of 2015 approximately 60 percent pre-leased. Since the first quarter last year, 64,000 square feet of medical offices was delivered. Only a 15,000-square-foot property will be completed in the second half.
- Space demand softened in the first quarter, yielding a rise in the vacancy rate of 170 basis points to 12.3 percent, the highest quarterly level in nearly four years. Negative net absorption of 61,000 square feet was recorded over the past 12 months.
- Although the vacancy rate rose during the first quarter, the average rent on space marketed for lease advanced a healthy 1.6 percent during the period to $23.55 per square foot. Property owners should be able to successfully impose higher rents due to restrained medical office supply growth.
- A limited number of medical office buildings have changed hands over the past two years. Well-located and high-occupancy buildings sold for investment can command prices of more than $200 per square foot.
The Memorial Healthcare System
Since its inception in 1953, Memorial Healthcare System has been a leader in providing high-quality health care services to South Florida residents. Today, it is the third-largest public health care system in the nation and highly regarded for its exceptional patient and family-centered care. Memorial’s patient, physician, and employee satisfaction rates are some of the most admired in the country and the system is recognized as a national leader in quality health care.
Memorial Regional Hospital (located one mile north of the Property) is the flagship facility of the health care system and is one of the largest hospitals in Florida. Memorial Regional Hospital offers extensive and diverse health care services that include Memorial Cardiac and Vascular Institute featuring renowned surgeons, Memorial Cancer Institute treating more inpatients than any other in Broward County, and the Memorial Neuroscience Center providing innovative technology and world-class physicians.
Memorial Regional Hospital and Memorial Regional Hospital South (located adjacent to the Property) are both located in Hollywood, Florida, and offer the community a variety of medical and surgical services with a combined 1,037 licensed beds. Joe DiMaggio Children’s Hospital at Memorial provides a comprehensive array of pediatric services and is the leading children’s hospital in Broward and Palm Beach counties. Memorial Hospital West, Memorial Hospital Miramar, and Memorial Hospital Pembroke serve the communities of western Broward County and others in South Florida. Memorial Manor nursing home and a variety of ancillary health care facilities round out the system’s wide-ranging health services.
The Memorial Healthcare System had $1.6 billion in total revenues for the Fiscal Year 2014, up 6.3% from the prior year. The System’s Operating Income increased to $117 million, a year-over-year increase of 33.6%, as a result of increased patient volume and more efficient operations.
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