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Completed Equity
Multifamily
Terrace Hill Apartments
El Paso, TX
INVESTMENT STRATEGY
Value-Add
INVESTMENT TYPE
Equity
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100% funded
Offered By RM Adviser
15.6%* TARGET IRR 14.6%-16.6%
7.9%* TARGET AVG CASH ON CASH
1.9X* TARGET EQUITY MULTIPLE
Estimated Hold Period 5 years
Estimated First Distribution
*Please carefully review the Disclaimers section below, including regarding Sponsor’s assumptions and target returns
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Project Summary
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Overview
Value-add acquisition of a well-maintained multifamily property with further upside potential in El Paso, Texas.
Value-Add

With in‐place rents below those of comps, the Property offers rental upside by renting vacant units at higher rental rates to match the comparable properties in the market as well as additional renovation potential in the form of strategic amenitization.

Market

The Property is situated in a fundamentally resilient market. Per CoStar, El Paso incurred cumulative job losses of less than 3% during the last recession, and the solid base of government jobs in the area should provide a hedge against future economic downturns.

Cash Flow

The success of the business plan is not overly dependent upon appreciation from capital improvements. With positive leverage to 75% loan-to-cost, quarterly cash distributions are expected to be a significant component of total returns to RealtyMogul investors.

Property at a glance
Year Built 1983
# of Units 310
# of Buildings 15
Current Occupancy 94.8%
Investment Highlights
The Real Estate Company is acquiring the Property for $18.7 million, which represents a going-in cap rate of 7.4% on expected year one net operating income.
A capital improvement budget of $4,121,730, or $13,296 per unit, has been capitalized for interior and exterior renovations.
The Real Estate Company will retain the in-place property manager, FPI Management.
The exit strategy is to sell the Property in five years at an anticipated cap rate of 6.5%.
Management
Cumulative Distributions

RM Adviser

RM Adviser, a subsidiary of RealtyMogul, will sponsor this transaction. RealtyMogul is a private equity firm with investments in over $2 billion of real estate including 16,000 apartment units. Through RM Adviser, RealtyMogul targets multifamily assets in stable and emerging U.S. markets. In addition to direct acquisitions, RealtyMogul deploys capital in residential and commercial product sectors through joint venture equity, senior, and subordinated debt investments nationally. RealtyMogul currently manages two public, non-traded REITs and has a hands-on approach to investments and asset management.

https://www.realtymogul.com/
  • Jilliene Helman
    Chief Executive Officer
  • Michael Schoellhammer
    Managing Director
  • Kyle Barnas
    Assistant Vice President
Jilliene Helman
Chief Executive Officer

Jilliene Helman is Chief Executive Officer of RealtyMogul and its wholly owned subsidiaries, RM Manager, RealtyMogul Commercial Capital, RM Adviser, RM Technologies, RM Admin and RM Communities. She has been involved in investments with property values over $5 billion, including over 26,000 apartment and single-family units, and is a pioneer in real estate crowdfunding.

Michael Schoellhammer
Managing Director

Michael Schoellhammer is a Managing Director with responsibility for sourcing acquisitions as well as equity and debt transactions. Mr. Schoellhammer has over 10 years of commercial real estate experience in acquisitions, lending, finance, and development. Prior to RealtyMogul, he most recently worked at Standard Management Company, focusing on multiple asset types including large multifamily acquisitions.

Kyle Barnas
Assistant Vice President

Kyle Barnas is an Assistant Vice President on the commercial real estate team responsible for sourcing, underwriting and closing direct acquisitions and JV equity investment opportunities. Mr. Barnas has 10 years of professional experience encompassing brokerage, banking, and underwriting. Prior to RealtyMogul, Kyle was an Associate at Morgan Stanley and spent time at Hughes Marino and CBRE.

Track Record

The below track record includes only apartment acquisitions completed by Michael Schoellhammer while at Standard Management Company. Refer to the IDP for a comprehensive list of RealtyMogul's active and full-cycle investments. 

Track Record
Property Type State Investment Date Units Purchase Price $ / Unit
Multifamily Nevada 2016 212 $25,000,000 $117,925
Multifamily Nevada 2015 160 $18,700,000 $116,875
Multifamily Nevada 2015 248 $27,300,000 $110,081
Multifamily Nevada 2014 296 $27,500,000 $92,905
Multifamily Nevada 2013 276 $25,047,500 $90,752
Total     1,192 $123,547,500 $103,647

*IMPORTANT NOTE:  The properties in this table are a sample of Mr. Schoellhammer’s prior investments and investments achieved under the management of prior firms, not RealtyMogul. This list is not representative of all transactions of a given type or investments by Mr. Schoellhammer generally, and are solely intended to be illustrative of the type of investments that may be made by the RealtyMogul funds. There can be no guarantees that any similar investment opportunities will be available to or pursued by RealtyMogul.

A more complete description of RealtyMogul’s prior experiences are set forth in the TH-IDP and should be read in its entirety. 

 

Business Plan

In this transaction, RealtyMogul investors are to invest in RealtyMogul 132, LLC ("The Company"), which is to subsequently invest in RM Terrace Hill, LLC ("The Target"), a limited liability company that will hold title to the Property. RM Adviser (the "Real Estate Company"), a subsidiary of RealtyMogul, is under contract to purchase the Property for $18.7 million ($60,323 per unit) and the total project cost is expected to be $24.2 million ($78,145 per unit).

The Real Estate Company intends to implement a value-add strategy, in which it will capitalize $4,121,730 ($13,296 per unit) and contemplates a renovation pace of eight units per month (all 310 units within four years). Of this, $1,847,705 ($5,960 per unit) has been budgeted for interior upgrades including new appliances (black for studios and stainless for 1x1 and 2x2 configurations), resurfaced countertops, cabinet doors and pulls, ceiling fans, backsplashes (excluding studios), blinds, and flooring. An additional $178,270 ($575 per unit) will be set aside for low-flow aerators, showerheads, and toilets throughout the Property, and $43,500 will be set aside for washers/dryers in 58 of the 310 units (equating to $750 per applicable unit). $1,764,693 ($5,693 per unit) is capitalized for exterior renovations, including roof replacement and repairs, HVAC replacement and repairs, paint and carpentry, pool renovations, and sport court renovations. The total capital improvement budget includes a 5.0% contingency and 2.5% construction management fee that will be paid to an unaffiliated, third party. Upon stabilization, the Real Estate Company expects to achieve average net effective rents of $825, which represents a 23% premium over in-place rents but is supported in the post-reno comps' average rents, per Axiometrics. The business plan calls for a five year hold, at which point the Real Estate Company expects to sell the Property at a 6.5% cap rate.

Below is a summary of the capital improvement budget:

Capital Improvement Budget - Terrace Hill
Interior Upgrades Total Per Unit No. Units Upgraded
Appliances $463,540 $1,495 310
Resurface Countertops $78,445 $253 310
Backsplashes $79,860 $258 242
Cabinets $147,790 $477 310
Hardware $55,455 $179 310
Lighting $72,440 $234 310
Plumbing Fixtures $94,120 $304 310
Ceiling Fans $29,450 $95 310
Blinds / Solar Screens $63,680 $205 310
Flooring $457,335 $1,475 310
Paint $156,400 $505 310
Other Refurbishments / Deferred $46,680 $151 310
Miscellaneous $102,510 $331 310
Subtotal Interior Upgrades $1,847,705 $5,960  
       
Washers / Dryers $43,500 $140 58
       
Low Flow Aerators / Showerheads / Toilets $178,270 $575 310
       
Common Area Upgrades and Repairs Total Per Unit  
Roof Repairs $565,296 $1,824 310
HVAC Replacements $992,200 $3,201 310
Paint / Carpentry $63,818 $206 310
Landscaping & Drainage $16,911 $55 310
Concrete Work $11,272 $36 310
Pool Renovation Incl. Furniture $20,000 $65 310
Sport Court Repurpose $37,000 $119 310
Parking Lot Repairs $16,911 $55 310
Gate Repairs $5,636 $18 310
Signage $10,000 $32 310
Sewer Cleaning $1,650 $5 310
Pergola, Benches, and Grills $5,000 $16 310
Miscellaneous $19,000 $61 310
Subtotal Common Area Upgrades and Repairs $1,764,693 $5,693  
       
Construction Management Fee $95,854 $309 2.5%
       
Contingency $191,708 $618 5.0%
       
TOTAL $4,121,730 $13,296  
Property
Property Details

Built in 1983, Terrace Hill Apartments is a Class B, 310-unit, garden style apartment community.  The Property is comprised of 15 residential buildings on 13.07 acres, and is currently 94.8% occupied. It has immediate access to Interstate 10, and is only 2.4 miles from downtown El Paso and 1.3 miles from the University of Texas at El Paso. The assigned elementary, middle, and high school are 0.6 miles, 1.9 miles, and 1.6 miles away respectively. Within one mile of the Property is an Albertson's, a gym, and a range of dining options. Property amenities include two pools and a jacuzzi, a clubhouse, a tennis/basketball court, and washer/dryer connections throughout most of the units.

In-Place Unit Mix
Unit Type # of Units % of Total Unit (Square Feet) In-Place Rent Per Unit Post-Reno Rent Per Unit
Studio 68 22% 494 $565 $660
1x1 126 41% 704 $634 $810
2x2 116 37% 956 $766 $938
Totals/Averages 310 100% 752 $668 $825

 

Comparables

Sale Comparables
  Ryan's Crossing West Town El Pavon Mesa Village Total/Averages Terrace Hill
Date Sep '17 Jun '17 Feb '17 Nov '16   Apr '19
Year Built 1986 1973 1993 1973   1983
CoStar Class B B B C   B-
# of Units 248 192 116 160 179 310
Total SF 173,552 208,392 105,676 138,800 156,605 233,120
Purchase Price $16,000,000 $13,300,000 $5,100,000 $9,300,000 $10,925,000 $18,700,000
$/Unit $64,516 $69,271 $43,966 $58,125 $58,970 $60,323
$/SF $92.19 $63.82 $48.26 $67.00 $67.82 $80.22
Cap Rate 6.22% 6.48% 6.50% 6.50% 6.43% 6.03%(1)
Distance from Terrace Hill 3.9 Miles 4.7 Miles 7.1 Miles 5.4 Miles 5.28 Miles N/A
(1) Reflects T12 cap rate not adjusted for taxes and reserves for a better comparison to comparables.        
Lease Comparables
  The Pointe   The Chimneys Ryans Crossing Retreat at Mesa Hills Total/Averages Subject
Year Built 1980 1983 1987 1995 1986 1983
# Units (1x1) 50 56 16 104 57 126
Rents (1x1) $850 $698 $884 $845 $819 $810
SF (1x1) 740 620 890 814 766 704
Average $/SF (1x1) $1.15 $1.13 $0.99 $1.04 $1.08 $1.15
# Units (2x2) 64 56 32 96 62 116
Rents (2x2) $1,092 $932 $924 $964 $978 $938
SF (2x2) 1,276 945 982 1,089 1,073 956
Average $/SF (2x2) $0.86 $0.99 $0.94 $0.89 0.92 $0.98
Distance from Subject 3.2 Miles 2.7 Miles 3.9 Miles 4.7 Miles 3.6 Miles N/A

Sale and lease comps were obtained from CoStar and Axiometrics.

Location

Per CoStar, job growth in El Paso has picked up in recent quarters and current employment is more than 10% above the metro's prerecession peak. A significant portion of these new and projected jobs are in call centers; the metro has become a haven for such back-office work thanks to a large bilingual population and a minimum wage lower than that of states like California. El Paso also has significant military exposure, with Fort Bliss and William Beaumont Army Medical Center situated within the metro. Fort Bliss employs nearly 50,000 military and civilian personnel, and the Beaumont Center is undergoing a major $650 million expansion that is expected to be delivered this year. While El Paso is commonly cited as one of the safest cities in America, the metro borders the infamous city of Juarez, Mexico, which means that El Paso maintains a large force of border patrol agents. The solid base of government jobs in the area should provide a strong hedge against future economic downturns. El Paso barely felt the pain of the last recession, with cumulative job losses of less than 3%.

Multifamily vacancies in El Paso continue to hover near the historical average. Consistent demand for apartments has mitigated supply-driven pressure on fundamentals in recent years. Given the lack of supply in the pipeline, the market could tighten if job growth continues to outperform the national average. Apartment development in El Paso has slowed considerably after the metro expanded its inventory by about 15% from 2010-17. Traditionally, rent gains are meager in El Paso, a common trait in lower-tier Southwest markets. However, growth has started to gain traction as the job market starts to heat up. Texas' non-disclosure status can cloud the investment scene, but inventory turnover rarely exceeds 5% here, and most trades typically involve local investors.

Demographic Information

Demographics
Distance from Property 1 mile 3 miles 5 miles
Population (2018) 7,097 57,479 160,009
Population (2023) 7,165 57,882 160,537
Average Age 39 37 37
Median Household Income $46,594 $30,911 $34,937
Average Household Size 2.2 2.4 2.6
Median Home Value $212,589 $150,845 $141,493
Population Growth 2018-2023 1.0% 0.7% 0.3%

Demographic information above was obtained from CoStar.

Photos
Financials
Sources & Uses

Total Capitalization
Sources of Funds Cost
Debt $18,144,000
Equity $6,080,920
Total Sources of Funds $24,224,920
Uses of Funds Cost
Purchase Price $18,700,000
CapEx Reserve $4,121,730
Loan & Guarantee Fee $272,160
Real Estate Company Acquisition Fee $443,000
North Capital Broker Dealer Fee $118,000
Closing Costs $372,500
Working Capital $75,000
Tax & Insurance Escrows $122,530
Total Uses of Funds $24,224,920
Debt Assumptions

The expected terms of the debt financing are as follows:

  • Total Estimated Proceeds: $18,144,000
  • Initial Estimated Funding: $14,022,270
  • Future Estimated Funding: $4,121,730
  • Estimated Rate (Floating): One Month Libor plus 3.15%
  • Amortization: 30 years
  • Term: 3 years
  • Interest Only: 3 years
  • Prepayment Penalty: None, except an exit fee equal to 0.75% of loan proceeds
  • Extension Options: Two (2) one-year extension options (each with an extension fee of 0.5% of outstanding principal balance)

There can be no assurance that a lender will provide debt on the rates and terms noted above, or at all. All rates and terms of the debt financing are subject to lender approval, including but not limited to possible increases in capital reserve requirements for funds to be held in a lender-controlled capital reserve account.

Distributions

The Target intends to make distributions to investors (the Company and Real Estate Company, collectively, the "Members") as follows:

  1. Pari passu, all excess operating cash flows to an 8.0% preferred return to the Members;
  2. 75.0% / 25.0% (75.0% to Members / 25.0% to MogulSecurities) of excess cash flow and appreciation to a 16.0% IRR to the Members;
  3. 50.0% / 50.0% (50.0% to Members / 50.0% to MogulSecurities) of excess cash flow and appreciation 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) 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 December 2019 and are projected to continue on a quarterly basis thereafter. These distributions are at the discretion of the Real Estate Company, who may decide to delay distributions for any reason, including maintenance or capital reserves. 

Cash Flow Summary
  Year 1 Year 2 Year 3 Year 4 Year 5
Effective Gross Revenue $2,756,554 $2,967,296 $3,107,045 $3,274,540 $3,404,624
Total Operating Expenses $1,378,996 $1,444,322 $1,474,655 $1,552,319 $1,583,483
Net Operating Income $1,377,558 $1,522,974 $1,632,390 $1,722,221 $1,821,142
RealtyMogul 132, LLC Cash Flows
  Year 0 2019 2020 2021 2022 2023 2024
Distributions to
RealtyMogul 132, LLC Investors
($2,970,000) $117,996 $247,462 $276,135 $200,225 $228,282 $4,598,771
Net Earnings to Investor
- Hypothetical $50,000 Investment
($50,000) $1,986 $4,166 $4,649 $3,371 $3,843 $77,420

North Capital Private Securities Corporation will pay a referral fee of 100% of the promoted interest to Mogul Securities, LLC.

Fees

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

One-Time Fees
Type of Fee Amount of Fee Received By Paid From Notes
Acquisition Fee $443,000 RMCC, an affiliate of the Real Estate Company  Capitalized Equity Contribution 2.4% of the Property purchase price. 
Broker-Dealer Fee $118,000 North Capital (1) Capitalized Equity Contribution Greater of $50,000 and 4.0% of the equity raised by RealtyMogul 132, LLC.
Loan Guarantee Fee $90,720 Principal of Real Estate Company  Capitalized Equity Contribution 0.5% of loan proceeds for personal guarantees required on the loan.
Disposition Fee 1.0% of the gross sale price RMCC, an affiliate of the Real Estate Company Distributable Cash 1.0% of the gross sale price for seller's broker fee. 
Recurring Fees
Type of Fee Amount of Fee Received By Paid From
Asset Management Fee 0.5% of Effective Gross Income RM Adviser, an affiliate of the Real Estate Company Distributable Cash
Property Management Fee 2.25% of Effective Gross Income Third Party Property Manager Distributable Cash

(1) Certain employees of RealtyMogul, 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 RealtyMogul, Co. for licensing and access to certain technology, reporting, communications, branding, entity formation and administrative services performed from time to time by RealtyMogul, Co., and North Capital and RealtyMogul, 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.  RealtyMogul, 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.

Documents
Disclaimers
Disclaimers

Forward-Looking Statements

Investors should not rely on any forward-looking statements made regarding this opportunity, because such statements are inherently uncertain and involve risks. We use words such as “anticipated”, “projected”, “forecasted”, “estimated”, “prospective”, “believes”, “expects”, “plans”, “future”, “intends”, “should”, “can”, “could”, “might”, “potential”, “continue”, “may”, “will” and similar expressions to identify these forward-looking statements.


Non-Transferability of Securities

The transferability of membership interests in the Company are restricted both by the operating agreement for that entity and by U.S. federal and state securities laws. In general, investors will not be able to sell or transfer their interests. There is also no public market for the investment interests and none is expected to be available in the future. Moreover, the estimated investment holding period described herein is only a projection, and there can be no assurance when or if an investment may be liquidated. Persons should not invest if they require any of their investment to be liquid. This is particularly important for persons of retirement age, who should plan carefully to assure that their assets last throughout retirement.


Capital Call Risk

The amount of capital that may be required by Sponsor Entity from the Company is unknown, and although Sponsor Entity does not require that its members contribute additional capital to it, it may from time to time request additional funds in the form of loans or additional capital. The Company does not intend to participate in a capital call if one is requested by Sponsor Entity, and in such event  the manager of Sponsor Entity may accept additional contributions from other members of Sponsor Entity. Amounts that the manager of Sponsor Entity advances on behalf of the Company will be deemed to be a manager loan at an expected interest rate of 12% per annum. 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 Sponsor Entity will suffer a proportionate amount of dilution.


Escrow Contingency

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

Texas is subject to frequent and sometimes debilitating natural disasters including but not limited to coastal hurricanes. There can be no assurance that hurricanes and flooding within the state, or any other environmental factor, will not cause significant difficulties and disruptions in the daily operation of the Property, or that Sponsor and the Sponsor Entity are properly insured for any such damage caused to the Property or its business operations. As a result, the business and financial condition of the Sponsor Entity, and thus the Company and its investors, may be materially adversely affected.


Renovation Risks

As of April 2019, the Property had a 94.8% occupancy level, and the Sponsor 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 Sponsor 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, particularly plans to install flat roofs, and (iv) the planned rental rate increase will have favorable results to meet the goals the Sponsor 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.


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.


Interest-Only Loan Period

The loan being used to acquire the Property is expected to have an interest-only period during the first 3 years of the loan term, which means that there will be no reduction in the principal balance during that interest-only period.


Lease-Up Risks

As of April 2019, the Property had a 94.8% occupancy level, and the Sponsor intends to implement a capital improvement plan involving the renovations of certain units and a leasing program in its effort to maintain its current occupancy level. The Sponsor intends to renovate some of the units within the Property, in order to increase the current rental rates. There can be no assurance that such renovations will be consummated on a timely basis, that such work will not materially adversely affect other aspects of the operation of the Property, or that the planned rental rate increase will have favorable results to meet the goals the Sponsor projected. Any delays or adverse effects of such 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.


Tenants’ Loss of Revenues Could Reduce the Sponsor Entity’s Cash Flow

Tenants of the Property may encounter significant macroeconomic, governmental and competitive forces. Adverse changes in consumer spending or consumer preferences for particular goods, services or store-based retailing, including the cost of living increase in the area, could severely impact these tenants’ ability to pay rent. The default, financial distress, bankruptcy or liquidation of one or more of the Property’s tenants may result in substantial vacancies, which would likely reduce the Sponsor Entity’s revenues, increase property expenses and decrease the value of the Property. Upon the expiration of a lease, the tenant may choose not to renew their lease and/or the Sponsor Entity may not be able to re-lease the vacant space at a comparable or more favorable lease rate. The Sponsor Entity plans to renovate vacant units and re-lease such units at an increased rental rate. However, there is no assurance that any such renovations may result in the rental increases that the Sponsor Entity anticipates, or that the any units will be re-leased within a reasonable period of time, which delays or lower rent may have material adverse effect on the Sponsor Entity’s financials, the Company, and the Company’s investors.


Vacancies and Tenant Defaults May Reduce the Property’s Revenues

A vacancy or default of a tenant on its rent will cause the Sponsor Entity to lose the revenue from that unit and, if enough effective vacancies occur, it could cause the Sponsor Entity to have to find an alternative source of revenue to meet its mortgage and/or other financing payments, as well as any other operating expense and it may not be possible to have to find a viable alternative source of revenue. If the company managing the investment property does not employ sufficiently aggressive marketing campaigns and/or lease incentive programs, vacancies may increase and an investment in the Company may be adversely affected. Although the Sponsor believes that comparable properties are currently achieving rental rates that are in line with those expected from the Property, there can be no assurance that the desired occupancy levels or rental rates will be achieved. Failure to realize such increased rental rates could adversely affect the Property’s financial results or business operations and thus the value of the Company’s investment.


Credit Risk

The Company's investment in Sponsor Entity will involve a Property that will undergo some degree of renovation and/or stabilization and seasoning, a situation that does not always meet the financing criteria for conventional financing from institutional sources. Credit risk is inherent in the real estate financing industry, and there can be no assurance that the credit worthiness of the Sponsor or the Sponsor Entity will be sufficient to assure the full repayment of the Company's common equity investment and thus the Company's ability to provide returns (or even repayment of principal) to its investors.


Fluctuations / Rising Interest Rates

A mortgage loan will be taken out on the Property. Mortgage loan interest rates may be significantly affected by economic downturns or general economic conditions beyond the Company’s control and beyond the control of the Sponsor Entity. In particular, loss rates on mortgage loans may increase due to factors such as (among other things) local real estate market conditions, prevailing interest rates, the rate of unemployment, the level of consumer confidence, the value of the U.S. dollar, energy prices, changes in consumer spending, the number of personal bankruptcies, disruptions in the credit markets and other factors. The Federal Reserve has signaled that additional increases in the federal funds rate may be forthcoming. This could potentially lead to rising interest rates offered by other lenders and could have a negative 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). Any change in interest rates may drastically affect the value of your investment in the Company.


Sponsor’s Lack of Operating History

The Property is the Sponsor’s first direct acquisition. The likelihood of success of the Sponsor must be considered in light of the risks, expenses and difficulties frequently encountered in connection with the ownership of and investing in real estate. The principals of Sponsor and its Affiliates, specifically Michael Schoellhammer and Jilliene Helman, have experience in other real estate investments, but the performance of other investments is not indicative of the performance of the Sponsor. In the event of the dissolution, death, retirement or other incapacity of the Sponsor or its principals, the business and operations of the Company may be adversely affected.


Floating Interest Rate

The loan being used to acquire the Property is expected to have a floating rate based on the London Interbank Offered Rate (“LIBOR”). If LIBOR increases the interest payments due on the loan are expected to increase as well. This could adversely affect the Property’s financial results or business operations and thus the value of the Company’s investment.


Capital Adequacy

The Sponsor Entity anticipates that present cash reserves, together with the net proceeds from the sale of Membership Interests in this offering, will be sufficient to finance operating costs and expenses for a period of at least twelve (12) months following the closing of this offering, assuming that all of the Membership Interests offered hereby are sold in accordance with the terms hereof. However, the Sponsor Entity may need additional capital to continue and expand operations and to implement business plan and strategy, as contemplated in this offering. If operations expand faster or at a higher rate than currently anticipated or revenues generated by the Sponsor Entity are lower than projected, additional capital may be required sooner than expected to fund the business plan. There is no assurance or guarantee that additional capital will be available when needed by the Sponsor Entity, or that such capital will be available under terms acceptable to the Sponsor Entity or on a timely basis. If additional funds are raised through the issuance of equity, convertible debt, or similar Membership Interests of the Company, the percentage of ownership of the Company by the Company's Members will be reduced, the Company's Members may experience dilution, and such Membership Interests may have rights or preferences senior to those of the Company's Membership Interest issued pursuant to this offering. There is no assurance that additional financing will be available on terms favorable to Sponsor Entity or at all. If adequate funds are not available or are not available on acceptable terms, the ability to fund the business plan would be limited significantly. This limitation could harm substantially the business, results of operations, and financial condition.


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 Sponsor and others. RealtyMogul, 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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