Purchase and rehab all bills paid (“ABP”)/ chiller served properties by replacing the existing windows with energy efficient windows.
Assemble a single purpose entity (“SPE”) to hold the asset (i.e. limited partnership, LLC) with joint venture partners. For purposes of explanation, a limited partnership will be assumed. The partnership will contribute 30-50% of purchase price in equity and the balance will be debt financing.
Accredited (passive or active) investors only with $100,000 block investment limited partnership units will be considered. Written proof of funds (“POF”) will be required. POF must be cash, readily convertible, or near cash assets.
One (1) Key Principal is required per transaction and will sign the “carve out” loan documents; basically this will be a credit partner. The loans will be non-recourse, with the exception of the carve outs. Carve outs items carry personal liability if violated. Examples of carve outs would be failure to pay real estate taxes or maintain insurance on the asset, diversion of funds, failure to make scheduled loan payments, and/or storage of hazardous materials on the premises. As long as these carve outs are avoided, the loan is non-recourse.
The Key Principal is granted a 10% undivided interest in the ownership in consideration for executing the loan documents and is invited, but not obligated, to invest additional funds as a limited partner. The Key Principal and interested partners will be required to submit written POF prior to earnest money contract execution. CRI will receive a 5% undivided interest, represent the partnership from a real estate brokerage capacity from the buy and sell side, a construction management fee of 10% for the rehab oversight, and a 1% monthly management fee (taken from the property management fee, not extra) to oversee the management company operations. This represents only a 15% dilution to the investors.
The greater of 1 year or two (2) full summer cycles to demonstrate the increased NOI. We will sell only based on actual, rather than proforma or projected, performance, thereby maximizing profit to the partnership. Given the significant down payment leveraged with the increased NOI due to the electrical line item reduction, longer hold periods may result based on the desires of the majority of the ownership.
The SPE will be folded the later of a) close of escrow in the case of an all cash sale, orb) the retirement of any seller financing (if any) offered by the partnership at the sale of the asset. If the investment group elects to pursue a 1031 exchange, a 100%unanimous election of the partnership is required prior to the sale of the asset. Absent a unanimous election, the proceeds will be distributed as a cash sale at close of escrow.
Handling of Equity:
All front-end contributions and disbursements at sale are run through a title company. The property management company handles monthly distributions.
Mechanics of the Acquisition:
The size of the investment obviously requires CRI to be informed of investor interest and expected equity contributions; a simple email to CRI with an investment range will suffice. CRI will execute a non-binding letter of intent (“LOI”) with the named buyer being an entity to be formed. An offering memorandum will be circulated to partners expressing interest outlining the salient economics and rehab for consideration and a purchase agreement will be signed by the partner for the number of investment units (percentage of ownership) desired. CRI will front due diligence expenses, including legal expenses to form the SPE. These expenses shall be refunded at close of escrow.
If for any reason the transaction does NOT close, each partner will be responsible for proportional reimbursement of due diligence and legal expenses based on the purchase agreement commitment.
A call for funds is requested and tendered to the title company approximately 2 weeks prior to closing. During this time all investors sign the SPE arrangement and a property management company is selected. At the close of escrow, a settlement statement is provided to all partners.
Please review the attached presentation to understand the rehab business model. Owners and sellers of ABP/chiller properties understand they possess an undesirable asset; the vast majority of qualified buyers avoid these assets at any price giving our group an obvious advantage. Additionally, most ABP/chiller owners either don’t have the funds to enact this rehab or erroneously believe a more efficient chiller replacement will solve the problem. Statistics show 70% of electrical loss is through windows and a less extent, doors so a replacement chiller will distribute the air more efficiently yet not effect the significant loss through the windows.
The next step for the investor is to email Mike@moe7.net or call 713-553-1590 to discuss the opportunity further.