League City Package
LEAGUE CITY, TX | Houston MSA
532 Units Multi-Family Investment Opportunity
Year built: 2008
PRESENTATION BY ONE STREET CAPITAL
JULY 2023
CONFIDENTIALITY AND DISCLAIMER
The following information is an investment summary provided to prospective investors and others. This information is not an offering to sell either a security or a solicitation to sell a security. At the request of a recipient, will provide a private placement memorandum, subscription agreement and the Limited Liability Company Operating Agreement. The Managing Member in no way guarantees the projections contained herein. Real income, expenses and development costs are all affected by a multitude of forces outside the Managing Member’s control
This investment is illiquid and only those persons that are able and willing to risk their entire investment should participate. Please consult your attorney, CPA and/or professional financial advisor regarding the suitability of an investment by you. This document is confidential and may not be reproduced or redistributed. The information presented herein has been prepared for informational purposes only and is not an offer to buy or sell, or a solicitation of an offer to buy or sell any security or fund interest or any financial instrument and is not to be considered investment advice. This presentation is for institutional use only and is not to be distributed to any party other than its intended recipient. The following materials present information regarding a proposed creation of a special purpose vehicle (the “Issuer”) which would offer securities (the “Securities”) to finance its acquisition of a portfolio of financial assets to be selected and managed by the portfolio manager referred to herein (the “Manager”). These materials have been prepared to provide preliminary information about the Issuer and the transactions described herein to a limited number of potential underwriters of the Securities for the sole purpose of assisting them to determine whether they have an interest in underwriting the Securities. The views and opinions expressed in this presentation are those of Spark Investment Group and its partners and are subject to change based on market and other conditions. Although the information presented herein has been obtained from and is based upon sources Spark Investment Group and its partners believe to be reliable, no representation or warranty, expressed or implied, is made as to the accuracy or completeness of that information. No assurance can be given that the investment objectives described herein will be achieved. Reliance upon information in this material is at the sole discretion of the reader. This data is for illustrative purposes only. Past performance of indices of asset classes does not represent actual returns or volatility of actual accounts or investment managers, and should not be viewed as indicative of future results. The investments discussed may fluctuate in price or value. Investors may get back less than they invested. Forward-looking information contained in these materials is subject to certain inherent limitations Such information is information that is not purely historical in nature and may include, among other things, expected structural features, anticipated ratings, proposed or target portfolio composition, proposed diversification or sector investment, specific investment strategies and forecasts of future market or economic conditions The forward-looking information contained herein is based upon certain assumptions, which are unlikely to be consistent with, and may differ materially from, actual events and conditions. In addition, not all relevant events or conditions may have been considered in developing such assumptions. Accordingly, actual results will vary and the variations maybe material. Prospective investors should understand such assumptions and evaluate whether they are appropriate for their purposes. These materials may also contain historical market data; however, historical market trends are not reliable indicators of future market behavior. Information in these materials about the Manager, its affiliates and their personnel and affiliates and the historical performance of portfolios it has managed has been supplied by the Manager to provide prospective investors with information as to its general portfolio management experience and may not be viewed as a promise or indicator of the Issuer’s future results. Such information and its limitations are discussed further in the sections of these materials in which such information is presented. Past performance of indices or asset classes does not represent actual returns or volatility of actual accounts or investment managers and should not be viewed as indicative of future results. The comparisons herein of the performances of the market indicators, benchmarks or indices may not be meaningful since the constitution and risks associated/ with each market indicator, benchmark, or index may be significantly different. Accordingly, no representation or warranty is made to the sufficiency, relevance, important, appropriateness, completeness, or comprehensiveness of the market data, information, or summaries contained herein for any specific purpose. Past performance is not indicative of comparable future results. Given the inherent volatility of the securities markets, it should not be assumed that investors will experience returns comparable to those shown here. Market and economic conditions may change in the future producing materially different results than those shown here. All investments have inherent risks
TABLE OF CONTENTS
CORE TEAM
EXECUTIVE SUMMARY
PROPERTY OVERVIEWS
INVESTMENT TERMS
FINANCIAL ANALYSIS
3 3
CORE TEAM
CORE TEAM
Established in 2007, Post Real Estate Group, Inc. (“Post”) is an opportunistic private investment firm dedicated to responsibly investing in real estate, with an emphasis in the multifamily sector and a specialty in affordable housing. Post has acquired in excess of $3.5 Billion of properties encompassing more than 33,000 units across 15 states and over 50 cities, with a specialty in multifamily sector and affordable housing
MANAGING PARTNER
CATHERINE MUNACO MANAGING PARTNER
DENISE PIAZZA, CPA
BENJAMIN PIAZZA, CPA
CFO
OPERATING PARTNER TRACK RECORD
FullCycleInvestments 32 AverageROItoInvestors 2.03x AverageInvestorIRR 32.99%
0 2 4 6 8 10 12 Negative 0-5% 5-10% 11-20% 20-30% 30+% Investments Investor IRR's Historical Returns
EXECUTIVE SUMMARY
ACQUISITION & RETURN SUMMARY
Offering Summary Year 1 Cash on Cash Return 7.07% Avg Cash on Cash Return 8.10% IRR 17.30% Equity Multiple / Return of Capital 2.63x Term 7 Years Tax abated cap rate at close 6.86% Non-tax abated cap rate 4.86%
Net Investor Returns Purchase Price / Per Door $80,250,000 / $150,846 Total Unit Count 532 units Year Built 2008 Offering Type 506(b) – prior relationship required TOTAL EQUITY REQUIRED $26,083,525
REAL ESTATE GROUP
STREET CAPITAL are extending the opportunity to invest in the LEAGUE CITY PACKAGE (the “Property”) consisting of Amalfi & Sorento at Tuscan Lakes
Projected
POST
AND ONE
Purchase Price $80.25M Appraisal $113.7M* *Based on preliminary appraisal
INVESTMENT HIGHLIGHTS
RealEstateTaxAbatement:
We are joint venturing with Texas-based governmental agencies to purchase the “League City Package”, consisting Amalfi & Sorrento at Tuscan Lakes. The land will be owned by the respective agency, and ground leased back to the joint venture on a 99-year term. This partnership results in the properties qualifying for a property tax exemption. 50% of the units at both properties will be income and rent restricted in exchange for receiving a 100% property tax abatement. This creates inherent value on day one of ownership.
WorkForceHousing:
The United States is facing an unprecedented need for workforce, or middle income, housing. Workforce housing targets those earning between 60% and 120% of AMI who are often priced out of growing markets. These partnerships provide workforce housing in the communities that need it most. Coupling significant demand for workforce housing and lower restricted rents, The League City Package should outperform on occupancy. We are conservatively projecting between 7.00% vacancy on the market rate units throughout the hold to remain in line with the property’s historical operations; however, with this high demand and limited supply for workforce housing, we believe operations will improve. 9 PublicBenefit:
Deal is highly investor-friendly and cash flow positive, but is also unique in the public benefit that is offer to communities. These type of jointventures create and provide affordable workforce housing in highly desirable submarkets. This provides housing for essential workers so that they can continue serving their growing communities (think police officers, nurses, teachers, etc.)
AttractiveFinancing:
The League City Package benefits from superior financing due to its affordable nature. This gives Post access to greater loan proceeds, more interest only payments, and a lower interest rate from lenders.
INVESTMENT HIGHLIGHTS
STRONGFUNDAMENTALS: The Houston MSA benefits from strong Area Median Income (“AMI”) growth and high tax millage rates. Strong AMI can dictate higher income restriction levels and thus can generate less rent pullback.
NEWERVINTAGEDEALS:These assets were built in 2008, boasting newer construction and better amenities.
POPULATIONGROWTH&LACKOFNEWDELIVERIES:League City stands out in its significant population growth. In the property’s zip code, population grew 32.5% in the past decade (ending in 2021), and it is the third fastest growing zip code in the area, paired with overall lack of deliveries
ATTRACTIVEPRICING:Post’s industry reputation and strong broker relationships allowed us to take advantage of a broken marketing process and source Amalfi & Sorrento at a price well below initial guidance
TAXREASSESSMENT:This structure generates approximately $1.093M in additional Net Operating Income in Year 1 due to the abatement of real estate taxes. Applying a 5.35% cap rate to those savings generates an additional $20.43M in value.
AMALFI & SORRENTO at
Tuscan Lakes League City, TX (Houston MSA)
PROPERTY SUMMARY
Property Location: 1450 E League City Pkwy, League City, TX 77573 Description: 532-Unit Three-Story Apartment Complexes Year Built: 2008 Net Rentable Area: 494,066 Square Feet Avg. Unit Size 929 Square Feet Floorplan Count 1x1 348 2x2 160 3x2 24 Total: 532 MarketRateUnits 266 AffordableUnits 266 UnitSummary COMMUNITYFEATURES ▪ Mail Kiosk ▪ Swimming Pool ▪ Clubhouse/Leasing Office ▪ Fitness Center ▪ Detached Garages ▪ Dog Park ▪ Gated Community ▪ Picnic Area ▪ Community Pond
UNITFEATURES ▪ 9’ Ceilings ▪ Attached Garages (Select Units) ▪ Ceiling Fans ▪ Black Appliances ▪ Blinds ▪ Pendant Lighting ▪ Crown Molding ▪ Granite Countertops ▪ Walk-In Closets ▪ Washer/Dryer ▪ Wood-Look Flooring
PROPERTY PHOTOS
Amalfi
Sorrento
REGIONAL MAP
RENT COMPARABLES
Property Unit Count Year Built Occ.% SF (Unit) Rent (Unit) Rent PSF Grand Villas at Tuscan Lakes 206 2011 94% 1,024 $1,893 $1.84 Avenues at Tuscan Lakes 302 2014 97% 1,151 $1,851 $1.67 Ravello at Tuscan Lakes 244 2006 96% 985 $1,407 $1.45 Comp Set Average 250 2011 95% 1,064 $1,718 $1.64 Amalfi & Sorrento In-Place Rents 532 2008 95% 929 $1,346 $1.45 Amalfi & Sorrento In-Place Rents Variance to Comp Set 27.63% 13.48%
MARKET HIGHLIGHTS – LEAGUE CITY
League City is a well established and rapidly growing suburb of the greater Houston MSA. Its location provides convenient access to major employers in healthcare, aerospace, specialty chemical, education, and more. The suburb is directly adjacent to NASA’s Johnson Space Center– which houses NASA’s largest R&D facilities and some of the nation’s best high-tech professionals.
Pop.GrowthPairedwithLackofDeliveries
▪ League City has experienced significant population growth – In Amalfi & Sorrento’s zip code, population grew 32.5% in the past decade (ending in 2021). It is the third fastest growing zip code in the area.
▪ In the five-mile radius, there are only two planned apartments that will deliver a total of 450 units between now and 1Q 2025. Assuming the population growth trend in the zip code continues, for every multifamily unit planned (in the 5-mile radius), fourteen people would move in, keeping absorption positive.
NASAJohnsonSpaceCenter
▪ The NASA Johnson Space Center is about a 10-minute drive from Amalfi & Sorrento.
▪ The $1.5BN center has served as a hub of human spaceflight activity for over 50 years. It’s home to the nation’s astronaut corps, the International Space Station mission operations, the Orion Program, and a host of future space developments.
▪ The Space Center consists of 100 buildings on 1,620 acres and employs over 16,000 people.
NewsandHeadlines
▪ Flyway Webster is a 120-acre mixed-use development (5 miles from Amalfi & Sorrento) that is projected for completion in 2024. Will include 1.6MM SF of bars, restaurants, and retail.
▪ Home values over the past five years have increased nearly 46% in League City - this bodes well for apartment demand in the area.
▪ Project 11 is a $1BN expansion plan to widen the Houston ship channel, expected to be completed in 2025.
PortofHouston
▪ The Port of Houston is one of the area’s strongest economic drivers.
▪ The port is approximately 25 miles from Amalfi & Sorrento at Tuscan Lakes.
▪ It is the largest port on the Gulf Coast, ranking 1st in international commerce, and 10th among the largest ports in the world.
New Residents Projected between 2022-2027
Projected Average Rent Growth
Between 2022-2026
$100K+
Household Income is greater than $100,000 within a 1- ,3,and 5-mile radius
11K+ 6.1% 1.4MM
Jobs Generated by the Port of Houston
INVESTMENT TERMS
Total Acquisition Basis $92,209,525 Total Acquisition Basis Per Unit $173,326 Exit Cap Rate (1) 5.35% Year 7 Est. Sale Price $141,914,431 CashFlow:PreferredReturnandPromoteSplits Investor Annual Preferred Return:(2) 7.00% Cash Flow After Member Return Hurdle is Achieved: CashFlowtoManagingMember 30.00% CashFlowtoMembers 70.00% CapitalEvent:PreferredReturnandPromoteSplits Investor Annual Preferred Return Hurdle I:(2) 7.00% Proceeds After Member Return Hurdle I is Achieved: ProceedstoManagingMember 30.00% ProceedstoMembers 70.00% Investor Annual Preferred Return Hurdle II:(2) 14.00% Proceeds After Member Return Hurdle II is Achieved: ProceedstoManagingMember 40.00% ProceedstoMembers 60.00%
INVESTMENT METRICS (1)Cap rate is based on year 7 proforma.
(2)Compounds Quarterly
INVESTMENT METRICS
PROJECTED DEBT SUMMARY Amalfi&Sorrento Loan Proceeds $66,126,000 Lender JLL Loan Term 10 Years Interest Rate(4) 5.50% Amortization 30 Years Interest Only Term 10 Years First Trust Deed Loan to Cost 71.7% Loan to Purchase Price 82.4% FEE SUMMARY Category Fee HA Acquisition Fee (1) $401,250 HA PILOT (3) $507,361 HA Asset Management Fee(3) $20,000 Post Acquisition Fee (1) $922,095 Post Asset Management Fee (5) $200,000 Prop. Management Fee (2) 3.5% of net revenue 1) One-timefee 2) Annualfeepaidmonthly 3) AnnualFeegrowingat2%peryear. 4) Underwritteninterestrateprojectionaccountsforfluctuationsinratespriortoclosing.Debtquoteincludesaspread of1.41%overthe10-yeartreasury.Spreadsaresubjecttochange. 5) Annualfeepaidmonthly,growingat3%peryear.
SOURCES AND USES
(1)Estimatedclosingcostspresentedabovearesubjectto change
(2)Years1&2
(3)Weareutilizinganinterestratebuy-downforthisfixedrate loanthatwillreducethespreadby24basispointsatacostof
SOURCES Equity $26,083,525 Debt $66,126,000 Total Sources $92,209,525 USES Purchase Price $80,250,000 Acquisition Fee $922,095 Cap Expenditures & Operational Contingency $6,718,445 Admin Fee $100,000 Housing Authority Fee $401,250 3rd Party Legal (1) $200,000 HA PILOT Payment (2) $507,361 Construction/PM Due Diligence $44,830 Title and Escrow (1) $100,000 Lender Third Party Costs (1) $50,000 Property Survey (1) $30,000 HA Consultant Cost $230,524 Misc. Closing Costs (1) $30,000 Capital Markets Fee (Debt & Equity) $802,500 HA Legal & Financial Advisory Costs $500,000 Interest Rate Buydown3 $1,322,520 Total Uses $92,209,525 ClosingCostsas%ofPurchase 4.853%
$1.3M
TERM SHEET
Administrative Member Post Real Estate Group, Inc. (“Post”) or an affiliate
Investment Structure
The Property will be purchased through a Limited Liability Company Special Purpose Vehicle (“SPV”). Investors will be admitted as a member (“Member”) in the SPV. Investment Term Anticipated to be 84 months from closing but is subject to change.
Equity $26,083,525
Cash Flow from Operations Cash flow from operations shall be distributed as follows:
A. First, to the Members until the Members have received cash flow equal to an annual return of 7%, compounding quarterly.
B. Thereafter, cash flow shall be split 70% to the Members and 30% to the Managing Member.
Capital Event Distributions from a capital event shall be distributed as follows:
A. First, pro rata to the Members until the Members have received proceeds equal to an annual return of 7%, compounding quarterly.
B. Second, 100% of outstanding members capital shall be returned to the Members.
C. Third, proceeds shall be split 70% to Members and 30% to the Managing Member until the Members have received proceeds equal to an annual return of 14%, compounding quarterly.
D. Thereafter, proceeds shall be split 60% to the Members and 40% to the Managing Member.
FINANCIAL ANALYSIS
PRO FORMA
Current1 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Gross Rental Revenue 7,929,680 8,361,888 8,756,392 9,228,599 9,613,357 9,901,758 10,198,811 10,504,775 Other Property Income 540,938 589,315 598,643 616,603 635,101 654,154 673,778 693,992 Net Revenue 8,470,618 8,951,203 9,355,035 9,845,202 10,248,458 10,555,912 10,872,589 11,198,767 Expenses Insurance (459,833) (541,368) (557,609) (574,337) (591,567) (609,314) (627,594) (646,422) Contract Services (212,314) (252,700) (260,281) (268,089) (276,132) (284,416) (292,949) (301,737) Marketing (105,246) (125,000) (128,750) (132,613) (136,591) (140,689) (144,909) (149,257) Payroll- Onsite (800,564) (800,521) (824,537) (849,273) (874,751) (900,993) (928,023) (955,864) Utilities (291,836) (334,750) (344,793) (355,136) (365,790) (376,764) (388,067) (399,709) R&M (267,757) (300,000) (309,000) (318,270) (327,818) (337,653) (347,782) (358,216) Administrative (152,706) (168,425) (173,478) (178,682) (184,043) (189,564) (195,251) (201,108) PILOT 0 0 0 (265,152) (273,107) (281,300) (289,739) (298,431) Management (349,612) (313,292) (327,426) (344,582) (358,696) (369,457) (380,541) (391,957) Real Estate Taxes (1,717,820) 0 0 0 0 0 0 0 Total Expenses (4,357,688) (2,836,056) (2,925,873) (3,286,135) (3,388,495) (3,490,150) (3,594,855) (3,702,700) NET OPERATING INCOME 4,112,930 6,115,147 6,429,162 6,559,067 6,859,963 7,065,762 7,277,734 7,496,066 Capital Expenditures / Reserves Total Cap Ex (186,200) (186,200) (399,000) (399,000) (665,000) (684,950) (705,499) Residual Net Sales Proceeds 0 0 0 0 0 0 134,818,709 Debt Paydown 0 0 0 0 0 0 (66,126,000) Asset Management (200,000) (206,000) (212,180) (218,545) (225,102) (231,855) (238,810) Franchise Tax (29,628) (30,965) (32,588) (33,922) (34,940) (35,988) (37,068) Corporate Loss (160,000) (163,200) (166,464) (169,793) (173,189) (176,653) (180,186) Debt Service- Interest (3,687,443) (3,687,443) (3,687,443) (3,687,443) (3,687,443) (3,687,443) (3,687,443) NET CASH FLOW 1,851,876 2,155,354 2,061,392 2,351,259 2,280,088 2,460,845 71,339,770 (1)May2023historicalfinancialsincludetrailing12-monthexpensesandrevenue
FINANCIAL RETURNS
Investor Cash Flow
Year 1 Cash on Cash Return 7.07% Avg Cash on Cash Return 8.10% IRR 17.30% Equity Multiple / Return of Capital 2.63x Term 7 Years Projected Net Investor Returns Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Available Distributions 1,851,876 2,155,354 2,061,392 2,351,259 2,280,088 2,460,84571,339,770 Sponsor Promote (7,585) (100,814) (77,127) (169,803) (156,530) (219,574) (15,293,057) Total Distributions to Equity 1,844,291 2,054,540 1,984,265 2,181,456 2,123,557 2,241,27156,046,713 Investor CoC (Incl. Residual) 7.07% 7.88% 7.61% 8.36% 8.14% 8.59% 214.87% Investor CoC (Excl. Residual) 7.07% 7.88% 7.61% 8.36% 8.14% 8.59% 9.05%
NET SALE PROCEEDS
Key Definitions:
• ResidualValue:The amount POST believes we can achieve as a sale price in Year 7. Residual value is based off a forward looking-NOI and our exit cap rate.
• PrepaymentPenalty:The fee to terminate the loan prior to the end of the 10-year term; assumes 2.5 years Yield Maintenance.
• GovernmentAgencyDispositionFee:In the event of a sale, the government agency will receive a fee in the amount of 1.5% of sales proceeds.
• ClosingCosts:Estimated fee payable to Title, Escrow, Legal, and other 3rd parties.
Residual Value $141,914,431 As a % of Residual Value Less:Prepayment Penalty* (2,128,717) 1.50% Less:Gov. Agency Disposition Fee* (2,128,717) 1.50% Less:Closing Costs* (2,838,288) 2.00% Net Sales Proceeds $134,818,709 Sale Costs as a % of Residual Value* 5.00%
*Estimatedclosingcostspresentedabovearesubjecttochange
KEY UNDERWRITING ASSUMPTIONS
Economicoccupancy:
92-93% physical occupancy, below historical averages for the area and existing physical occupancies at the properties
Expenseassumptions
Estimates based on other assets operated in this area, as well as feedback from in-house property mgmt. team
Rentgrowth
3% YoY rent growth; below historical averages and CoStar projected growth for submarket
Financing&Exit
Expanding our exit cap rate 50 bps over the going-in non-tax abated cap rate
Projected returns do NOT assume any refinance projected in our underwriting
TAX ABATEMENT PROPERTY: Case Study
▪ 281 Unit property portfolio in one of the top emerging markets in the country
▪ Leveraged fixed rate debt with favorable terms
▪ Increased income by performing renovations and brining unrenovated rents to market rates
▪ $36M purchase price, before closing properties appraised for over $50M; resulting in $14M instant equity for our investors
▪ Implemented similar tax abatement strategy – reserved percentage of units for residents earning 60-80% AMI
▪ Able to provide high quality affordable housing while generating strong returns for our investors
ACQUISITION TIMELINE
July 20 July 27 First week of Aug July 13 Soft Commit Due All PPMs signed All Funds Wired Closing
NEXT STEPS AND GETTING STARTED
Interested Investors can fill out a soft commit contact form and can set up a one-on-one consultation to discuss any questions Denise@OneStreetCapital.com Ph: +1 (215) 479 0142 Schedule with Denise Catherine@OneStreetCapital.com Ph: +1 (248) 345 0594 Schedule with Catherine SOFT COMMIT FORM
