INVESTMENTS

Case Studies

thegrove-t

THE GROVE TOWNHOMES

thelot-t

THE LOT

avenue-apt-t

AVENUE APARTMENTS

college-t

SAN DIEGO STATE OFF-CAMPUS HOUSING

marketplace2-t

MARKETPLACE SQUARE

rex2-t

Rex Residences

crossroads-t

CROSSROADS @ GARNET

bungalows-t

BUNGALOWS ON 38TH

MARKETPLACE SQUARE

marketplace2

Overview of the opportunity
The opportunity was to acquire an 8 unit centrally located courtyard style apartment complex in an economic development area with heavy investment activity. This was a complex acquisition of a bank owned/REO asset from 2 separate receiverships. The property was previously 2 parcels encumbered by separate mortgages and improperly combined into 1 property. Having secured one of the parcels through a long lasting relationship we had to then negotiate with Cal-western reconveyance trust to sell the abuddting structure. After a complex negotiation process we were able to secure the property in an all-cash transaction. At the time of acquisition the property was completely vacant and very dilapidated. Based on a tight submarket vacancy rate and improving fundamentals we were confident our hands on managemet style combined with an extensive renovation would properly position the asset in the market place.

Business plan
Upon the successful acquisition of both parcels we developed an aggressive property level business plan to reduce our exposure, renovate, re-brand and re-lease. This four step strategy started with securing favorable debt in order to lower our cash basis in the project. Although market fundamentals in San Diego where strong this asset was acquired in the midst of the “great recession” therefore we felt it was prudent to secure non-recourse long term financing which we were able to source based on our teams extensive relationships with leading leading lending institutions. Once our risk was mitigated we implemented a comprehensive renovation plan which called for the structure to be torn down to the studs and modernized. Our renovation budget was just north of $100K in which we updated the exterior, roof, landscaping, parking, community bbq area and gut renovated the interiors. We used a variety of sub-contracts while SBMI Group led the construction management. Once the asset was ready to re-leased we executed a rebranding strategy with an online and print marketing program. It took our experienced team 6 months from the date of acquisition to re-lease the asset to 100% occupancy. Initially our strategy was to hold this property long term but as economic conditions improved we where able to source more lucrative opportunities and therefore executed a 1031 exchange after 2.5 of ownership yielding exceptional risk adjusted returns.

City/StateSan Diego, CA
Asset TypeMultifamily
Date Acquired7/20/2010
Date Sold 1/31/2013
Months Held30
No. of Units/ SF 8
IRR31%
Equity Multiple1.22
Average Cash-on-Cash 9.63%
Acquisition LTC70%
Total Purchase Price$650,000.00
Total Rehab Budget $100,000.00
Total Investment Basis $295,000.00
Total Sales Price$920,000.00
Cash Profit $348,000.00
 At Acquisition At Sale% Increase
NOI$0.00$57,200.00N/A
Annual Rent$0.00$96,000.00N/A
Occupancy 0.00%100%N/A
Price Per Unit $81,250.00$115,000.0042%

REX RESIDENCES

rex2

Overview of the opportunity
This property is a 14 unit garden style apartment complex which was acquired below replacement cost due the owners insolvency of completing a busted-condo project. This was a unique asset for the submarket as the floorplans are large and spacious and because previous ownership intended this to be a condo conversion the interior finished where far superior to competing products available in the market. We saw the opportunity to acquire a distressed asset in a dense submarket, conveniently located which was mis-manged and significant value could be created with minor improvements and focusing on operational efficiencies In addition to acquiring a property with attractive cash flow in place this investment had 2 exit strategies we could execute as market conditions improved which include selling the complete project or completing the condo map and selling off individual units. Additional characteristics which made this a compelling investment was high current occupancy of the building and the opportunity to increase revenue through gradual rent increases and renting our additional amenities such as garages and storage. To complete this acquisition we were successful in procuring a FNMA 10 year fixed, 30 year amortization loan at favorable terms.

Business plan
Upon the successful acquisition of the Rex Residences we focused on completing miscellaneous minor repairs that current ownership neglected and improving operational performance. Our strategy focused on tightening up controllable expenses such as water and electric, increasing rents to market levels and generating new revenue sources that where previously overlooked. Due to our hands on management style we recognized that the water bill was historically 20% higher than it should be which was due to defective piping and excessive water pressure and the electric bill was slightly elevated due to manual on-off and continuous running security lights. We were able to get these expenses in-line by retrofitting leaking pipes, converting bathroom fixture to low-flow and installing a water pressure regulator which restricted output to normal levels in addition to installing dawn-dusk security lights and automatic timer shutoffs on common area electric. Once these minor, but noticeable improvements whee completed we gradually focused on increasing rents to market but balanced that with minimizing turnover by reasonable increases which were affordable to the long term tenants in place. We also created new revenue channels by charging additional rent for the two garages and storage space which was previously provided free of charge with the base rent and installing our own laundry machines which doubled load capacity and released us from unfavorable terms from a 3rd party laundry provider. Overall this asset was stabilized quickly and did not require significant additional capital as we where able to capitalize on the property level distress.

City/StateSan Diego, CA
Asset TypeMultifamily
Months Held60 months- Still active investment
No. of Units/ SF 14
IRRN/A- Property Still Held
Equity MultipleN/A- Property Still Held
Average Cash-on-Cash 10.89%
Acquisition LTC65%
Total Rehab Budget $25,000.00
Total Investment Basis $497,500.00
 At Acquisition At Sale% Increase
NOI$87,480.00$111,150.0028%
Annual Rent$145,800.00$171,000.0017%
Price$1,350,000.00$2,030,000.0051%
Occupancy 92%100%8%
Price Per Unit $96,428.00$145,000.0050%

CROSSROADS @ GARNET

crossroads

Overview of the opportunity
The investment opportunity was to acquire a prominently located mixed use asset on a prominent signalized intersection in the high barrier to entry submarket coastal submarket of Pacific beach, CA. The seller was unloading his entire portfolio which provided us the opportunity to acquire this asset well below replacement cost and 8% below the appraised value at the time of acquisition. The asset was in distress at the time of acquisition as one of the tenants, which represented 50% of the GLA was in default and entering bankruptcy. We priced in the vacancy risk and set aside abundant reserves to re-tenant and hold the asset during the turnaround. In addition to knowing that submarket retail vacancy was at 5.5% and office vacancy was at 6% we where bullish on successfully negotiating for the tenant to vacate and the re-leasing the space with a 90-120 absorption rate. In addition we were able to successfully negotiate a fixed term 7 year note from a regional bank which gives the latitude to have a long term vision for the asset. Another benefit was that the downstairs tenant which occupied the other 50% of GLA was a credit tenant backed by a private equity firm and based on that cash flow we could successfully service our debt which mitigated our downside risk and capital intensity.

Business plan
Within 4 months of the purchase we were successful in negotiating a $75K lease buyout from the distressed tenant which had 4.5 years left on their lease. We then prepared the space as a warm shell to be attractive for a variety of office or retail tenants. An aggressive leasing strategy was executed and we were also successful in re-leasing the vacant space to a new tenant with 150 days which executed a 60 month lease to operate a spa. The new lease was at a higher rate than the previous one also helping increase NOI.

City/StatePacific Beach, CA
Asset TypeCommercial- Mixed Use
Months Held32 months- Still Active investment
No. of Units/ SF 6,500
IRRN/A- Property Still Held
Equity MultipleN/A- Property Still Held
Average Cash-on-Cash 8.44%
Acquisition LTC65%
Total Rehab Budget $95,000.00
Total Investment Basis $637,500.00
 At Acquisition At Sale% Increase
NOI$36,000.00$115,200.00320%
Annual Rent$64,800.00$138,000.00115%
Price$1,550,000.00$1,950,000.0020.51%
Occupancy 100%100%N/A
Price Per Unit N/AN/AN/A

AVENUE APARTMENTS

avenue-apt

Overview of the opportunity
The investment opportunity was to acquire a well located apartment property significanlty below replacement cost from an owner/operator who was inefficiently self managing the property. The El Cajon apartment market is desirable for tenants seeking low cost and well located apartemnets in an suburban area with easy access to transit, freeways and local shopping centers. Additionaly at the time of acquisition the property had signifacnt deffered maintenence, lacked desirable amenties for tenants and was signifancly under rented, as market rents where approx. 10-12% higher without any renovation. This asset was bought our of distress as the seller exited the San Diego market to move to Phoneiz so we capitalized on an opportunity to purchase an asset we could immidelty create value in trhough our hands on management with minimum capital investment. Our long term startegy for the asset is to renovate and reposition the asset with an extenive rehab. This was dont done at the time of acquisition due to stagnant market conditions and we did nto feel the need to invest additional cpaital with teh certainint of ner term appreciaton. In the future the asset will be rehabbed and rents increased to commiserate an additional 20%+ return cash-on-cash on additional invested capital. In addition the asset was acquired by assuming the very favorable existing in-place financing which provided a fuly amortized loan with an interest rate sub 3%. Additionally generating generating cash-flow from existing operations.

Business plan
Upon the successful acquisition we where successful in evicting non-paying tenants, performing basic capital expenditures such as exterior paint touch ups, lighting and mandated government retrofits. We then approached tenants to address maintenance issues which have not been addressed for a long period of time. Our strategy was to get in, stabilized and then push rents to market without investing significant capital. Once our team established rapport with tenants and appointed a new onsite manager we systematically raised rents to market which the majority of tenants did not have any points of contention with since we showed TLC upon acquisition. Since inception this asset has produced cash-on-cash return of 10+ and a new 30 year fully amortized loan was placed in September of 2015 refinancing out all of the initial equity. Our strategy is now to hold this asset for the long term with a mitigated downside and eventually complete a full rehab repositioning this from a C- to B asset. Additional focus after buying this asset was focused on executing a rigorous operational overhaul to reduce expenses. We were successful in reducing our water bill by 20% by installing a water pressure regulator, maintenance expenses by 25% by developing a proactive management.

City/StateEl Cajon, CA
Asset TypeMultifamily
Months Held48 months- Still Active investment
No. of Units/ SF 24- All 2 bedroom/ 1 bathroom units
IRRN/A- Property Still Held
Equity Multiple1.41x to date due to cash-out refinance/ equity recapitalization
Average Cash-on-Cash 10.89%
Acquisition LTC60.00%
Total Rehab Budget $75,000.00
Total Investment Basis 1.41x to date due to cash-out refinance/ equity recapitalization
$975,000.00
 At Acquisition At Sale% Increase
NOI$132,000.00$222,000.0068%
Annual Rent$252,000.00$312,000.0024%
Price$2,340,000.00$3,350,000.0045.00%
Occupancy 92%100%8%
Price Per Unit $97,500.00$139,583.3344%

THE GROVE TOWNHOMES

thegrove

Overview of the opportunity
This property was brought to us off-market because of our reputation of closing on deals and our extensive relationship with the brokers involved. This was a complex acquisition involving multiple out-of-state family trusts who where selling the asset because of a partnership dispute and inadequate capital to complete the necessary capital improvements. This asset provided a unique opportunity because we were able to acquire the property significantly below replacement cost which is located in a high demand submarket in San Diego with adequate employment, close proximity to the city center, convenient transit and abundance of neighborhood shopping in addition to a newly located trolley line less than 1/8th of a mile from the subject property. The property consists of highly sough after 24 large 1100-1200 square foot townhouse on a 1.5 acre lot spanning 6 buildings with 4 town homes each accounting for approx. 28,500 rentable square feet. This property is has enjoyed historically high levels of occupancy because of its unique unit mix of 2 bedroom/ 2 bathroom and 3 bedroom/2 bathroom floorplans in a park like setting. After first seeing this asset we saw a tremendous opportunity to acquire a rarely traded asset that has intrinsic characteristics that makes it more desirable than surrounding product. This property was a classic example of property level distress due to the inefficient ownership structure and lack of operational efficiency since it cycled through 3 management companies before coming to market. Out-of-town ownership neglected this asset over 15 years of ownership which reselected in under-rented units, significant deferred maintenance and an excessively high operating expense of 55%. We saw an opportunity to leverage our extensive management infrastructure to take control o this property and focus on operational and financial controls while implementing a property wide renovation which would reposition this asset from a C class property to a B class asset. IN addition to intrinsic characteristics market conditions of sub 4% vacancy and raising rents also mate this an enticing investment while mitigating our downside with in-place below market cash flow.

Business plan
Our property level strategy for this asset involved controlling variable expenses, a two phase renovation, revenue optimization, rebranding and repositioning this asset from a class C to a amenities class B asset. Upon acquisition our team of experienced property managers focused their attention to minimizing operating expenses to a normalized 35% while we drafted a contemporary renovation plan. During the first half of 2016 this asset will benefit from an extensive exterior upgrade including stucco, lighting, drought resistant landscaping, asphalt refinishing, signage, decking upgrades and a complete interior upgrade with a clean and contemporary look and feel. We will also focus on creating tenant amenities as common area to congregate, a renovated laundry room, and built in bbq area. Upon executing our renovation plan we see a clear path to substantially increase gross revenues through a combination of re-leasing units at market rates and further capturing upside by monetizing on additional storage space and vending machines which will be installed. Our goal is to create a desirable property which sets itself apart from the competition in terms of quality and amenities but still competes relatively close on price in order to maintain optimal occupancy and a sticky tenant base. A big focus will also be to re-brand this asset in the community as it has been in dis-repair for over a decade which will be achieved through a local marketing campaign and support from community leaders. Ultimately we project average cash-on-cash of 8.5+% on a turnkey asset with minimal capital improvement required in the future. It is important to note that rent increases will be gradual over the next 24 months so we have sufficient cash-flow in place to service our debt and cover operating expenses which mitigates our downside risk and exposure to capital markets.

City/StateLemon Grove, CA
Asset TypeMultifamily
Months Held5 months- Still Active investment
No. of Units/ SF 24
IRRN/A- Property Still Held
Equity MultipleN/A- Property Still Held
Average Cash-on-Cash In-Place: 5.15% Pro-Forma: 8.25%
Acquisition LTC75%
Total Rehab Budget $550,000.00
Total Investment Basis $1,575,000.00
 At Acquisition At Sale% Increase
NOI$201,000.00$222,000.0011%
Annual Rent$353,400.00$384,000.008.5%
Price$4,025,000.00N/A- No trend

N/A
Occupancy 92%100%8%
Price Per Unit $167,708.33N/A- No trend
N/A

THE LOT

thelot

Overview of the opportunity
This opportunity was brought to us off market by a long term relationship with the brokers involved and provided the opportunity to acquire a value-add property, well below replacement cost which was being sold due to a partnership breakup. At the time of acquisition this multi-tenant office building was mis-managed by an owner operator with 90% of the leases rolling over within 12 months of close of escrow with significantly below market rents. We saw an opportunity to acquire a strategic office asset in a very visible commercial corridor servicing a burgeoning latino-oriented business tenant with the ability to extensively remodel and reposition a class c underutilized property into a class B asset while still maintaining reasonable market rents. The property was originally built in the mid 1970;s and never upgraded. When purchasing this asset we had a risk mitigation and reposition approach by locking in expiring leases at attractive rents while defining our design and construction process. We were also able to take this property from 83% occupant at the time of acquisition to 90% by negotiating with existing tenants while evicting other tenants in default. Once stabilized we believe this asset will serve the professional services tenant base looking for a professional, yet affordable office campus environment. Our team was also successful in procuring a long term fixed rate loan at favorable terms due to our extensive relationship with the financial institution. This subject property is located on the mile of cars corridor in national city abutting chula vista and near local freeways, retail and transit providing easy and convenient access.

Business plan
Upon the close of escrow we focused on stabilizing the current leases expiring and locking in in-place cash flow. Once this was accomplished we successfully evicted tenants in default while we aggressively worked with our design and construction team to develop a contemporary office campus. Once the $300,000 renovation of the entire facade and common areas is complete we will re-brand and re-market this asset to professional services tenants. Our focus will be to source compatible tenants and create a more campus feel opposed to a dated office environment. In addition our experienced management team was successful in lowering variable operating expenses by 20% to be in line with benchmarked assets and realized creative ways to drive new revenue through a modified gross lease program, on-site vending and a central lunch/picnic area. This was a unique asset which required an experienced operator to take a hands on approach to create value through decisive execution. We believe once stabilized this asset will produce cash-on-cash returns in excess of 10% while remaining competitive in the market due to our low basis and initial focus on buying right. The exterior renovation will focus on energy efficiency, mechanical and electrical upgrades, facade upgrades, drought tolerant landscaping, new common area amenities, renovated bathroom facilities, and upgraded interior office spaces providing a bright and enjoyable working environment.The suite sizes are also being adjusted to be easily divisible and be conducive to various tenant space demands. Once complete our vision is to create a unique and desirable office asset that differentiates its self from other available properties in the submarket

City/StateNational City, CA
Asset TypeMulti-tenant Office Building
Months Held5 months- Still Active investment
No. of Units/ SF 20,000
IRRN/A- Property Still Held
Equity MultipleN/A- Property Still Held
Average Cash-on-Cash In-place: 6.23% Pro-forma: 10-11%
Acquisition LTC75%
Total Rehab Budget $300,000.00
Total Investment Basis $793,000.00
 At Acquisition At Sale% Increase
NOI$117,000.00$138,600.0018%
Annual Rent$225,400.00$252,000.0012.00%
Price$1,975,000.00$2,340,00019.00%
Occupancy 83%90%6%
Price Per Unit $98.75$117.0018.00$

BUNGALOWS ON 38TH

bungalows

Overview of the opportunity
This was an off-market opportunity to acquire a value-add apartment property which was mis-managed and suffered from over three decades of deferred maintenance. Based on our extensive management network we identified that the in-place rents were approx. 50% below market and by buying right we could establish a healthy renovation budget to renovate and re-brand this dilapidated asset. This was a complex acquisition because the owner lacked any financial operating history and the property was 100% occupied by tenants who had not paid rent in months. The upside in this opportunity came from the property’s central location in the Cherokee point submarket nestled between city heights and northpark and experienced a significant gentrification over the past 6 years. Additionally the asset was built on a double wide lot with individual courtyards and garages which provided us the opportunity to have a highly desirable product once complete. We were successful in acquiring this asset because of our deep operational experience in the neighborhood and ability to perform our due diligence quickly and provide the seller with surety of a quick, no hassle close.

Business plan
Upon acquiring this property our experienced property management team first focused on establishing rapport with the long time tenants and then executed a successful cash-for-keys negotiation to vacate the entire property with a surprising 60 days from start to finish. Due to severe neglect of previous ownership this property was deemed unsafe for habitability and we required the entire premises to be vacant to execute our construction plans. In addition to this our team worked swiftly to coordinate with the city of San Diego Code enforcement department to cure extensive code violations. Our vision for this asset was to reposition this property into a contemporary and cozy apartment community through an extensive exterior and interior renovation which also includes foundation retrofitting, electrical, plumbing, roofing and mechanical renovations. After acquiring this property we budget for a $300,000 renovation which would take place over 6 months and then we would focus our attention to re-branding and releasing the property at prevailing market rents. However, during our design phase we were approached by a reputable apartment broker to sell the asset in its current condition. Although our strategy for this property was long term we were able to secure an very lucrative non-contingent offer for a buyer which significantly locked in guaranteed high returns on cash flow and ended up selling this asset after only owning it for 3 months. Due to our teams opportunistic and common sense approach we were able to provide our capital partners above average risk-return ratios and eliminate any risks which come with renovating an 80 year old structure.

City/StateSan Diego, CA
Asset TypeMultifamily
Months Held3
No. of Units/ SF 12
IRR63%
Equity Multiple1.3
Acquisition LTV0
Total Purchase Price$1,000,000.00
Total Rehab Budget $300,000.00
Total Investment Basis $1,040,000.00
Total Sales Price$1,402,000.00
Cash Profit$298,00.00
 At Acquisition At Sale% Increase
NOI$50,400.00$0.000%
Annual Rent$100,800.00$0.000%
Price$1,000,000.00$1,402,000.000%
Occupancy 100%N/AN/A
Price Per Unit $83,333.33$116,833.33
40.20%

SAN DIEGO STATE OFF-CAMPUS HOUSING

college

Our niche high occupancy single family off campus housing portfolio provides over 450 students per year with comfortable, conveniently located and amenities locations to live in. With full time enrollment topping 36,000 students in the 2014/2015 school year with larger anticipated enrollment the SDSU college area is facing a severe housing shortage. We identified a creative way to increase the number of bedrooms in single family houses which offer an average of 5-6 bedrooms per locations for mostly 2nd, 3rd, and 4th year students to live in close proximity to campus while enjoying the autonomy of college life. Our hands on and experienced management team are experts in designing sough after properties and managing daily operations while maximizing investor returns through a proprietary lease program which ensures stable, long term cash flows. Our focus is to provide safe housing for students while abiding to strict regulations and doing business in accordance to the political atmosphere. Over the years this program has provided housing for almost 1000 students! Because of our long term involvement in the college area we are experts in identifying potential houses which are typically 3 bedrooms with the ability to add square footage. This is a complicated process which we are able to execute because of our long standing relationship with architects, contractors and planners and city officials.

City/StateSDSU College Area
Asset TypeHigh occupancy Single Family Off Campus Houses
Months Held60
No. of Units/ SF 30
Total Purchase Price$13,500,000.00
Total Rehab Budget$1,050,000.00
Acquisition LTC50%
Total Investment Basis $7,800,000.00