ICG Apartment Portfolio VI LLC Executive Summary – November 2011
Canon de Arrowhead Apartments 264 Units in Albuquerque, NM
Riverwalk Apartments 88 Units in Logan, UT
Cedarwest Apartments 121 Units in Bend, OR
investorscapitalgroup.com
ICG Apartment Portfolio VI LLC Overview
88-Unit Riverwalk Apartments Logan, UT
121-Unit Cedarwest Apartments Bend, OR
264-Unit Canon de Arrowhead Apartments Albuquerque, NM
473 Total Apartment Units In 3 Projects We’re very pleased to present our latest opportunity, ICG Apartment Portfolio VI LLC (“the Company”), consisting of three apartment projects: an 88-unit project in Logan, UT, a 264-unit project in Albuquerque, NM, and a 121-unit project in Bend, OR. We’ve selected these projects for their attractive cash flow, good physical condition and upside operational potential. We believe we’re making prudent acquisitions below replacement costs in markets we like. We’re confident we can add value and achieve our projections by performing physical upgrades, improving operations and realizing modest market appreciation over the approximate 10-year term.
7% Preferred Return To Class A Members
Company Structure And Distributions
The Class A Members (the “Investors”) will receive an annual Preferred Return equal to 7% of their capital. The Preferred Return will be paid prior to the Class B Member (the “Manager”) participating in cash flow or profit.
The Company will be owned 80% by the Class A Members and 20% by the Class B Member. Cash flow and profits will be distributed first to the Class A Members until they have received an annualized 7% return on their capital. Then the Class B Member will receive all distributions until receiving 20% of total proceeds. Thereafter all proceeds will be split 80% to Class A and 20% to Class B.
Timing Of Individual Project Closings One project has closed, one is in contract to close this year and the third has a signed letter of intent. The Company purchased Riverwalk Apartments on October 31, 2011, with ICG loaning acquisition funds to the Company to be repaid from investor proceeds.
Projected Investment Returns And Term
The Company is in contract to close on Canon de Arrowhead scheduled for December, 2011 with due diligence complete and closing only subject to final financing issues.
Class A Members are projected to receive an estimated average annual cash-on-cash return of 9.14% from Company operations over the expected 10-year term. The Company expects to distribute cash flow in excess of the 7% Preferred Return each year including the first year.
On Cedarwest, the Company has agreed on price and terms in a signed letter of intent with the seller and is negotiating the final purchase and sale contract and performing additional due diligence.
Class A Members are projected to receive a total cumulative simple return of 19.11% per year over the term factoring in both cash flow and expected profits from sale.
$9,000,000 in Investor Equity $29,350,000 Total Purchase Cost 7% Preferred Return to Investors 9.14% Expected Average Annual Cash-ON-Cash Return 19.11% Estimated Annual Total Return
Project Replacement Option We are highly confident we will close on Canon de Arrowhead and Cedarwest as expected, however, by investing in the Company the Class A Members will implicitly authorize the Company to replace either property with an apartment project or projects substantially similar in size, type and investment returns, if the Company does not close for due diligence issues, financing issues, or for any other reason. This option is identical to the replacement option in Portfolio V, in which we ultimately closed all six projects that were identified.
Overview
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Canon de Arrowhead Apartments
Cañon de Arrowhead
264-Unit Canon de Arrowhead Apartments 1700 Market Street Northwest, Albuquerque, NM 87120 • Canon de Arrowhead is a 264-unit apartment complex built in 2000 that is well-located in Albuquerque, NM. • The unit mix includes 16 one-bedroom one-bathroom units, 176 two-bedroom two-bathroom apartments and 72 three bedroom two-bathroom units. • Common area amenities include: clubhouse, on-site leasing office, swimming pool and sauna, children’s playground, laundry facility, and fitness center. • Unit amenities include kitchens with dishwashers and garbage disposals, storage and washer and dryer connections. • The property enjoys a good location in Albuquerque near transportation, recreation, shopping and employment. •
It enjoys excellent access to I-25 & I-40 offering quick drive times throughout Albuquerque’s modern urban freeway system, which has been upgraded through State of New Mexico bond financing over the last decade.
•
The project was built under the Section 42 Low Income Housing Tax Credit (LIHTC) program and has a regulatory agreement with extended use restrictions in place until December 31, 2045 which specify that 74% of the apartment units be rented to tenants earning no more than 60% of the Area Median Income (AMI) and the remaining 26% of the apartment units be rented to tenants earning no more than 50% of the AMI, and certain rent price restrictions.
• The Company has factored in the restrictions under the regulatory agreement for all investment return projections. • Canon de Arrowhead is in very good physical condition with very little in the way of deferred maintenance.
Albuquerque, NM
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Region and Neighborhood - Albuquerque Albuquerque is the largest city in New Mexico and is the 34th largest city in the United States with a population of 545,852 in the 2010 census. The Metropolitan Statistical Area (MSA) has a population of over 900,000. In 2011 it was ranked the “4th Best City for Families� by The Learning Channel. It has a wellrounded employment base of business services, government, education, health services, retail, hospitality, financial services and manufacturing. Albuquerque is home to the University of New Mexico, serving over 34,000 students and employing over 20,000 people statewide, including university hospitals. The local economy of the city is also fueled by the research facility of Sandia National
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Canon de Arrowhead Apartments
Laboratories, which employs nearly 10,000 highly educated individuals. In recent years research at Sandia Labs has played an important part in homeland security efforts to secure nuclear weapons, sensitive national energy systems and critical infrastructure systems by performing nuclear-related research and other government work. Kirtland Air Force is the largest employer in Albuquerque located in the southeast of the city and employing 23,000 people, with the majority civilians but including over 5,000 active duty military. Other employers include state and county governments, Albuquerque public schools, Presbyterian Health Services, Honeywell Avionics, and Tempur-Pedic, which recently opened an 800,000 square foot mattress factory in the newly developed Clifford West Business Park. Up to 10,000 manu-
facturing and high tech jobs are expected to fill up this business park in the near future. Canon de Arrowhead is located in central Albuquerque, between the stunning and historically significant Petroglyph National Monument and the Rio Grande River. The Sandia Mountains run along the eastern side of the city, and the Rio Grande flows directly through the city from north to south. The city has a number of great attractions, with pleasant scenery, colorful history, and a spectacular hot-air balloon fiesta in the fall. Parks, bike paths, and hiking areas are scattered throughout the metropolitan area and used by the residents, prompting Men’s Fitness magazine to rank Albuquerque the #1 Fittest City in America in 2007. With a modern and well maintained infrastructure, including the intersection of I-25 and I-40, freight and passenger train terminals and a busy international airport, as well as diversified economic drivers such as a large university, high-tech research facilities, and a broad mixture of government, business, service and manufacturing, Albuquerque is poised to continue the growth that ranked it one of the fastest growing US cities in the last decade.
Albuquerque, NM
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Riverwalk Apartments
Riverwalk
88-Unit Riverwalk Apartments 781 South Riverwalk Drive, Logan, UT 84104 • Riverwalk Apartments, built in 1995, is an 88-unit project comprised of all three-bedroom two-bathroom apartments. • Common area amenities include a clubhouse, leasing office, fitness center, playground and laundry facility. • Unit amenities include kitchens with dishwashers and garbage disposals, storage and washer and dryer connections. • The property is conveniently located in Logan near transportation, recreation, shopping and employment. • It has good access to Utah State University’s 25,000 student campus and Logan Regional Hospital. •
The project was built under the Section 42 Low Income Housing Tax Credit (LIHTC) program and has a regulatory agreement with extended use restrictions in place until February, 2036 which specify that 92% of the apartment units be rented to tenants earning no more than 55% of the Area Median Income (AMI) and the remaining 8% of the apartment units be rented to tenants earning no more than 35% of the AMI, and certain rent price restrictions.
• The Company has factored in the restrictions under the regulatory agreement for all investment return projections. • Riverwalk’s tenants enjoy unusually expansive grounds and beautiful park-like landscaping. • Riverwalk is in very good physical condition with the exception of the roofs which the Company will replace.
Logan, UT
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Region and Neighborhood - Logan, UT Logan, UT, is approximately 90 minutes north of Salt Lake City. It is considered the economic and cultural center of northern Utah’s Cache Valley, which is home to 125,000 people. The valley is known for its pristine beauty and mountains. Logan has developed into a bustling and pleasant mid-sized city. Education is a big influence as Utah State University with over 25,000 students is located in Logan as well as Utah College of Applied Technology’s Bridgerland campus with over 10,000 students. Logan has a wide diversity of economic sectors with a focus on education, manufacturing and processing, medical services, agriculture, and retail businesses. The city’s largest employer is Utah State University, with other major employers including Icon Health & Fitness, Cache County School District, Logan Regional Hospital, Thermo Fisher Scientific, Gossner Foods, and Schreiber Foods. Icon Health & Fitness is touted as the world’s largest developer, manufacturer, and marketer of fitness equipment and 9th largest private company in Utah. In 2011 Forbes Magazine rated Logan as the #5 Small City for Business and Careers due to their 15.48% population growth over the past 10 years and comparably low unemployment rate of 5.10%. Logan’s southern portion is a mixture of commercial and residential properties. The northern area of Logan serves partly as a retail district
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Riverwalk Apartments
with numerous shops and restaurants, including the Cache Valley Mall. Within the last few years, major retail expansions have taken place including many new businesses which include several national retail chains. Logan is the location of the region’s largest and most comprehensive hospital, Logan regional Hospital. The western portion of Logan is set aside as a center for light industry. Overlooking Logan are both Utah State University and the historic Logan Utah Temple. The Logan Utah Temple is the second oldest temple in the State of Utah, with construction started in 1877. The Riverwalk Apartments project is located in the southeast portion of Logan, in a desirable neighborhood with good access to local highways, employers, retail establishments, restaurants and entertainment. Recreational activities include downhill and cross country skiing, rock climbing, snowmobiling, mountain biking, and golf. There is a golf course located within a quarter mile of the Riverwalk project.
Logan, UT
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Cedarwest Apartments
Cedarwest
121-Unit Cedarwest Apartments 825 Watt Way, Bend, OR • Cedarwest is a 121-unit apartment complex built in 1998 that enjoys an excellent location in Bend, Oregon. • The unit mix includes 28 one-bedroom one-bathroom units, 68 two-bedroom one-bathroom apartments and 25 three bedroom two-bathroom units. • Common area amenities include: clubhouse, on-site leasing office, children’s playground, laundry facility, fitness center, sauna and basketball court. • Unit amenities include kitchens with dishwashers, air conditioning, storage and washer and dryer connections. • The property is ideally located off Highway 20 and less than 10 minutes from Highway 97. • It is walking distance to Forum Shopping Center with easy access to Old Navy, Costco, Safeway, Whole Foods and a variety of restaurants and entertainment options. •
The project was built under the Section 42 Low Income Housing Tax Credit (LIHTC) program and has a regulatory agreement with extended use restrictions in place which specify that 100 of the apartment units be rented to tenants earning no more than 60% of the Area Median Income (AMI) and the remaining 20 of the apartment units be rented to tenants earning no more than 35% of the AMI, with the remaining one unit being the manager’s apartment.
• The Company has factored in the restrictions under the regulatory agreement for all investment return projections.
Bend, OR
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Region and Neighborhood - Bend, OR Bend, Oregon, is located in Deschutes County and along the Deschutes River on the eastern edge of the Cascade Range. Bend started as a logging town at the turn of the last century but in recent years has become a gateway to many outdoor sports including skiing, golf, rafting, kayaking, mountain biking, climbing, camping, hiking and fishing. Bend is also becoming a popular retirement destination. Bend is Central Oregon’s largest city with over 170,000 people in the Bend Metropolitan Statistical Area. The city itself has seen its population grow from 52,029 in the 2000 census to 76,369 in the 2010 census. Tourism and recreation are major components to Bend’s economy. The Mount Bachelor ski resort is one of the biggest
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Cedarwest Apartments
and best in the Pacific Northwest and draws tourists from all over Oregon as well as from Washington and California. The Cascade Lakes and Sunriver Resort, with its emphasis on golf and mountain biking, are also popular tourist destinations. Bend’s employment is also comprised of other sectors such as healthcare and social services, professional services (including scientific and technical services), wood products manufacturing, and recreational and transportation equipment. Top employers include St. Charles Medical Center, Bright Wood Company, Sunriver Resort and Mt. Bachelor. Bend is also home to several microbreweries, the largest of which is the Deschutes Brewery, which many people may recognize for its popular brands Mirror Pond Pale Ale (winner of the 2010 Gold Medal at the 2010 Great American Beer Festival) and Black Butte Porter, which is the best selling craft porter
in the United States. Retail trade, government and education are also significant employers in Bend. Central Oregon and the Bend area have had higher job market growth than any other areas such as Portland and Salem, which each experienced increases of less than 14% during the same decade. Bend recently has had success in landing major sporting events such as the 2008 and 2009 USA Winter Triathlon National Championships, the 2008 and 2009 XTERRA Trail Running National Championships, and the 2009 and 2010 United States National Cyclo-cross Championships, as well as the 2009 and 2010 USA Cycling Elite Road National Championships. While Bend is still recovering from a sharp correction in single family home values due to the economic volatility of recent years, it maintains a low apartment vacancy rate of just 4.9% making it a good rental market.
Bend, OR
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Investment Summary
Company Overview, “ICG Apartment Portfolio VI LLC”
Opportunity / Business Plan
ICG Apartment Portfolio VI LLC (the “Company”), located in Seattle, WA, was formed as a WA Limited Liability Company (LLC). The Company intends to assemble three apartment projects into one portfolio with a total cost of $29,350,000 with a capital structure that includes $9,000,000 in investor equity and $20,350,000 in new 10-year debt secured by the projects.
The Company believes it has an attractive opportunity to acquire quality, well-located cash-flowing projects below replacement costs in good markets. We believe we can operate these projects more efficiently than current management leading to reduced expenses and increased revenue. The projects are structurally in very good condition with the exception of the roofs at Riverwalk which the Company will replace. The Company will use Riverstone Residential, Inc. (“Riverstone”), one of the largest national management companies to perform day-to-day management on all properties. These properties are projected to generate attractive cash flow during the term and be sold at higher valuations in approximately 10 years benefiting from improved operations and some market appreciation.
Individuals within the Company’s Manager (Investors Capital Group LLC, the “Manager” or “ICG”), assumed or intend to assume limited liability for certain mortgage obligations.
Individual Projects and Closing Details The Company closed on the 88-Unit Riverwalk Apartments (“Riverwalk”) in Logan, UT on October 31, 2011. ICG loaned the Company the equity required to close at an interest rate of 7% (the “Note”), to be repaid and replaced in the coming weeks with investor equity as investor deposits are converted to Class A Membership interests. The Company is in contract awaiting closing on 264-unit Canon de Arrowhead Apartments (“Canon”) in Albuquerque, NM. The Company has completed inspections and will close upon the seller’s lender’s final administrative procedures. The Company signed a Letter of Intent with agreement on price to purchase 121-unit Cedarwest apartments in Bend, OR. The Company is confident it will close on this project, but due to the fact that all due diligence is not yet complete, the Company is authorized to substitute a project of similar size, type, and investment returns, provided it does so by July 1, 2012.
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Low Income Housing Tax Credit (LIHTC) Program The projects were all built under the LIHTC program where the developers received tax credits for building affordable housing, resulting in limits to future rent increases and restrictions on tenant income levels. The Company has extensive experience working with LIHTC properties and complying with the unique administration of these assets. The Company’s investment projections take into consideration the effect of LIHTC restrictions on future rent increases.
Company Structure and 7% Preferred Return
As of this mailing, the Manager has collectively loaned the Company approximately $1.5 million (to close on Riverwalk and for the earnest money deposit on Canon) to be repaid by proceeds from this offering.
Class A Members of the Company will collectively own 80% of the Company and receive 80% of the Company’s cash flow and profit. Distributions will be made first to Class A Members until they have received an annualized 7% preferred return. The Class B Member will own 20% of the Company and, after Class A Members have received the Preferred Return, the Class B Member will receive all proceeds until they have received 20% of all distributions, after which they will receive 20% of the Company’s cash flow and profit and the Class A Members will receive 80%.
Securities Offering
Projected Investment Returns
The Company intends to raise $9,000,000 by issuing 180 Class-A Units of $50,000 per Unit (the “Units”) to Accredited Investors (the “Investors”) who will become Class A Members of the Company (“the Offering”). Prior to investing in the Project, each Investor will read the Private Placement Memorandum and sign the Subscription Agreement.
Class A Members are projected to receive an estimated average annual cash-oncash return of 9.14% from Company operations over the expected 10-year term. The cash-on-cash return is expected to be higher than the 7% Preferred Return in every year of the holding period including the first year.
Investment Summary
Class A Members are projected to receive a total cumulative simple return of 19.11% per year over the expected 10-year term, including cash flow from annual operations as well as expected profits from the sale of the individual projects. The projected Internal Rate of Return on equity (IRR) is expected to be approximately 13.75%.
ICG Apartment Portfolio VI LLC
Key Points:
Three Individual Projects with a Total Of 473 Units: • Canon de Arrowhead Apartments, Albuquerque, New Mexico, 264-units • Riverwalk Apartments, Logan, Utah, 88-units • Cedarwest Apartments, Bend, Oregon, 121-units
The Company’s Acquisition Costs and Fees: • $25,994,500 collective purchase price
Company Distributions and Return of Capital After Sale of Assets • Anticipated profits from asset sales or refinancings will first be distributed 100% to Class A Members until they have received 100% of their unreturned capital contributions. • After receiving their capital back, proceeds will be distributed 100% to Class A Members until they have received 100% of their accrued and unpaid 7% Preferred Return.
• $2,364,548 for project physical renovations and project operating reserves
• After the Class A Members have received their capital and cumulative Preferred Return, the Class B Member will receive 100% of proceeds until receiving 20% of the total distributions to date.
• $29,350,000 total all-in purchase cost, including all acquisition, rehab and reserve costs
• Thereafter proceeds will be distributed 80% to Class A Members and 20% to the Class B Member.
• $990,953 in loan fees and all acquisition costs to third parties and Manager
• $20,350,000 in first mortgage debt secured by the Projects • $9,000,000 in investor equity
Business Plan Summary: A Value-Added Opportunity with Attractive Returns
Acquisition Price Analysis:
• Purchase Projects, perform renovations, upgrade management.
• 6.94% CAP Rate on purchase price and current operations (7.25% estimated exit Cap Rate)
• Improve operations and increase revenue over the 10-year holding period.
• $54,957 Average Cost-Per-Unit at acquisition • $56.02/ Average price per Net Rentable Square Foot (Price/NRSF) at acquisition
• Distribute cash-flow to investors monthly and profits upon project sales. • 9.14% projected average annual cash-on-cash return from operations. • 19.11% projected annual Simple Return over the term including sales proceeds.
The Company Structure: 80% - 20% Split with 7% Preferred Return: • Class A Members (the “Investors”) will collectively own 80% of the Company and receive 80% of all project cash flow and anticipated profits from sale including a 7% Preferred Return. •
The Class B Member will own 20% of the Company and, after the Class A Members have received a cumulative 7% Preferred Return, the Class B Member will receive 100% of Company cash flow until receiving 20% of the total distributions to date and thereafter will receive 20% of the cash flow and anticipated profits from sale (see “Distributions”).
• The Company expects to issue 180 Class A Units at $50,000 per Unit to “Accredited Investors” and to issue 45 Class B Units to the Manager.
Key Points
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Upon asset sales Class A members will first receive 100% of their unreturned capital back, then they will be made current on all Preferred Returns, then the Class B Member will receive proceeds until it has received 20% of distributions to date. Thereafter the Class A Members will collectively receive 80% of the profits from asset sales.
Class B Member (The Managing Member, ICG LLC) The Class B Member (the “Manager”), is Investors Capital Group LLC (“ICG”) and will own 20% of the Company. After the Class A Member has received all Preferred Returns owed in a distribution period (including final distributions after asset sales, in which they will first receive their capital back), the Class B Member will receive all distributions until it has received 20% of the distributions to date, whereupon it will receive 20% of the distributions thereafter. ICG is a Seattle-based apartment investment entity. ICG’s principals are highly experienced in the apartment acquisition and management business. They own and operate thousands of apartment units via various partnerships, syndications and their affiliated management company, Riverstone Residential, one of the largest apartment management companies in the country. Certain ICG principals maintain an ownership interest in Riverstone Residential after selling their own large regional management company which they founded in 1989, HSC Real Estate, Inc., to Riverstone in early 2008.
Selected Company Principals and Personnel
Investors who purchase Units will be Class A Members and will jointly own 80% of the Company and receive 80% of the cash flow from operations. Class A Members will receive a 7% Preferred Return prior to the Class B Member receiving distributions.
Biographies
ICG Apartment Portfolio VI LLC
The Company:
Class A Members (The Investors)
Mick Halpin Mick is one of the Managing Members of ICG and one of the founding Principals of HSC Real Estate, Inc. Mick was President of HSC from 1989 through 2001. He has extensive experience in management, acquisition, rehabilitation and dispositions. Mick oversees ICG’s acquisition activity. He was previously an Asset Manager for a national real estate company. He graduated from Seattle Pacific University with a degree in Business Administration.
Michael Christian Mike is one of the Managing Members of ICG and one of the founding Principals of HSC Real Estate, Inc. Mike established the company’s operational management systems and is experienced in all aspects of multifamily property management. Previously he was an Asset Manager with a national real estate company and prior to that he worked at a Fortune 500 company. He graduated from Washington State University with a BS in Finance and Accounting.
Ward Murphy Ward was hired as Director of Investor Relations in 2002 and became a Principal in 2005. Previously he spent 10 years at Seattle-Northwest Securities as Vice President Institutional Sales on the bond-trading desk and as an Investment Banker in real estate. Earlier he worked for Honeywell’s Buildings Group. He has a BA from Tulane University.
James M. Mccullough III Jim is ICG’s Financial Analyst and primary project underwriter. He was hired as an accountant in 1995. He specializes in acquisition underwriting, market analysis, forecasting and loan underwriting. He is the primary designer of ICG’s proprietary underwriting models. He has a BS in Finance and a BS in Accounting from Central Washington University.
Johnathan Makus Johnathan joined ICG in July of 2006 as Acquisitions Manager. Previously he was a commercial real estate broker in Spokane. In 2004 he graduated from Johnson & Wales University in Denver with a Bachelor’s degree in Business.
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The Company
The Business Plan
Project Acquisition Costs and Fees The Company intends to acquire the portfolio properties that collectively form the Company for $25,994,500. Acquisition costs total $990,953 of which the Class B Member will receive an acquisition fee of $259,945 (which equals 1% of the purchase price) and a $259,945 funding fee (1% of purchase price).
Business Plan Summary and Planned Renovations The Company will purchase the projects with the intention to improve management, improve operations and perform renovations for the purpose of increasing cash flow over time. One element of the business plan is to increase revenue by using existing washer and dryer connections to add washers and dryers to most units. The Company expects to then sell the individual properties at an increased value at the conclusion of the 10-year business plan. The Company expects to distribute cash flow to Members monthly and will distribute expected profits at capital events such as asset sales or debt refinancing events. Currently the properties suffer from poor management, modest deferred maintenance and landscaping issues, and in the case of Riverwalk, a requirement for new roofs. The Company intends to invest approximately $2,364,548 for renovations to cure these issues, including operating reserves. The renovation budget will be spent on upgrades to interiors, exteriors, common areas and site conditions depending on each project’s specific needs. The Company expects to sell each of the properties that comprise the Company in approximately 10 years and then dissolve the Company.
ate monthly financial reports and weekly operational reports for the Company’s Managing Member detailing unit pricing, vacancies, delinquencies, traffic, etc. The Manager is highly confident in Riverstone’s ability to manage the projects.
Asset Management ICG will function as Asset Manager of the Company and will provide regular reporting to Class A Members on operations, issue monthly distributions to Members from Company cash flow, and oversee Riverstone Residential. The Company anticipates ICG will receive a fee equal to 1.5% of the gross property receipts for duties as Asset Manager.
Revenue and Expenses Revenue is expected to be generated primarily from apartment rental payments from tenants. The Company expects that it will be able to increase rental rates at an average rate of 2.80% per year on average throughout the 10-year term. Expenses are expected to increase at a rate of 2.71% per year throughout the Company after stabilization. Vacancy loss is expected to average approximately 7.32% per year over the 10-year term.
Exit/Sale The Company expects to be able to sell the individual projects for a collective price of $37,641,324 in year 10 at an average CAP Rate of 7.25%.
Property Management The Company will hire Riverstone Residential Group to perform day-to-day property management at each project. Riverstone purchased HSC Real Estate in 2008, which is the management company that ICG LLC founding Principals formed in 1989 and grew to one of the region’s largest and most respected apartment management companies with 34,000 managed units. Riverstone is one of the largest apartment management companies in the country and operates with former HSC personnel in key positions, including ICG Principals Walt Smith, who is now President of Riverstone, responsible for approximately 150,000 units under management, as well as Pål Ottesen, Riverstone CFO, and Steve Davis, who is also a Riverstone senior executive. The Company is authorized to compensate the property management company a competitive rate of up to 5% of the gross rental receipts. Riverstone will hire and manage the on-site staff and assign a corporate property manager who will personally oversee the on-site staff. Riverstone will gener-
The Business Plan
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ICG LLC Corporate Overview 18
Overview • Investors Capital Group LLC is an apartment entity based in Seattle, WA, established in 2001.
• ICG currently has managing ownership interests in over 4,500 apartment units in 7 western states.
• ICG actively pursues multifamily acquisitions in the Western United States, targeting 100-400 units.
• ICG owners have acted as Key Principals in acquiring and managing all the projects in their portfolio.
• ICG Principals are experienced in all aspects of apartment ownership, rehabilitation and management.
• ICG has a loyal following of private equity investors with an ongoing appetite for additional opportunities.
• In 1989 ICG Principals founded HSC Real Estate Inc., a third-party apartment management company.
• Our investment philosophy puts our investors first as we underwrite projects where we can create value.
• HSC grew to approximately 34,000 managed units prior to its sale to Riverstone Residential Group in 2008.
Current Ownership Portfolio (Purchased 2006-2010) Project Name
Location
# of Units
Purchase Price
The Palms
Rowland Heights, CA
338
$15,000,000
1998
The Crossings
Eugene, OR
208
$14,000,000
2004
Stone Ridge
Eugene, OR
84
$6,380,000
2005
Falcon Valley
Boise, ID
148
$12,400,000
2005
Jefferson Square
Seattle, WA
78
$12,700,000
2005
Park River (Portfolio I)
Boise, ID
91
$2,945,836
2006
Towne Square (Portfolio I)
Boise, ID
160
$5,439,252
2006
Wildflower (Portfolio II)
Missoula, MT
96
$3,800,000
2006
ICG LLC Corporate Overview
Purchase Date
ICG LLC Corporate Overview
Current Ownership Portfolio (Purchased 2006-2010) Project Name
Location
# of Units
Purchase Price
Purchase Date
Shiloh Glen (Portfolio II)
Billings, MT
120
$4,650,000
2006
Maple Crossing (Portfolio II)
Maple Valley, WA
172
$12,251,000
2006
Portofino (Portfolio III)
Tucson, AZ
197
$9,100,000
2007
Fort Lane Senior (Portfolio III)
Layton, UT
100
$5,300,000
2007
Parkway Commons (Port. III)
Salt Lake City
93
$5,051,000
2007
Creekside (Portfolio III)
Missoula, MT
161
$8,031,166
2007
Heron Meadows
Eugene, OR
300
$25,100,000
2007
Reflections
Portland, OR
351
$37,000,000
2007
Rivercrest
Portland, OR
338
$38,750,000
2008
Mount Vernon (Portfolio V)
Boise, ID
70
$2,750,000
2008
Alderbury Cove (Portfolio V)
Boise, ID
56
$3,200,000
2008
Heatherstone (Portfolio V)
Kennewick, WA
455
$12,600,000
2008
Courtside (Portfolio V)
Olympia, WA
211
$15,500,000
2008
Eagle Pointe
Spokane, WA
141
$6,515,000
2008
Valley Manor
Wenatchee, WA
50
$2,000,000
2010
Mayflower
Lehi, UT
192
$11,100,000
2010
ICG LLC Corporate Overview
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ICG LLC Corporate Overview 20
ICG LLC Sold Projects (Sold 1998-2007) Project Name
Location
Woodside Crossing
Everett, WA 216
$5,514,772 1995
$9,250,000 1998
Horizon Square
Everett, WA 48
$2,170,000
1997
$2,550,000 1999
Lexington Heights Renton, WA 252
$16,534,446 1997
$26,925,000 1999
Stillwood Tacoma, WA 40
$1,960,000
1998
$2,400,000 2000
The Versailles
$3,300,000 1999
$4,850,000 2001
Southampton Tacoma, WA 126
$3,750,000 1998
$5,150,000 2003
Bel Crest Seattle, WA 36
$2,500,000 2000
$2,850,000 2003
South Pointe Tacoma, WA 116
$2,625,000 2000
$4,200,000 2003
Park South
Seattle, WA 252
$12,100,000 1999
$19,500,000 2004
Southwood
Burien, WA 99
$5,390,000 2001
$7,500,000 2004
Olympic Village Silverdale, WA 340
$15,539,212 1994
$26,500,000 2005
Parkside Commons
Portland, OR
108
$3,350,000
2004
$6,285,000
2005
Meridian Glen
Everett, WA
87
$5,150,000
2004
$6,840,000
2006
River Heights
Seattle, WA
150
$4,255,404
1996
$7,700,000
2007
Orchard Pointe
Port Orchard, WA
147
$8,088,990
2003
$12,150,000
2007
Post Alley Court
Seattle, WA
59
$4,650,000
2003
$11,800,000
2007
ICG LLC Corporate Overview
# of Units
Seattle, WA 30
Purchase Price
Purchase Date
Sales Price
Sale Date
ICG LLC Corporate Overview
ICG LLC Sold Projects (Sold 2007-2011) Project Name
Location
# of Units
Purchase Price
Purchase Date
Sales Price
Sale Date
North Pointe
Corvallis, OR
160
$9,300,000
2004
$12,375,000
2007
Pineview Apartments (Portfolio I)
Spokane, WA
54
$1,716,389
2006
$2,875000
2008
Pineridge Apartments (Portfolio I)
Spokane, WA
68
$2,065,000
2006
$3,200,000
2008
Fairwood Apartments (Portfolio I)
Coeur d’Alane, WA
120
$4,710,000
2006
$6,500,000
2008
Englewood Garden
Yakima, WA
256
$7,446,239
2006
$10,600,000
2010
The Lodge
Federal Way, WA
339
$28,700,000
2000
$52,000,000
2011
Orchard Hills
Richland, WA
142
$6,250,000
2006
$7,950,000
2011
ICG LLC Corporate Overview
21
22
Sources and Uses of Capital
Financial Projections
Disclaimer The financial projections of the Company (the “Projections�) that follow are for illustrative purposes only, based on certain assumptions and market events over which the Company has only partial or no control, but which the Company believes are reasonable as of the date hereof. No representation or warranty of any kind is, or can be, made with respect to the accuracy or completeness of, and no representation or warranty should be inferred from, the Projections or the assumptions
underlying them. No representation or warranty is, or can be, made as to the future operations or the amount of any future income of the Company. Some assumptions on which the Projections are based may not materialize, and unanticipated events may occur. Therefore, the results achieved during the Projection period may vary from the Projections, and the variations may be material.
Uses of Capital Debt $20,350,000 Investor Equity (and/or Note from Manager) Total Sources of Captial
$9,000,000 $29,350,000
Sources of Capital Purchase Price of the Project
$25,994,500
Acquisition Fees and Costs: Loan Fee
$242,471
Closing Costs
$58,995
Accounting and Legal Fees
$44,043
Acquisition Fee (to ICG)
$259,945
Appraisal $16,000 Credits to Seller at Closing
$9,559
Other Third Party Reports
$40,500
Other Due Diligence Expenses
$28,495
Travel, Acquistion & Other Syndication Expenses
$26,000
Equity Funding Fee (to ICG)
$259,945
Printing, Marketing Materials
$5,000
Reserves: Planned Renovations and Operation Reserves Total Uses of Capital
$2,364,548 $29,350,000
Financial Projections
23
10-Year Proforma and Investment Analysis
Financial Projections
Year 1
Year 2
Year 3
3,646,109
3,845,616
4,010,707
Proforma Operations: Total Revenue (1) Total Expenses (Including Routine Capital Expenses) (2) Net Operating Income Debt Service
(1,763,066) (1,791,256) (1,839,834) 1,883,043
2,054,360
2,170,873
(1,107,368) (1,107,368) (1,290,854)
Asset Management/Portfolio VI Administrative Expenses
(72,922) (76,912) (80,214)
Net Cash Flow To Class A and B Members
702,753
870,080
799,805
Class A 7% Preferred Return on Outstanding Capital
630,000
630,000
630,000
72,753
240,080
159,667
Additional Proceeds (Split 80% to Class A and 20% to Class B)
0
0
10,138
Project Reserve Account Balance (Including 1% Interest Income)
2,388,193
1,165,160
1,042,539
Class B Rebalancing Distribution
Cash From Reserves For Project Renovations Ending Reserve Account Balance
(1,234,570) (132,943) (132,943) 1,153,623
1,032,217
909,596
Investor Outstanding Capital Balance
(9,000,000) (9,000,000) (9,000,000)
Value Using 7.25% Cap Rate on NOI, Less Sales Costs
25,973,010
Outstanding Debt Balance (Approximate) Net Sales Proceeds (+ Unspent Reserves) If Sold In Given Year
28,336,000
29,943,072
(20,218,178) (20,079,860) (19,754,867) 6,129,265
8,438,277
10,199,509
630,000
630,000
638,110
7.00%
7.00%
7.09%
9,000,000
9,000,000
9,000,000
Additional Sales Proceeds After Return of Capital
(2,364,386) (451,112)
959,607
Class A Proceeds From Sale Plus Cash Flow in Sale Year
(1,734,386)
178,888
1,597,718
-19.27%
4.49%
10.58%
72,753
240,080
161,694
Collective Retuns For Class A Members: Cash Flow (7% Preferred Return + 80% of “Additional Proceeds�) Cash-on-Cash Return On Outstanding Capital Return Of Outstanding Capital Upon Project Sale
Cumulative Average Annual (Simple) Return Class B Member Assuming Sale In Year 10: Class B Member Annual Cash Flow
Class B Member Proceeds From Sale Notes And Assumptions (1) Revenue: Average rent increases of 2.80% per year over the 10-year term.
24
10-Year Proforma and Investment Analysis
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
4,163,198
4,312,973
4,440,077
4,565,863
4,689,880
4,817,293
4,948,197
(1,889,741) (1,941,013) (1,993,687) (2,047,803) (2,103,400) (2,160,518) (2,219,201) 2,273,457
2,371,960
2,446,390
2,518,060
2,586,480
2,656,775
2,728,996
(1,290,854) (1,290,854) (1,290,854) (1,290,854) (1,290,854) (1,290,854) (1,290,854) (83,264) (86,259) (88,802) (91,317) (93,798) (96,346) (98,964) 899,339
994,847
1,066,735
1,135,889
1,201,829
1,269,575
1,339,178
630,000
630,000
630,000
630,000
630,000
630,000
630,000
157,500
157,500
157,500
157,500
157,500
157,500
157,500
111,839
207,347
279,235
348,389
414,329
482,075
551,678
918,692
793,607
667,271
673,944
680,683
687,490
694,365
(132,943) (132,943) 785,750
660,664
0 0 0 0 0 667,271
673,944
680,683
687,490
694,365
(9,000,000) (9,000,000) (9,000,000) (9,000,000) (9,000,000) (9,000,000) (9,000,000) 31,358,033
32,716,693
33,743,316
34,731,863
35,675,589
36,645,171
37,641,324
(19,413,988) (19,056,449) (18,681,435) (18,288,090) (17,875,520) (17,442,784) (16,988,896) 11,789,053
13,339,408
14,716,853
16,075,761
17,410,485
18,790,522
20,217,553
719,472
795,877
853,388
908,711
961,463
1,015,660
1,071,342
7.99%
8.84%
9.48%
10.10%
10.68%
11.29%
11.90%
9,000,000
9,000,000
9,000,000
9,000,000
9,000,000
9,000,000
9,000,000
2,231,242
3,471,526
4,573,482
5,660,608
6,728,388
7,832,418
8,974,042
2,950,714
4,267,403
5,426,870
6,569,319
7,689,851
8,848,078
10,045,384
13.47%
15.30%
16.37%
17.20%
17.87%
18.50%
19.11%
179,868
198,969
213,347
227,178
240,366
253,915
267,836
2,243,511
(2) Expenses increases at 2.71%/year and Vacancy assumed to Average 7.32%/year during the 10-year term.
10-Year Proforma and Investment Analysis
25
3101 Western Avenue, Suite 450 Seattle, WA 98121 206-518-6060 investorscapitalgroup.com
Ward Murphy Director of Investor Relations 206-838-2430 wmurphy@investorscapitalgroup.com
Disclaimer: This is not an offer to sell, nor a solicitation of an offer to purchase, any securities. An offer, if any, will be made only pursuant to a confidential private placement memorandum (ppm) to be produced hereafter and made available to qualified investors, all in accordance with applicable state and federal securities and blue sky laws. This executive summary is not a complete description of the investment opportunity; it represents only a portion of the ppm. Prior to investing, prospective investors must carefully read the entire ppm, particularly the section regarding risk factors, as well as read and sign the subscription agreement acknowledging they are accredited investors as defined in the subscription agreement, and execute and agree to be bound by the terms and conditions of the company’s operating agreement. This executive summary may not be reproduced or redistributed in whole or in part. Certain information contained here in may be subject to change or amendment in connection with the completion of the ppm and final closing of any real estate to be acquired by the company. “Safe Harbor” Statement under Private Securities Litigation Reform Act of 1995: Statements about the expected future prospects of our business, statements about our projected returns, future cash flow, outlook forfuture revenue growth or appre-
ciation in the value of real property and all other statements in this release other than historical facts, constitute forward-looking statements. You can identify forward-looking statements because they contain words such as “believes,” “expects,”“may,” “will,” “would,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” or “anticipates” or similar expressions which concern our strategy, plans or intentions. All statements we make relating to estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates and financial results are forward-looking statements. All of these forward-looking statements are subject to risks and uncertainties that may change at any time, and, therefore, our actual results may differ materially from those we expected. We derive most of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and, of course, it is impossible for us to anticipate all factors that could affect our actual results. Some of the factors that we believe could affect our results include: general economic and market conditions, including turmoil in the housing and real estate markets and the lingering effects of the economic slowdown. The factors described in this paragraph and other factors may affect our business or future financial results. We assume no obligation to update any written or oral forward-looking statement made by us or on our behalf as a result of new information, future events or other factors.