INVESTMENTs

Condominiums 101

Knowing how to create value and being hands on is the key. We have purchased 4 condominium units directly from a sponsor at a significant discount to historical as well as current valuations. Concurrently, we have obtained attractive bridge financing of 75% LTV and 90% loan to appraisal. Within the first 6 months we have completed gut renovations of 2two of those units and rented out the other two. Within 8 months, the first unit had sold at a price which is 86% higher than our entry point. This had generated a 238% return for investors after closing costs and resulted in a principal repayment of the bridge loan as well as a profit distribution. In the spirit of being creative, another unit had been rented to a pre-qualified tenant with a "lease to buy option." The buyer had expressed interest in exercising the option and at current purchase price is expected to generate an IRR of 220% within 12 months.
 
Multi-family: rent control arbitrage
 
In November 2010 we had acquired a 7 unit multi-family dwelling in Hudson County. We were attracted to the location which was just steps to NYC express bus, Manhattan views as well as below market rents. We have been improving and renovating the units as they became vacant throughout our ownership. New boiler and hot water heater were replaced with funding provide by the insurance proceeds of our machinery coverage. As general rents have been going up in the area and due to annual CPI rent increases, we have actively engaged existing tenants in mutually beneficial value creation opportunities. In one example, a tenant had requested we find him a larger apartment and pre-pay a portion of that rent as they would not qualify otherwise. For a minimal upfront investment and after gut renovating the apartment, rent was increased by $525 per month, or $96,923 of implied value based on a valuation cash flow at 6.5% capitalization rate. Overall gross rent had gone up 15% in the course of 30 months. Due to higher efficiency boilers, hot water heaters, and electrical upgrades, costs of ownership were down by 7%. In June of 2013, an Oval Group controlled partnership has made a decision to sell or refinance the building. We have been able to obtain over a $125,000 cash out to the extent we chose to take it and drop the interest rate from the current 5.375% to 3.75%. We have also tested the market and have gotten offers which are $200,000 greater than original entry point. To put this in perspective, the initial capital raise was $205,000, I.e. 100% IRR, not including principal repayment, and annual operating cash flow distributions.
 
Non-Performing Loan:  Investment performance duly "noted"
 
We have reached out to several multi-billion dollar private equity funds, with which our managing partner had previous relationships with from his hedge fund background. We have looked at many small and large balance loans on both the non-performing, sub-performing and performing basis. After much due diligence, we have purchased a non-performing loan all cash, on 7 days' notice, securitized by a 12 apartment building and large retail space, currently 100% occupied and 15-20 minutes from Midtown Manhattan. We have structured the deal in such a way that regardless of the various directions the foreclosure process could go, our downside scenario is expected to generate a 20-25% return on cash on cash basis within the first 12 months of ownership. As the foreclosure process had been started over 12 months ago, our corporate counsel is confident that we can file a motion for final judgment within 6 months of ownership. We have also chosen to put in place a rent receiver and the borrower continues to make partial payments, both of which are significantly increasing the internal rates of return for investors. Our upside in being able to execute a deed-in-lieu or winning the sheriff sale is expected to be upwards of 120% within 12-18 months as the appraised value of the building came in at 216% higher than our initial purchase price.