Accredited investors have the opportunity to invest and receive a 12.0% annualized net return, paid monthly, in a Preferred Equity position guaranteed by the Sponsor. The investment is senior to the Sponsor’s equity but junior to first lien construction debt, which is also guaranteed by the Sponsor and/or Borrowing entity. Investors will receive 100% of principal and their targeted 12.0% net return before the Sponsor participates in sale proceeds.
National Realty Investment Advisors (“NRIA” / “Sponsor”) invites accredited investors to participate in the short-term acquisition, complete renovation, and conversion of a four-unit multifamily property (the “Property”) into a boutique three-unit high-end condominium development, located in the Carroll Gardens neighborhood of Brooklyn, NY. The Property is currently under contract, and will be NRIA’s eighth Brooklyn development of similar size & scope since mid-Q2 2016.
The Property is more specifically located between Bond & Hoyt, just ≈2.5-miles south of Manhattan, ≈1.5-miles from the Brooklyn Bridge, and also within a short-walking distance to numerous subway lines making for an easy commute anywhere in NYC.
Upon acquisition, NRIA has devised a 17-month development plan (that may be extended to a maximum of 20-months, but also may be accelerated) that includes a complete renovation to efficiently maximize & modernize the usable square footage at the Property. The renovation period will be followed by an estimated 3-month marketing process (completed by marketing partner: Compass), whereby the finished condominium units (proposed plans: 434 Union Street) have been conservatively estimated to command ≈$1,460psf on average, based on a current sales comparison analysis (comps currently average ≈$1,508psf).
Unique Risk / Reward Investment Profile: In a world where all investors remain challenged to produce any yield to speak of, and with many global economists believing we are returning to normal – away from relatively high interest rates and the resultant higher yields on bonds and other investment types for years to come, it seems logical prudent investors will shift investment interests to alternatives such as real estate located in core urban markets, managed by superior sponsorship. The steady flow of income creates a natural hedge against unanticipated inflation without sacrificing expected return. The subject investment is defined as a short duration (17-to-18-month), high-yield investment – offering a 12.0% net return, paid monthly. This current pay structure compensates investors immediately and throughout the development process with an additional illiquidity premium generally reserved for longer-term investment profiles. Moreover, our constructive view on the market should help our investment partners continually generate excess returns over the longer term horizon.
Equity Cushion upon Exit, and additional Sponsor Credit Enhancement(s): NRIA conservatively estimated total gross and net sales proceeds of $6.003 million and $5.778 million, respectively, implying an as-completed price PSF of $1,460 (average), or a very healthy ≈14% margin1 over total project costs after returning all principal. Moreover, our sell-out value estimate is considerably lower than the average comparable sale in the market of $1,508psf, as well as a third party appraisal estimate of $1,587psf, which if either were achieved would result in margins1 of ≈17% and ≈23%, respectively. There clearly remains a substantial equity cushion vs. the breakeven price PSF or where the NRIA Buy-Back price is set (see below, “ii”). It is this equity cushion that insures against a certain margin of error, with the Sponsor eligible for profits only after sell-out. In addition to the above, NRIA has made other significant credit enhancements available to the investor(s) through:
(i)The borrowing entity (Union Street Capital 434, LLC), and flowing through to the managing member entity (NRIA 434 Union Manager, LLC) executing recourse to standard lender carve-outs and/or completion guarantees, in addition to the completion guarantee provided by the general contractor. This structure is intended to mitigate and distribute any perceived risk associated with growing contingent liabilities. Due to the [current] ongoing negotiations with the construction lender(s), there also may be an element of cross-collateralization with the underlying Property and a similar NRIA sponsored loan (maximum of two properties). The final structure will be detailed in the operating agreement; however, NRIA anticipated these structural nuances and enhanced the investors position further through …
(ii)The NRIA Buy-Back agreement (Put-Option), whereby NRIA will acquire and pay investors for any unsold finished unit(s) at the end of the investment term in an amount (“breakeven price”) guaranteed to return all investor capital. In the unlikely event the targeted sellout price points were not met, the investment stability & low correlation of the NYC housing market vs. other markets, broader S&P and/or REIT volatility, etc. (see further information), clearly make this an ideal longer-term rental investment for one of NRIA’s many high-net-worth partners utilizing their pledged asset loan option (further information available upon request).
(iii)The NRIA Fixed Cost agreement, which requires the GC to cover all cost overruns during the duration of the project and eliminates the need for additional investor capital calls.
Ultimately, these structural features further illustrate NRIA’s ability to execute, and speak to how high we rank capital preservation.
Cost Efficiency / Fixed Cost Construction Contract: NRIA’s proprietary construction bidding process, volume of purchasing, and history with a core-team of development partners (contractors, architects, engineers, building suppliers, etc.), have effectively created certain economies of scale as it relates to overall project costs. Furthermore, with over 90% of NRIA’s completed projects being with our core GC (US Construction, Inc.), and within budget, both parties feel very comfortable executing a Fixed Cost Contract on all new projects, whereby the GC covers all cost overruns during the duration of the project, eliminating potential delays due solely to cost disputes, etc. Construction costs are estimated at ≈$340psf at 434 Union Street, with finishes at an appraised quality standard of “Q1” (exceptional, high-end custom build). Please note, these figures are far less than quotes given by “retail” contractors as high as ≈$500psf(+).
The Property is located in a Prime, Urban, Growing area of Brooklyn: NYC’s largest and fastest growing borough (population growth: +5.3%, 2010 – 2015), Brooklyn has over 2.6 million residents, and if it was defined as its own City it would be the 4th largest in the US. The Property is more specifically located within the Carroll Gardens neighborhood of Brooklyn, bordering the newly created waterfront esplanade park along the Gowanus Canal where significant new luxury [rental] development is being completed. The neighborhood is just 2.25 – 2.5-miles from Manhattan, and centrally located within walking distance to public transportation (see Property map). Brooklyn has emerged as an incubator for technology, advertising, media, design, and innovation, which is shown through the (i) ≈120% increase in patent filings in Brooklyn over the last 5-years alone, and (ii) the number of adults with advanced degrees moving to Brooklyn tripling from 2009 to 20131. Population & job growth, shortage of new “affordable” supply, continued household formation, lack of developable air rights in the neighborhood, and interest rates remaining low for the foreseeable future, are all important underlying fundamentals that should continue to drive robust growth for many years to come.
“Charming Suburban Utopia” 434 Union Street is located along a tree-lined block in Carroll Gardens, Brooklyn, between Bond & Hoyt Streets, anchored by the elementary school of PS 32 and the Carroll Gardens School of Innovation (MS 442).
Carroll Gardens continues to be thought of as one of Brooklyn's top living experiences attracting families, singles, and couples seeking a long-term home. The Property is located just a few blocks from the only Whole Foods Market in Brooklyn, number of restaurants, boutiques, and many public & private education options.