FAQ
Frequently Asked Questions for a Typical Investment Opportunity
Why are you focusing on mid-markets and small-town America
Why is the shopping center sector a better real estate investment than office, industrial, and multi-family?
What will I do to protect the investment?
Why is our strategy for income protection and investment returns better than our competition?
What is the hardest part of executing this strategy?
How does the economy impact this strategy?
What could go wrong?
When will I get my money back?
Am I putting any skin the gain?
How would we get our money back?
If the deal doesn’t work out, what is the most likely reason?
What do I get for my investment?
What is the minimum investment?
How do I get additional information?
1. Why are you focusing on mid-markets and small-town America? There are several advantages of investing in shopping centers in mid and small town America. First, the consumer in these markets is generally a more conservative consumer with more predictable spending habits. This consumer did not get over leveraged to the extent that the consumers did in the more major metro areas. In addition, there were no major housing booms in these markets and consequently no housing busts. Second, the banking and lending environment in these markets has stayed relatively the same as it was before the panic of 2008. Lenders still have money to lend and reasonable leverage can still be obtained for solid investments. Third, retailers and restaurants that operate in these mid and small markets are still expanding and their balance sheets are very strong in general. Often their balance sheets have no debt. These companies are also more conservative in their operating philosophy. Fourth, it’s easier to understand the competitive environment in a mid market and small market. If one purchases an asset well below construction costs it is easier to predict that no competition could come into the market and undercut rents for our shopping centers.
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2. Why is the shopping center sector a better real estate investment than office, industrial, and multi-family? The shopping center sector is a very viable investment area if the assets can be purchased at a low price, given the likely rent stream from the investment. It is critical to identify shopping ventures with limited risk of downward pressure on rents. In addition, it is easier to identify the list of likely tenants in our shopping centers and project the survivability of these tenants due to our knowledge of the shopping center industry.
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3. What will we do to protect the investment? By closely monitoring expenses and the strength of each store and restaurant within the shopping center, we will be able to anticipate if there are problems in the reliability of the rent stream. In addition, our understanding of that particular market will allow us to maximize the chance that we will get rental increases at the time of renewals.back to top
4. Why is our strategy for income protection and investment returns better than our competition? We thoroughly analyze our shopping center investments in such a way that we can accurately predict the cash flow stream during the period of the investment and the likely challenges that will result from our difficult economic times. By purchasing the property at a below market price, we have likelier probability of achieving our investment goals.
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5. What is the hardest part of executing this strategy? The hardest part of achieving a strong shopping center return for our investors is identifying which of the various shopping centers that we are analyzing has the highest return with the lowest risk. In particular, what is the probability that the rent stream as shown in the projected pro forma can be achieved? Also, will the expense structure and capital outlays identified in the pro forma be realistic or optimistic? Furthermore, is there enough working capital within the project to deal with unexpected expenditures? And finally, we have to make a realistic projection on what the sales price of the asset will be in 3-7 years. We believe that an appropriate approach for an exit cap rate is one no higher than the purchase cap rate. Increases in value can occur b improving net operating income through superioer lease and management execution (and some luck).
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6. How does the economy impact this strategy? In today’s economy, the consumer has dramatically slowed down consumption and reduced sales for tenants within shopping centers and restaurants. Consequently, if the consumer continues to limit and reduce spending, it puts pressure on the viability of shopping centers. That’s why it is critical to purchase shopping centers with two criteria: 1) understanding of the viability of each particular tenant in a sluggish shopping center environment, and 2) identifying if rent reductions have already been achieved (this is good) or will they come in the future (this is bad).
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7. What could go wrong? There are a number of things that could go wrong. First, the tenant in the shopping center might go bankrupt or refuse to renew their lease as the time of renewal. Tenants might successfully negotiate lower rents reducing the profitability of the center. If the economic environment remains difficult, it could be challenging to sell the shopping center at a respectable profit.
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8. When will I get my money back? Each investor will receive a 7% preferred return on their investment plus a majority of the profits. The specific preferred return and profit split is deal specific. In addition, the targeted duration of the investment is three to seven years. This is a wide variation because in today’s difficult economic environment it is hard to judge when the market for selling property will stabilize. If it stabilizes quicker then this investment will return capital to the investor within a three to five year period of time. If the market stays sluggish, then the investor will receive their money within a five to seven year period of time. There is also the possibility that the money will not get returned to the investor until after seven years. In addition, any profits above the 7% preferred return will be paid quarterly, which will lead to a quicker return of investor’s capital.
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9. Am I putting any skin the gain? Yes, as promoter and sponsor I will be making a cash investment in the shopping center. In addition, with regards to debt placed upon the shopping center, I will be personally signing the loan and be personally liable for the loan. The investor will not have to sign the loan. back to top
10. How would we get our money back? In other words, what is the end game? Our goal is that the investor will receive their money back within three to seven years, when the property is sold. In addition, each quarter, if there are profits on the shopping center greater than the preferred return to the investor, then there will be quarterly distributions of the profits that will pay back part of the investor’s initial investment.
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11. If the deal doesn’t work out, what is the most likely reason? If the deal doesn’t work out, the most likely reason is that rent did not achieve our target rent projections and/or upon the sale of the shopping center, we were not able to achieve our minimum sales goal.
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12. What do I get for my investment? On a yearly basis paid quarterly, each investor will receive their preferred return plus any profits allocated to their ownership interests.back to top
13. What is the minimum investment? For a typical shopping center investment, each share is valued at $25,000. The minimum investment is two shares or $50,000 and the maximum investment is 10 shares or $250,000. An investor may invest in more than one project.
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14. How do I get additional information? Call Andy Weiner at 713-623-0188.
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