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ROMSPEN REVEST HOMES LPReliable Rental Income Plus Significant Capital Appreciation
Overview
US recession and mortgage crisis drove houseprices in SE Florida down 70% from peak
Low prices plus strong rental market provideopportunity to build rental portfolio
Over the next 3-5 years, housing prices in SEFlorida will rise by 50%-100%
Romspen & Revest have formed a fund to takeadvantage of those opportunities
2
Our Business Model
BUY RENOVATE RENT OUT HOLD SELL
3
Fund Investment Objectives
Use fund capital to build a portfolio of safe,secure rental properties
Provide strong annual return from reliablerental income
Create significant portfolio appreciation overnext 3-5 years
Generate potential investor returns of 15%-20%per year
4
Outline of Presentation
Opportunity
Execution
Sample Property
Potential Investment Return
Fund Terms
What To Do Next
5
US Mortgage Crisis
- 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000
2000 2002 2004 2006 2008 2010 2012
Existing Bank Inventory ForeclosuresDelinquent Mortgages
6
Impact of Crisis on Housing Prices
50
100
150
200
250
300
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
National (-30%) Southern Florida (-50%)Las Vegas (-41%) Phoenix (-48%)National Trendline
Source: S/P Case-Shiller Housing Price Index7
2014 Update: Steady Improvement
- 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000
2007 2008 2009 2010 2011 2012 2013 2014
Existing Bank Inventory ForeclosuresDelinquent Mortgages
8
2014 Update: Steady Improvement
50
100
150
200
250
300
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
National (-30%) Southern Florida (-50%)Las Vegas (-41%) Phoenix (-48%)National Trendline
Source: S/P Case-Shiller Housing Price Index9
SE Florida Showing Strong Improvement
$94,900
$208,800
$62,200
$91,400
$-
$50,000
$100,000
$150,000
$200,000
$250,000
2002 2006 2011 2014 2020E
Palm Beach County Housing Prices
10
Outline of Presentation
Opportunity
Execution
Sample Property
Potential Investment Return
Fund Terms
What To Do Next
11
Focus on Three Key Factors
Depth of Distress
Strength of Rental Market
Long Term Cap Appreciation
South East Florida(Palm Beach, Broward& Martin Counties)
Orlando(Orange County)
12
Focus On Gated HOA Communities
• Gated Home Owner Association (HOA)communities located in SE Florida
• Our target communities:• “A-” and “B+” quality in good
neighbourhoods• Built 1995-2007• 250-500 units• Traditionally owner-occupied
• Monthly HOA fees of $200-$400/month
• HOA responsible for all structural maintenance(roofs, exterior walls, windows & foundations), aswell as insurance, maintenance, security andlandscaping
• Peak prices of $250,000-$450,000
• Currently selling for $80,000-$150,000
Metropolitan Area(County)
HomeownerAssociations (HOAs)
Total HOA HousingUnits (estimated)
Palm Beach 5,336 426,880
Orlando 2,681 214,480
Broward 5,505 440,400
Miami Dade 6,083 486,640
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Sample Community: Links at Emerald Dunes
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Sample Community: Jonathans Cove
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Sample Community: Boynton Landings
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Corporate Overview
Property Management
Brokerage
Renovations
Revest: Boots on the Ground
• Revest operational headquarters located in Delray Beach, Florida• Full time team of 16 manages all aspects of acquisition, renovation,
tenanting and management
17
Outline of Presentation
Opportunity
Execution
Sample Property
Potential Investment Return
Fund Terms
What To Do Next
18
Jonathan’s Cove, West Palm Beach
19
Jonathan’s Cove, West Palm Beach
20
Jonathan’s Cove, West Palm Beach
Attributes:
Built 2002
264 units
1,200 square feet (2/2) – 1,400 square feet (3/2)
“A-” quality in traditional “owner” community in decentneighbourhood
Gated, with swimming pool, community centre & otheramenities
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Jonathan's Cove, West Palm Beach
Jonathan's Cove
Estimated Peak Price $260,000Purchase Price $108,000Closing Costs and Renovations $15,138Total Cost of Property $123,138Discount from Peak 63%
22
Jonathan's Cove, West Palm Beach
Jonathan's Cove
Estimated Peak Price $260,000Purchase Price $108,000Closing Costs and Renovations $15,138Total Cost of Property $123,138Discount from Peak 63%
Gross Annual Rent ($1,425 per month) $17,100Operating Expenses $8,695Net Operating Income $8,405Annual Portfolio Yield 6.63%
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Plan of the Fund
Use fund capital to build portfolio of single familyhomes in gated communities in SE Florida
Provide strong annual return from reliable rentalincome
Create significant portfolio appreciation over next3-5 years
Generate potential investor returns of 15%-20% peryear
23
Outline of Presentation
Opportunity
Execution
Sample Property
Potential Investment Return
Fund Terms
What To Do Next
24
Annual Return: Rental Market is Strong
Portfolio takes 12 months to stabilize (buy, renovate & rent out)
After that, portfolio will generate 7%-8% annual return toinvestors
Approximately half paid out in quarterly distributions; other halfgoes to pay down mortgage principal
26
Housing Prices Will Rise in SE Florida
Over the next 3-5 years, five key factors will drive housingprices up significantly in SE Florida:
General Economic Recovery in SE Florida
End of Foreclosure Sales
Shortage of New Housing
Recovery of HOA Communities
Mortgage Financing & Inverted “Cost to Rent” vs “Cost to Own”Ratio
26
Key Driver #1: Economic Recovery
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
1960 1970 1980 1990 2000 2010 2020 2030 2040
Projected Florida Population 1960-2040
200
400
600
800
1,000
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Florida GDP, Actual & Projected($billions)
27
Key Driver #2: End of Foreclosures
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Key Driver #3: Shortage of New Housing
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Needed Per Year Built Per Year
Housing Demand vs Housing Supply
29
Key Driver #4: HOA Recovery
When owners default on their mortgages, they stop payingtheir HOA fees
HOA declines as it cannot pay for maintenance & repairs,security, landscaping, pool services, etc.
When foreclosures are completed, outstanding HOA fees getpaid from proceeds of foreclosure
As outstanding dues are paid, HOA regains financial health,completes maintenance and repairs, security, landscaping,etc
Values in HOA can “pop” by 20-30% when this happens
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Key Driver #5: Mortgage Financing
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
US Mortgage Originations 2000-2014
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%Worsened Improved
Credit Score Trends
31
Key Driver #5: Inverted Rent vs Own Ratio
Community FundTotal Cost
MonthlyCost to
Rent
MonthlyCost to
Own
FMV if Costto Own =
Cost to Rent
EmbeddedCapital
Appreciation
%Embedded
CapitalAppreciation
Sandalwood $124,500 $1,350 $935 $230,570 $106,070 85%
Cove at Briar Bay $95,000 $1,150 $798 $184,002 $89,002 94%
Chateau Wood $161,000 $1,650 $1,121 $296,447 $135,447 84%
Unhealthy real estate market: “cost to rent” is higher than “cost to own”
Healthy real estate market: “cost to own” is higher than “cost to rent”
32
Exit Strategy
Option 1: list portfolio on MLS & sell toowner/occupiers (12-18 months)
Option 2: sell portfolio to larger aggregator (6months)
Option 3: roll portfolio into public REIT (6-9 months)
Predicted life of investment: 3-5 years
33
Aggregate Return Over 5 years ($100,000)
2% AnnualAppreciation
(5 years)
5% AnnualAppreciation
(5 years)
10% AnnualAppreciation
(5 years)
Annual Distributions $16,000 $16,000 $16,000
Mortgage PrincipalPayments
$16,440 $16,440 $16,440
Investor Share ofProfits (70%)
$21,857 $58,019 $128,207
Total InvestorPayments
$54,297 $90,459 $160,647
% Return 54%(11% per year)
90%(18% per year)
160%(32% per year)
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Outline of Presentation
Opportunity
Execution
Sample Property
Potential Investment Return
Fund Terms
What To Do Next
35
Proposed Investment Terms
Romspen/Revest raise $25 million over next 9 months
Minimum investment US$100,000 (must pay in US$)
Closings: April 30, June 30, Sep 30 & Dec 15 (or until sold out)
Management contributing US$2.5 million to first closing
Accredited investors only
Five year investment term with two one year extensions
Limited redemption rights during investment period
36
Proposed Investment Terms
7% annual priority return to investors
2% annual management fee (on equity)
100% of profits paid to investors until capital repaid
Thereafter, 70% to investors and 30% to management
37
Why invest?
Experienced professional management team with significantequity investment
Investing in a hard asset at less than replacement cost
Positive annual cash flow secured by reliable rental income
Potential 50%-100% gain through housing price appreciation
38
What to do next
Review presentation, term sheet & subscription agreement
Contact Greg Coleman or Dianna Price for questions aboutthe investment
Contact Lisa Calandra or Victoria Moayedi for questionsabout how to complete your subscription
Next closing date is June 30
39
Final Word: What Would Warren Do?
If I had a way of buying … single-family homes… I would load up onthem… it's a very attractive asset classnow. I could buy them at distressedprices and find renters and … [take a]mortgage, it’s a leveraged way ofowning a very cheap asset and I thinkthat’s as attractive of an investment asyou can make.” Warren Buffett onCNBC's Squawk Box, Monday,February 27, 2012
40
Appendix A: Where are we in the cycle?
SE Florida housing price index still off 36% from peak (179 vs 279)
Housing starts still down 60% from peak (800,000 vs 2,000,000)
Acquisition cost still 20% below replacement cost ($76 psf vs $95 psf)
Household formation still down 33% from long term average (0.91% vs1.36%)
Houses still 67% more affordable than at peak (affordability index: 167 vs101)
Mortgage originations still down 62% from peak ($8.8 billion vs. $23.1billion)
National foreclosure rates still more than double long term average(43,000 per month vs 21,000 per month)
Market metrics confirm ongoing opportunity:
Sources: Case Schiller HPI, National Builders Association, HUD, Mortgage Bankers Association,CoreLogic 01/15 Foreclosure Report41
Appendix B: Cdn/US Exchange Rates
Q4/2014(actual)
Q1/2015(actual)
Q4/2015(forecast)
Q4/2016(forecast)
Scotia Bank $0.86 $0.79 $0.75 $0.77Bank of Montreal $0.86 $0.79 $0.79 $0.83Royal Bank $0.86 $0.79 $0.75 $0.78CIBC $0.86 $0.79 $0.77 $0.81Toronto Dominion $0.86 $0.79 $0.77 $0.85Morgan Stanley $0.86 $0.79 $0.71 $0.74Average $0.86 $0.79 $0.76 $0.80
42
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