CURRENT OPPORTUNITY

Verde Dimora

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Investment Highlights

Western Wealth Capital is acquiring Verde Dimora at an incredible price of approximately $145,000/unit. Sales of comparable buildings across Metropolitan Phoenix constructed and sold within the past two years across range between $169,000 and $266,000 per unit.

  • Verde Dimora is in a growing neighbourhood of East Mesa within steps of Mesa Community College’s 98-acre Red Mountain campus and within a five-mile radius of almost 50,000 jobs. Major employers in this hightech hub include Apple, Banner Health Systems, and Boeing.
  • Newly built Class A property under warranty (ie: low maintenance costs) on a 5.34 acre site with wide array of amenities including an on-site preschool, dog park, community garden, electronic postal package station, bike repair and storage rooms, and an electric vehicle charging station.
  • Eco-Friendly design provides enhanced appeal and enables low operating costs.
  • Western Wealth Capital believes investors could realize a return on investment as high as 23% per year and up to 100% of their original capital returned within 5 years.
Total Units 153
Year Built 2016
Net Rentable Square Feet 121,399
Number of Buildings 12
Landsize 5.34 Acres

The Business Plan

The business plan involves increasing the net operating income by more than 40% over a five-year period. The three main drivers to increase the net operating income are:

  • Increase Occupancy – Using Western Wealth Capital’s proven systems for marketing rental apartments, Western Wealth Capital intends to increase occupancy to an average of 93% from the seller’s current new building lease-up level of approximately 70%. Western Wealth Capital negotiated an agreement with the seller to double their monthly marketing budget and apply our marketing system (at the seller’s cost) during the closing period. Under this approach, leasing has accelerated from an average of 12 leases per month to 24 leases the past 30 days. Current average occupancy in this submarket is 97% (source: Costar, Verde Dimora | Power Road & McKellips Road).
  • Collect RUBS (Ratio Utility Billing System) Income – All current leasing contracts include provisions to charge RUBS, where tenants are required to pay a proportion of the property’s utilities. Current ownership has not been exercising their contractual rights to charge RUBS however Western Wealth Capital will. This action alone has the potential to bring a further $75,000 in annual income.
  • Bring Rents To Market Levels – Once targeted occupancy rates have been obtained Western Wealth Capital intends to increase rents to current market levels and then plans to increase rents by 3% per year starting in year three of ownership. (Rents in this in this sub-market have increased by 8.8% in the last year according to Colliers International.)
Purchase Price $22,250,000
Equity Required $5,800,000
Projected Property Value
Year 1 Year 2 Year 3 Year 4 Year 5
Gross Income $1,888,481 $2,121,821 $2,266,922 $2,359,766 $2,431,413
Total Expenses ($637,682) ($658,264) ($683,524) ($702,050) ($720,579)
NOI $1,250,798 $1,463,558 $1,583,398 $1,657,717 $1,710,834
Non-Recurring Expenses ($47,212) ($53,046) ($56,673) ($58,994) ($60,785)
Property Value $22,741,788 $26,610,141 $28,789,050 $30,140,303 $31,106,076
Net Cash Flows
Year 1 Year 2 Year 3 Year 4 Year 5
Net Cash Flow $249,506 $705,632 $777,345 $521,515 $572,841
Per Year Return 4.3% 12.2% 13.4% 9.0% 9.9%
Principal Paydown     $0 $289,193 $302,358
Net Cash Flows plus Principal Paydown     $777,345 $810,708 $875,199
Effective Annual Return (Excluding Appreciation) 4.3% 12.2% 13.4% 14.0% 15.1%

Investment Summary

Western Wealth Capital XXVI Limited Partnership is proud to offer investors an opportunity to invest in a cash-fl owing property in one of North America’s hottest real estate markets.

The Limited Partnership intends to invest in Verde Dimora Apartment Homes, a 153-unit apartment community located in East Mesa. Constructed in 2016, Verde Dimora is in an up-and-coming neighbourhood with a burgeoning economy fueled in large part by its close- proximity to Falcon Field Municipal Airport, Mesa Community College’s 98-acre Red Mountain campus and within a short drive to almost 50,000 jobs by employers such as Banner Health Systems, Boeing and Apple. Residents of Verde Dimora enjoy an enviable quality of life with six golf clubs and resorts in the immediate vicinity as well as numerous parks, the Mesa Library, brand-name and boutique shopping, and a vibrant restaurant and entertainment scene.

The property is being acquired for approximately $145,000 per unit, 31% below average sales prices for newly constructed Class A properties across Metropolitan Phoenix. The buildings and property are new and under warrantees expiring in 2017 and 2018, further enabling Western Wealth Capital to focus on realizing the asset’s potential using our market expertize and tried-and-tested vale adding programs as we have with our previous 30 multifamily acquisitions in the Greater Phoenix Area.

Property Details

Verde Dimora is a brand new Class A apartment community adjacent to Mesa Community College (MCC) at Red Mountain campus. Situated on 5.3 acres of land, the property includes 153 apartment units (80 one bedroom/one bathroom, 73 two bedroom/two bathroom, units.)

Each apartment unit features Energy Star appliances, energy effi cient water fi xtures, CFL lighting, low-E dual pane windows, low-emitting insulation, low-VOC paint, fl ooring and sealants, high-effi ciency air conditioning, solar panel technology, and sub-metered water.

Verde Dimora offers an onsite preschool to the immediate community and a Veteran’s Center. Other amenities include a swimming pool with clubhouse, fi tness center, meditation gardens, BBQ areas, fi re pit, dog park with wash station, electric car charge stations, and community garden plots.

Community & Unit Amenities

  • An on-site pre-school
  • Clubhouse
  • Large Seasonally-Heated Resort-Style Pool and Spa
  • Fitness Center
  • Community Garden Plots
  • Community-Wide Recycling Program
  • Dog Park with Wash Station
  • Electric Vehicle Charging Stations
  • Common Area Boasts Exterior LED Lighting
  • Theater Room
  • Veteran’s Community Room
  • Enclosed Bike Storage
  • Fire Pit
  • Barbecue Areas
  • Meditation Gardens with Stream
  • Non-Smoking Community
  • Solar Panel Technology
  • Urban Trails
  • Compact Fluorescent Lamp Lighting
  • Private Patios
  • Energy Star Appliances
  • Energy Star Water Fixtures
  • High Efficiency Air Conditioning
  • Low-Emitting Insulation
  • Low-E Pane Windows
  • Low-VOC Paint, Flooring & Sealants
  • Sub-Metered Water / Sewer / Trash

Location

The property is situated to the north of McKellips Road, a major east-west thoroughfare lined with several retail centers, service centers, and restaurants, running through Mesa and into the greater Phoenix area. Freeway access to the Red Mountain Fwy (202) is available via the McKellips Road and Power Road to the north. Both ramps are located less than a mile from the property.

Verde Dimora is located steps away from the Mesa Community College (3,000 students/year) and short driving distance to major employment hubs supplying almost 50,000 employees. Major employers within a five-mile radius of the property include: Apple (500 jobs), Banner Health Systems (8,300 employees), and Boeing (4,700 employees) Verde Dimora is also in close proximity to several popular golf clubs including the Westgate Painted Mountain Golf Resort, the Longbow Golf Club, the Alta Mesa Golf Club, and the Las Sendas Golf Club.

Rents in East Mesa have increased by 8.8% in the last year.

Debt Structure

Interest Only Variable Rate Loan for three years. Subsequently converted into a 30-year Amortizing Loan.

Property Management

Shelton-Cook Real Estate Services Inc. (Shelton-Cook) will oversee the day-to-day operations. Shelton-Cook is a full-service property management and leasing company and has been in operation since 1984 and currently manages over 20,000 residential units, including over 13,000 units across Maricopa County. Shelton-Cook has been designated by the Institute of Real Estate Management as an Accredited Management Organization (AMO). The AMO accreditation recognizes excellence among real estate management fi rms that achieve the highest level of performance, experience and fi nancial stability. Western Wealth Capital already has a strong working relationship with Shelton-Cook who currently manage seventeen of our multi-family properties in Greater Phoenix totaling over 2,000 units.

Investment Management & General Partner

The general partner is Western Wealth Capital Management LTD and the principals are Janet LePage and Dave Steele. They will be responsible for the strategic and financial direction on Verde Dimora.

Janet LePage has completed over 80 real estate projects in Arizona. Dave Steele has developed over 85 projects, valued at over $1,500,000,000 and has helped individual investors acquire over 10,000 investment properties in Canada and the United States. Together, Janet and Dave have over 30 years of experience in acquiring, managing, repositioning and divesting multi-family real estate.

Supplemental Financing

Our unique supplemental financing option allows us to access additional financing proceeds after approximately 18 months if we can increase the net operating income. Traditionally, refinancing includes brokerage and legal fees similar to the costs of acquiring a new property. We have negotiated this supplemental financing option with the lender at a negligible cost compared to a traditional loan. A reappraisal that results in an increased property value will allow the limited partnership to increase the loan and distribute the net loan proceeds to the limited partners.

Original Equity: $5,800,000
Year 2 Year 3 Year 4
Estimated Proceeds from Refinance $2,157,606 $1,634,181 $1,013,440
Cumulative Percentage of Original Equity 37% 65% 83%

Equity Required

Western Wealth Capital is looking to raise US$5,800,000 for this opportunity. Funds are due May 19, 2017. The breakdown of equity is as follows:

Investment Breakdown
Cost
Purchase Price $22,250,000
Mortgage ($17,800,000)
Down Payment $4,450,000
Legal & Closing Costs. $325,972
General Partner Fees $690,500
Deposit Accounts $85,392
Reserves & Capital Improvements $248,136
TOTAL EQUITY REQUIRED $5,800,000

Investor Worksheets

Below is a breakdown of the modeled profits on a 3-year and 5-year investment, based on management’s assumptions as outlined in this document.

3 Year Investor Worksheet
  Year 3
Value at Estimated Cap Rate. $28,789,050
Sales Costs + PPP 1% ($393,918)
Loan Repayment ($17,800,000)
Net Sales Proceeds $10,595,132
Cumulative Cash Flow $1,732,483
LESS: Investor Equity ($5,800,000)
LESS: Disposition Fee 5% ($239,757)
Total Distributions $6,287,859
Total Investor Return (65% of Distribution) $4,087,108
Limited Partner Return on Capital 70%
   
Limited Partner Annualized Return on Capital 23%
5 Year Investor Worksheet
  Year 5
Value at Estimated Cap Rate. $31,106,076
Sales Costs + PPP 1% ($405,380)
Loan Repayment ($17,208,449)
Net Sales Proceeds $13,492,247
Cumulative Cash Flow $2,826,839
LESS: Investor Equity ($5,800,000)
LESS: Disposition Fee 5% ($384,612)
Total Distributions $10,134,473
Total Investor Return (65% of Distribution) $6,587,408
Limited Partner Return on Capital 114%
   
Limited Partner Annualized Return on Capital 23%

Investors are cautioned that actual results may vary from the estimated rates of returns. Though, as at the date of this document, we anticipate that the projections indicated above are reasonable and the assumptions on which the forward-looking statement are made are reasonable, they are forward looking statements that are subject to risks, uncertainties and assumptions, and based on management’s past performance, and not specific to this project’s current performance individually. The projections have not been audited nor reviewed by experts, nor prepared in accordance with Canadian generally accepted accounting principles. Accordingly, there is significant risk that actual results achieved for the projected period may vary from the projected results, and that such variations may be material. We provide no representation or assurances that the actual results achieved during the projected period will be the same as that projected. The projections are intended to illustrate the projected performance, and not appropriate for any other purpose.

Private Placement Terms

Issuer: Western Wealth Capital XIV Limited Partnership (THE PARTNERSHIP)

Fees paid to the General Partner

  • Acquisition fee: 1% of the total costs of the acquisition of the identified asset to be paid upon closing of the identified asset.
  • Asset management fee: 3% of monthly rents
  • Asset setup fee: $8,500 paid upon closing the identified asset.
  • Mortgage guarantee fee: 1% of the amount guaranteed for any acquisition loan, financing or refinancing.
  • Disposition fee: 5% paid upon liquidation of the identified asset, payable only on the amount of the increase over the purchase price of the identified asset.
  • Profit sharing as described in the Disposition Waterfall below

The Partnership

Although we believe that the assumptions on which the forward-looking statements are made are reasonable, based on the information available to it on the date such statements were made, no assurances can be given as to whether these assumptions will prove to be correct. Accordingly, readers should not place undue reliance on forward-looking statements. We will not update any forward-looking information except as, and to the extent, required by applicable Canadian securities laws. The forward-looking statements contained herein, and all subsequent written and oral forward-looking statements attributable to the Partnership, or persons acting on any of their behalf, are expressly qualified in their entirety by this cautionary statement.

Market data and certain industry statistics used throughout this executive summary were obtained from market research, informational and marketing materials provided to the Western Wealth Capital Management, publicly available information and industry publications. Industry publications generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. No representation or warranty is made by the Partnership as to the accuracy or completeness of any of the information contained herein. No securities commission or similar regulatory authority has passes on the merits of the securities referred to hereunder and any representation to the contrary is an offence.

In considering the prior performance information contained herein, prospective investors should bear in mind that past performance is not necessarily indicative of future results, and there can be no assurance that the Partnership will achieve comparable results.

Annual Distributions

The partnership plans to distribute approximately 80% of net cash flows annually on November 30 of each calendar year.

Net Cash Flows
Year 1 Year 2 Year 3 Year 4 Year 5
Net Cash Flow $249,506 $705,632 $777,345 $521,515 $572,841
Cash Flow % of Capital 4.3% 12.2% 13.4% 9.0% 9.9%
Principal Paydown $0 $289,193 $302,358
Net Cash Flows plus Principal Paydown $777,345 $810,708 $875,199
Effective Annual Return (Excluding Appreciation) 4.3% 12.2% 13.4% 14.0% 15.1%

Disposition Waterfall

Any possible distributions made by THE PARTNERSHIP will be in the following order:

  • The Limited Partners will be paid back their initial investment first.
  • Limited Partners will then be paid 65% of the profit, if any.
  • The General Partner will then receive 35% of the profit, if any.

Assumptions

Material factors or assumptions that were applied in drawing a conclusion or making an estimate set out in the forward-looking statements include that: building upgrade plans and related expenses will proceed as anticipated; the Partnership will remain in good standing with respect to its obligations any senior lenders; the general economy is stable; local real estate conditions are stable; interest rates are relatively stable; equity and debt markets continue to provide access to capital; that the Partnership’s expenses will not be materially greater than anticipated. These factors and assumptions should be considered carefully by readers. Readers are cautioned not to place undue reliance on the forward-looking statements or the assumptions on which the forward-looking statements are based on. Investors are further cautioned that the foregoing list of factors and assumptions is not exhaustive.

In addition, information regarding targeted returns is based on the following principles and assumptions: the Partnership will maintain a consistent level of cash fl ow and indebtedness and will not materially incur additional indebtedness, other than with respect to ordinary operating costs or as disclosed herein; the consumer price index, property taxes, operating expense growth, and market rent growth will be as anticipated; existing tenants will fulfill their current contractual lease obligations and remain in occupancy and pay rent for the term of their leases; upon expiry of their leases, the number of retained tenants will meet historical retention experience; and the Partnership will maintain cash reserves as anticipated.

Other assumptions used by Western Wealth Capital Management LTD to model the costs and create the worksheets laid out in this document.

  • Bring rents to market levels in year one and two then increase by 3% per year thereafter.
  • Occupancy is brought to an average of 93% per year within 8 months and then remains thereafter.
  • Sales commissions at time of sale are 1.5% of sales price.
  • Asset value at time of sale is calculated using a 5.5% CAP rate.

Risk Factors

Investment in the Partnership involves a high degree of risk and is suitable only for sophisticated investors and requires the financial ability and willingness to accept the high risks and lack of liquidity inherent in an investment in the Partnership. No assurance, representation or warranty can be given that the Partnership’s investment objectives will be achieved or that investors will receive a return of their capital.

An investment in Units is subject to risk. Standard risks applicable to investments of this nature include:

  • No market for Units – There is currently no resale market for the Units and it is not guaranteed that any market will develop. The Units are not transferable without the approval of General Partner and in compliance with applicable securities laws and regulations.
  • Vacancy Rates – The apartment building business relies on a steady supply of good quality tenants. A shortage of quality tenants due to an economic downturn or job losses in a given marketplace could result in higher than expected vacancy and lower than expected revenue.
  • No guaranteed return – The projected returns described in this Investment Summary are not guaranteed. An investment in Units is not suitable for investors who cannot afford to assume significant risks in connection with their investments.
  • Tax matters – Investors should consult their own tax advisors for advice with respect to the tax consequences of an investment in the units based on their particular circumstances.
  • The limited partnership intends to acquire units in an Arizona Limited Partnership (the “LP”). The Arizona Limited Partnership will own all of the issued units of a second pass- through Arizona Limited Partnership, which will be the owner of the property. The limited partnership will own units in the LP. In the event of a refinance of the property the limited partnership will be entitled to participate in the net proceeds of the refinance on a pari passu basis. For more information, investors are advised to contact the principals of the limited partnership and to review all of the various agreements governing the relationships described herein.