2015 10-20 EAC Community Weekly Newsletter

EXECUTIVE PARTNERS

Kevin Yoo, CEO

No updates.

John Hostetler, COO

A Tale of Two Cities…

Jacksonville, NC – I had the pleasure of spending 3 days with Lou and Barbara Ellis in Jacksonville, NC last week to start my trip. As you might know, we have purchased 16 single family homes and 24 duplex units in the past 12 months and currently have more than half of these rehabbed and rented. We have 8 of these units already refinanced and another 17 currently in the process with B2R. The remaining houses/duplexes should be complete and refinanced in the first quarter of next year. That is a total of 40 units in approximately 15 months … a stellar performance by our Ground Partners Lou and Barbara! Suffice it to say that everything is going extremely well in Jacksonville.

South Bend / Mishawaka, IN – We have had delays on our recent Indiana projects, and as such I felt it was critical to use my time there not only to build relationships and learn more about the area, but to evaluate our contractor, Mike Smith. Because my construction knowledge is limited, Lou Ellis offered to fly up with me so he could help me in this regard, and I’m sure glad I accepted his offer.

We started by touring all of our projects (16 in all) with our Ground Partner, Anthony Mwangi, to get a sense of the neighborhoods, the homes, and the workmanship. Most of these homes are occupied and cash flowing, so only a drive-by was possible.

But we have two SFRs which are completed and still on the market to rent, and having just come from our Jacksonville rehabs I could immediately spot shortcomings in the rehabs. These homes just were not finished to the quality we come to expect when EAC rehabs a home. The kitchen cabinets were refinished rather than new, the interior doors had mismatched hardware, and baseboards were uneven and contained gaps. These and other somewhat small details aren’t obvious in pictures, but when standing in the home the impression is not up to our standards. In order to maximize our rental income and refinance appraisal, these will require some additional work, something we’ll be completing in the next two weeks at EAC’s expense.

Moving on to the 4-plex and duplex that are slated for a rent-by-room model, we found similar issues with Mike Smith’s work on these projects. Lou was concerned about some framing and HVAC issues he saw, but because Lou doesn’t know the local codes we decided to call the city (Mishawaka) for an inspection. To make a long story short, the inspector agreed with Lou and some of this work will have to be redone.

After much discussion with Kevin and Lou, we decided that it was in our best interest to remove Mike Smith from these projects. This bold decision was made much easier by the fact that Lou offered to take over all of the Indiana projects as GC and see them through completion. We found out that earning a GC license in Mishawaka / South Bend is extremely easy and inexpensive (perhaps part of the problem!,) so Lou has already taken this step.

In the few days since my return, Lou has lined up some excellent subs and a good crew that will help us finish these projects quickly. I cannot express how impressed I am with him … once the decision was made he just took over and has everything in control. Kevin and I are so appreciative of his attitude and skills when it comes to being and effective GC, but moreso as a phenomenal Ground Partner, and frankly, a great friend. He saw that we needed help and took charge to make things right.

Lou will be working his weekends and Monday in Jacksonville, and then flying to South Bend Monday night to spend most of the work there for the next three to four weeks, until these properties are buttoned up. I have high confidence that, especially with the help of his wife Barbara, he will keep things moving quickly in Jacksonville while finishing the projects in South Bend.

Olga Levin-Diaz, CFO

• I am working on finalizing the rental numbers for the month of October. Some of our GPs need to get better about our cutoff date on the 10th of each month in order for our process to run smoothly. Please reach out to me for any questions, so there are no delays.
• I would like to solicit feedback of using Appfolio from all the parties that have been using it or just started this month as we are currently evaluating if this is the right solution for us given all the limitation it has and the difference between the features that were sold to us to what we find in reality. We haven’t given up on it yet, but would like to hear everybody’s input.
• I will also work with Vil this week who devoted a lot of time into looking at different project management software packages for our rehab side of the business. This solution will help us have a centralized location for all the information and will allow us to see where a project is compared to where it is supposed to be at a glance and with ease. It should have all the steps needed for completion of the project and help an MP and GP get through all the steps and report on each one in a central location. We value the feedback of our partners, so please speak up and let us know what you think is going to be useful or necessary in terms of tools you will use.

MANAGING PARTNERS

Vil Nikollaj – Managing Partner

San Diego – RBD Ventures – Roger Faulkner

• Framing, electrical and plumbing is underway and close to complete.
• Waiting for engineering updates
• Extended refinance to October 30 to align with sale of another RBD property

Saint Louis, MO – Mary Krummenacher

2806 Magnolia – SFR – Flip

• Seeking $193k ($80k funded to date) at 18% annualized return
• ARV $280k for 3 story brick townhome in desirable area with 3 car garage.
• Projected timeline until sale: 8 months
• Meeting with architect Oct 20th
• See Proposal: https://www.dropbox.com/s/uk424bh07jgadzx/EAC_Investor_Proposal_2806Magnolia_StLouis.pdf?dl=0

3152/3154 Oregon – Triplex – Rental

• Seeking $81k at 12% (paid monthly) or 15% (paid upon refin) annualized return
• ARV $100k for 3bed/1bath + two 1bed/1bth units in C class area.
• Projected timeline for refi: 8.5 months
• See Proposal: https://www.dropbox.com/s/fei6m5f7hs72seo/EAC_Investor_Proposal_3152Oregon_StLouis.pdf?dl=0

Isaac Guzman, Managing Partner

No updates.

Chad Urbshott, Managing Partner

602 Emma:

Working with our new GP and PM to evict current tenants, and get rent ready.

1215 Avenue L:

One tenant in place, currently seeking a tenant for other unit

18110 Libby:

Was supposed to close last week, but awaiting appraisal from lender.

4384 Ingleside:

Closing in a few weeks

5750 Garfield:

Closing in a few weeks

Linda Lin, Managing Partner

Awaiting updates.

GROUND PARTNERS

Lou Ellis, Ground Partner from Jacksonville, North Carolina

Awaiting updates.

Anthony Mwangi, Ground Partner from South Bend, Indiana

Awaiting updates.

Giovanni Gracias, Ground Partner from San Diego, California

4748 College Ave:

Currently in progress of completion. The city has passed our final inspection.

2672 Escala Circle:

Staging will be taking place this week and final details will be completed by the weekend. Comps still the $565-$585K range.

12081 Calle de Medio:

This project has been completed! Waiting for final pictures from the photographer. Once I received those pictures we will go live on MLS.

George Flint, Ground Partner from San Diego, California

MUIRLANDS:

We we received comments back from the city, nothing really major. Plan to re-submit this week. We should have permits in 3 to 4 weeks. Refinance will be completed last week of Oct/first week of Nov. We have demoed the un-permitted building in the rear so we can get a head start.

PESCAS:

We have resubmitted to the city per the comments received. We should have permits in 2 to 3 weeks. Refinance will be completed end of next week or early the following week.

Both projects will be starting around the same time, thus we will have some good economy of scales for cost savings.

John Allen, Ground Partner from San Diego, California

4336 53rd Street Updates

We have received two offers/LOIs in the past week or so:

• The first is a Letter of Intent for $850,000, with terms we didn’t particularly like, such as a payment out of escrow of $50,000 to a third party construction management/analysis firm, essentially dropping the offer to $800,000. I countered with $900,000, and omitted the $50,000 payment to the third party company. I have been told by the agents in charge that their clients are doing some more DD, and are definitely still interested but need a few days.
• The second is a Joint Venture offer from George Flint and his associates. Per their projections, we would get over $1M in net proceeds at the end of construction and sale of the completed project. We determined that the $100,000 or so of extra profit didn’t justify the extra time and risk associated with construction. If we wanted to wait out the construction period and flip the finished product, we could just as easily build it ourselves.
• While the offers aren’t quite what we are looking for, it shows that this project is very marketable, and with the very limited exposure we have gotten for this project, we have dozens of nibbles and two solid bites. It should breed optimism that this project will sell once listed, which brings me to my next point:
• I have signed a listing agreement with Lee & Associates to get the project out there and exposed to the masses. Not only will they list it to the MLS, but they will actively pursue buyers within their network and also send the project out in an email to their database of over 1,000 buyers, developers, builders, and other real estate professionals across the nation to generate interest. I am certain this project will sell in short order.
• The project progress is ongoing, with grading plan check nearly in the books, we are just awaiting the comments from the City to do the corrections and resubmit. The structural engineer is completing the lateral load calculations for the retaining walls and structures so we may be ready to submit for building plan check in short order. By the time a buyer has entered into escrow, completed due diligence, and waived contingencies, we will have either secured building permits or be very close to securing them.