2015 9-22 EAC Community Weekly Newsletter

EXECUTIVE PARTNERS

Kevin Yoo, CEO

The Reserve Account

I need everyone’s opinion on a Reserve Account we want to establish for everyone. I propose we have every GP and MP that want to work with EAC creat a Reserve Account that has the following features.

1. 10% of all earnings from EAC will go into this account.
2. The account should be with the GP/MP bank but there will be two signors: the GP/MP and a representative from EAC.
3. The money will be used to cover any losses of projects for the GP/MP.
4. The money can also be invested in any EAC project but preferably the project of the GP/MP with this account.
5. There will be no cap on the amount of this Reserve Account.
6. The amount of money will be disclosed to IPs so that IPs can know how many deals the GP/MP have done successfully with EAC and to have further assurance that their money in this GP/MP projects have greater protection.
7. The money will be completely released to the GP/MP if and when they no longer work with EAC.

John Hostetler, COO

B2R Tranche #2 Update – I received some very good news from B2R regarding the second loan. We will be allowed to use the same single-purpose LLC that we already set up for the first loan and simply add all of our second (and subsequent) tranches to that same entity. This will make a huge difference in the simplicity of both the loan process and of the accounting and admin work going forward. This change also eliminates the advantage for us to narrow our second tranche to just the Jacksonville properties. As such, we will now evaluate our other properties and likely expand our loan to include the Florida and some South Bend projects as well and have a final list by the end of this week.

I will be traveling to Jacksonville, NC and South Bend, IN early next month to meet with our GP’s and contracting teams. We have so much going on in both of these markets, and there is no substitute for getting my own “boots on the ground” to oversee these projects, learn more about the markets, and explore new possibilities.

Speaking of which, Lou Ellis brought to us a 6 building, 46-Unit apartment complex that is coming up for auction in Sumter, SC. This town is about 3 hours from Jacksonville, and, similarly, is near a large military installation, Shaw Air Force Base. Aside from that, Continental Tire has a plant in Sumter which was just approved for a $500 million expansion, expected to bring 900 new jobs to the area by next year:

Continental Plant expansion

The property is currently 100% occupied at rents averaging $455, but with interior and exterior updates as well as improvements to the grounds (play structures, BBQs, refurbish existing pool, etc.) Lou feels that rents could be increased by at least $150 per unit on average. Because the property is occupied it will cash flow from the start, but the winning formula with apartments is to improve the property judiciously, increase the rents, and then refinance at a lower CAP rate based on the improvements to both the property and the increased income. Our initial thought on this is that we would offer a preferred return plus an equity stake in the property to the investors. This ensures a sustainable cost to EAC during the purchase and rehab timeframe, and an unlimited upside for the investor with the potential for long term cash flow with little or no principal in the property. The numbers must be refined, but feel free to email or call if you would like more information.

Because this is an auction the chances of getting it at our price is likely remote. But investing in small and mid-sized apartment buildings is a big part of EAC’s future strategy. Going through the exercise of evaluating this project has definitely opened my eyes as to the value of moving toward larger projects.

St. Louis – Because I could not commit to a St. Louis trip in October, I will be looking at dates in November for a visit. It will be great to reconnect with Mary Krummenacher and meet our PM / Rehab team of Ray Lemons and Sam Lord. In the meantime, we are currently evaluating a Benton Park West triplex near one of our current properties which would add nice cash flow to our portfolio.

Olga Levin-Diaz, CFO

I am currently working on organizing and automating the rental income and expense reporting and accounting. After trying the suggested workflow with Appfolio for the first couple of months, we are realizing that it is not optimal for our business setup. We are exploring a new way to organize the workflow in Appfolio that will help us be more efficient and eliminate extra back and forth. I will be sending out information to our PMs to set it up and it will take a couple of month to test and see if it helps.

In September we did better with getting reports in by the 10th, but we still need to work on working out an efficient system to get the funds in in an expedient way. We have been working with our bank to set up an ACH capability to be able to withdraw funds without the wire fees, but with the same speed and efficiency. We have used in Sep with some delay, but will be able to utilize this tool fully in Oct.

MANAGING PARTNERS

Vil Nikollaj – Managing Partner

San Diego – RBD Ventures – 2420 Upas

• Due to many delays in drawings, permits and lack of overall progress, we decided not to extend the $150k loan to RBD
• Expected payoff date scheduled for October 19

St. Louis – Mary Krummenacher

• Evaluating some prospects, but having issues hitting our typical 70% ARV

Management SW

• Working on evaluating several different applications to help manage, organize and share projects with team

Isaac Guzman, Managing Partner

Currently there is not much to to update. I will be working with Brittany Moreland to have an intro of her to the rest of the group so we can begin doing flips together.

Chad Urbshott, Managing Partner

IIP Properties (Cleveland):

Garfield: Unit is rented, we are pending a section 8 inspection for this Friday. We should have the tenant in the unit by October 1st as long as everything goes smooth with CMHA process. Violations on POS have been completed and we are waiting for City for a re-inspection date so the escrow funds can be released from the title company.

Libby: Unit is rented, we are pending a section 8 inspection for this Friday. Tenant should be in by October 1st as well, as long as everything goes smooth. We are also in need to do the concrete driveway, after it has been completed we can request a re-inespection from City and get the funds released from Escrow that the Title company is holding.

Ingleside: Property was rented as of Sept.15 to a section 8 tenant, but the tenant demanded her rent back due to a leak in the basement she discovered without informing the PM. They removed her from the property as was deemed unstable, but kept her deposit.

Orlando/Kissimmee Properties:

After some frustration in a lack of communication and performance with our former Ground Partner, we have found a new GP to take over the 2 properties. He expects to pick up the keys, do a review of rehab done on the properties and assign a property manager to get the remaining units rented.

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

Cleveland Fourplex

Finally secured a plumber and pulled the plumbing permit. Plumber is currently doing all his rough ins and we anticipate to be ready for a city inspection tomorrow(Wednesday). If approved, we have a drywall crew scheduled to start hanging on Thursday. Once we close up the walls, we can rapidly move along the remaining interior work.

Cleveland Duplex

We eventually had to let the drywall finisher go and had other subs correct and finish that part of the job. Interior painting is about 70% done, kitchen counter-tops are in (LL and UL), ceramic floors and surrounds in bathrooms is about 80% complete. Floors and some windows are going in this week.

Dennis SFR

On the market for rent.

Berkley SFR

Demo underway and mostly complete. Kitchen and upper level have been demo’d. Basement walls have been drilocked for moisture prevention. The layout for the portion of the basement we are finishing is complete and has already been about 95% framed for a bedroom, living room, laundry room and full bath. Electrical permit has been pulled.

Broadway SFR

Starting this week with clean-up and demo. Layouts for framing will be ready byThursday.

New Projects

Currently in negotiation with a FSBO (For Sale By Owner) for a riverfront 10 unit and 4 unit that are both on the same parcel. The mortgage may be assumable…the Owner is verifying this with his bank and confirming all the terms of the existing loan. The owner is, at this point in the negotiation, very open and flexible to structuring creative terms. The elephant in the room is the mortgage since the property is both financially and physically distressed but since he does not own it free and clear, I cannot purchase it at a deep discount. Assuming the mortgage would solve the acquisition issues and I would only need to raise the funds to renovate and reposition the property.

Giovanni Gracias, Ground Partner from San Diego, California

4748 College Ave:

• We have completed week 9 of the project. We had a water leak last week with the unusual heavy rains we experienced. The leak was due to a window left partially opened. The water damaged a 2×2 section of the subfloor and it is currently being repaired.
• We changes submitted to the City Development office cincluded electrical & foundation plan changes.
• As of Monday 9/21 we have now gotten our final to proceed with wrapping up this project.
• EXTERIOR: Stain fence along the north side of the driveway, complete drought tolerant landscaping.
• UP NEXT: Final steps and clean up, final staging
• PROJECT COMPLETION: We project to be done by next Friday 10/1 and on the MLS the week after. Projected listing price: $565K-$585K.

2672 Escala Circle:

• Carpeting company replacing carpeting in all stairs on Saturday.
• Electrical upgrades being made this Thursday (changes include: installing of new ceiling fans, dimmers, and installation of TV hook up above the fireplace)
• Staging quote has been accepted and planning to start next Thursday 9/30.
• There are a total of 3 comps active ranging between $535K-$549K and one pending that was listed at $555K

12081 Calle de Medio:

• AC was repaired and now operational but the digital dial has to be replaced and has been ordered from the manufactured. Will be arriving sometime this week and the AC repair company will install.
• The kitchen cabinets that we ordered have been a bit of headache. A few of the joints did not fit properly and 2 of the cabinets had to be manually modified by cutting them to fit. The sink base had to be reordered completely last week and has now been installed. Up next is granite install.
• All staging furniture has been delivered and set in its desired location
• Comps remain strong and we anticipate listing this property in the $325K range.
• DATE of Completion: We expect to be done by next Friday 10/1. Although there is not a lot of work left, I do have to work around my granite installer’s schedule and my plumber is wrapping up faucet installs.
• Open House: Scheduled for Sunday 10/3 and also the weekend of 10/9.

George Flint, Ground Partner from San Diego, California

Muirlands update:

Still waiting for engineering department to provide comments, they are delaying us. All other departments have provided comments, none of which are a big deal. We are hoping to hear from them next week and should have permits early to mid Oct.

We have all bids for ruff trades and are starting to select finishes for spec book.

John Allen, Ground Partner from San Diego, California

4336 53rd Street Updates:

• After a few weeks of delay from BWE, the Civil Engineering firm in charge of Storm Water work, we have finally received the BMPs and details so we can input them into our grading plan for submittal. We are still waiting for the various reports from them (water quality report, drainage study, etc.). BWE is very highly regarded, and so far as I’ve seen, they produce very high quality work product, but they have taken longer than promised and, rather than start over with another firm, I chose to give them the time to complete the work in the interest of maintaining positive relations and not risking further setbacks.
• I am hesitant to predict a submittal date, but it is my intent to have submitted within the next week or so. This will require a number of documents from EAC such as title policy, authorization documents, and deposit agreement, among others. I will provide a list of these shortly so EAC can begin rounding these documents together.
• I have put the time to good use by consulting with structural engineers regarding the building plans, going to bid regarding the landscaping and site work to assist potential buyers, and analyzing building costs which will be helpful in the marketing of this project. We are progressing with our building plans, and will be ready for building plan check as soon as we hear back from the City that there will not be any major revisions required from grading plan check.
• While many parties have shown interest and buyer activity has been heating up, I have not yet received an actual offer. As I have mentioned, I intended to list this property if we haven’t yet received an offer. However, my listing broker recommended that we wait until the project is actually in grading plan check before listing it for sale on MLS. Until that point, I will work with the currently interested parties to put together an offer. When we have submitted, I will then revisit turning the project over to the broker and letting them list it and handle the buyers.
• In the smaller context, we are slightly behind where we planned, and hoped, we would be due to the delays in storm water work. In the larger context, we are progressing at a very rapid pace compared to other developers. None of these delays affect our ability to sell this project. Other than the small hiccup with the engineering firm in charge of storm water work, I am very happy with the progress we are making and anticipate a quick turn around once we are in grading plan check.