For Owners and Developers looking for capital:

 

The rules have changed and considering the fact that our platform for raising capital only expand your options, there is no advantage to waiting.

 

The sooner you enter into an Engagement Agreement, an essential component of our proprietary process, the sooner we can begin helping you facilitate your capital raise. Once our agreement is formalized, the wheels are immediately put in motion. Our marketing team quickly acts to present your project on the Stonegate OpenSource platform in its finest light.  Our research team assiduously gets on task and rapidly begins to develope an investment structure and marketing program to seek out investors that meet your criteria.

 

For Project Sponsors looking for capital 

 

As a Syndicator you can raise capital for a wide range of ground up and value add projects.

Our platform enables GP Sponsors to efficiently raise capital without being subjected to repetitive due diligence, investor meeting, conflicts of interest and extensive time and travel that characterizes real estate syndication.

Our knowledge of the capital markets and understanding of project development allows us to provide relevant industry expertise and help GPs fund their projects and build their brand in a cost efficient and timely manner.

Our team has extensive experience structuring and executing customized financing solutions for developers and homebuilders and buyers of commercial real estate. We are familiar with all aspects of institutional and private debt and private equity offerings, including assisting in the identification and evaluation of potential capital structures and solutions, assessment of optimal sources of capital, preparation of investor materials, management of due diligence and communication with potential investors.

  • We design investment scenarios that attract accredited investors looking for passive income from rental properties.
  • Our strategy is to partner with sponsors/developers building rental properties and help them acquire capital by producing best in class offerings.
  • We provide an online real estate platform that utilizes private equity funds and crowdfunding to raise investment capital for our projects.
  • We offer our partners innovative and timely advice that covers all aspects, from financial modeling, underwriting, investor targeting, waterfall distributions, price strategy and documentation to efficiently capitalize transactions.
  • We solve capital needs by structuring our deals to include: senior loans, construction loans, mezzanine debt, preferred equity and strategic partnerships.

For Investors

  • Our investor centric platform is geared towards Dequity participating loans and preferred equity investments.  Typically our investments have quarterly income streams, substantial profit participation and priority returns to our investors. We partner with only experienced management teams and sophisticated investors.  We offer a broad range of real estate investments ranging from new construction to stabilized income producing properties.
  • We strongly believe that Investing in Rental Property provides for superior protection of capital and the most consistent long term performance.
  • Our expertise is in sourcing, vetting and investing in real estate projects that offer solid risk-adjusted returns.

The members of our management team have extensive experience in all aspects of our business, including residential construction and development, institutional investment management, construction lending, debt and equity structuring and syndication.  We have a strong background in underwriting, asset management and creditors’ rights, risk management and corporate governance.  Overall, our management team has an average of more than 30 years of experience and provides us with access to a broad referral network and significant practical knowledge of real estate investment, development and capital markets.

We believe that we have significant competitive advantages relating to our experienced management, our existing pipeline and market relationships, the strength of our underwriting and asset management capability, and in our structuring flexibility and speed of closing. At any given time we have offline opportunities in our pipeline so please call us to find out more.

Our Capital Placement Strategy

The JOBS ACT allows general solicitation of accredited investors to participate in our investment platform.

This promises the makings of a massive trend, which is just now starting to take place.  As a result, we believe that an entire industry is poised for explosive growth and can be one of the most significant solutions to help private equity and retail investors invest in quality off market deals.  This may sound like a bold statement, but it’s not if you understand entrepreneurism the way we do. The reality is, crowdfunding direct investments in real estate is the way of the future.  Most importantly, we create a number of investment exit strategies that far exceed comparable firms.  We often use crowdfunding as a tool to fund a portion of the capital, which allows for greater liquidity, provides “carried interest” and risk sharing.  Many investors are concerned or disenchanted with banks, REITS and private equity firms and want to find a new way to expand their real estate investing.  We believe that our company is a way for many people to start shifting their focus from waiting to executing.  By working with us, private equity funds and retail investors can benefit from off-market investments that:

  1. create value
  2. are located in strong markets
  3. provide consistent cashflow
  4. have a high probability of rent increases
  5. have a history of management’s performance
  6. have a market-oriented management team
  7. have sponsors with the ability to develop, manage and lease
  8. have the proper capital stack
  9. are not correlated to the stock market
  10. have a realistic return on invested capital
  11. have a realistic exit strategy

Targeted Investments

We focus on working with firms that have a competitive advantage in their market and that can offer solid risk-adjusted returns to our investors.  Our targeted investments include:

  • Multifamily
  • Single Family rentals
  • Townhouse rentals
  • Vacation rentals
  • Student Housing
  • Senior Housing

 

Our Competitive Strengths

We believe our business possesses several characteristics that distinguish us from our competitors, including:

  • Experienced management. Our primary competitive advantage comes from our senior management team, which has operated in the lending business for over thirty years.  Each member of the senior management team has at least 20 years of relevant experience in high yield debt structuring, debt capital markets, origination, underwriting, credit, risk management, loan servicing, real estate development and construction, and corporate governance.
  • Market niche.The Company has successfully targeted the segment of the real estate market occupied by small to medium-sized developers. These companies operate on a scale that allows them to acquire small, in-fill sites in strong growth markets. Currently, and for the foreseeable future, we believe that small and medium size developers will struggle to find equity and bank loans to acquire and improve projects.
  • Strong underwriting and asset management capabilities. We have developed industry-leading expertise in underwriting the types of investments we have successfully employed.  Our management specializes in deal structuring, credit agreements and loan participation agreements that protect our rights, mitigate losses and enhance returns.

We believe that investors are willing to finance projects that have been vetted by our management team and will view their investment as an alternative to other short-term income producing investments.

Targeted Returns

  • Investments are typically underwritten to yield internal rates of return of between 15%-25%.  Investor revenue is generally derived from both cash-flow and profit participation.
  • Our investments typically provide up to 95% of the equity capital required to acquire and improve a property using low leverage.  Each investment finances a discrete project through a special purpose entity.  Our investments are senior to the borrower’s equity and the non-commoditized nature of the product allows for flexibility in obtaining favorable terms including fees, preferred returns and profit participation.

Liquidity

 We believe that overtime investors will be able to resell their private securities on the CFXhttp://cfxinvesting.com/ market when seeking liquidity for their crowdfunding investments.

 Vast Market Opportunity Enhanced by Highly Underserved Client Base

Management believes that the Company’s focus on small and medium size clients will allow for the potential to serve a large customer base currently underserved by institutional lenders. Management believes there has never been a better time to be in this business. Many lenders, unregulated private secured lenders and structured joint venture equity providers have consolidated into a small group of very large institutional investors with little appetite for real estate deals with unique requirements. The capital inefficiencies placed upon developers and homebuilders has been exacerbated by the 2008 downturn that has led many banks – large and small – to dramatically tighten credit standards, if not withdraw from the market altogether.  This contraction in the traditional capital supply to developers and homebuilders has only increased the need for the company’s products.

Our Investment Strategy

We believe that given the risk and time involved, ground- up income producing property will obtain superior returns.  To achieve this goal, we must be willing to provide capital to purchase assets at a time when conventional financing sources are non-existent or extremely limited.  This generally applies to assets that are too small to access the public debt or equity markets, conventional bank lending is not available or the company needs funds quickly in order to capture a special opportunity.

The internet has made the company more prepared than ever by being able to easily access information about demographics, market trends, comparable sales and other information related to real estate sales.  The key to unlocking potential investments lies largely with our ability to recognize trends and acquaint ourselves with qualified buyers who are capitalizing on those trends.  Opportunities are everywhere; we read, watch, and listen.  We look for news articles reporting companies financial and sales forecast and annual reports, as these are often signs of companies that are selling assets in a distressed market and may have a need for additional cash.  Market disruptions often produce meaningful opportunities.  We avoid the herd approach and instead focus on the individual value of each opportunity.  We also look for opportunities when markets are trading on emotion rather than logic.  We believe that markets create virtuous cycles on the upside that tend to lead to overvaluation and vicious cycles on the downside that can lead to undervalued assets.  This contrarian approach relies, in part, on fads and herd mentalities that lead to fundamental differences between price and value.

Due Diligence- the mother of every investment

Due diligence is as much an art as it is a science.  Due diligence starts by both asking questions and gathering information.

When performing due diligence, our experienced team of associates and other third party consultants will not only be assessing risk, but will also be evaluating the opportunity.  It is very important during the due diligence period to become deeply involved in understanding every major aspect of the company or project.  This includes understanding the competition, understanding the products and their cost structure, and learning how the company prices and markets its products.  Due diligence includes multiple site visits, inspecting comparable ventures or properties, meeting directly with management, talking with other investors, lenders, and stakeholders, performing credit underwriting, and engaging with various third parties on legal or other technical matters.  One thing we cannot stress enough is the need to continually be expanding our circle of close advisors by aligning ourselves with seasoned executives in the industry that we are investing in.

In simple terms, the goal of our due diligence is to use the best available information to arrive at a valuation of our investment in the venture.  The method best suited is to work backwards, by starting with amount and timing of revenue, then evaluating costs and, finally, subtracting costs from revenue to determine the company’s ability to make payments to us.  The investment decision then is based upon the price that we can acquire our assets, how much we can sell them for, and the proportional share of the cash flow we retain from the financing.

The importance of due diligence, its quality, and the importance of its integrity, cannot be overstated.  This is the blue collar, detailed-oriented, unglamorous, but disciplined approach that separates the professionals from the hacks.  We take pride in establishing and using industry’s best practices, sources and methods to independently verify all assumptions with the highest quality and most relevant data, in addition to our ability to organize and present both data and results into a concise and logical presentation.  This is a capability we have built over time by researching and following some of the best institutional professionals in the business.

Visit our website to learn about our affiliated sponsor/developer projects VIEW INVESTMENTS

CONFLICTS OF INTEREST

The Company and Participants are subject to various conflicts of interest arising out of its relationship with the Manager.  These conflicts include, but are not limited to, the following:

  • The Manager receives a transaction Structuring Fee from each Equity Entity.  Additionally, the Manager receives a carried Membership Interest share in the Equity Entity.  The Structuring Fee payable to Managers and the carried Membership Interest was not determined by arm’s-length negotiations.
  • Management may form additional limited liability companies and other entities to engage in activities similar to and with the same investment objectives as the Company. The Managers may be engaged in sponsoring other entities at approximately the same time as the Company’s securities are being offered or its investments are being made.  The Manager may also originate, place, sell and service loans for individuals or unaffiliated entity investors.  These activities may cause conflicts of interest between such activities and the Company and the duties of the Managers concerning such activities and the Company.  Management will attempt to minimize any conflicts of interest that may arise among these various activities.
  • The Manager supervises and controls the business and affairs of the Company, locates investment opportunities for the Company and renders certain other services. The Manager devotes only such time to the Company’s affairs as may be reasonably necessary to conduct its business.  The Managers may be a general partner or manager of partnerships or limited liability companies and other business interests.  See “Management”.

RISK FACTORS

General

 There are significant risk factors associated with a purchase of an Equity Participation.  The following are some of the more common:

  • Your ability to sell or transfer your Participation is limited; no market currently exists, nor is one expected to develop. Securities laws restrictions apply to the Participation Interest.  Proposed transferees of Participation Interest must be Accredited Investors.  Consent of the Management to a transfer is required and may be withheld in the Manager’s discretion.
  • You must place total reliance on the Manager for operating the Company.
  • The Manager is subject to Conflicts of Interest with the Company.
  • Investments in a business loan carry risks; for example, defaults can occur in payments to be made by the Equity Entity.
  • The Equity Participations involve small real estate construction and development. Small construction and development projects are higher risk than other secured transactions.
  • The Company is not assured of obtaining any minimum amount of proceeds from this Offering and this transaction may not proceed.
  • n almost all cases, the Equity Entity uses leverage (borrowed funds) that are senior to the Equity, which increases the Company’s risk in the event of payment default by the Equity Entity. In addition, the rights of the Company and therefore the Participants are subordinate to the rights of the Equity Entity’s senior lenders.

Risks of Small Real Estate Construction and Development Investments

The Company is making small unsecured construction and development equity investments.  Therefore, it is subject to the risks usually associated with real estate investing, such as the following:

  • Return of an equity investment generally is dependent upon the ability of the property to produce cash flow and the ability of the Equity Entity’s ability to repay its senior lender.
  • Some of the factors that may affect the net operating income or value of a property can develop after the Company makes an investment and therefore could not be included in the factors considered in selecting the investment for the Company.
  • Net operating income of the financed project can be volatile and may be insufficient to cover debt service on the Equity Entity at any given time.
  • Net operating income of the Equity Entity and book value of the property may be affected adversely by a large number of factors, such as:
  • design and quality of the property;
  • attractiveness of the property;
  • adequacy of the Equity Entity management;
  • demand for the Equity Entity product or service;
  • general market conditions; or
  • interest rates.

Participating Equity Investments (those which the Company generally makes) are substantially riskier than first mortgage loans because of:

  • Their subordinate position in the event of default;
  • The potential default of a senior loan, which, if not satisfied, could cause the Company to lose its entire Membership Interest investment.

Risks of Default by Equity Entity

 Since a Participant is participating in only a single specific equity investment, defaults by the Equity Entity on its senior financing can have adverse consequences to the Participants, who have no recourse to either the Equity Entity, the Company, or the Manager.  Some examples of things that can cause a loss include the following:
  • The proceeds from sales of foreclosed collateral may be less than the Company’s initial Membership Interest investment;
  • Adverse general and local market conditions;
  • High operating costs and high costs of complying with changes in laws and regulations pertaining to taxes, use, zoning and environmental protection, in each case for indeterminate periods; and
  • Possible liability for injury to persons and property.

Investing in construction transactions is riskier than investing in transactions secured by operating properties or with companies with a long operating history.

No Equity Interest

Your Equity Participation is an investment in the specific Equity Entity only.  You will have no equity interest in the Company.

Risks of Incorrect Original Valuation

 Appraisals are obtained from certified third party appraisers on all transactions.  However, there is a risk that the appraisals prepared by these third parties are incorrect, which could result in defaults and/or losses related to construction/development loans if the amount realized upon a sale of the underlying property turns out to be insufficient to cover the outstanding loan balance.

Because values can quickly decline below their appraised values during the term of the associated Company’s Equity Investment, there is no assurance that the LTV ratios used by the Company will be adequate to protect the Company’s Equity Investment.  Material declines in values could result in the Company’s Equity Investment being under-valued and lost.

Risks Related to Short Term Investments

The Manager intends that the Equity Investments will generally mature within twelve to thirty six months.  For that reason, absent special circumstances, the Manager does not expect to regularly examine the Equity Entity to see if the original appraised values are being maintained.  Instead, it will review an Equity Entity if there is a delinquency on a debt or indication of possible decline in the market value of the investment property. Because the investment may not be monitored as frequently as a longer-term investment would be, the Company may not necessarily be aware of changes in the following factors relating to its investment, which could materially and adversely affect the Company’s results of operations:

  • Physical evaluation of the investment property and area where it is located; and
  • Financial stability of the Equity Entity.

Risks Related to Change in Market Interest Rates

  • It is expected that at least for the foreseeable future the return on an Equity Investment will be structured based on a fixed base rate of return. Market interest rates on investments comparable to the Company’s Equity Investments could materially increase above the general level of the Company’s fixed rate base return rate.
  • Risk related to interest rate shifts increases as the length of maturity of a Company Equity Investment increases.

Risks of Uninsured Losses

  • The Equity Entity will normally carry adequate hazard and liability insurance for the benefit of the Membership Interest of the Equity Entity. Some events are, however, either uninsurable or insurance coverage is economically not practicable.
  • If an Equity Entity allows insurance to lapse, an event of loss could occur before the Company and other Members know of the lapse and have time to obtain insurance to protect their collective interests.
  • Insurance coverage may be inadequate to cover property losses, even though the Equity Entity purchases insurance that it believes is adequate.

Risks of Lack of Control of Company

Management consequently has the sole power to:

  • Control the Company and its operations;
  • Control the allocation of revenue related to loan pricing and operating expenses;
  • Dissolve the Company;
  • Change the nature of the Company’s business;
  • Amend the Operating Agreement of the Company;
  • Remove and replace the Managers; or
  • Approve a merger or sale of all or substantially all of the assets of the Company.

Risks of Default by Equity Entity and Real Estate Ownership after Foreclosures

A default by an Equity Entity can have adverse consequences to the asset value and expected income.  Examples of these are the following:

  • Operation of foreclosed properties may require the investors to spend substantial funds for an extended period;
  • Subsequent income and capital appreciation from the foreclosed properties may be insufficient to meet any remaining expenses or surviving debt service;
  • The proceeds from sales of foreclosed properties may be less than the Company’s initial Membership Interest investment in the Equity Entity;
  • Adverse general and local market conditions;
  • High operating costs and high costs of complying with changes in laws and regulations pertaining to taxes, use, zoning and environmental protection, in each case for indeterminate periods; and
  • Possible liability for injury to persons and property.

Hazardous or Toxic Substance Risks

Various federal, state and local laws can impose liability on owners, operators, and sometimes lenders for the cost of removal or remediation of certain hazardous or toxic substances on property.  Such laws often impose liability whether or not the person knew of, or was responsible for, the presence of the substances.

When the Company obtains a Membership Interest in the Equity Entity, it becomes an owner of the Equity Entity property.  As an owner, the Members, under some circumstances, could become liable for remediating any hazardous or toxic contamination, which costs could exceed the value of the property and Membership investment.  Other costs or liabilities that could result include the following:

  • Damages to third parties or a subsequent purchaser of the property;
  • Loss of revenues during remediation;
  • Loss of tenants and rental revenues;
  • Payment for clean up;
  • Substantial reduction in value of the property;
  • Inability to sell the property; or
  • Default by a borrower if it must pay for remediation.

Any of these could create a material adverse effect on a foreclosed asset and/or transaction profitability.

THE EQUITY PARTICIPATION INTERESTS ARE TIED TO THE PERFORMANCE OF A SPECIFIC INVESTMENT IN AN EQUITY ENTITY. THE COMPANY WILL SELL EQUITY PARTICIPATION INTERESTS FOR EACH MEMBERSHIP INTEREST IN AN EQUITY ENTITY THAT IS BEING ACQUIRED. THE RETURN OF EACH MEMBERSHIP INTEREST INVESTMENT IS DEPENDENT FOR PAYMENT ON PERFORMANCE OF THE CORRESPONDING EQUITY ENTITY. THESE MEMBERSHIP INTERESTS ARE UNSECURED INVESTMENTS. INVESTING IN THE EQUITY PARTICIPATIONS SHOULD ONLY BE CONSIDERED BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT.

Investment Objectives

The Company’s objectives are:

  • To maximize cash flow and pay Distributable Amounts to the Participants; and
  • To preserve, protect and return a Participant’s investment.
 INVESTOR SUITABILITY STANDARDS

You must be an “Accredited Investor” to purchase an Equity Participation.  In addition, the Company has restrictions on the resale or transfer of a Participation Interest.  A Participant must review the Subscription Agreement (Exhibit D) prior to executing it, and will be deemed to have made representations as to being an Accredited Investor.

The Manager reviews and screens all Subscription Agreements, and rejects Subscription Agreements from investors not meeting the criteria.

The Company cannot accept subscriptions from any person or entity where the representations required are either not provided or are provided but inconsistent with the determination that the subscriber is accredited.  The Manager has the unconditional right to accept, or reject, any subscription in whole or in part for any reason, or no reason.

A Participation Interest represents an investment with limited liquidity.  You may not be able to liquidate your investment in the event of an emergency or for any other reason.  A Participation Interest will be sold to a Participant only if the Participant is an Accredited Investor as defined in the Subscription Agreement.

You may transfer your Participation Interest only to persons who are Accredited Investors and only with the consent of the Manager.  A Participant must carefully read the requirements in connection with a re-sale in the “No Sale or Transfer of Interests” of the Subscription Agreement.

Due to the nature of the Participation Interest, it is likely that all of the income attributable to the return on a Participation Interest will be miscellaneous income taxed at ordinary income tax rates.

You should obtain the advice of your attorney, tax advisor, and/or business with respect to the legal, tax and business aspects of this investment prior to subscribing for a Participation Interest.

ASSIGNMENT AND TRANSFER OF AN EQUITY PARTICIPATION

There is no public market for the Equity Participations and none is expected in the future.  Participants have only a restricted and limited right to assign their Equity Participations.  Holders may transfer their Equity Participations only by written instrument satisfactory in form and substance to the Manager and only to an Accredited Investor.  You may make no transfer of an Equity Participation or a fractional Participation, and no transfer in the absence of consent of the Manager (other than a Participant transferring all of his or her Participation by operation of law).  Any transfer must comply with then-current laws, rules and regulations of any applicable governmental authority.