IIP 435, LLC is a single-purpose entity being formed to acquire a combined two-building, 86-unit multifamily property in the East Village neighborhood of the City of San Diego, California. The investment is considered to be core plus, defined as low-to-moderate in risk.

An investment in IIP 435, LLC presents a rare opportunity to acquire an off-market, well positioned, turn- key asset in one of the most active and in-demand regions of San Diego.

Studios435, as the property is currently known, is located in the highly gentrifying neighborhood of the East Village. The area is the arts and cultural hub of Downtown San Diego, granting easy access to dozens of restaurants, nightlife and entertainment options. The East Village is also with walking access to Downtown proper, Petco Park, the Gaslamp District, the Waterfront and Marina neighborhoods and within 10 minutes of the San Diego Airport. The area is a highly diverse, affluent urban neighborhood with convenient access to the City of San Diego’s largest employment and educational centers.

The property has been completely renovated and converted from its former use as a hospitality property to micro-units and studio apartments by the current ownership. The seller has spent several million dollars on top-of-the-line upgrades including: high-end efficiency kitchens, full size bathrooms, heavily amenitized common areas and concierge-style living services. The property is contained within two separate buildings that sit directly across 13th street from one another. The buildings share extensive amenity spaces, a fitness facility, secure parcel lockers, business center, outdoor courtyards and offer valet trash service. The property is heavily marketed towards new San Diego residents, short-term rentals between 3-9 months, traveling corporate tenants and medical professionals. There exist further opportunities to continue this path, as well as shift to a longer-term renter strategy at higher rates. In addition, management can begin targeting various new renter segments including students, corporate relocations and young professionals.

The purchase price of the property is $23.25M. The total capitalization is $24,150,000. The difference is closing costs, required cash & operating reserves, legal fees and an opening capital expenditure reserve of $150,000. The per unit price for Studios435 is appx. $282,000 – compared to nearly $487,000 in the surrounding area of the East Village for mid-to-high-rise product. Construction cost for like-type product is estimated to be over $400,000 per unit, not including land. The current Capitalization rate on purchase is 4.4%, with a GRM of 11.

The equity required to close the escrow is $9,900,000. The balance of funding will be in the form of a loan sourced through Umpqua Bank in the amount of $14.26M with a 7-year term. The terms of the loan are extremely favorable. The loan is interest only for three years at a fixed 3.36% annual rate.. At the beginning of the 4th Year, principal payments will commence. There is no prepayment penalty after Year 5. This structure allows the LLC to lock in a very low interest rate for the entire length of the projected hold period. The investment benefits from increased distributions during the interest only phase and removes any refinance challenges that may arise if a short-term financing structure were followed instead.

A total of 99 membership units will be issued to the Class A Members of the LLC in unit sizes of $100k each. The deal level IRR is estimated to be 13.51% with a Class A Member IRR of 12.05% over the 7 Year investment horizon. This investment is projected to generate a 4.669% annualized blended cash on cash return prior to sale in 2029. The Class A Members shall receive all net cash distributions first until all equity invested has been returned and a 7% Preferred Return has been paid. Thereafter, 75% of the profits will be paid to the Class A Members and 25% to the Class B Members. The equity multiple for the Class A Members is estimated to be 2.06. Distributions are projected to begin in the fourth month of ownership.