El Cajon is a highly diverse suburban city with convenient access to the city of San Diego’s large employment centers, approximately 15 miles east of Downtown. El Cajon has seen significant household income, property sales and rental rate growth over the last five years. As home prices and large family apartment rents have become out of reach for many in coastal San Diego, residents and investors have gravitated to El Cajon. By investing capital in renovation and rehabilitation of existing inventory, as well as new single-family home construction, a new tenant base of higher wage earners is being attracted to the region. The 12-month average occupancy for the city is 98.9%, and is considered to be the tightest rental market in San Diego. The property is currently 100% occupied, sits on 1.12 acres and is contained within two separate buildings.

The property represents an above-average unit count for the neighborhood, while currently under-market on rent. Some of the units have already received capital improvements from the current ownership, but they have not charged premiums for these specific units. We plan on continuing this capital improvement project with enhancements to each unit, property exterior and common spaces with a capital expense budget of $2,335,000. We anticipate being able to generate an average of $400 additional rental income per unit, per month. In addition to the renovation plan, there is an opportunity to increase income with a revised RUBS program, implementation of pet rental fees and the reduction of various operational expenses. The purchase price of the property is $10.47mm. The total capitalization is $13,600,000. The difference is closing costs, required reserves and the capital improvement budget of $2,335,000. The terms of the loan are favorable – C3 bank has combined a bridge / construction loan and a permanent financing piece into one overall loan. The loan will fund both the purchase of the property and the CapEx renovation. The initial portion of the loan during the renovation phase is interest only at a 4.40% annual rate, for a 30-month period. At the beginning of the 31st month, principal payments will commence. The interest rate drops to 4.15% after the end of the interest-only period and is fixed until the End of Year 5. There is no prepayment penalty after Year 5. This structure allows the company to lock in a low interest rate for the majority of the projected hold period. The investment benefits from increased forecasted distributions during the interest only phase and removes any refinance challenges that may arise if the bridge-to-perm structure were followed instead. The equity required to close the escrow is $5,600,000. A total of 56 units will be issued to the Class A Members in unit sizes of $100k each. This investment is projected to generate a 4.78% annualized blended cash on cash return during the proposed hold period. The Class A Members shall receive all net cash distributions first until their invested equity has been returned. Thereafter, 80% of the profits will be paid to the Class A Members and 20% to the Class B members. The deal level IRR is estimated to be 14.78% with a Class A Member IRR of 12.67% over the 7 Year investment horizon. The equity multiple for the Class A Members is estimated to be 2.14. Jim Zeiter, Matt Rattner and Will Creagan are the sponsors of this investment and the Class B Members. The sponsor team currently own and manage more than 50 multifamily properties in the San Diego area, including 3 properties in El Cajon. The sponsors will sign on all carve-out loan guaranties as necessary. Insight Asset Services, an affiliate of Zeiter, will be the asset manager. Southwest Equity Partners, an affiliate of Zeiter & Creagan, will be the property manager.