Investor Strategy Call – 24th August, 2021

Speaker1: [00:04:58] Hello, Abdul. Today’s a bit more of a quiet one, and so, yeah, as usual, feel free to ping in and we can get right into it.

Speaker2: [00:05:54] All right, so sounds like we have a pretty quiet day today.

Speaker1: [00:05:59] Yeah. Today’s a bit of a quiet Wednesday here, so. We had we had what was. We had the CDFIs on vacation until until next week and then, yeah, otherwise it’s pretty quiet today.

Speaker2: [00:06:20] I think. The Kindle is trying to get on the link, wasn’t working in the. The dislike because I think. So this started to get through.

Speaker1: [00:06:40] Ok. Sure, you can paste. I can send it over to you. Oh, we have. Looks like we have them here. Yeah, he’s here right now. You go.

Speaker2: [00:06:57] Just.

Speaker1: [00:07:05] Yeah, and since we since we hear one thing, too, is I was thinking about what you’re talking about with the integration with, you know, Pitchbook and so on as an idea. Funnily enough, I’m actually working on this right now. There may be that opportunity because Clem and I were working on working on supporting something like that out and maybe, maybe opportunity there. But you know, we’re just trying to see if we can do that because it would be much easier if we can just do something like that.

Speaker2: [00:07:33] Yeah, that makes me a lot more sense. I think overall, because it’s. So there’s a lot of data, a lot of stuff that we, you know, we can benefit from and be able to pull. From that aspect.

Speaker1: [00:07:51] Oh, yeah, no, definitely. It’s like why build the rule from scratch if you can just use somebody else, will that they invent it, right?

Speaker2: [00:08:00] So yeah, and they keep it bit to because they have millions of dollars in funding for that development. So I don’t think. So we can compete and be able to. We met ahead of the curve as they’re trying to so actively. Ok. So.

Speaker1: [00:08:28] Well, awesome. Yeah, it seems like we got a lot of new members out of Europe, but, you know, because people are out of Europe, the timing, they seem to want to come in the Wednesday ones or they rather just, you know, a lot of people, they seem to what a lot of people were just seeing success with is just going directly through. And then we’re we’re getting some term sheets to the table at that way and then they just focus on the email correspondence, Reddit and even the video. And so everyone, everyone seems to operate differently. So even though, yeah, I mean, members are joining continuously, we’re seeing kind of like how people are using it and then we’re going to just from there. Good.

Speaker2: [00:09:14] Yes, so I sent an email for some underwriting underwriting, but I haven’t reported the email. I’ve been trying to. And I got a of things that kind of popped up, but initially I thought that the CFO was going to send back a. Uh, and the value system in Excel because he has the data. You know, the PT world or the all the financial data. But I did get the feedback, I think, based on what he saw, but I need to reply to that and requesting that we have a. Underwriting. Of financials from as we would have done it with Excel versus. So look at the numbers. We didn’t see. Just. See what that look like.

Speaker1: [00:10:13] Ok, got it. Yeah, he can, he can execute that, too. Yeah. As long as like in your quest, if you just say exactly that, we’ll get the language kind of standardized so that they can execute in that you can make the exact request of what exactly they want. You want them to do and then they’ll go after it right away.

Speaker2: [00:10:34] The.

Speaker1: [00:10:40] And so any other any other like projects under consideration, because you said that you looked at that one and are there any others in the consideration or is this that wonder

Speaker2: [00:10:50] Though they are, they are where we are. You know what, we’re trying to wrap up? Well, a couple of legal document and other things, then we’re working with claim will get a couple of things going on on that front as well, but there are some plumbing that we need to to to finalize because we have a deadline coming up in September because we’ll start, we’ll start, we’ll start actively with the marketing. Iran meet the September timeframe. So we’ve got our website, we’ve got other things done that needed to be done and they just. And I would say slow progress because we’ve done a lot, but also over here, I with high and getting to get ready for the school year and things like that, so kind of slow down the process, but. We’re going to try to. Um. We’ll try to get get this done. End of next week. You’ve got it. What’s going on there?

Speaker1: [00:12:07] You’ve got it. They’re awesome. Yeah. And then, yeah, because by now, the whole PM, I’m assuming like the legal and all that is done is just really for the for the actually hitting the market in mid-September essentially, right? Yeah. Ok, got it.

Speaker2: [00:12:24] Now we’re using some creative ways of doing things and some of that we still will make you we’ll have the final decision tomorrow, but which as of last week we had some. Well, it’s not a new concept, but we have. Um, so people from from from from the lot, from working with, which actually makes sense and kind of open up the doors legally and also remove the border. Um, was he bought? I mean, in terms of raising capital? Um. Now, some of these challenges, but. We need to put on this very quickly and then get going.

Speaker1: [00:13:10] The grades. Yeah. And Richard, actually, yeah, so one thing to I think this would be appropriate. Richard actually has a new. So Richard Reid, the associate there that we have raised, like he has the few new relationships as well. Yeah, there’s Cambridge Wilkinson, but then there are others as well. And and I don’t know if we spoke to him yet, but I’ll just make sure that an introduction is in place and just so that, you know, is fantastic and he gets deals done. But is this more options on the table? So I’ll get that going as well just prior to you hitting the market.

Speaker2: [00:13:46] Yeah.

Speaker1: [00:13:51] Hello, Ken. So.

Speaker3: [00:14:04] Hello. Hello, can I ask, can you hear me?

Speaker1: [00:14:09] Yes, yes. How are you doing today? Ok, you’re on mute.

Speaker3: [00:14:23] Sorry, if the heavy.

Speaker1: [00:14:25] We can hear you now.

Speaker3: [00:14:26] Ok, great. Sorry, I switch off the headset there. And in answer to your other question regarding deals, there are not a lot of great deals out there right now. You know, we’re sifting through a lot of stuff. Brokers are sending out stuff with pricing to be determined by the market. So and and there’s a lot of older stuff out. There is seventy one, seventy four, you know, but I am well, I’m down in Atlanta this weekend. I am going to take a look at a couple of things while I’m down there. So, but, you know, sifting through a lot of stuff come across the table with, you know, the deals that we’re looking for are not materializing right now. But you know, that’s the other factor that we have to factor in as well.

Speaker1: [00:15:16] Got it. And this one, this one is for the because there are two funds I remember you were working on. There’s the Red A and a red B, and we did this for the red one first, correct?

Speaker3: [00:15:27] Right, the right thing is going to go first. Ok. You had. And that’s when we’ll start promoting in September.

Speaker1: [00:15:39] Got it. Yeah. Yeah, because because I remember some other. I mean, this this is kind of an interesting it’s interesting time because the. I mean, in terms of like the chronology, like you seem to be, I mean, at some points, I mean, you’re really looking at more because you seem to understand that. Yeah, I mean, the deal is it’s really hard. But then at the same time, is this adult connected because the quality of the deal obviously determines how quickly they can get funded, but at the same time, without understanding what the buy side wants. It’s hard to to understand what types of deals to originate. So it’s like it’s such a closed loop. But I mean, this is at a good point. So like the other member stuff, he was at the same point when when he joined, he wasn’t he didn’t even have the the thing under LOI. It’s a different sector and everything, but he was at this stage and then for him, it worked out really well because he because he he yeah, it was like in a couple of weeks for when they were originated. And then he already knew the financing source so that he had a few options before. So I think you’re at a good spot. The thing is just a matter of understanding what the market wants and is going back and forth from there.

Speaker3: [00:16:52] Right. I think what else is going on right now is that this this COVID variant in the uptick in the southern states where we’re looking, I think. I think after Labor Day and we see what the government is going to do, are they going to shut down and not? But if they shut down, then I think. That’ll be interesting, but some investors, I’m sure. But if they keep things open, then we should be. We should be able to accumulate cash quickly for some good deals because we’re just hoping that once these moratoriums left, there’s going to be deals out there, left and right. And if we have the capital to jump on it right away, we will be able to take advantage of. The great deals that are out there.

Speaker1: [00:17:50] Oh, God, yeah. I’m sorry to go on and don’t interrupt you.

Speaker3: [00:17:54] Oh no, no. There’s the window opportunity.

Speaker1: [00:17:59] Yeah. Got it. Yeah. And the. So if you can remind me, I guess, real quick, since we have like what really is a what’s what’s it out of the park type of origination for you in terms of the deal side? How does that look like a real quick?

Speaker3: [00:18:18] You mean? What are we looking for in a market like cap rates and from what perspective? I guess so we we look. And right now, I think what owners have been trained to look at and what brokers have been trying to look at is whatever the prevailing cap rate is for the area right now, OK? That’s what that’s going to be acceptable to the lenders and investors, you know, to get an off market deal, which you’ve done before. If you can’t, you know, if you catch the owner and talk directly to him that I think more, it’s going to take longer to close. Just helped them get their paperwork together. I work with one team that took a year to get the paperwork together. It was a great deal, you know, but you know, just, you know, he he’s owned the property for forever and he owns half the town. But you know, this is why increase rents, it’s it. Only people leave, you know? He was just taking the cash and putting in his pocket whatever he got. So once we able to construct the books, there’s a fantastic deal. So.

Speaker1: [00:19:32] Hmm. Got it.

Speaker3: [00:19:33] Yeah, that’s the advantage of working with. That’s the advantage of working with an off market deal where you’re actually working with the owner. But the downside is that then the paperwork has to get fixed up. If you come through a broker, then you already have the paper already ready.

Speaker2: [00:19:49] And yeah, so so that’s that’s the one thing that we really do well because we do have very strong boots, a lot of boots on the ground in where we actually only invest or have invested in the past 10 years as well. So. So there is a track record there. In addition to that in the structure we try and do. In the structure of putting in place once we finalize, we’d love to partner with. Capital investors, both on debt and equity from the side or within the network in the mastermind because the way restructuring things. Is going to allow us to do just that at a much more faster rapid pace. Yeah, for what it is doing now. And I think. All of that, you know, I think this is this is part of our secret sauce. But you know, at some point when we have it established and work differently, we can share how we did that. But. But we don’t get. We typically don’t give advice or projection until we have done it, and we were able to validate our own capital like we’ve done for the past decade or so.

Speaker1: [00:21:04] Right? Well, awesome. And yeah, I mean the I mean, yeah, we benefited. We can benefit a lot from the, you know, Richard Richard’s people, clumsy people. Those are the people that we’ve seen perform. And so, yeah, like we do benefit from some of those collaborations. So then those are the ones I’d look at. So that’s interesting. So then you’re saying that? Yeah, because you’re saying that the so then you’re better, you’re more comfortable originating things that you go direct without a broker because you have some, you have more proficiency with all the legalities and all the paperwork and so on. And so you right? So would you rather go to things directly without flight or directly do all the due diligence directly without having to broker in between for any origination?

Speaker3: [00:21:54] Well, you know, you know, off market deal. So I’m a broker now, so you know, you know. You know, so I have access to a lot of lists, but we also also have access the years we’ve been doing this, we have access to a lot of investors that are, you know, looking at real estate properties. So I see deals coming through across my desk all the time. But it’s just like, you know, analyzing them and saying, OK, this is a good deal that we want to dig into and get involved in. And so. B, yeah, so but when I talked to. Building. Yes.

Speaker1: [00:22:40] So you just.

Speaker3: [00:22:45] Yeah, so it’s a mix, but I think that we’re going to be off and running and we just have some. Seasoned investors that we can actually. Do deals with, you know, we bring the debt and that’s how we’re going to really start running and then we can bring along the owners because, like I said, it’s just getting their paperwork ready and it’s, you know, just takes a little bit of time to get, you know, to be able to for an investor or buyer or us to present the paperwork to the bank. You know, we we do need the details. We need the rent rolls. We need to, you know, the bank statements to verify all the information that you know, that they’re putting into these projects into this projection. So it just takes a long process. That’s all.

Speaker1: [00:23:34] Got it. Fantastic. And yeah, because some people, some people probably have one set of statements for the bank, one set of statements for depending on listing, for tax and whatever. So it’s just to find a real ones from the ones that, you know, at least acrobatics. Ok, so then, yeah, so then, yeah, apologies matter. Matter was on vacation this week and only Kurt’s on backup. So then and so something that would help would be if he actually goes through the entire like if you can repeat one more time. So I get it idle so that he can give you a comprehensive response. And so it’s to go through the financials and to validate all the assumptions and do it correctly. Yep, Swiss, yeah, you can you can secure that. Just make a note of that. Yeah, I’m excited. I’m excited for this one. September is September is next week, a lot of things are happening in September, so I’m psyched for this one in particular.

Speaker3: [00:24:41] That’s right back to school, right?

Speaker1: [00:24:45] Yeah, yeah, hopefully things, you know, things move quicker. I look forward to it.

Speaker3: [00:24:52] Right. He said people will be coming back from their vacation so paperwork can move a lot quicker.

Speaker1: [00:24:59] Exactly. And one more question, too is I’m just curious. So then what is really the average deal size of some of these projects under consideration?

Speaker2: [00:25:12] Mm-hmm. Well, they went anywhere between five to 50 million. I mean, Ken and I have worked in the past or until as high as 78 million or 75 million two, three years back. So, so so I would say anywhere between five to. 100 million, five to 50 million, we would probably want to knock over an average right? So acquisition wise, you’ll be looking at those, but since we have a 50 million, we have a we actually have two different type of funds we’re launching. So we have a impact fund that is 75 million dollar fund that’s going to be structured and behave almost has a meaning. Fine stock almost has a meaning for wheat or shares, but can be traded on the back end. And then we have a regular record, which is an accredited investor only. Also. Well, qualified purchaser as well, and that’s that’s open to anyone who’s this criteria, and these are for a specific set duration and. And so they will both have equity, they’ll both could get in on the incoming side of it. But the the the idea is we start with acquisition so that on day one at closing, we have cash flow coming in and then we make sure of the tail of the fund lifecycle. Some development acquisition is one which will allow a greater recapture of of of the. Of what I call the laggard investors of the investor who came in at the other half of the race. Anyone right now who can come in in the first 50, in the first 20 percent, twenty five percent, they get a better return or higher return because, you know, we’re afraid to incentivize investors to come in at the very. Incurring stage every fund with the launch of its Blackstone, you know, they might say the first hundred million get an extra to one or two percent, two percent referred to return or whatever. So. So we’re trying to create that same incentive for for a portion of, let’s say, one third of that raise as part of our incurring capital on the equity side.

Speaker1: [00:28:00] Yeah, no, this reminds me of Mendoza’s other clients at this other firm that we did the same thing for. It was a clean energy company and they’re issuing security security tokens, but really they’re just shares. It’s this branding security tokens is really just branding. And yeah, same structure like we just gave them, we just gave them a bonus based on the amount. Let me see if I can try to find the exact amount of the bonus we gave them. But yeah, I mean, that’s the same process. Yeah, exactly. Yeah, for this company that was doing an eight 50 million dollar raise for some solar, it was a solar fund, essentially. And they were backed by power purchase agreements in Australia and India and Germany and so on. And so what they did, they did. You know, the first five million did it $16 a unit,

Speaker2: [00:29:06] I will

Speaker1: [00:29:06] Just share my screen so that I’m not. Being too abstract, second. The. Yes, I mean, these people, what they did, they did, they just they had cheaper units based on the based on the amount, which is really interesting. So for the first, yeah,

Speaker2: [00:29:37] Yeah, you could do it, you could you could do it many different ways. So yeah.

Speaker1: [00:29:44] Yeah, is this is just an example, but. Totally agree there when it comes to pumping them full of incentives here. So. Ok, and one more question. So just so I understand more about the deal. So you’re saying that there will be developments, so there’ll be new developments later on? Is that so? Is it kind of because I mean, so the risk is offset by the cash flow in properties that you’re acquiring as well? So is it going to be kind of like a bonus in the sense that, yeah, like the cash flow that doesn’t exist in the new developments would be bounced off by the ones that are cash flowing?

Speaker2: [00:30:32] Now we’re not doing it, the European model and American model. So whatever capital we call in, the capital is deployed. It’s per project. So those return would be at this point. So it’s first come, first serve. If you making it the first project, that’s where you get your return. And then once that project close out, the fund will continue to raise, but it will be for the next project we have going on on the table. Now we’re talking about, we’re talking about. When we talked about. Development, the reason why we won’t participate in any phase zero or acquisition of development at its infancy is because there is no cash flow, no one. Also, there is too many variable factors such as permit such as design architectures, overruns. We don’t want to be dealing with those. So what we’re trying to do is we’re playing the bigger game like the. The larger players are doing well over larger bills, but, well, somewhat mid-sized, but usually those family run developers 15, 20, 30 deck three dedicated to the business. What they’re doing is they come at the phase one or phase two, where they actually acquire a portion or entrance into a development that was already approved, financed and being developed and already already already already dug. The ground to the vertical is in the process of being constructed as as as as that process is called phase one. And once that’s done. Phase two is when you’re finishing the structure and then now you’re doing the interior, the furnishing and everything else and so on. So coming into phase one, you’re still able to buy the discount, but you’re still able, but you are able to have.

Speaker2: [00:32:31] The high 20s of internal return. And those could be issued as debt or could be a promissory note that could be sure to anything because it’s usually a 12 months, 12 months run. So you could do that, you could do that in different ways or you could also do equity as well. So again, it really depends because these even there is no cash flow. These depending on how you negotiate those, any product development, there are massive like that. They typically have the interest reserve. Built and built into the funding so that they can pay off the debt service, there is no cash flow, which is true. But it’s the same approach if you put $10 million in a city for two years. You’re getting three percent. That’s what you’re getting. And that three percent comes once a year. But if you do 10 million for 12 months and you’re getting 10 percent, which one is better? Because even if there’s no cash flow and you decide not to to stay into the deal once phase four, which is when they are selling those units or this complex or phase three is about to complete because you bought it phase one, there is already appreciation in value so you can turn around and sell the interest. Of the interest, you currently hold an exit to investors, so you don’t think if you’re an investor completely. Or exit your investor and retain a one percent. Into the original purchase of that of that project. So that’s typical. And then so again, we’re talking about maybe 10 percent of our portfolio. I’m not talking about this is what I focus right now. But Dhanda will develop a diversified.

Speaker1: [00:34:27] So what was that? I didn’t hear that.

Speaker3: [00:34:35] I think you right? I think we lost a deal. But are we looking to invest initially in cash flowing properties? And, you know, later on after we look at some development properties, it will definitely be after the entire phase and within a year of starting to lease up phase so that, you know, we’re just still getting a deal, but we’re able to still have some. We’ll still have some growth in the investors equity. So it’s a positive returns within a year. You know, Saakashvili got it, but yeah, but that’s that’s long arranged, but for now, you know, let’s say we do that rent the Rigel Kemp deal would have to be cash flowing right away. So we but we do have some investments that I’m pretty sure we can get in on their deals and, you know, provide the equity for them so that they can close and we get solid cash flow right away. And yeah, there’s enough fees that we can make make from investing in their deals to provide capital for our operations as well as being able to. You know, investors paid as well.

Speaker1: [00:36:00] No, I understand. I mean, at this point and plus, yeah, I mean, we’ve seen we’ve seen ritual, we’ve seen them perform, so, you know, that’s really good. We’ve seen them execute. But too like it looks like the whole thing kind of falls in what are those first initial acquisitions because those seem to really be the, you know, the nexus of the whole thing. Whether there are, whether there are new developments are not even though it’s a small percentage of the portfolio, right? And so I think your conversations with climate, I’d really I’d really poke about like some of the strategies that like, I know this was a different industry, right? But one of our other members is that like, you just originated like this amazing deal. It’s a completely different industry than real estate. But you know, I think I think that’s that’s really because if the if the project, if the source of origination, you know, yeah, debt service and so on. But and if it’s if it’s just a home run, then the funding is just, you know, then the funding just happens. It’s so beautiful, right? So yeah, I think that’s a good that’s a good focus at this time, just as you are just continuing to originate the best ones that you can as well for the cashpoint assets.

Speaker3: [00:37:22] And plus, in our network, we have people that are working with directly with the owner so we can hop in on their deal and get the. Get the get part of the the other side

Speaker2: [00:37:40] As well, right?

Speaker1: [00:37:43] Got it. Yeah, I mean, yeah, because you’re not. Yeah, because you’re not, you know, you’re not dealing with all these due diligence, level one, due diligence, level two, if all these brokers and so on. I don’t know if you had a chance to to meet God because, you know, he’s had some like substantial success in. He’s a new member. He had substantial success in in taking his career and then investing in real estate over time. Currently, I believe eight figures assets under management, but he wants to continue to do some apartment complexes, different sector or sorry, not sector, different location, I think. And so I think he’s a good, interesting individual to connect with as well. And, yeah, he’s going through the same process of claiming another acquisition as well. So.

Speaker3: [00:38:36] I diversifying his locations, which is excellent.

Speaker1: [00:38:40] Yeah, yeah. Because the goal is really to, you know, to go from currently to go from, I mean, he loves his profession, but just to go from that and then do this full time. And so that’s what’s happening right now. So.

Speaker3: [00:38:56] Well, that’s a good story. Oh, yeah. Yeah, one day there will be hope to be saying as well.

Speaker1: [00:39:06] Yeah, yeah. That’s the big promise, right? Because it also helps when I mean, it also helps when there’s not just one, there’s not just one deal. You know, that’s why when we deal with people that are more money or more in the flow of many projects, it brings more confidence because if it’s just one founder of one company, that’s the main one raised to make or break, then it’s much harder. But, you know, since that there is a constant flow here, and those are the types of people that we have the most success with because there’s always that confidence. It’s not this one. It’s next one. And it happens to be this one because you’re not desperate and it shows.

Speaker3: [00:39:47] So right. Yeah. So I got to jump on another call, unfortunately. But it’s great talking with you guys as usual.

Speaker1: [00:39:59] Yep. No worries. No worries. All right. Talk soon.

Speaker3: [00:40:02] All right. Great. Thanks again.

Speaker2: [00:40:15] Let’s see. Do you have a financial model projection?

Speaker1: [00:40:20] Yep. Financial projection and

Speaker2: [00:40:23] Financial model, because if I send you guys the financial information, you should be able to spit out your financial model for me, right? Or is it is it something that you don’t do?

Speaker1: [00:40:35] Yeah, we can do that. We have enough yeah, we have enough quote unquote hours for them to do that yet.

Speaker2: [00:40:42] Ok, well, I’ll I’ll reply because, well, we don’t have any on this week nine house, so we’re we’re looking for one, but only the financial model, whatever you use, that’s fine. We just want to make sure we be need to hire one, actually, but we just need to make sure that we have that set and. When is the deadline?

Speaker1: [00:41:15] Was that when is the deadline for that model there?

Speaker2: [00:41:19] I would think next week is finally next, Wednesday is fine, well, Friday district, that’s fine.

Speaker1: [00:41:25] Ok, got it, got it. So the timing, the timing is tricky. I’ll go to the backup because we have a backup because this one is on vacation and then we’ll see what happens there. And then from that, then you, no matter at latest, it will be Wednesday. But we’ll work on doing that as soon as possible. Just this vacation here we’re working on.

Speaker2: [00:41:46] Yeah. So no, that’s fine. So yeah, I’ll send a yeah, I would send that over. And then with my with my response and we can we can go from there.

Speaker1: [00:41:59] Fantastic. Yeah. And yeah, before before you hire somebody in-house in-house. Yeah, feel free to leverage us. That’s where we hear. And then, yeah, and we have we have some people in backup that can assist right away.

Speaker2: [00:42:14] Yep. Ok, that makes sense. Perfect. So. Well, I don’t have anything else, but I’m going to let me just reply, and Cindy said that it was over to you and then we’ll go from there.

Speaker1: [00:42:58] Perfect. Take it one step at a time. All right, sir. Thank you.


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