Investment Fund Presentation
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Transcript of Investment Fund Presentation
1
Opportunity Partners Fund II, LP
“Current opportunity for value creation in the distressed Twin Cities real estate
market”
2
Opportunity Partners Fund II, LP
Opportunity
Expertise
Opportunity PartnersFund II, LP
Strategy
3
Opportunity Partners Fund II, LP
Opportunity
Expertise
Opportunity PartnersFund II, LP
Strategy
4
US Economy Today
Stock market has rebounded some, but remains volatile
Unemployment elevated Home foreclosures remain high Home prices remain depressed Commercial real estate values weak Financing for real estate (especially
commercial) difficult
S&P 500 Index
5
59%
57%
31%
S&P/Case-Shiller Home Price Index
6
Jan-
00
Jan-
01
Jan-
02
Jan-
03
Jan-
04
Jan-
05
Jan-
06
Jan-
07
Jan-
08
Jan-
09
Jan-
10100
120
140
160
180
200
MSPUS
MSP 29%
US 29%
Source: Standard & Poor’s
US
32%
MSP 36%
Moodys/REAL Commercial Property Price Index (CPPI)
7
39%
8
2009 Holders of Commercial Mortgage Loans
Commercial Banks
Life Companies
S&L
Other
CMBS Issuers
GSE
42%28%
10%
9%7%
4%
Source: Mortgage Bankers Association
9
CMBS Issuance 2000-2010
$0
$50
$100
$150
$200
$250
CM
BS
Issu
an
ce (
$ i
n b
illi
on
s)
Source: Mortgage Bankers Association
* As of 07/23/2010
CRE Loans at US Banks
10
Gro
ss L
oan
s (
$ i
n m
illi
on
s)
Source: Federal Reserve
Oct-
08
Dec-0
8
Feb-0
9
Apr-0
9
Jun-
09
Aug-0
9
Oct-
09
Dec-0
9
Feb-1
0
Apr-1
0
Jun-
101450000
1500000
1550000
1600000
1650000
1700000
1750000
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Opportunity
As real estate has historically been a very leveraged asset class, this lack of credit is greatly impacting real estate values
The combination of the challenging economy and credit market turmoil is creating huge and continuing downward pressure on real estate values (all types)
History suggests that this distressed market will provide many opportunities to make excellent buys on real estate
12
Opportunity Partners Fund II, LP
Opportunity
Expertise
Opportunity PartnersFund II, LP
Strategy
13
Cycle of Emotions
14
Strategy
Make opportunistic buys of real estate and real estate related assets
Focus on assets in which our group has particular knowledge and/or expertise
Attention to downside protection Remain patient – majority of value created on
the buy
70 73 76 79 82 85 88 91 94 97 0 3 6 90
100
200
300
400
500
General Partner Pro-jection
Bank Failures, 1970-2010
15
S&L Crisis:2,935 Bank Failures
Annual U.S. Bank Failures
2009:140
Banks
2010:*Current -110
Est. - 172
Source: FDIC
* As of 08/20/2010
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
0 1 2 3 4 5 6 7 8 9 10
$0
$100
$200
$300
$400
General Partner Projection
Total Assets
To
tal A
ss
ets
($
in b
illio
ns
)
*As of 08/20/2010
16
Bank Failures, 1970-2010
S&L Crisis:$924B Total Assets
2008:$372B
1989:$164B
Annual U.S. Bank Failures – Total Assets
Source: FDIC
Se-ries1
$0
$100,000
$200,000
$300,000
$400,000
$500,000
Total Assets ($M)
48 50 47 50 53 61 65 76 90 117171
252
305
416552
702775
# of Problem Banks
Banks
17
Total Number of Problem FDIC-Insured Institutions, with Assets ($M)
Source: FDIC Quarterly Banking Profile
Banks
18
4Q 2
004
2Q 2
005
4Q 2
005
2Q 2
006
4Q 2
006
2Q 2
007
4Q 2
007
2Q 2
008
4Q 2
008
2Q 2
009
4Q 2
009
0
1
2
3
4
5
Non Performing Loans / Loans (%) All Banks
Source: FDIC
Banks
19
4Q 2
004
2Q 2
005
4Q 2
005
2Q 2
006
4Q 2
006
2Q 2
007
4Q 2
007
2Q 2
008
4Q 2
008
2Q 2
009
4Q 2
009
0.00
50.00
100.00
150.00
200.00
250.00
300.00
Reserves / Non Performing Assets (%)All Banks
Source: FDIC
Banks
20
Banks
21
22
Strategy
Much of real estate we intend to buy is owned by (or mortgaged to) regional and community banks
We will utilize Strong bank relationships Proprietary bank research Government bank programs – loss sharing
agreements
23
Strategy - Example
Skyscape
Minneapolis, MN
Investment ~$11.6MM
72 units purchased
50% below 2006 development cost
55% below 2007 prices
Expecting a 25% unlevered return (net profit of ~$7 million)
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Strategy - Example
Skyscape
Minneapolis, MN
Patience – 2 year pursuit
Relationships – negotiated deal
Downside protection – 50% below replacement cost
Area of expertise
25
Strategy
Asset Types Residential real estate Commercial real estate Land assets Performing and non-performing loans secured
by the above Purchase Formats
Negotiated Auction
26
Strategy
Assets acquired to be aggressively managed during hold period (2-4 years)
Assets sold as markets allow
27
Opportunity Partners Fund II, LP
Opportunity
Expertise
Opportunity PartnersFund II, LP
Strategy
28
General Partner
Kim A. Culp, President, The Excelsior GroupKim A. Culp is founder and President of the Excelsior Group. He was formerly Regional Chairman of Marshall & Ilsley Bank. Mr. Culp was an original investor, Vice Chairman and President of Century Bank prior to its sale to Marshall & Ilsley Bank of Milwaukee. Previously, he was co-owner, President and Chief Executive Officer of The Shelard Group, a Twin Cities-based commercial real estate services company that provided leasing, brokerage and property management services. Mr. Culp currently has office, multi-family and industrial real estate holdings. Mr. Culp holds a B.A. from the University of St. John’s and currently serves on the Board of Directors of Ryan Companies, Cote Family Companies, and Catholic Charities.
Theodore G. Glasrud, Jr., Chief Manager, Opportunity AdvisorsTheodore G. Glasrud, Jr. is the Chief Manager of Opportunity Advisors, and currently devotes the majority of his time to this concern. Mr. Glasrud is also President of Glasrud Financial Corporation, a Twin Cities-based financial services firm he founded in 2002. Mr. Glasrud’s career includes 17 years of financial services experience including several years of commercial real estate lending experience for Twin Cities-based lenders. Mr. Glasrud has specific experience as a buyer and seller of RTC loan paper in the early 1990s and has particular knowledge of the Twin Cities loan participation market. Mr. Glasrud Jr. holds a B.S. and an M.B.A from Duke University.
Kirt Woodhouse, President, Sterling GroupKirt Woodhouse is President of Sterling Group, a Minneapolis-based real estate investment company. Prior to co-founding Sterling Group, he was North Central Regional Partner for Trammell Crow Company and served on its Management Board. Mr. Woodhouse holds a B.S. degree in Economics from Dartmouth College.
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General Partner
Stanford Baratz, President, Baratz Financial, Inc.Stan Baratz is the founder and President of Baratz Financial, Inc., a Minneapolis-based company specializing in the private placement of debt and equity for growing Midwestern companies. Prior to founding Baratz Financial, he served as a partner and executive vice president of one of Minnesota's largest full-service real estate firms, Welsh Companies. During his tenure at Welsh Companies, the company grew to become the largest property management firm in the state with over 16 million sq. ft. of industrial, office, retail, and multifamily properties under management. Baratz received his MBA from the University of Minnesota's Carlson School of Management and his B.A. from American University.
Christopher K. Culp, Principal, The Excelsior GroupChris Culp is a Principal and founding partner of The Excelsior Group. With Excelsior, Mr. Culp has been responsible for the disposition of multiple investment real estate properties totaling approximately $110 million. He has provided financing and acquisition services for more than $50 million of investment real estate assets. Additionally, he has managed a 1,700 unit multifamily real estate portfolio as well as other office and retail properties. Mr. Culp has also been active in acquiring and repositioning multifamily real estate. Previously, Mr. Culp was a Commercial Banking Associate at US Bank. Mr. Culp has a bachelor’s degree in finance from Villanova University.
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General Partner
More than 100 years collectively of real estate experience
Bank ownership and management Impressive track record with Fund I Proven ability to remain patient Proven ability to close deals
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Fund I Investments
Skyscape
Minneapolis, MN
Investment ~$11.6MM
72 units purchased
50% below 2006 development cost
55% below 2007 prices
Expecting a 25% unlevered return
SummercrestBrooklyn Park, MNInvestment ~$2.3MM18 units purchased25% below 2004 development cost45% below 2007 pricesExpecting a 15% levered return
32
Fund I Investments
Residential 1st mortgage land loan
Bloomington, MN
Investment ~$1.25MM
Performing
< 50% LTV at today’s values
Expecting a 19% unlevered return
SFH Foreclosure PortfolioMinneapolis, MNInvestment ~$750kBuy and fix-up for ~$80k averageSell at ~$120k averageExpecting a 30% unlevered return
33
Fund I Returns
Overall, Fund I expects to deliver a 16% IRR to limited partners Consistent with original expectation With limited downside risk In spite of very limited leverage
34
Fund I Experience
Fund II investors will benefit from Fund I experience Proven investment methodology Established relationships Market research Market credibility Deal pipeline
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Opportunity Partners Fund II, LP
Opportunity
Expertise
StrategyOpportunity Partners
Fund II, LP
36
Fund II
Traditional limited partnership structure Up to $25MM in total equity commitments Five (5) year term Investment period of 24 months Leverage not greater than 67% Market fees cover costs 5% initial capital call, then called as needed GP members will collectively invest 5% of
fund capital (minimum $1 million)
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Fund II
Return allocation LPs receive return of capital invested; then LPs receive 10% preferred return; then GP receives “catch up”; then Split 80% LP, 20% GP to 15% IRR to LPs After LPs receive 15% IRR, profit split is
70% LP, 30% GP LP target return is 18-20%
Allocation Example
Assume: $1,000,000 purchase Sell in (1) year for $1,250,000 Profit is $250,000
Distribution: $1,000,000 to LPs (return of capital) $100,000 to LPs (preferred return) $25,000 to GP (“catch up”) $62,500 to LPs/GP in 80/20 ratio $62,500 to LPs/GP in 70/30 ratio
Profit to LPs: $193,750 Profit to GP: $56,250 38
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Summary
Opportunity
Expertise
Strategy
…Using our deep relationships, experience and proven track record
to select the best opportunities!
…To purchase at historic lows…
Huge opportunity now exists…
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Summary
Opportunity
Expertise
Opportunity PartnersFund II, LP
Strategy
41
Opportunity Partners Fund II, LP
“Current opportunity for value creation in the distressed Twin Cities real estate
market”
Sample Opportunity
42
Sample Opportunity
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Sample Opportunity
44