Real Estate Funds explained

Mike Zlotnik | Mike@TempoFunding.com | 917-806-5029 | Aug 2019

Disclaimer• This presentation and its contents are not an attempt to sell securities, nor to sell anything at all, nor provide

legal, nor tax accounting, nor any other advice.

• The presenter is a private lending and real estate fund management business, and the information represented herein are purely for educational purposes and represents the opinions of the presented. Prior to making any investment or legal decision you should seek professional opinions from a licensed attorney, and a financial advisor.

• Investments in Tempo Opportunity Fund LLC are offered via the Private Placement Memorandum (PPM) to accredited investors only. Please request and review the above mention PPM before making any decisions. Consult with your Investment professional before making any decisions.

• Past results do not guarantee future performance.

• Information provided is approximate in nature and for educational purposes only.

• Married, 4 kids and a cat

• CEO of TF Management Group LLC

• Co-Manager of TF Investment Fund II LLC was founded in 2014.

• Co-Manager Tempo Opportunity Fund LLC was founded in 2017.

• Retired Software executive (1995-2009 career)

• Real Estate Investor since 2000

• Part Time Investor 2000-2009

• Full Time fund Manager since 2009

Who is Big Mike?

Why consider Real Estate Funds? Roller Coaster Ride vs Smooth Sailing

Diversified portfolio building blocks

• Funds

• Syndications

• Partnerships

• Direct ownership

Diversification elements / dimensions• Type

• Self-Storage, Multifamily, Office, Industrial, Residential

• Strategy • Value-add vs. Stabilized• Income vs. Growth

• Duration• Short Term vs. Long Term

• Location• Sponsor / Fund Manager / Operator• Equity / Debt

Public vs. Private funds

• Publicly traded REITs (Real Estate Investment Trust)

• Privately offered via PPMs (Private Placement Memorandum)

Fund Objective and Investment Philosophy

• Wall Street terms• Conservative Income• Moderate Growth & Income• Aggressive Growth

• Main Street terms• Investment grade Cashflow• Speculative grade Growth

Investment QuadrantsQuadrant 1

Investment Grade : CASHFLOW focused

- Good down side protection- Low / moderate risk- Good initial Cashflow- e.g. 1st lien perming notes, moderately leverage

equity deals, funds like TOF

Quadrant 2

Investment Grade: GROWTH focused

- Good down side protection- Low / moderate risk- No/Limited initial cashflow- e.g. 1st lien NPN, light-moderate value-add projects

Quadrant 3Speculative Grade (Risk is high) – CASHFLOW focused

- Limited down side protection- Strong initial Cashflow- e.g. 2nd lien notes, highly leveraged equity deals

Quadrant 4Speculative Grade (Risk is high): GROWTH focused

- Limited down side protection- No/Limited initial cashflow- e.g. Development, Redevelopment, Land

Speculation

Focus on Risk Adjusted Return

• Risk Adjusted Return = Projected Return – Loss Reserves

Note: Many funds and syndications state projected returns, but they don’t mention “Risk Adjusted Return”. You should always lower your expectations by the level of risk in a given investment – that will give you your target Risk Adjusted Return.

Diversified vs. Focused Funds• Diversified funds:

• Broad set of investment strategies, various asset types, geographies, mix of debt and equity investments, etc.

• Focused Funds:• Single strategy, e.g. Multifamily, Office Space, Non-Performing Notes, Self-

Storage, Retail, Hard Money Lending on Fix-n-flips, Gas stations real estate holdings

• Certain limited geography, e.g. single State or City• Strong Value-add vs. Performing

Diversified Fund example• Debt Investments:

• Loans outstanding: 64

• Equity Investments:• Projects outstanding: 22

• Multifamily 5• Self-Storage 4• Shopping Centers 6• Office 1• Residential 1• Corporate Debt 2• Funds 1• Distressed Debt 1

Open-ended vs. Close-ended funds• Open-ended funds, a.k.a. “Evergreen” funds

• Raise capital ongoing basis, typically Quarterly (but could be monthly, etc.)• Re-invest capital coming from asset sales or repaid notes• “Mark to market” value of assets for the purpose of subscriptions / redemptions• Distribute “Realized gains” or Realized Income on Quarterly basis (same as

subscriptions/redemptions)

• Close-ended funds• Raise capital during a specific period of time, e.g. 12 months• Purchase assets / make investments• Run those assets through their life cycle and liquidate them• Distribute income and return capital at various times throughout life of the fund• Fund has typically projected exit date(s)

Equity Funds vs. Debt Funds

• Equity Funds• Investors purchase units or shares

• Debt Funds• Investors purchase promissory notes

Equity Fund structure examples• Fund example 1:

• Preferred Return: 8%• Annual Mgnt fee: 2%• Performance Split (above Pref): 60/40 (investors/sponsor)

• Fund example 2:• Preferred Return: 7%• Annual Mgnt fee: 1.5%• Performance Split (above Pref): 70/30 (investors/sponsor)

• Fund example 3:• Preferred Return: 0%• Annual Mgnt fee: 1.5%• Performance Split (above Pref): 80/20 (investors/sponsor)

How Equity Funds derive income and growth• Income (Realized gains or Realized Returns)

• Points + interest + fees on hard money loans• Cash distributions on equity projects• Any other current incomeNote: Income is distributable on quarterly basis

• Growth (Unrealized gains / Appreciation) • Forced Appreciation on Value-Add projects (e.g. Multifamily apartment renovations, Self-

Storage development or redevelopment)• Natural Appreciation based on local and broader market conditions

• Total return = Income (Realized gains) + Growth (Unrealized gains)Note: Ultimately unrealized gains convert to realized gains on sale, and this produces Income.

Debt Fund (Notes sold to fund investors)Note Term Tiers

12 3

24 Months 48 Months 60 Months

Note Principal

Tiers

D $100,000 - $249,000 5.00% 6.00% 7.00%

C $250,000 - $499,000 6.00% 6.50% 7.50%

B $500,000 - $999,000 7.00% 7.50% 8.00%

A $1,000,000+ 7.50% 8.00% 8.50%

Long-Term vs. Short-Term investing

• Long Term investing

• Short Term investing

Value-add vs. Core investing• Value-add

• Value-add plan• Value-add driven cashflow & appreciation

• Core• Performing Asset(s)• Maximizing yield

Should you invest in Individual Deal(s) vs. Fund(s)Individual Deal(s) Fund(s)

Risk Concentration, High Volatility Diversification, Low Volatility

Low Liquidity Better Liquidity (depends of type of fund)

Actual Returns very often are worse than Pro Forma Returns

Returns could be better & more predictable (if fund structure supports it)

More Active involvement Completely Passive Investment

Idle Funds between investments Funds are always working

IRA investors - Risk of UBIT on debt leveraged deals IRA Investors - No UBIT if there is no debt leverage of the fund level

Must Have the right amount of $$ Flexible (add / reinvest distributions)

Fund Summary and Performance, TOF exampleFund Type Growth & Income

Fund Focus Value-Add equity investments and Fix-n-Flip hard-money loans

Preferred return 7%

Total return target: 10-13%

Average annual since inception (April 2017)Total return / Realized return

A Units: 13.76% / 8.57%B Units: 10.59% / 8.59%C Units: 12.43% / 8.13%

Trailing 12 months Total return / Realized return

(as of 4/1/19)

A Units: 10.89% / 8.89%B Units: 10.41% / 8.64%C Units: 9.92% / 8.41%

Q1 2019 Total return / Realized return

(annualized)

A Units: 14.29% / 9.48%B Units: 13.43% / 9.21%C Units: 12.54% / 8.92%

Fund Capital (projected 4/1/19) $15,232,000

Distributions Quarterly (reinvestments allowed)

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