is a real estate investment company and asset manager that specializes in sourcing value add and off-market investment opportunities for our investors and joint venture partners.
JV Value Add Assets
Double Digit Yields
For Corporate Joint Venture Partners:
Paladin's Value Add Asset, Double Digit Yield programs offer smart investments on well located, commercial assets. These properties consist of under performing multi-family, student housing, medical and retail properties, typically in solid sub-markets with consistent occupancy, rent and demographics. The acquired property is usually mis-managed for a variety of reasons (lack of capital to make necessary improvements, poor tenant policies, weak management, etc.). The acquisition guidelines include sourcing and underwriting the type of properties that need significant capital improvements and a revitalized operating management to attain Peak Performance. These property IRR yields are generally in the 10%-18% range.
Model of Value Add Asset
Paladin Preferred Capital as Managing Sponsor will source, underwrite and negotiate an offer on this type of asset. We have reconstructed a 'model' of a Malibu property, recently co-invested in by a Paladin executive to demonstarte the JV investment process. This is a value add, off-market, "mixed use" property, located on PCH in Malibu (capital stack numbers have been modified for discussion purposes only).
Property Details
This quality asset was exclusively listed and sold by Paladin's partner, Capital & Real Estate Exchange, Inc. For purposes of our model let's assume the asset was acquired for $6 M. The property has a significant below average occupancy and rent roll for the sub-market.
Assumptions
The buying sponsor concluded that a $1 million re-positioning budget (includes loan, closing costs capital improvements & leasing fees) is necessary. This raises the estimated overall property cost to $7 million.
Stabilized Value Forecast, year 3
After upgrades and with increases in rent per square foot and overall occupancy, the stabilized valuation exceeds $8.5 M after year 3; time to resell.
Investor Forecast Yields
Capital stack model summary: The purchase price was $6,000,000. The additional cost to close and renovate are $1,000,000. The total costs is $7,000,000. The loan is $4,500,000. Equity to close is $1,500,000 and overall cash required is $2,500,000 including closing costs, loan fees, capital improvement costs and reserves.
A traditional format would be that Preferred Investors receive the first 8% cash on cash yield on an annualized basis investment. In addition, they earn a 70% share of the net upside profit, exceeding the 8% pref earned each year of the 'hold'. According to this proforma, the investors will earn in excess of a 15% annualized yield for the three year holding period.
Investment Opportunity
There are several opportunities similar to this that are underwritten each week by the Paladin Preferred Capital Executive and our Advisory team.
Trust Deeds
Coupon Clippers for Accredited Investors
For Private, Accredited Investors
Our Trust Deed Coupon Clipper program offers safe & dependable debt investment options, with 6%-10% annual yields. Investors can fund a trust deed individually or in a recorded, fractionalized interest. All trust deed notes are recorded with the County Recorder's office.
For higher yield, BRC Capital offers second trust deed financing at modest loan-to-value ratios, with full recourse borrower guarantees.
Model of Coupon Clipper Trust Deeds
Property Details
An approved borrower acquires a fixer home on a short sale in Los Angeles and requests a first trust deed for the purchase. Here is a typical financial model with assumptions.
Model Assumptions
Purchase Price is $300,000, "all cash".
Renovations & carry costs are $50,000
Total Property Investment: $350,000.
Market price for resale: $500,000.
Expected Net Profit (after fees): $100,000.
Model Loan Request
$200,000; a purchase money first trust deed.
LTV is Loan to Value, LTC is Loan to Cost:
67% LTV on Purchase Price of $300,000
56% LTC on Total Investment of $350,000
40% LTV on Resale list price of $500,000
This is a highly safe and dependable preservation of capital and yield LTV formula.
Model Loan Terms
Loan Amount: $200,000
Interest Rate: 8%, fixed rate, interest only
Term: One Year
Payments: Monthly
The Process
Private lender/investors, including Paladin Preferred Capital, if a fractionalized note, will place loan funds ($200,000) directly with an independent escrow who creates a first trust deed, recorded with First American Title. The interest rate, depending on a number of negotiated factors, will vary between 7%-12% annually.
Collection & Payments
BRC Capital will act as the servicing company and will collect the borrower's monthly payments and remit to each lender/investor on a monthly basis.
Higher yields are available at increased LTV ratios. In the above example, a $300,000 loan will offer a 12%+ rate.
Stabilized Properties
Solid locations - Peak Performance
For Private, Accredited Investors
Our Stabilized Property syndications offer a variety of 'bread & butter' assets for the conservative real estate investor. These properties consist of near peak performing multi-family, student housing, medical, triple net and retail properties in solid sub-markets with consistent occupancy, rent and demographics. Our acquisition guidelines include sourcing and underwriting these types of properties that will need minor capital improvements and a revitalized operating management to continue or attain Peak Performance objectives.
These investments typically generate an annualized cash-on-cash yield ranging from 6%-10%, depending on quality of location and overall investment grade.
Model of Stabilized Property Ownership
Property Details
Paladin Preferred Capital sources a 20 unit non-rent control apartment building in a B qualihe sub-market of Los Angeles. The property is fully occupied and the cap rate is 5.5%, a new loan will carry a 4.2% loan rate. The purchase price is $5,000,000. The loan is $3,500,000. Equity to close is $$1,500,000 and overall cash required is $1,900,000 including closing costs, loan fees, capital improvement costs and reserves.
Assumptions
The analysis demonstrates that there is an upside in rents on many of the units through minor improvements of under $250,000, for the entire project. Upon completion of the cycle to new stabilization, the cap rate will be 6.25% when comparing purchase price to the new net operating income.
Cash-on-Cash Yield
Year one cash-on-cash yield is a dependable 6% plus depreciation. After upgrades, the annualized yield is forecast to exceed 8%. Upon resale, the estimated IRR will exceed 10%.
Investor Perspective
Paladin distributes a Private Placement Memorandum (PPM) to family office or accredited investors for a detailed review and approval of the investment. Co-investors and Paladin Preferred Capital pool $1,900,000 in equity to acquire the asset. Paladin places the deposit and due diligence costs and nominates the lender and the borrowing entity.
The property is managed by BRC Advisors' Property Management Division, which completes the renovation cycle and administers all financial reporting for the investors on a 24/7 on-line basis, submitting distributions on a quarterly basis. The investors will be entitled to a TBD preferred annualized yield, which accumulates if not distributed during the course of ownership. Upon resale, this model asset is forecast to offer a 10%-12% annualized yield to the investors, based on appreciated value.
Equity & Debt Investment Model Transactions
The Executives of Paladin Preferred Capital have acquired over 200 properties during the past 20 years, exceeding two billion dollars in acquisition value in all major asset types, including multi-family, student housing, retail, office and industrial properties.
We have determined that we can best serve our investor community by offering investment opportunities in three distinct investment categories, with reward-risk ratios adjusted by the proforma annualized yield.
We also understand that real estate investing is much more than considering a yield target. In this day and age, a highly sophisticated and transparent organization is needed to efficiently achieve the best property performance while actively and accurately reporting the results to their investors.
Paladin Preferred Capital honors this formula and will only select acquisition candidates that model this philosophy. The following investments are examples to consider. There are many options beyond this presentation that can be discussed in a personal meeting with our Executive or Advisory team.
