Chet Balder Vice President. Ardmin Properties Real Estate Investment Group:

Transcription

1 Chet Balder Vice President Ardmin Properties Real Estate Investment Group: Fundamentals in Business A look at the past and the present

2 Imagine Imagine Going back to college Imagine Going back to your first job Imagine Buying your first house Imagine knowing key buying opportunities

3 Stock Chart

4 Market Cycle Quadrants Phase I - Expansion Phase II - Hypersupply Declining Vacancy New Construction Rents Rise Rapidly Property Values Rise Equilibrium Increasing Vacancy New Construction Rent Growth Declines Property Values Level Long Term Occupancy Average New Construction Rents Equal Existing Rents Phase IV- Recovery Phase III - Recession Declining Vacancy No New Construction Below Inflation Rental Growth Property Values Level Increasing Vacancy No New Construction Negative Rental Growth Property Values Decline

5 Agenda Going Back in Time Ardmin Properties Business & Real Estate Opportunities in today s Economy How to Invest Active or Passive? Case Study Questions

6 ARDMIN..It All Started With A Dinner No No Joe.Why would someone invest in Real Estate when the Stock Market is giving 20% Returns? ARDMIN Planning Meeting 2000.An Idea Is Born

7 Ardmin Properties First Real Estate Syndication in 2003 Market at its bottom 2 years after 9/11/2001 Bought Fox Lake Town Center 2003 LLC Bought at $50 psf Talked movie theater into expanding in unusable space Build out new Retail Cash Flow and Refinance 143% of investment Still have 137% of money left in the property

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9 What is the market going to do? This is a low markets will go UP! What have you done to take advantage of this huge buying opportunity? Have you been looking at new businesses/investments? If now is not the time to buy, I have never seen a buying opportunity!!!

10 The Time is NOW! We are at a time that investors wait a decade or more for! What is the best 5 run for Stock performance? 1995 to % 25% 40%

11 Have a Business Plan Mission Statement The Team Market Summary Opportunities Business Concept Competition Goals & Objectives Financial Plan Resource Requirements Risks & Rewards Key Issues Gross Sales / Income - Expenses = Profit

12 What have you change in your business with the new economy? Evaluate Expenses Negotiate contracts lower Form you new businesses to reduce costs Form JV partnerships to reduce costs Change Vendors Non performing Vendors Require more work for the same pay Change Personal Reduce staff Trade staff up more qualified people for less money New sources of revenue All companies are evaluating bottom line NOW. Change of direction from the old economy New Business Plan Evaluate the new profit margin Know what you are best in class in Buy Your competitors

13 What are your expect Returns? For your investments? For your business? What is your risk tolerance? What assumptions are you using? When will the economy recover? How to measure this? What variables need to change? What Are your Money Rules?

14 Valuation of Business / Investment Profit to Earnings Ration (PE) Gross Sales EBIT Multiplier on Gross Sales Multiplier on Gross Profit Property Value NOI/CAP Rate Sales Comparisons

15 Value of the Hard Assets Business Hard Assets Current Profitability Future Growth Expected Need to buy/sell Real Estate Hard Assets Current Profitability Future Growth Expected Need to buy / sell

16 Commercial Property DEFINITION: Business property, such as an office building, retail stores, medical center or hotel that operates with a profit. A risk/return relationship exists in commercial property. The return is comprised of the net rental income, capital appreciation in price and tax savings.

17 Risk Elements of Real Estate Leverage In a good economy Makes investments grow faster In a negative economy Makes investments reduce faster In either, if cash flow is produced, buy definition, it is lower risk Inflation Hedge Real Estate rises with the price of inflation Leveraged property raises cash on cash value faster Changes is economy Good economy Increasing Rents In a negative economy Decreasing rents Effectiveness in Property Management Lease Rates Length of Leases Concession of Improvements, rent or abatement Expense controls

18 Risk In Investments Treasury Bill State Bonds City Bonds Real Estate Bonds Coprorate Bonds Real Estate Mutual Funds / Stock Indexes Individual Stocks Private Companies Start up companies

19 Real Estate Characteristics Type Industrial Hotel Mixed-Use Multi-Family Office Retail Raw Land Single family Location Urban Suburban Rural Phase Hold Land New Construction Stabilized Renovation

20 Elements That Drive Returns for Real Estate 1. Cash flow 0% - 15 % 2. Debt Reduction 0% - 5% 3. Appreciation 0% - 100% 4. Tax Savings (Cost Segregation) 0% - 15% ANNUAL RETURN 0% 10% 14% 24% 29%

21 Evaluating An Investment Net Operating Income (NOI) Definition: Gross income of a rental property minus allowances and operating expenses, excluding depreciation and debt service. Formula [ NOI = GROSS INCOME TOTAL OPERATING EXPENSES] CAPitalization Rate (CAP RATE) Definition: A calculation of the performance of the income potential from a property Derived From: Product Type Specific Impacted by location and condition of product Market Driven Formula [CAP = NOI/PROPERTY VALUE] Formula [PROPERTY VALUE = NOI/CAP] EXAMPLE: $1,000,000 = $100,000/10% ($200,000 Investment) $1,100,000 = $110,000 /10% (50% ROI) $1,111,111 = $100,000 /9% (55% ROI)

22 Tools To Compare Investments Average Annual Return (AAR) Total Return divided by the number of years of the deal. Five years 100% Total Return Average Annual Return 20% Internal Rate of Return (IRR) The IRR is the annualized effective compounded return rate which can be earned on the invested capital, i.e. the yield on the investment. A mathematical formulation to take into account the time value of money. Also used to value two or more unlike investments. Assumption is that as cash flow comes out, it is invested in a new investment at the same rate.

23 Evaluate The Following Investments Real Estate Investment YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10 CASH FLOWS $987 $1,385 $1,546 $951 $1,518 $1,238 $1,959 $2,002 $1,480 $18,644 Return ON+OF ($10,000) $987 $1,385 $1,546 $951 $1,518 $1,238 $1,959 $2,002 $1,480 $28,644 Investment IRR= 20.15% Money Market 20% Interest AVG ANN RETURN= 31.71% $3,171 INITIAL INVESTMENT NOT INCLUDED CASH FLOWS $2,015 $2,015 $2,015 $2,015 $2,015 $2,015 $2,015 $2,015 $2,015 $2,015 Return ON+OF ($10,000) $2,015 $2,015 $2,015 $2,015 $2,015 $2,015 $2,015 $2,015 $2,015 $12,015 Investment IRR= 20.15% AVG ANN RETURN= 20.15% $2,015 INITIAL INVESTMENT NOT INCLUDED Utility Stock 14% Dividend + 161% Growth CASH FLOWS $1,400 $1,400 $1,400 $1,400 $1,400 $1,400 $1,400 $1,400 $1,400 $17,500 Return ON+OF ($10,000) $1,400 $1,400 $1,400 $1,400 $1,400 $1,400 $1,400 $1,400 $1,400 $27,500 Investment IRR= 20.15% AVG ANN RETURN= 30.10% $3,010 INITIAL INVESTMENT NOT INCLUDED Growth Stock 0% Dividend + 527% Growth CASH FLOWS $- $- $- $- $- $- $- $- $- $52,700 Return ON+OF ($10,000) $- $- $- $- $- $- $- $- $- $62,700 Investment IRR= 20.15% AVG ANN RETURN= 52.70% $5,270 INITIAL INVESTMENT NOT INCLUDED

24 Ardmin Properties Real Estate Investment Group What do you look for in today s Environment?

25 Today s Environment: Lending Difficult to get a Loan Higher Loan to Value Personal Guarantees More reserves needed Higher Vacancy Not as many Lenders Recession Higher CAP rates Some people need to sell Institutions Groups Individuals Selling property to fund other debt Not as many buyers Slower paying rent More vacancy When is the market turn around? 1 year? 3 Years?

26 Economy Issues Commercial Real Estate? NOI CAP Rate Value $ 1,200, % $ 20,000, LTV 90.00% $ 18,000, Equity 10.00% $ 2,000, NOI CAP Rate Value $ 1,200, % $ 17,142, LTV 75.00% $ 12,857, Equity 25.00% $ 4,285,714.29

27 Two Ways to make Money: Passive Who is my Partner? What is the Deal? How is it Structured? Active Who do we need to Partner with? What Deal do we want to create? How do we Structure the deal? Money working for them Working for their money

28 Active Investor: Summary Build with Partners Create your Deal Define the Structure Commercial real-estate investing takes a fulltime commitment with specialized professionals.

29 Passive Investor: Summary Confirm the Partners Understand the Deal Verify the Structure All investments come with risk. Understand these risks that realize the opportunity.

30 Ardmin Properties Real Estate Investment Group Running your own Business

31 WAUKEGAN PROFESSIONAL BUILDING 2009 LLC

32 The Deal Proposition: Buy the lowest risk deal we have purchased to date: 89% occupied Buy at a 10%- 11% Cap Rate Projected 25% Average Returns Filled with all Physicians & Lawyer Exit Strategy: Sell building as the market stabilizes in 1-3 years Sell at a 8.75% Cap Rate Look to lease up basement with Storage

33 The Property 30 miles North of Chicago Waukegan, IL 28,000 square foot 100% occupancy

34 Cash Flow Projections Class A $10,000 INVESTMENT 2009 FY 2010 FY $772 $1, % 10.39% 2011 FY $16, % Investor Class A Internal Rate of Return 23.65% Average Annual Return 27.51% Total Investment Return $182.53% Minimum Investment $50,000 Property Participation Incentive 15% * Projections are not guaranteed

35 A Detailed Look at the Numbers Purchase Price: $ 3,100,000 Building Area: 30,049 square foot (7,500 sf Basement) Current Vacancy: 11% Lease Type: 2-5 year leases Number Of Units: 15 current tenants All physicians and lawyers NOI: Fiscal Year 1 $ 296, Fiscal Year 2 $ 329, Fiscal Year 3 $ 341, Projected Sale Price: $ 3,901,041 Projected Hold Period: 1-3 years Projected AAR: 27% Annually Projected IRR: 24% Projected 1 st year Cash Flow: Over 7% Investment Offering: $ 501,500 requried to close Financing Approved: $ 2,170,000 from a bank 70% LTV

36 Legal Structure ARDMIN INVESTMENT CLASS A INVESTOR CLASS B INVESTOR Waukegan Professional Building 2009 LLC ARDMIN PROPERTIES MANAGEMENT GROUP INC.

37 Expectations for the Waukegan Property NOI $ CAP Rate 11% Property Value $3,100,000 $ $ % 8% $3,792,677 $4,266,762 Two ways to increase the NOI Decrease Expenses Increase the Rent

38 Imagine Imagine Going back to college Imagine Going back to your first job Imagine Buying your first house Imagine knowing key buying opportunities

39 Questions & Answers Chet Balder (847)

40 Need More About Ardmin Properties? Go to Click on the Investor Relations tab Click on New User Registration Fill out the online information Fill out, print and sign the NDA & NSA" Fax or mail the information to our office. Upon receipt, we will send you out all the information on our current offering and you will be on our future mailing list for all future offerings.