Our strategy is to finance qualified developers using capital raised from loan syndication.

Transcription

1 Real Estate Investing and Loan Syndication We strongly believe that Investing in Real Estate provides for superior protection of capital and the most consistent long term performance. Open Source Capital, LLC operates an online real estate investment platform that utilizes private equity funds and MarketPlace financing to fund real estate developers. Our strategy is to finance qualified developers using capital raised from loan syndication. Our expertise is in sourcing, vetting and investing in real estate projects that offer solid riskadjusted returns. For sponsors needing financing, such as Master Renovators Associates, LLC we are solving their capital needs by structuring a senior participation loan which allow the Company to acquire and renovate properties in south Florida. Additionally, we offer the Company innovative and timely advice that covers all aspects, from financial modeling, underwriting, investor targeting, profit distributions, pricing strategy, asset management and documentation to efficiently capitalize transactions. The members of our management team have extensive experience in all aspects of our business, including residential construction and development, institutional investment management, construction lending, debt and equity structuring and syndication. We have a strong background in underwriting, asset management and creditors rights, risk management and corporate governance. Overall, our management team has an average of more than 30 years of experience and provides us with access to a broad referral network and significant practical knowledge of real estate investment, development and capital markets. { ; 2; }

2 We believe that we have significant competitive advantages relating to our experienced management, our existing pipeline and market relationships, the strength of our underwriting and asset management capability, and in our structuring flexibility and speed of closing. Our Strategy Title II of The JOBS ACT allows for general solicitation of accredited investors to participate in our investment platform. This promises the makings of a massive trend, which is just now starting to take place. As a result, we believe that an entire industry is poised for explosive growth and can be one of the most significant solutions to help private equity and retail investors invest in quality off market deals. This may sound like a bold statement, but it s not if you understand entrepreneurism the way we do. The reality is, crowdfunding direct investments in real estate is the way of the future. o Most importantly, we create a number of investment exit strategies that far exceed comparable firms. o We use on-line syndication as a tool to fund a portion of the capital. Syndicating the Loan Investors invest in a Specific Loan made to a Special Purpose Entity SPE. Typical Syndicated Loan Investment: Investors SPV Lender Participation loan SPE-Operating Company

3 Many investors are concerned or disenchanted with banks, REITS and private equity firms. Many want to find a new way to expand their real estate investing. We believe that our business model is a way for many people to start shifting their focus from waiting to executing. By working with us investors can benefit from small off-market deals that: 1. create value 2. are located in strong markets 3. provide cash flow 4. have a high probability of rent increases 5. have a history of management s performance 6. have a market-oriented management team 7. have sponsors with the ability to develop, manage and lease 8. have the proper capital stack 9. are not correlated to the stock market 10. have a realistic return on invested capital 11. have a realistic exit strategy Targeted Investments We focus on working with firms that have a competitive advantage in their market and that can offer solid risk-adjusted returns to our investors. Our targeted investments include: Multifamily Condo Single Family Townhouse Retail Hospitality Self-Storage Student Housing Senior Housing Our Competitive Strengths We believe our business possesses several characteristics that distinguish us from our competitors, including: Experienced management. Our primary competitive advantage comes from our senior management team, which has operated in the lending business for over thirty years. Each member of the senior management team has at least 20 years of relevant experience in high yield debt structuring, debt capital markets, origination, underwriting, credit, risk management, loan servicing, real estate development and construction, and corporate governance. Market niche. The Company has successfully targeted the segment of the real estate

4 market occupied by small to medium-sized developers. These companies operate on a scale that allows them to acquire small, in-fill sites in strong growth markets. Currently, and for the foreseeable future, we believe that small and medium size developers will struggle to find equity and bank loans to acquire and improve projects. Transaction pipeline and relationships. Our existing client relationships provide us access to a unique pipeline of opportunities. Our reputation with brokers for prompt response, creative structuring and reliability results in many new investment opportunities. We continue to develop mutually beneficial relationships within the communities in which we operate. Strong underwriting and asset management capabilities. We have developed industryleading expertise in underwriting the types of investments we have successfully employed. Our management specializes in deal structuring, credit agreements and loan participation agreements that protect our rights, mitigate losses and enhance returns. We believe that investors are willing to finance projects that have been vetted by our management team and will view their investment as an alternative to other short-term income producing investments. Affiliated Developer/Sponsors Visit our website to learn about our affiliated sponsor/developers Targeted Returns Investments are typically underwritten to yield internal rates of return of between 20-30%. Investor revenue is generally derived from both cash-flow and profit participation. Our investments typically provide up to 95% of the equity capital required to acquire and improve a property. Each investment finances a discrete project through a special purpose entity. Our investments are senior to the borrower s equity and the non-commoditized nature of the product allows for flexibility in obtaining favorable terms including fees, preferred returns and profit participation. Liquidity We believe that overtime investors will be able to resell their private securities on the CFX market when seeking liquidity for their crowdfunding investments. Vast Market Opportunity Enhanced by Highly Underserved Client Base Management believes that the Company s focus on small and medium size clients will allow for the potential to serve a large customer base currently underserved by banks and other institutional lenders. Management believes there has never been a better time to be in this business. Many lenders, unregulated private secured lenders and structured joint venture equity providers have consolidated into a small group of very large institutional investors with little appetite for real estate deals with unique requirements. The capital inefficiencies placed upon developers and

5 homebuilders has been exacerbated by the 2008 downturn that has led many banks large and small to dramatically tighten credit standards, if not withdraw from the market altogether. This contraction in the traditional capital supply to developers and homebuilders has only increased the need for the company s products. Management believes that the non-commoditized nature of the company s products will allow for flexibility and investor favorable terms. Industry Overview Serving the under-banked population is a target rich environment capable of producing rapid growth opportunity for the Company. The Company provides an alternative to traditional bank lending for only a small portion of the companies that cannot access traditional bank lending facilities mostly due to size or structure as opposed to quality. Management anticipates that revenue participation investments could become the primary credit provider for many more real estate companies in the future. The Company has the flexibility to structure and provide financial products that address this underserved market. Our Investment Strategy We believe that given the risk and time involved, ground- up and value-add real estate will obtain superior returns. To achieve this goal, we must be willing to provide capital to purchase assets at a time when conventional financing sources are non-existent or extremely limited. This generally applies to assets that are too small to access the public debt or equity markets, conventional bank lending is not available or the company needs funds quickly in order to capture a special opportunity. Approaching the Market The internet has made the company more prepared than ever by being able to easily access information about demographics, market trends, comparable sales and other information related to real estate sales. The key to unlocking potential investments lies largely with our ability to recognize trends and acquaint ourselves with qualified buyers who are capitalizing on those trends. Opportunities are everywhere; we read, watch, and listen. We look for news articles reporting companies financial and sales forecast and annual reports, as these are often signs of companies that are selling assets in a distressed market and may have a need for additional cash. Market disruptions often produce meaningful opportunities. We avoid the herd approach and instead focus on the individual value of each opportunity. We also look for opportunities when markets are trading on emotion rather than logic. We believe that markets create virtuous cycles on the upside that tend to lead to overvaluation and vicious cycles on the downside that can lead to undervalued assets. This contrarian approach relies, in part, on fads and herd mentalities that lead to fundamental differences between price and value.

6 Sourcing Investments Origination, the process of sourcing and initiating new deals, requires reviewing as many potential local investment opportunities as possible. It requires not only screening deals that don t have the potential to be profitable, but you must also have the discipline to pass on deals where your management does not have the expertise to correctly evaluate and underwrite the opportunity. There is no shortage of good deals; however, it is important to understand early on, which deals have a high probability of ultimately closing. As a value investor, time is our most valuable asset, and being able to quickly identify bad deals, marginal deals, or deals that require a lot of due diligence with little chance of getting completed, is tremendously important. We source our deals using relationship that we have developed over the past 40 years, as well as, a group of pre-screened brokers. Other referral agents are typically commercial bankers, CPAs and attorneys. OSC works closely with its referral sources to train them with regard to the types of deals OSC will consider and how OSC structures and underwrites its deals. This process provides the referral agents with the necessary tools to quickly evaluate requests, to see if they fit the profile for OSC and increases OSC s efficiency by eliminating spending any time on deals that we are not interested in doing. DUE DILIGENCE- THE MOTHER OF EVERY INVESTMENT Due diligence is as much an art as it is a science. Due diligence starts by both asking questions and gathering information. When performing due diligence, our experienced team of associates and other third party consultants will not only be assessing risk, but will also be evaluating the opportunity. It is very important during the due diligence period to become deeply involved in understanding every major aspect of the company or project. This includes understanding the competition, understanding the products and their cost structure, and learning how the company prices and markets its products. Due diligence includes multiple site visits, inspecting comparable ventures or properties, meeting directly with management, talking with other investors, lenders, and stakeholders, performing credit underwriting, and engaging with various third parties on legal or other technical matters. One thing we cannot stress enough is the need to continually be expanding our circle of close advisors by aligning ourselves with seasoned executives in the industry that we are investing in. In simple terms, the goal of our due diligence is to use the best available information to arrive at a valuation of our investment in the venture. The method best suited is to work backwards, by starting with amount and timing of revenue, then evaluating costs and, finally, subtracting costs from revenue to determine the company s ability to make payments to us. The investment

7 decision then is based upon the price that we can acquire our assets, how much we can sell them for, and the proportional share of the cash flow we retain from the financing. The importance of due diligence, its quality, and the importance of its integrity, cannot be overstated. This is the blue collar, detailed-oriented, unglamorous, but disciplined approach that separates the professionals from the hacks. We take pride in establishing and using industry s best practices, sources and methods to independently verify all assumptions with the highest quality and most relevant data, in addition to our ability to organize and present both data and results into a concise and logical presentation. This is a capability we have built over time by researching and following some of the best institutional professionals in the business.