Houston TX Multifamily Preferred Equity

Min. Invest $75,000
Target Hold 6 mo
Annualized Returns 24%
Progress - 85% Pledged
Four Arrow Funding, Inc
Four Arrow Funding, Inc
Four Arrow Funding, Inc
Four Arrow Funding, Inc

Why Invest?

  • ECONOMICS
    • Investors receive 24% annualized return
    • Six month term, may extend for two (6) month extensions for increased fee - yield. 
    • $75,000 per unit - $9,000 profit per unit at end of six (6) months
    • $84,000 Payback amount in 6 months.
  •  CLASSIC VALUE ADD UNDERVALUED MULTIFAMILY PLAY 
    • Rents are 25% below market
    • Captive tenants
    • New renovations will increase rent roll and bottom line within six (6) months to either refinance or replace our Preferred Equity with new common equity.
  • DEMOGRAPHICS
    • Working class Hispanic neighborhood
    • Desired requirements for upcoming/better housing in a gentrifying location
    • Overall Houston market demand for rental housing continues to grow
    • Houston supply is still limited for affordable market housing

Investment Type: Term: Raise Amount:
Preferred Equity
6 Months $750,000

Executive Summary

Overview. Four Arrow Funding, Inc. (the “Issuer”) is making a $875,000 preferred equity investment (“PE”) to a newly formed limited liability LLC (the “Borrower”) formed by Vinod Kulhari, Erin Hudson, and Cynthia Manno (the “Guarantor(s)”). The PE is secured by 300 Victoria Drive and 4635 Werner Street, Houston, TX (the “Properties”). The Properties are comprised of two (2) multifamily projects containing a total of 104 units that are substantially occupied. The Properties are “C” Class properties in a B- market. The Borrower intends to upgrade to a solid “B” rating to increase rents and NOI substantially to a $750,000 annual NOI upon stabilization. The approximate cost (the “Cost”) of the Properties is $6.5 million. Upon stabilization, the $6.5 million Cost will convert to a $8.2 million valuation (the “Value”). See the next page for details. The location is the northwest corridor. The Issuer is an affiliate of Chesterfield Faring Ltd (“CFL”).

Capital Structure. The Properties will be secured by first mortgage loans (the “Loan(s)”) of $4.7 million. The purchase price is $5.2 million. With approximately $1.0 million for value add improvements plus $300,000 in closing costs, the total acquisition cost is $6.5 million. The Borrower will have $1.0 million of common equity (“CE”) invested in the Properties. The PE has $1.0 million of CE subordinated to the PE. The Loan is 71.48% Loan to Cost. The PE including the Loan is a 84.79% Loan/PE to Cost and 67.99% Loan to Value upon stabilization. The Value of the Properties must decrease by over 32.01% before you as investors (the “Investors”) would have any risk of principal loss.

PE Participations. The Issuer provides PE loan participations to its Investors. The Issuer is offering ten (10) units (the “Units”) at $75,000 each totaling $750,000. The repayment will be $84,000 per Unit or a gross of $840,000 at the end of the six (6) month term (the “Term”) for a profit of $9,000 per Unit. Predicated on the Term, the annualized return is 24.0%. CFL is purchasing a $35,000 unit totaling $875,000 for the gross PE issuance. The Borrower may extend through two (2) six (6) month extensions for $25,000 in cash each plus adding $75,000 for each extesnion to the face amount of the PE. The Investors will receive Units from the Issuer secured by the PE that the Issuer makes to the Borrower. See the PE Loan Participation agreement for more details and risk factors.

Collateral Held. The Collateral includes a secondary assignment of the LLC membership interests. If and upon a Maturity Date default, if any, FAF has right to sweep net cash flow to repay full balance until paid in full. The Guarantor will: i) guarantee the Loan, & ii) pledge assignments of the interests in the Properties.

The Properties. 300 Victoria Drive. This Property is a 68-unit, 85% occupied "C" class apartment community. 4635 Werner Street. This Property is a 36-unit, 89% occupied “C” class apartment community located close to 300 Victoria Drive. Both Properties are located in Independence Heights area of near Northwest Houston. It is located approximately 1.5 miles outside Loop 610 and sits just over a mile west of the Houston MetroRail (Red Line). While the draw is the affordability of the housing, residents are equally excited about the new choice in public transportation. Both Properties are close in proximity to be easily managed together.

24% Annualized Return

Ten (10) $75,000 units totaling $750,000.

Pays $9,000 profit (interest) on $75,000 returmning $84,000 in six (6) months.

Two (2) six (6) month extensions, each paying another $10,000 maintaining over a 24% annualized return until final maturity. 

Financial Sources

First Mortgage Debt $4,700,000
Preferred Equity $750,000
Common Equity $1,000,000

Financial Uses

Aquisition $6,575,000

Houston Texas

Houston Multifamily Market. The energy sector recovery has fueled job growth in Houston. This in turn has driven demand for housing.

Houston is expected to lead the nation in job creation for a second consecutive year in 2019 as the economy bounces back from a slowdown in the oil and gas industry. Strengthening employment growth will invigorate housing demand with residents facing limited housing options.

The apartment construction pipeline thinned significantly during the energy industry downturn, and this year’s completions fall to one-third of last year’s total. Demand will outweigh completions, resulting in declining vacancy for only the second time in a five-year span. The brightening economic outlook spurred rising multifamily permit issuance last year, and an expanding planning pipeline suggests higher deliveries could be anticipated after 2019 to meet the rising housing needs. (Source: Marcus & Millichap).