Private Investor Options

Executive Summary

• Properties: Multi-family, B/C tiers, 10+ – 100+ units.
• Location: State of Connecticut.
• Process: Buy, rehabilitate, and rent older, somewhat worn and dated multifamily properties in low crime areas.
• Market: Working/middle class singles and families ($50,000 – $150,000 gross income depending on location and family size) at rents in the range of 30-40% of gross income.
• Funding: Bank/Institutional loan 65 – 75% of purchase and rehabilitation cost.
• Returns: Target:
  • Annual cash-on-cash: 5% annually, paid quarterly.
  • Internal Rate of Return 12-15%.
• Duration: 5-7 + years, depending on market conditions.

The What

The Redevelopment Company LLC (TRC) is a real estate investment company founded to provide affordable single and multifamily housing for middle class, working singles and families.  By “affordable” we mean spend about 30 – 35% (not more than 40%) of the family gross income for housing. TRC defines “working” as employed persons/families with gross incomes between $50,000 and $150,00 dollars. Whether this income allows purchasing market rate residences and or paying market rate rents depends on location (e.g., Stamford or Norwich) and family status, (e.g., single or married with children).

See the “Residential Housing” section of this website for single family housing information.

Even though Connecticut, through the Connecticut Housing Finance Agency, has programs requiring only a 3% down payment and will loan the borrower money for closing costs, many families and singles find that they still cannot afford the mortgage payments, liability insurance, utilities, and upkeep costs of home ownership with enough left for food, clothes, credit card payments and other necessities. TRC’s plan fills the gap between market rate apartment renting and/or buying a substandard condo or house.

TRC’s principals will focus on older apartment buildings, many owned by families who have built a rental portfolio over generations. The buildings are often in or near a city center in walking distance of shops, grocery stores and public transportation. Frequently the third or fourth generations of owning families no longer want to be in the landlord business, but use the units as cash cows, not spending capital to maintain or improve the apartments or the buildings. Over time, the buildings deteriorate, the apartments become worn and unattractive to desirable tenants.  Rents stagnate or decrease.  With little or no capital spent on improvements, the building is a slum in the making. This is where TRC comes in.

TRC buys multifamily properties, typically between 10 and 100+/- units, with a somewhat stable rent roll, e.g., 80 to 95% rented, but showing age. We purchase the building below current replacement cost, repair the building to comply with current codes, and upgrade the apartments and public areas to current standards and tastes using attractive but not luxurious finishes.

TRC uses banks and other institutional lenders for 65 – 75% of the purchase price and upgrade costs and raises equity from private investors for the balance. TRC always has skin in the game. The target investor return is a 4 -7% annual cash on cash return and a 12-15% Internal Rate of Return. Duration is typically five to seven years, depending on market conditions.

The Why

TRC is driven to find and create housing affordable by Connecticut’s working people. Why? They deserve good housing. These are the folks who teach our kids, patrol our neighborhoods, build our houses, take care of our grandparents, and make our lawn mowers, our beds, and our tools. They make a living wage but cannot afford to pay $350,000 – $450,000 for 1,500 square foot house, which is the cost in most of Connecticut. According to Redfin’s research,

August 2022, home prices in Connecticut were up 10.5% compared to last year, selling for a median price of $388,400. On average, the number of homes sold was down 13.9% year over year and there were 5,009 homes sold in August this year, down 5,816 homes sold in August last year. The median days on the market was 36 days, down 7 year over year.

The US Department of Housing and Urban Development (HUD) sets the Fair Market Value of rentals for their programs at 40% of market rent. For September 2022, the HUD rates are: one – bedroom – $1,092, two-bedroom – $1,366, and three-bedroom – $1,716. This equates to $3,415 for a market rate two-bedroom apartment, equal to $41,000 after tax income. Try paying that if you have a $100,000 gross income with two kids and a car payment.

Median rental housing costs in 2022’s third quarter increased 9.4% over 2021, more than inflation of 8.5%, according to the National Association of Realtors (“ NAR”). The NAR also notes that Class B and C building have steeper rent increases than Class A buildings, indicating an increasing level of search for less expensive apartments.

Importantly, the National Association of Realtors (NAR) statistics show that from March 2021 to August 2022, the monthly mortgage payment has increased by $750+/- dollars, pricing out about 4 million 25–44-year-old renter households from the home owning market. At the same time, the nation is shy housing units and will be for years according to The Rosen Group, in a June 2021 study for The National Association of Realtors (NAR).

In order to fill an underbuilding gap of at least 5.5 million housing units during the next 10 years, while accounting for historical growth, building would need to accelerate to a pace that is well above the current trend, to more than 2 million housing units per year. This would represent an increase of more than 700,000 units per year, or approximately 60%, relative to the pace of housing production in 2020 of less than 1.3 million units.

At the same time, according to the U.S. Department of Labor the Consumer Price Index in Connecticut rose 8.9% through July 31, 2022. This has sent the cost of gasoline, food, and home products soaring, increasing the difficulty for renters to save enough to buy a house. Add to that the more than double increase in mortgage rates since March of 2021, about a 40% increase in the monthly payment, and it is apparent that renters are in a bind. Wage increases are below inflation rates. Add in home maintenance costs, such as lawn mowing, snow removal, heating, cooling and repairs, to the increasing costs for food, cars, insurance, and credit card rates, one understands why budgets don’t stretch to home ownership.

Demographically, Gen Y, aged 25 to 40, numbering 72.1 million in the US, are already into their prime family forming and real estate buying and renting years. Gen Z, now 9-34 years old, 68 million strong, are on the cusp of entering real estate market and will be fully into renting and buying homes and apartments over the next ten years. These demographics will drive housing demand over the next ten to twenty years. Most commentators believe that the housing market will be a seller’s market for many of those years.

If a home purchase is too expensive, the alternatives are to live with parents or rent, either alone or with roommates. Once the household is formed, other roommates are usually out of the equation. This influx of renters comes into a market that is already at historically low vacancy rates. The US Census Bureau show rental vacancy rates at 4.9% in the first quarter of 2022, down from 6.8% at the end of 2021’s first quarter, a statistically significant decrease. The coming demographic surge into existing and new rentals will support ever higher prices until new units can be built to handle this enormous increase in the renting population.

The Who

The Company

The Redevelopment Company LLC (TRC) is a Connecticut real estate investment company founded to provide multifamily housing for working people. Due to high market value of a Connecticut single family residence or condominium, plus the expense of maintaining a house or condo in high-cost Connecticut, many singles and families cannot afford the aggregate monthly costs and have money left for necessities and a limited lifestyle. TRC fills the gap between market rate apartment renting and/or buying a substandard house or condominium that leaves an individual or family rent poor.

The Principals

The principals, Art Mannion and Mike McLachlan, have deep roots in Connecticut soil and many years’ experience in multiple facets of real estate – buying, selling, owning, brokering, and financing.  The TRC principals have a combined 70 years of real estate experience.

Art’s background is financial law and entrepreneurship. He has been counsel on real estate finance transactions and purchases, raised private capital for companies in which he was a principal and/or advisor, bought and sold businesses owning real estate, and invested in his own commercial real estate. To supplement his legal knowledge, Art has taken over one hundred hours of commercial real estate and syndication classes plus even more hours studying the course materials and learning from expert mentors at commercial real estate and syndication academies. Art has a solo law practice in Danbury CT as well as his real estate activities.

Mike is a licensed residential and commercial real estate broker with years of experience in industrial, office and multifamily buildings. He began his career selling automobiles, then entered the commercial banking business, first as a leasing specialist and then as a mortgage banker. Mike, as the Chief of Staff to Danbury’s mayor for eight years, oversaw tremendous growth of multifamily real estate developments and brought businesses creating thousands of jobs into Danbury. He then served as a Connecticut State Senator for the Greater Danbury area for ten years, always working part time for J.A.R.  a small, family-owned real estate brokerage. When he left the Senate, he eventually acquired that firm and renamed it Hat City Real Estate. In 2020, he joined eXp Real Estate of Connecticut. eXp is a worldwide brokerage and the fastest growing real estate brokerage company anywhere, growing twelve years to over 90,000 salespersons across the globe.

Mike’s real estate brokerage business and Art’s real estate law practice brought them to the same conclusion: many singles and middle-class working families are priced out of today’s heated real estate market. As a result, they rent. At the same time, due to the housing shortage, the rents are so high that one may spend 40 – 50% of a person or family’s gross income to live in a decent house. Due to a dearth of land, the plethora of local and state regulations affecting real estate development, rising material costs, and fast escalating mortgage interest rates, anticipated market growth of new and existing homes will not be anywhere near the numbers needed for foreseeable (ten year) market needs.  

Important Facts About The Redevelopment Company

Mike and Art are both members of the Fortune Builders nationwide network of real estate investors, owners, and developers that has purchased and revitalized over $1.6 billion of commercial real estate over the past six years, including hundreds of millions invested in multifamily residences. Already, sales of refurbished properties returned millions of dollars in capital and profits to its investors. These experts are available to help Mike and Art on any transaction.

TRC puts each potential project through a rigorous analysis process including:

• Comparable property analysis and examination by an independent, certified appraiser
• An economic study of the neighborhood, including city planning and development
• Area demographics, marketability, and growth potential
• Overall property condition, including heating, air conditioning and ventilation, plumbing, electrical, and the structural condition of the foundation, roof, and the building as a whole.

If a preliminary analysis demonstrates that a purchase price with the cost of upgrades plus soft costs can result in a project that meets the cash on cash and IRR targets, TRC may make a conditional offer. If the offer is accepted, TRC and its third-party experts will conduct the thorough due diligence described above. If the due diligence is satisfactory, TRC negotiates the final transaction price and terms. At this stage, TRC, formally initiates the funding process.

TRC teams with designers, general contractors and construction managers very knowledgeable in the multifamily rehabilitation business. The bidding and construction management processes are computerized as if the rental management. Initially, TRC will hire a professional property management firm(s) to handle day to day operations and releasing.

The What

TRC’s principals see older apartment buildings aging without capital being spent to upgrade them.  Many are owned by families who built a rental portfolio over generations. The buildings may be in or near a city center in walking distance of shops, grocery stores and public transportation. The third or fourth generation owners no longer want to be in the landlord business. They use the units as cash cows, not spending capital to maintain the apartments or the buildings. The buildings deteriorate, the apartments become worn and unattractive. This is where TRC enters.

TRC buys multifamily properties, typically between 10 and 100 units, with a stable rent roll, e.g., 80% to 95% rented, but showing age. We make repairs to bring the property into compliance with current codes when required and upgrade the apartments and communal areas to current standards and market desires. We use attractive but not luxurious finishes in the apartments and common areas, resulting in good looking buildings and apartments that working families can afford. By “afford” we mean to spend about 30 – 35% of the family gross income for housing costs in most cases. This is the measure that financial and economic tests set as the goal, leaving enough income left over for living expenses and savings. These refreshed buildings provide needed middle-class housing, upgrade neighborhoods, and allow for personal savings so renters may one day become homeowners, while profiting TRC, its lenders and investors.

The Where

TRC initially will concentrate on Connecticut, an industrial state in the Northeast with a supply of older worker housing in its cities and towns. Co0nnecticut birders New York State on the West, Massachusetts on the North, and Long Island Sound on the South. The state capital, Hartford, is halfway between New York and Boston with Interstate 95 connecting both. Due to Covid, hundreds of families from New York City and its expensive suburbs (e.g., Westchester and Nassau counties), moved to Connecticut seeking larger homes with backyards and home office space. This sudden influx of well-to-do homeowners exploded the local home pricing. What looked like bargains to New Yorkers, swiftly became unaffordable properties for local Connecticut workers. The need of the locals for housing continued unabated so they were, and are, being forced into rentals. However, the same thing happened to the rental markets. Renters on the lower end of the economic spectrum could not pay increased rent as property owners took advantage of the market and raised rents over 25% since 2019. At the same time, the population grew due to inward exceeding outward migration and the city exodus to the more spacious and “lower cost” suburbs. This combination of increased population and rising rentals has forced many working families either to spend upwards of 40% of their gross income on rent or move to substandard housing. This is TRC’s market for their refurbished rental units.

Funding

When a property meets TRC’s initial criteria described above, the TRC principals make an offer for the property and begin a process to raise the capital for the purchase and any rehabilitation costs. TRC and its principal partners always have “skin in the deal” through their own equity contribution.  Funding is a combination of a loan secured by a first mortgage from a lending institution and the balance in equity from private investors. Each project targets an annual equity investor cash return of 4-7% paid quarterly through the life of the transaction, plus a multiple of investor’s initial capital sufficient to create a 12% or greater internal rate of return. Transactions will have a five-to-seven-year target life, with the actual return and holding period dependent on the refinance and resale markets.

TRC will raise the debt portion of any transaction through banks or other institutional investors. The debt terms will be negotiated, but not finally locked down, before initiating an offering. TRC intends to raise equity through Section 506b of the Securities Act of 1933 (Act) private offering exemption. An offering that follows these rules is exempt from the more onerous and expensive Act and State public offering rules. The Federal Act is exclusive and only requires notice to the states in which the property is located or potential investors live.

TRC is seeking accredited investors and sophisticated investors who may be interested when TRC offers an investment opportunity to potential investors qualified under the Act’s Section 506.  There is no current TRC offer.  A requirement is that TRC, on behalf of the offering entity, have a prior relationship with the potential investor and that the potential investor be “accredited or sophisticated” under the applicable definitions. Completing and submitting the form at the end of this narrative initiates the relationship. If you are interested in keeping the middle class men, women, and families in good housing near their workplaces, please fill out the form. No obligation, just a chance to view an opportunity when it arises.

When TRC has identified a property which meets its location, market, size, price, after-repair-value and other requirements, TRC will receive seek out a lender (usually a bank but may be a non-bank financial institution e.g., Freddie Mac or Fannie Mae), which will issue a letter of intent to lend at least 65% of the transaction purchase and rehabilitation costs. TRC and its property specific affiliates will own and manage the property.

TRC will hold a virtual seminar for potential investors explaining the transaction, its risks and income potential. The seminar will be recorded and made available for additional potential investors. An interested potential investor will be directed to the Private Placement Memorandum with a detailed description of the transaction, its potential earning and the risks of investment, together with all the documents required by law for a Rule 506b transaction. After completing and submitting the documentation, the owning entity will inform the investing party of acceptance, subject to funding the investment in the time frame allowed. All of the documents are in electronic form, signed and stored electronically. Once the investors funds are received in escrow, the bank loan finalized, the purchase agreement conditions met, and the purchase transaction about to closed by all parties, the financings will close, and the project will move forward. If you meet the requirements for an accredited or sophisticated investor and would like to receive notice of our offerings, please click “Interested” below and fill out the form in the Appendix. If this type of investment does not suit you now, it may when we offer an investment opportunity.