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Real Estate Update - September 2021

It has been an incredibly busy year already here at CalTier. We have been working on improving our technology to make it easier for our investors to get involved in real estate and growing the assets in the fund.

As of the time of writing, the CalTier Fund has invested into over 1,000 multi-family units. This is a huge achievement and we are very proud of the progress we have made for our investors.

Below is a summary update on each asset:

Solano Vista - Glendale, Arizona

We invested into Solano Vista at the beginning of 2021 with our real estate partner, Sundance Bay. In the last year, our partner has worked hard on improving the community’s amenities, including a new fitness center, resident lounge, office, and game room as well as upgrading 161 of the 352 units to Class A finish level. Renovations included vinyl faux wood flooring, hard surface countertops, new cabinetry in the kitchens and bathrooms, brushed nickel hardware, stainless steel appliances, subway tile backsplashes, under-mount sinks, modern lighting fixtures and washer/dryers. These upgraded units are generating on average a monthly premium of $154 over classic units.

Last quarter, Solano had an average economic occupancy of 89%, which now tracks to the budgeted occupancy rate. Average rental rates increased 2% and net revenue grew by 14% quarter over quarter, tracking 6.3% higher than budget. Revenue was positively impacted by rental rate increases on renewals and units coming out of renovation, as well as a significant decrease in vacancy. Operating expenses are currently tracking 23% below budget due to achieved payroll efficiencies. In total Net Operating Income is tracking 25% above budget.

Because of the state of the market in the Phoenix area, last quarter, Sundance Bay decided to run a full-scale marketing process for the sale of Solano Vista. To ensure an efficient and successful transaction, the property management team stopped bringing in new units for renovation and focused on maintaining consistent property financials.

After receiving a strong interest in Solano Vista from a diverse group of buyers, our partner selected a highly experienced Phoenix operator to purchase the property. The sale is expected to go through next month and early conservative projections are showing net investor returns of 70% IRR and 3.0x investor equity multiple.

Glenwood - Provo, Utah

CalTier invested into Glenwood in March with our partner Redstone Residential. Since then, Glenwood has been off to a great start. Shortly after closing this past spring, our partner set in place a massive renovation project, including both unit and amenity renovations. Unit renovations include the installation of new LVT flooring, countertops, cabinets, paint, carpet, and furniture.

The response by residents and prospective residents to the renovations has been positive. Brigham Young University welcomed students back to campus for Fall 2021 and as a result the property was able to make a distribution of an annualized 4.7% return on equity invested.

Lakewood - Houston, Texas

The CalTier Fund invested into Lakewood in March 2021. Since acquisition, Lakewood has been performing well above Pro Forma projections.

From the onset, the business plan has been to chip away at inefficiencies. Prior to acquisition, Lakewood sat at the lowest level of the overall comp set for rental rates and affordability. This presented a unique opportunity to drive rent increases through strategic renovations and active asset management.

Additionally, being and 'All Bills Paid' Property, reigning in utility spend is paramount to achieving high cash on cash returns. As such, this continues to be a primary focus by transitioning to LED lighting, low-flow toilets, and aerators.

Based on market conditions, a few brokers provided an informal BOV (broker opinion of value) to gauge the pricing of Lakewood. Both BOV's came back valuing Lakewood around $90K/unit.

BOV $90/unit = $7,920,000

Purchase $72/unit = $6,350,000

Profit $18/unit = $1,570,000

However, based on a stabilized NOI of $36,640 trending for 12 months, the value could shake out closer to $8,400,000 or $95/unit.

Currently, Lakewood is trending around $75,000 for the next 4 months with the next expected bump occurring Dec-Feb when Lakewood will have a significant loss to lease burnoff allowing Lakewood to trend around $78,000-80,000 Net Rental Income further increasing NOI and exit value.

Some Highlights:

  • Currently 100% occupancy

  • Aggressively pushing rents and renewals

  • Cash on Cash should trend above 9% for Q3-Q4

  • Expenses are beginning to decelerate and property is stabilizing

Raintree - Provo, Utah

The CalTier Fund invested into Raintree in May 2021. As soon as Raintree closed, the construction management team jumped straight into gutting units for renovations. About 60 workers were on site pushing hard to get interior renovations done over the summer before the fall semester. We are happy to state that renovations are complete and execution of the business plan is well underway.

Apple Lane - Lawrence, Kansas

In July, the CalTier Fund invested in a 75-unit student housing complex serving the students of the University of Kansas in Lawrence, Kansas with our partner Redstone Residential. This acquisition is an aggregation and economies of scale play because it sits right next to Orchard Corners, a student housing complex owned by Redstone that has performed extremely well. The property, like others, was found off-market after initiating discussions with the owner.

The floor plans are complementary to Orchard Corners, which is why Redstone has combined operations and increased the offering to students from a single leasing office, including a rebrand to Orchard Corners Suites, which provided a no net increase to staff, ultimately boosting returns by sharing the team over the two properties.

Prior to acquisition, the property rents were well under market relative to the comps. The team is currently marking to market the rents, adding additional market fees, and beginning to fully renovate the units. The previous owner had not raised rents in 8 years.

Apple Lane has been near 100% occupied for the past 5 years and leads the market in affordability. Through unit renovations and an exterior refresh, Apple Lane is expected to achieve rent premiums to bring the property more in-line with market rents.

The CapEx items will include new flooring, paint, cabinets, countertops, and appliances. We believe that the assumptions are conservative for where the rents can go.

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