Norfolk Industrial Complex Equity II

Annualized return3

Term3

41 months

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Status

Waitlist open

Remaining

Accepting $15,000 - $500,000 investments

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Accepting $15,000 - $500,000 investments

Overview

  • Defensive asset: Equity ownership of three flexible-industrial buildings all located in Norfolk Commerce Park. The complex has multiple uses giving it a greater ability to adapt to the changing demand of the market.
  • Cash flowing asset: The buildings serve as a mission-critical business home for its tenants which include the GSA and several Fortune 500 companies. The leases are shorter in nature in comparison to typical industrial leases, allowing the sponsor to reset rents more frequently to match economic conditions, boosting cash flow available for distribution.
  • Fixed rate debt financing: The complex at the time of acquisition was financed with fixed rate debt at 3.75% and that continues to work well for this deal in light of the higher interest rates in the floating rate debt market.
  • Supply and demand imbalance: The submarket where the complex is located is space-constrained. There has been no new industrial builds over the past two years and only 24k SF of new space proposed for the next 2 years, further driving demand for our properties which could benefit investors at the time of sale.

Investment progress

• Since acquisition in April 2022, the Sponsor has signed or is in the final stages of signing new and renewed leases on over 14% of the rentable square footage.

• The weighted average length of these leases is 6.7 years, they all include 3% annual increases, and as expected are all structured with triple-net reimbursement structures, meaning the tenants reimburse all operating expenses for their space.

• These rental rates are in-line with our expectations with the average weighted lease term a full year longer than underwritten assumptions, demonstrating that the Sponsor is on track with their business plan.

Premise

Investing details

What am I investing in?

  • Equity ownership of a 94% occupied portfolio of three flexible-industrial properties with 14’ ceilings and 54 dock doors located in Norfolk Commerce Park.
  • Norfolk Commerce Park is a highly concentrated flex-use park directly adjacent from I-64 and the Norfolk International Airport. The properties provide mission-critical business space for tenants that service the immediate area.
  • The properties include office and warehouse space, and are located at 2551 Eltham Avenue, 2550 Ellsmere Avenue and 5301 Robin Hood Road.
  • The properties are leased by high quality tenants. 34% of the tenant roster leased to the GSA and Fortune 500 companies, with an additional 13% leased to the Mid-Atlantic Maritime Academy. The remaining space is leased to engineering, technology, transportation, and logistics companies.
  • Yieldstreet has all major decision rights over the properties (including operating budget, capex plan, major leasing, capital calls, holdbacks, sales, financing, etc.)
  • The complex at the time of acquisition was financed with fixed rate debt at 3.75% and that continues to work well for this deal in light of the higher interest rates in the floating rate debt market.

Investment strategy

What is the value proposition?

  • The properties benefit from tenants that service the immediate area, including a population of over 300k within a 5-mile radius and over 765k people within a 10-mile radius, including 15 military installations with a total of 140k military and federal civilian personnel deployed on bases or supporting the military.
  • The submarket is space-constrained, resulting in no new industrial builds over the past two years and only 24k SF of new space proposed for the next 2 years, further driving demand for our properties.
  • The properties are occupied at near market rates, but some tenants are not on triple net (NNN) leases, which means that they are not responsible for expenses of the property, including real estate taxes, building insurance, and maintenance.
  • The Sponsor intends to re-lease or re-tenant a significant square footage of tenancy at NNN terms, ultimately reducing their overheads and cash available for distribution on a current basis.
  • Industrial leases are typically long, however, the leases at these properties are shorter in nature. This allows the sponsor to reset rents more frequently to match market conditions and inflation, boosting cash flow available for distribution.
  • Alongside bringing rents to NNN terms, the Sponsor and Yieldstreet intend to sell the property after 4 years for which they are modeling a potential ~19% gain.

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Behind the investment

Who is the Sponsor and what is Yieldstreet’s experience in the space?

  • The Sponsor, Heritage Capital Group, has a 75+ year track record and has extensive experience in industrial, office, and multi-family properties.
  • Heritage generated a 28% annualized net return and 2.4x equity multiple on its 17 realized investments since inception.
  • Heritage’s current portfolio consists of 19 properties across 8 states with an estimated value of approximately $1.1Bn.
  • The portfolio owns 5M SF of industrial assets, 444 units of multi-family assets, 1M SF of office/retail assets, among others.

Market backdrop

Why should you consider investing?

  • Norfolk Industrial Complex Equity II is classified as a Core real estate opportunity as the underlying properties are relatively stable with high occupancy and predictable cash flows. In comparison to properties classified as Core Plus and Value Add, Core real estate investments are associated with the lowest level of risk.
  • In light of current uncertain and inflated market conditions, we are bullish on flexible industrial space given its defensive characteristics. They can have multiple uses, giving them a greater ability to adapt to the changing demand of the market, making it less risky in comparison to traditional office space, for example, which is hard to reposition for any other use.
  • The resilience of the property type is supported by CBRE's Q2 2022 U.S. Industrial Real Estate Report which found that the industrial market remained on solid footing during Q2 despite economic uncertainty and weak consumer sentiment.
  • Shorter lease lengths and “sticky” tenants at the complex potentially reduces the impact of inflation on this investment. The sponsor has the ability to reset leases more frequently to match market conditions and inflation. And because moving is costly and inefficient, tenants are more likely to renew their lease as opposed to relocating keeping vacancy rates low and cash available for distribution high.

Essentials

Please refer to the Investment Memorandum for more details about this offering.

Where does Yieldstreet lie in terms of priority?

  • Yieldstreet’s $14M equity position is junior to $22.9M of senior debt. The Sponsor has provided the remaining $1.6M of equity which demonstrates alignment of interests.

Cash flow

How do I get paid?

  • Over the life of the investment, investors are expected to receive a target annualized net return of 13-15%, net of Yieldstreet’s management fee and other expenses as further described in the Investment Memorandum and Operating Agreement.
  • Investors are expected to receive cash flows from two sources: ~6% annualized income from the properties’ rents, which is expected to be paid quarterly beginning fourth quarter 2022.
  • The remainder of returns are expected to be achieved via appreciation at time of sale of the property, which is anticipated to be within 4 years.
  • Please note, as cash flows are received, unpaid fund expenses, reserve amounts, Yieldstreet’s management fees and annual member expenses are deducted first, and then capital contributions are returned to investors. Next, the remaining proceeds are paid to investors.
  • The first income distribution typically occurs at the end of the first full quarter after launch, however, investors may not see this payment reflected in their wallets at this time if amounts set forth in the Operating Agreement have not yet been paid in full. Once those amounts have been paid in full, investors will begin receiving payments in their wallet. Please refer to the Operating Agreement for more details.

Accessibility

Who can invest?

  • Eligible investors must verify that they are accredited investors. Please refer to the Private Placement Memorandum for more information.
  • Unrelated business taxable income (UBTI) is income earned by a tax-exempt entity that is not related to its exempt purpose. UBTI tends to be generated when a tax-exempt entity becomes an owner (in part or full) of a business (such as a limited partnership). LPs may generate taxable income in a retirement account if the partnership borrows money. As such, this offering is not available to pension plans, defined benefit plans, defined contribution plans, retirement plans, IRAs, 401(k) and 403(b) funds, and funds comprised of these plans and funds.

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  • Returns & Management fees

    Ann'l management fee

    2.0%

    Target ann'l net return

    13 - 15%

    Inv share in excess profits

    100%

    Target equity multiple

    1.6x

    Target ann'l cash yield

    ~6%

  • Schedule

    Payment schedule

    Quarterly + event based

    First expected payment date

    Q4 2022

    Target term

    4 years

  • Structure

    Tax document

    K-1

    Offering structure

    SPV

    Ann'l flat expense

    0.25%

Docs

Important notes

• Unrelated business taxable income (UBTI) is income earned by a tax-exempt entity that is not related to its exempt purpose. UBTI tends to be generated when a tax-exempt entity becomes an owner (in part or full) of a business (such as a limited partnership). LPs may generate taxable income in a retirement account if the partnership borrows money. As such, this offering is not available to pension plans, defined benefit plans, defined contribution plans, retirement plans, IRAs, 401(k) and 403(b) funds, and funds comprised of these plans and funds.

This offering page describes only certain aspects of the offering ("Offering") of the securities issued by YS HRT REQ II LLC ("Issuer"). The Offering is made only by means of the Investment Memorandum relating to the Offering (the "Offering Document"). The information on this offering page is a summary of the Offering, does not purport to be complete and should not be considered a part of the Offering Document, or as incorporated in the Offering Document by reference or as forming the basis of the Offering. No person has been authorized to give any information or to make any representations other than those contained in the Offering Document or in any marketing or sales literature issued by the Issuer or YieldStreet Management, LLC, as adviser thereto, and referred to in the Offering Document, and, if given or made, such information or representations must not be relied upon. All investors must read the Offering Document in its entirety prior to investing in the securities.

Investing in private markets and alternatives, such as this offering, is speculative and involves a risk of loss, and those investors who cannot afford to lose their entire investment should not invest. Returns are not guaranteed.