Michigan Multi-Family Renovation Equity I

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Status

Closed

Recently funded

Accepting $10,000 - $150,000 investments

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Accepting $10,000 - $150,000 investments

Overview

Invest indirectly in an equity ownership in a multi-family property, Southgate Apartments, in Southgate, Michigan. The property is currently 98% occupied and consists of 624 multi-family units across 22 garden-style buildings, one four-story midrise building, one six-story midrise building, and 10 townhome buildings. Southgate is a stable middle class submarket with an average household income of $57k, nearly two times that of Detroit. The property is in commutable distance to Detroit, which has seen a recent revitalization, and is within a 5-mile radius of essential stores such as CVS, Walmart, and Kroger as well as the Southland Shopping Center.

The property was completed in 1973 and remains one of the higher-end properties in the Southgate area. Recently, 20 units underwent interior renovations and had other necessary maintenance upgrades completed. The business plan of the sponsor, Pepper Pike Acquisition Associates, an experienced real estate investment firm with over 20 completed projects, is to invest the necessary capital to update and renovate the remaining 600 units.

The in-place average rent for the property is $823 ($1.06 PSF), and post-renovation, the sponsor projects rent increase of ~21.5%. Additionally, the sponsor believes operational efficiencies can be improved as the property currently operates with less-than-market-average operating margins. The sponsor intends to sell or refinance the property after 3-4 years when the projected rent increase is expected to be achieved.

The offering is expected to provide investors with a target annualized return of 15 - 17% over the life of the investment. Since this is an equity investment, there is potential for returns to be above or below the target range. Of the expected annualized return, it is anticipated that the property will generate an annualized ~10% of income that will be distributed to investors on a quarterly basis. The balance of the returns are expected to be achieved via appreciation of the property and returned to investors, along with their remaining invested capital, at time of sale or refinancing of the property.

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Important Notes

• 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.

Returns

Yieldstreet Management Fee

2.0%

Target Net Return

15% - 17%

Target Equity Multiple

1.65x - 1.75x

Target Annual Cash Yield

~10%

Schedule

Payment Schedule

Quarterly + Event Based

Prefunded

Term

Date

Target Term

48 months

Structure

Tax Document

K-1

Offering Structure

SPV

Expenses

First Year Expense

$150

Annual Flat Expense

$70

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  • Returns

    Yieldstreet Management Fee

    2.0%

    Target Net Return

    15% - 17%

    Target Equity Multiple

    1.65x - 1.75x

    Target Annual Cash Yield

    ~10%

  • Schedule

    Payment Schedule

    Quarterly + Event Based

    Prefunded

    Term

    Date

    Target Term

    48 months

  • Structure

    Tax Document

    K-1

    Offering Structure

    SPV

    Expenses

    First Year Expense

    $150

    Annual Flat Expense

    $70

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Essentials

Please refer the Investment Memorandum in the Resources section for more details about this offering.

Capital Structure

Where does Yieldstreet lie in terms of priority?

Yieldstreet’s equity position is junior to both the senior debt and preferred equity in the investment. The senior debt was provided by an investment-grade publicly listed insurance company and the preferred equity was raised by a real estate private equity company. Yieldstreet, and a Yieldstreet affiliate, have contributed $4.7M in the equity commitment.

Cash Flow

How do I get paid?

Over the life of the investment, investors are expected to receive a target annualized return of 15 - 17%, net of fees, including the sponsor’s incentive fee. Investors are expected to receive cash flows from two sources: ~10% of annualized income from property rents, which are expected to be paid quarterly, and the balance of the returns are expected to be achieved via appreciation of the property and returned to investors, along with their remaining invested capital, at time of sale or refinancing of the property, which is expected to be in approximately 44 months.

Assets

What is the collateral underlying the transaction?

Located in the city of Southgate, Southgate Apartments, is comprised of three sections: Southgate, Wyandotte Townhomes and Seaway Towers, which are located contiguously on 16700 Quarry Road, 4401 Quarry Road and 16335 Barbe Road, Southgate, MI 48195. The property consists of 624 multi-family units across 22 garden-style buildings, one four-story midrise building, one six-story midrise building, and 10 townhome buildings. The property was constructed over the period of 1965 to 1973 and is one of the higher-end properties in the submarket. Of the 624 units, there are 69 studios, 253 1BR/1BA units and 302 2BR/1BA units.

The property had been owned by the same family since it was constructed. The previous ownership group has invested approximately $6.73M, $11k per unit, in renovations to the community over 2016-2020. The renovations included interior updates to 20 units and addressed significant deferred maintenance items such as HVAC units, roof replacements, window replacements, asphalt paving, landscaping, etc. The sponsor plans to spend ~$9M to upgrade the interiors of the remaining 600 units. The sponsor expects to renovate the units on a rolling basis, averaging 35 units per month. Renovation work is expected to commence in approximately 6 months and take about 18 months to complete.

Highlights

Location/Market
Business Plan Support
Property Projections
Experienced Sponsor
Capital Guarantee
  • The city of Southgate is located 15 miles south of Detroit with access to a major highway for commuting. The largest employment sectors are the medical, educational, and manufacturing sectors. Employers in the area include Henry Ford Hospital, US Steel, BASF Chemical, Ford Motors, and the Southgate School System.

  • According to commercial real estate market analytics platform CoStar, Southgate is part of the Downriver multifamily submarket, one of the larger multifamily submarkets in the Detroit area. Inventory in the submarket consists primarily of older, well-leased properties. CoStar projects 6.0% annual rent growth over the next three years.

    Strong rent growth is highlighted by elevated demand for new, higher-end inventory. New developments have average asking rents at more than $1,600/unit, a 60% premium compared to the Detroit metro average. Despite the high asking rents in this relatively affordable market, demand has been strong for these new higher-end units, which collectively boast less than a 2% vacancy rate.

  • View property financial estimates here.

  • Founded in 2011, Pepper Pike Acquisition Associates is a fully integrated real estate investment firm based in Cleveland, OH. The firm is led by Paul Kiebler IV and employs approximately 120 full time employees across three operating platforms. The firm’s investment strategy includes acquisition of properties that are candidates for value-add repositioning through the implementation of capital improvement plans and operational efficiencies.

    The firm has realized investments comprising 7,920 units across 20 properties.

  • The principal of the sponsor has provided a guarantee for the full repayment of Yieldstreet’s capital contribution.

Resources

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.