jordan wirsz - investing in commercial real estate

Confidential. Copyright 2015 Savant Investment Partners.

Real Estate Cycles & Secular Bull MarketFrontline commercial real estate investing with Jordan

Wirsz


Disclosures

Savant Investment Partners is a publisher. All content published herein (collectively, the “Content”) is strictly intended for general informational and entertainment purposes only and may not be relied upon for any other purpose. Reproduction of the Content by any means is prohibited without prior written permission of Savant Investment Partners.

The views expressed in the Content are the authors' own opinions only and do not necessarily reflect the views of Savant Investment Partners. None of the Content constitutes a recommendation that any particular investment, security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Further, none of the creators or providers of our Content or their affiliates will advise anyone personally concerning the nature, potential, value or suitability of any particular investment, security, portfolio of securities, transaction, investment strategy or other matter. Accordingly, do not attempt to contact them seeking personalized investment advice, which they cannot provide. To the extent any of the Content may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.

Any performance data in the Content is supplied by sources believed to be reliable, that the calculations therein are made using such data, and that such calculations are not guaranteed by these sources, the information providers, or any other person or entity, and may not be complete. In addition, past performance is not an indication of future results.

Confidential. Copyright 2015 Savant Investment Partners. 3

DisclosuresTHIS IS NOT AN OFFERING OR THE SOLICITATION OF AN OFFER TO PURCHASE AN INTEREST IN SAVANT SYNDICATED INVESTMENTS. ANY SUCH OFFER OR SOLICITATION WILL ONLY BE MADE TO QUALIFIED INVESTORS BY MEANS OF A CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM AND ONLY IN THOSE JURISDICTIONS WHERE PERMITTED BY LAW.

AN INVESTMENT IN REAL ESTATE SYNDICATIONS ARE SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. OPPORTUNITIES FOR WITHDRAWAL, REDEMPTION AND TRANSFERABILITY OF INTERESTS MAYRESTRICTED, SO INVESTORS MAY NOT HAVE ACCESS TO CAPITAL WHEN IT IS NEEDED.

THE FEES AND EXPENSES CHARGED IN CONNECTION WITH AN INVESTMENT WITH SAVANT MAY BE HIGHER THAN THE FEES AND EXPENSES OF OTHER INVESTMENT ALTERNATIVES AND MAY OFFSET PROFITS. NO ASSURANCE CAN BE GIVEN THAT ANY SAVANT INVESTMENT OBJECTIVE WILL BE ACHIEVED OR THAT AN INVESTOR WILL RECEIVE A RETURN OF ALL OR PART OF HIS OR HER INVESTMENT. INVESTMENT RESULTS MAY VARY SUBSTANTIALLY OVER ANY GIVEN TIME PERIOD.

The investment case studies shown herein are presented for informational purposes only. The case studies shown are included to illustrate the application of the investment methodology of Savant Investment Partners, LLC (the “Manager”) in practice in order to demonstrate catalysts for investment and sale, among other things. These case studies were executed through the [personal account(s)] of principals of the Manager, clients of the Manager, or affiliates of the Manager, and are not necessarily indicative of typical investment positions of Savant or their investors. The returns referenced in the case studies shown do not include the impact of advisory fees or other expenses, which would serve to decrease profits or otherwise increase losses. It should not be assumed that investments made in the future will be profitable or will equal the performance results shown herein.

This material contains certain forward-looking statements and projections regarding the future performance and asset allocation of our investors. These projections are included for illustrative purposes only. By their nature, forward-looking statements and projections are inherently predictive, speculative, and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements and projections. No assurances can be given that the forward-looking statements in this document will be realized. It is not intended that these forward-looking statements will be updated in the future.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.


Notes Before We Start Please ask questions and interact – we appreciate the participation

Some of the data charts may be dated due to infrequent updates to some specific charts

Please feel free to contact us after the presentation if you have any questions or would like to discuss the topics.

You may request a copy of these slides from us directly by calling or emailing us.


The Catalyst for OpportunityThe Commercial Real Estate Cycle is at the right place to take advantage of the opportunities.


Why Commercial Real Estate?

Commercial real estate has yet to see the strong recovery that housing has, thus it remains undervalued in many markets. Why? Simple: Economic recovery and availability of capital has only been apparent for about 24 months. Housing is consumer based, which leads recoveries.

The commercial real estate cycle has only begun to turn bullish for the long-term. Investing at the right time in the cycle is key – you want to swim with the current, not against it.

Many commercial properties can be bought far below replacement cost. In a normal market, properties will sell for more than replacement cost. Why? Developers need entrepreneurial incentive to build, so comparable existing prices must support new development.

Banks/Hedge Funds are still holding onto commercial foreclosure inventory, and it’s time for them to sell their remaining assets, presenting opportunities for “value buyers” such as myself.


The Backdrop – Bullish Case for Real Estate

The real estate cycle is perhaps one of the most clear and consistent cycles to study.

Macro market will “peak” within 7 years.

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2022


Markets and Cycles

Local markets vary.


Trends We Monitor By Area

Job growth Population growth Occupancy rates Lease rates Sales prices New construction timing Business trends and potential area impact

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The CAPITAL market cycle is very tightly correlated to the PRICE cycle. When more capital is chasing less space, prices rise. When capital tightens and demand for space decreases, prices fall.

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As rates rise, banks have more incentive to lend with bigger margins. This means availability of capital to borrow/increasing sales volume will increase also driving the

increase in prices. There is a relationship between rates and real estate prices, but not a direct 1-for-1 correlation.

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30-year U.S. Bond Interest Rates


The current interest rate cycle is allowing long term leverage at historically low interest rates!

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Will higher interest rates mean “soft” real estate prices? No!

A conviction amongst the general public (who are always late to the correct conclusion) that interest rates have bottomed will lead to a spurt of buying activity, which will drive prices higher.

Rising interest rates usually means rising inflation. Real estate usually does well in an inflationary environment.

Higher interest rates and inflation will mean growing rents, which is positive for the price of commercial real estate.

It is important to remember that we are at HISTORICAL LOWS in interest rates. A rise to 5%, 6%, or even 6.5% is still relatively low, and real estate will have no problem continuing to thrive in that type of rate environment.

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Credit “tightness” has declined, and loan demand is up!

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The Lending EnvironmentCapital Markets Are Back!


The relationship between money supply and inflation is largely misunderstood. The financial crisis in 2008 created a debt deleveraging process, which is by nature deflationary. This debt that was extinguished effectively netted out against any money that was printed.

Up until the real estate crash, the adjusted monetary base and real estate prices in the U.S. were highly correlated. The deleveraging process - concentrated mostly in real estate and consumer debt - created a temporary disconnect that we believe will reverse. This means increasing real estate prices.

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The Backdrop – Inflationary Pressures

0%

1000%

2000%

3000%

4000%

5000%

U.S. Real Estate Prices vs Adjusted Monetary Base

U.S. Real Estate Price Index Adjusted Monetary Base


Replacement costs rise during inflationary periods. Today, you can still buy commercial real estate well below replacement cost. Thus, we expect to “double end” the gains with market conditions recovering to replacement cost levels, in addition to the inflationary tailwinds which will raise rents.

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Step #1: Find the right deal.

BANKS: Still have foreclosure inventory that they are usually willing to sell at 20-25% discounts to current market value.

HEDGE FUNDS: Bought notes during the downturn for pennies on the dollar. They then foreclosed on the assets, and now they are liquidating assets to capture liquidity and profits. They have also mismanaged assets due to extreme workload and lack of motivation to extract every ounce of value.

DISTRESSED SELLERS: Many sellers have “hung on” during the tough times and are now wanting to sell their assets. They have often mismanaged their properties, have high vacancy rates and the properties are in need of fix-up or repairs, and the sellers simply don’t have the funds to do that. Thus, they are selling a “value add” asset for less than market.

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“The Art of the Deal”


Understanding Commercial ValuationsCAP Rates & “N.O.I.” = Net Operating Income

N.O.I. Means

Net Operating Income After Taxes After Insurance After Management Fees After other regular expenses But BEFORE Debt payments

Think of “NOI” as your cash on cash return, prior to paying debt payments.

CAP rates are figured with NOI

NOI Purchase Price = CAP

Example:$100,000 NOI

$1,000,000 Purchase price = 10% CAP Rate

CAP rates in general range from 5% to 10% depending on the asset itself.

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It is important to understand that VALUE in commercial real estate is in the income stream.Commercial properties are often valued on “CAP” (capitalization rates).

For example:123 Main Street, Las Vegas, Nevada10,000 square foot retail center5 tenants

Net Operating Income (NOI): $80,000

Value at a 7% CAP Rate: $1,145,000Value at a 8% CAP Rate: $1,000,000Value at a 9% CAP Rate: $890,000

Every property is worth what an investor is willing to accept as its yield.

****Commercial Property Owners Buy The Income Stream.

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Commercial CAP Rate Valuations


CAP Rates – Commercial Real Estate Returns“CAP Rate” = Capitalization Rate i.e. “ROI”

More Risk = Higher CAP

Tertiary/smaller markets Older, less desirable property Uniqueness Un-favored asset type More complex property to manage or

lease High vacancy potential

Both the PROPERTY and the AREA can be classified as A, B, C, or D in grade.

Lower Risk = Lower CAP

Mainstream markets (i.e. LA, San Fran., Phoenix, Chicago, etc.)

Newer construction Easy to lease/manage Highly favored asset type Well-leased / low vacancy potential

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My personal formula for evaluating the primary aspects of any deal are:

1. What is the price per foot to acquire and what is the price per foot to replace?

2. Is there room for growth in the rent rates?3. What is the existing income and quality of tenants?4. Is there room to create additional income by leasing vacant space?5. What is the age/location grade of the property? A, B, or C?

***It is obviously a bit more complex than the above, but these points are where I start my evaluation on every deal.

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“The Art of the Deal”


Retail shopping center in Las Vegas, Nevada

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200% Returns – Is It Possible???


I was presented with an opportunity to buy an asset from a hedge fund that needed to liquidate prior to the end of November, 2014 for unknown, but “firm” circumstances.

The property was 81% leased at the time, and cash flowing a NOI of approx. $96,000.

Due to closing time constraints, the buyer needed to act fast and be committed. Savant was able to meet those requirements.

We wrote an offer to purchase the property within 24 hours of touring it for the first time.

Due to our reputation of performance, we were awarded the contract to purchase.

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200% - My Deal


Built in 2008

Existing leases with 7 tenants

81% Occupied

$96,000 existing NOI

Purchase price of $1,062,500 (9% CAP on existing income, better than market rate)

11,668 square feet ($91/ft. acquisition price – estimated $200/ft. + replacement cost)

$1,300,000 value estimate upon closing (almost $250k made day 1)

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200% - The Property


Paid $1,062,500 on November 24, 2014

Financed $800,000

Down payment of $262,500 + closing costs (my equity investment)

At closing, I bought a 9% net investment that was also $250k below market value.

Immediately after closing, I approached the strongest of the existing tenants and determined if any of them were interested in additional space. Indeed, the best and strongest tenant was interested.

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200% - How I Did It


We negotiated the following terms on a new leasewith an existing tenant to expand their business:

7 year lease on the vacant 2,165 s.f. (now 100% occupied).

Renewed the tenant’s original space for a new 7 year term.

$1.25/s.f. lease rate + CAM Expenses ($.30/ft.).

3% annual increases in rent for the 7 year term.

Landlord (me) to pay $30k in tenant improvements.

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200% - How I Did It


Purchase Price:Tenant Improvements: Total Basis:

Down Payment + TI’s:

New NOI: Debt Service:Cash Return:

Property Value based on 7.75% CAP rate with $140,000 of NOI =$1,800,000-$1,092,500 invested-6% sales costs (I’m realistic)= $599,500 Equity Profit (roughly 200%)+ 29% annualized (leveraged) cash return on current income

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200% - How the Math Works Out

$1,062,500$30,000$1,092,500

$292,500

$140,000$52,800 annually$87,200 / 29.8% on my cash investment


***I can’t give you the “Savant Secret Sauce” but I can give you some pointers.

Contact small and large local commercial brokers and get on their email list for available deals. Tell them you’re looking for “opportunistic” assets with “upside.”

Contact local banks/lenders and ask if they have any foreclosure inventory they want to sell.

Be on the lookout for distressed, tired, or undercapitalized sellers.

Finding the right opportunities requires having your ear to the ground, strategic relationships, a keen and discerning eye, as well as a lot of persistence.

We “earn our keep” by finding the good deals and MAKING our deals exceptional.

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200% - How Do You Find These Kinds of 200% Deals?


***NOTE:

The example I just gave is an extraordinarily “Good Deal.” Not all commercial real estate investments turn out as well, and this math example is not “typical” of commercial real estate investing.

We were able to achieve this extraordinary return by being aggressive in our acquisition negotiations, our leasing negotiations, and utilizing our unique abilities to maximize property performance.

Are these results typical? No.Are they possible from time to time? Absolutely.

As Warren Buffet says, “You can’t go broke making a profit.”

We strive to make every deal profitable…Some are better than others.

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200% - Typical? Definitely Not.


We strive to hit home runs on all of our acquisitions. However, the notorious story of the tortious and the hare proves that slow and steady wins the race.

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Under Promise…Over Deliver.


The Savant OpportunityWhat we do and how we do it.


Investments in:

Geography:

Est. Avg. Cash Return:

Target Capital Appreciation:

Combined Targeted Return:

Hold Period:

Minimum Investment:

Qualifications:

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Over $100 Million in Transactions Since 2012

Commercial Real Estate Throughout The U.S.(Office, Medical, Retail/Shopping, Industrial, Multi-Family)

Nationwide with emphasis on the S.W. region

7-10%

7% compounded annually (or better)

15% +

3-7 Years

$100,000

Must be an *accredited investor.

Introducing:Savant Commercial Real Estate Syndications


Why Savant CRE Investments?

We align our interests with yours by taking a reduced management fees in exchange for profit participation with you.

We are aggressive, active and experienced managers. We thoroughly understand “the art of the deal.”

We pride ourselves on 100% transparency to investors, quarterly reporting, and annual investor meetings.

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The Savant Difference


Investor Capital Sources

*Usually 10 – 20% of investable assets are placed with us over time.

Dedicated Investment Capital Self Directed IRA Shift former employer 401k to Self-Directed IRA


What are the opportunities in front of us?

Collateralized Mortgage Backed Securities (CMBS) loan maturities are facing a “cliff” over the next few years. This will provide strategic opportunities to acquire properties from owners under pressure from banks to pay them off.

Banks/lenders still have foreclosure inventory that they are willing to sell at discounted prices.

Commercial property owning baby boomers are looking for liquidity.

Hedge funds who acquired distressed assets are looking to divest and obtain liquidity.

Inexperienced real estate investors with poor management and inadequate capital to upgrade the property need to sell.

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The Savant Opportunities Ahead


Savant Notable Deals

$44.5 Million Multi-Family $22.5 Million Multi-Family $7.5 Million Development Land $8.7 Million SFR Portfolio $4.3 Million Luxury Portfolio $2.0 Million Office Acquisition $1.1 Million Retail Acquisition $3.2 Million Industrial build-2-suit

Small or large, sexy or not.

Multi-Family Office Medical Industrial Retail/Shopping Land Development


Interested in learning more about how to invest with us?

Call or e-mail us for:

A discussion of whether we are the right fit for your portfolio

A complete and detailed investor presentation about Savant and the CRE opportunities

A call with myself or one of our investment relations representatives

[email protected] (702) 474-3003

www.SavantInvestments.com 5586 S. Fort Apache Rd. Suite 120

Las Vegas, NV 89148

*Email me personally at: [email protected]

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Commercial Real Estate Investments

mailto:[email protected]

http://www.savantinvestments.com/

mailto:[email protected]


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http://www.savantreport.com/


Disclosures

Savant Investment Partners is a publisher. All content published herein (collectively, the “Content”) is strictly intended for general informational and entertainment purposes only and may not be relied upon for any other purpose. Reproduction of the Content by any means is prohibited without prior written permission of Savant Investment Partners.

The views expressed in the Content are the authors' own opinions only and do not necessarily reflect the views of Savant Investment Partners. None of the Content constitutes a recommendation that any particular investment, security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Further, none of the creators or providers of our Content or their affiliates will advise anyone personally concerning the nature, potential, value or suitability of any particular investment, security, portfolio of securities, transaction, investment strategy or other matter. Accordingly, do not attempt to contact them seeking personalized investment advice, which they cannot provide. To the extent any of the Content may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.

Any performance data in the Content is supplied by sources believed to be reliable, that the calculations therein are made using such data, and that such calculations are not guaranteed by these sources, the information providers, or any other person or entity, and may not be complete. In addition, past performance is not an indication of future results.


DisclosuresTHIS IS NOT AN OFFERING OR THE SOLICITATION OF AN OFFER TO PURCHASE AN INTEREST IN SAVANT SYNDICATED INVESTMENTS. ANY SUCH OFFER OR SOLICITATION WILL ONLY BE MADE TO QUALIFIED INVESTORS BY MEANS OF A CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM AND ONLY IN THOSE JURISDICTIONS WHERE PERMITTED BY LAW.

AN INVESTMENT IN REAL ESTATE SYNDICATIONS ARE SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. OPPORTUNITIES FOR WITHDRAWAL, REDEMPTION AND TRANSFERABILITY OF INTERESTS MAYRESTRICTED, SO INVESTORS MAY NOT HAVE ACCESS TO CAPITAL WHEN IT IS NEEDED.

THE FEES AND EXPENSES CHARGED IN CONNECTION WITH AN INVESTMENT WITH SAVANT MAY BE HIGHER THAN THE FEES AND EXPENSES OF OTHER INVESTMENT ALTERNATIVES AND MAY OFFSET PROFITS. NO ASSURANCE CAN BE GIVEN THAT ANY SAVANT INVESTMENT OBJECTIVE WILL BE ACHIEVED OR THAT AN INVESTOR WILL RECEIVE A RETURN OF ALL OR PART OF HIS OR HER INVESTMENT. INVESTMENT RESULTS MAY VARY SUBSTANTIALLY OVER ANY GIVEN TIME PERIOD.

The investment case studies shown herein are presented for informational purposes only. The case studies shown are included to illustrate the application of the investment methodology of Savant Investment Partners, LLC (the “Manager”) in practice in order to demonstrate catalysts for investment and sale, among other things. These case studies were executed through the [personal account(s)] of principals of the Manager, clients of the Manager, or affiliates of the Manager, and are not necessarily indicative of typical investment positions of Savant or their investors. The returns referenced in the case studies shown do not include the impact of advisory fees or other expenses, which would serve to decrease profits or otherwise increase losses. It should not be assumed that investments made in the future will be profitable or will equal the performance results shown herein.

This material contains certain forward-looking statements and projections regarding the future performance and asset allocation of our investors. These projections are included for illustrative purposes only. By their nature, forward-looking statements and projections are inherently predictive, speculative, and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements and projections. No assurances can be given that the forward-looking statements in this document will be realized. It is not intended that these forward-looking statements will be updated in the future.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

jordan wirsz - investing in commercial real estate

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