Corporate HQ/Manufacturing Facility, DST

Charlotte MSA, North Carolina

ASSET CLASS:  Class A Industrial Office HQ/Manufacturing
OFFERING SIZE:  $8,630,000
MINIMUM INVESTMENT:  $100,000
LEVERAGE: 57.62%
SQUARE  FEET: 150,000
YEAR BUILT: 2013
HOLD PERIOD:  7-10 Years

Carolina Beverage Group, the tenant, is a world-class co-packing producer for numerous national and international beverage brands. With an emphasis on co-packing specialty-sized cans, specialty plastic bottles and glass containers, the company’s customers include makers of well-known malt beverages, distilled spirits, energy drinks and other ready-to-drink beverages. This state-of-the-art facility has a current capacity of 38 million cases annually, including the latest in high-speed can-filling, batching, tunnel pasteurization and laboratory technologies.

There is room for cap rate expansion if interest rates continue to rise. The average cash-flow during the hold equates to a 6.32%. The property is projected to appreciate well (3.25% annually based on purchase cap) during the holding period). The sponsor has a long track record for syndicating 1031 eligible real estate. Lastly, this property was purchased for $450,000 below the appraised value.

The Project is located in Mooresville, Iredell County, North Carolina, a suburban location within the Charlotte-Concord-Gastonia, North Carolina metropolitan statistical area (the “MSA”). The Charlotte MSA is located in south-central North Carolina and north-central South Carolina, in the region known as the Central Piedmont, and covers approximately 3,200 square miles. The Charlotte MSA spans two states and is made up of seven counties in North Carolina including: Mecklenburg (home of the city of Charlotte) Cabarrus, Gaston, Iredell, Lincoln, Rowan and Union and three counties in South Carolina including Chester, Lancaster and York. Charlotte is the nation’s third largest banking center behind New York and San Francisco and has become a major business center claiming the headquarters for seven Fortune 500 firms. According to the US Census Bureau, the MSA had a 2017 estimated population of 2,525,305, up approximately 1.88% per year over the 2010 census level of 2,217,012.

The unemployment rate within Charlotte, North Carolina MSA was 3.7% as of August of 2018. The unemployment rate within the metro was below the State of North Carolina unemployment rate of 3.8%, and equal to national unemployment rate of 3.7%, both reported as of September 2018.

According to the third quarter 2018 Net Leased Market Report completed by The Boulder Group, cap rates during the quarter for single tenant net leased retail product increased by five basis points, however, were up 18 basis points from their historic low of 6.07% set during the fourth quarter of 2017. Cap rates in the net leased office sector increased by five basis points while cap rates for the net leased industrial sector declined by two basis points.

The increase within the net leased retail sector represents the third consecutive quarter of increases for that sector. While the demand for net leased assets remains strong, upward pressure on interest rates is creating upward pressure on cap rates. In the third quarter, the 10-year treasury yield peaked at 3.10%, the second highest level since 2014. The rising cap rate environment has the greatest impact on properties with no rental escalation, weak credit properties, or those in secondary/tertiary markets. In addition, assets priced above $12 million that are typically sold to institutional buyers experienced significant cap rate increases. Institutional buyers are more sensitive to the volatility of financing markets as they struggle to meet internal fixed-yield targets.

Although the supply of net leased properties increased slightly during the third quarter, there is a reported lack of new construction assets with long-term leases. Cap rates for recently constructed properties with strong credit tenants experienced little or no cap rate movement. We note that the net lease market is expected to remain active during the balance of 2018, as both institutional and fund investors attempt to reach acquisition allocations by year-end. The majority of net leased participants expect cap rates to remain in a similar range as the past few years

Carolina Beverage Group, LLC is a wholly owned subsidiary of Carolina Beverage Group. Carolina Beverage Group is an amalgamation of Carolina Beverage Group, LLC, Texas Quality Beverage and Cold Spring Brewing Company. The combined entity is owned by Brynwood Partners, a 30-year old private equity firm with $1.4 billion under management. Carolina Beverage Group is now the nation’s largest beverage co-packer and produces, packages and distributes top names in soft drinks, beer, malt beverages, energy drinks and other beverages. Carolina Beverage Group has three strategically located state-of-the-industry manufacturing facilities in Cold Spring, Minnesota, Fort Worth, Texas, and the Project, which also serves as Carolina Beverage Group’s headquarters.

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Targeted 1st-Year Cash-on-Cash: 6.25%
Targeted Cash Range: 5.50% - 7.20%
Targeted Cash Average: 6.32%

All-In Price: $20,362,500
Purchase Price: $17,950,000
Appraised Value: $18,400,000
Loan Amount: $11,732,500
Equity Raise: $8,630,000
Reserves: $93,212
Reserves to All-In Price: .46%
Net Load: $2,319,288
Net load to Equity: 26.87%
Net Load to All-In Ratio: 11.39%
Appraised Net Load: $1,869,2882
Appraised Net Load to Equity: 21.66%
Appraised Net Load to All-In Price: 9.18%

Net Operating Income: $1,181,400
Purchase Cap Rate: 6.58%
All-In Cap Rate: 5.80%
Cap Rate Spread: 78 bps
Breakeven Exit Cap: 7.52%
Breakeven Exit Cap Rate Spread: 94 bps
Appraised Cap: 6.42%
Appraised Cap Rate Spread: 110 bps

Loan Amount: $11,732,500
Term: 10 Years Fixed
Interest Only Period: 4 Years
Aamortization Period: 30 Years
Interest Rate: 5.03% from 5.55% w/ loan buydown of $469,300
Prepayment: Yes 1%
Lender: KeyBank National Association
LTV: 57.62%
Non-Recourse: Yes

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