Houston, TX Memory Care II, DST

Houston, TX

ASSET CLASS:  Class A Memory Care Facility
OFFERING SIZE:  $4,824,000
LEVERAGE:  0% Debt-Free
BEDS:  16 Private Suites
HOLD PERIOD:  7-10 Years

Long-Term Absolute Net Lease with Personal Guarantees. New 15-year lease with 1.75% annual rent escalations. Absolute net lease - tenant is responsible for all expenses, including taxes, insurance, maintenance, repairs and capital improvements. Village Green owners personally guarantee entire term of lease 

Newly constructed in June of 2018, the property was meticulously designed to create for a comforting, home-like environment.

Excellent Location: Located near several dense residential developments, including Gleannloch Farms subdivision, which surrounds the facility with over 3,500 homes. In a 5-mile radius, the population is over 245,000, with average household income of approximately $110,000. Spring, Texas is part of the Houston MSA, the fifth largest metro area in the country.

Serving a Growing Demand: The 65+ age demographic will increase from 13% of the US population in 2010 to approximately 20% by 2030.2 The U.S. population requiring assisted living or memory care is expected to increase from 1.5 million in 2017 to 11 million over the next 10 years.

Tax Free State: Texas does not have an income tax. Investors will not pay Texas income taxes. 

The Project is located in Harris County, Texas a part of the greater Houston-The Woodlands-Sugarland, Texas metropolitan statistical area (“MSA”). According to a recent REIS.com Observer Report, the Houston economy has suffered two significant setbacks recently. First, the decline in oil prices brought significant contraction to the region’s large oil and gas industry, slowing net employment growth to a virtual halt. Second, Hurricane Harvey struck the region late last August bringing widespread flooding, destruction of or damage to a substantial portion of the local housing stock (both single- and multifamily), and damage to business and infrastructure. Colliers International notes in a first quarter report, “The historical rainfall totals caused supply chain interruptions, halted distribution logistics, shut down the Port of Houston, manufacturing plants, and retail stores for at least a week. Houston area retail spending rose the week leading up to the event and then plummeted 58.7% the week after.” While the harm inflicted by the slumping oil and gas sector was substantial, it was not critical. Once upon a time, a decline in oil prices to the extent recently seen likely would have had severe consequences for the Houston area economy as a whole, such as the legendary economic and real estate disasters that unfolded in the mid-to-late 1980s upon the collapse of oil prices at that time. That is no longer the case: substantial diversification of the local economy to include expansion in health care and high technology and increased capacity at the port prevailed against a local recession. Indeed, Houston’s port leads the nation in foreign tonnage, according to industry sources. A major distribution industry has arisen in the port area and elsewhere in the region.

According to U.S. Bureau of Labor Statistics (BLS) data, average nonfarm employment growth in the local MSA in 2016 was 0.0%, a far cry from the severe declines in employment seen in the 1980s. With oil prices stabilizing and better health, to some degree, returning to the energy sector, positive growth in average employment returned in 2017 with a 29,000-jobs (1.0%) increase. “Even though Houston’s economy saw accelerated growth in 2017,” adds Colliers, “it was well below Houston’s potential.” Additional improvement is under way in and expected for 2018. As of March 2018, total preliminary nonfarm employment was up 62,500 jobs (2.1%) from 12 months prior. The February-to-February gain was 70,100 jobs (2.3%). With respect to Hurricane Harvey, “Houston’s resiliency led to an uptick in consumer spending within weeks after the event, mostly caused by area residents purchasing replacement items damaged by the storm,” stated Colliers. A shortage of construction labor resulting from storm damage repairs with impacts on the development of new homes and apartments has been reported. As in many cities across the country, meanwhile, Houston grapples with a shortage of affordable housing. According to a March article in Houston Business Journal citing industry sources, the region’s housing market is “overvalued.” According to Houston Association of Realtors as reported by the Journal in May, the median single-family home price for April was up 5.3% year-over-year, to $240,000, while the average price grew by 5.2%, to $305,092.

Population growth remains strong. According to Moody’s Economy.com, growth in the MSA in 2017 ran at about 118,200 residents (1.7%). A gain of 130,600 residents (1.9%) currently is projected for 2018.

The local economy has demonstrated sufficient resiliency to withstand the impacts of the oil and gas sector contraction without falling in a spiral of general decline. Now, with better times ahead expected for the energy industry, the local economy should grow gradually stronger, national factors permitting. States Colliers, “Future growth forecasts are promising as local economists forecast about 45,000 jobs or slightly more in 2018 and expect that number to increase annually through 2021.” Meanwhile, the uncertain future of the North American Free Trade Agreement (NAFTA) and of the effects of the new administration’s evolving immigration policies bear watching for their potential local impacts. Given Houston’s proximity to Latin America and the importance of international trade to the region, these are important local factors.

1 in 3 seniors dies with Alzheimer’s or another dementia. These diseases kill more than breast cancer and prostate cancer combined. In 2018, Alzheimer’s and other dementias will cost the nation $277 billion. By 2050, these costs could rise to $1.1 trillion. 5.7 million Americans are living with Alzheimer’s. By 2050, nearly 14 million are projected to have Alzheimer’s.

Prior Syndications: 61
Real Estate Assets: 86
Total Transaction Volume: $1.5 Billion
Market Share: 6%
Founded: 2012
Full Cycle Multifamily Offerings: 6
Hold Period (Years): 4.05
Average Return of Equity: 162.58%
Average Distribution: 6.58%
Average Return on Equity: 162.58%

Operator/Manager: Village Green Memory Care
Properties Managed: 5
Units Managed in Georgia: 5 Locations in Texas
Date Founded: 2012
Headquarters: Texas
Website: http://villagegreenalzheimerscare.com

Village Green Alzheimer’s Care Home, LLC was formed in 2012 and currently operates a total of three memory care assisted living facilities. Two more facilities in Houston are planned to open by the end of 2018; a lease has been signed for the first location in Dallas, there are negotiations ongoing for a location in the Woodlands, and one additional site is being actively pursued (totaling three open locations and five locations in some phase of the development process). The Tenant believes there is strong demand for its business model, and the current plan is to continue scaling-up with a goal of acquiring one new site per quarter. The Tenant is continuing to research the Houston and Dallas markets for additional facilities, as those markets continue to have a growing need for memory care facilities. Development is financed either with construction loans or utilizing third party developers to complete projects. The company was founded by Fakhruddin Sabir.

The Tenant had revenues for the fiscal year 2017 of $1.07 million, a 7.0% increase over the 2016 revenues of $1.0 million. Net Income for 2017 was $55,863, a substantial decline over the 2016 net income of $306,814. Between 2016 and 2017 certain expenses, including business property and real property taxes, payroll and rent expenses increased while revenues remained stable. As of August 30, 2018, the Tenant had total assets of $687,202 with total liabilities of $166,731 and total equity of $520,471.

Targeted 1st-Year Cash-on-Cash: 5.25%
Targeted Cash Range: 5.25% - 5.90%
Targeted Cash Average: 5.50%
Annual Appreciation (Based on Purchase Cap): -.53%%
Projected IRR: 4.97%

All-In Price: $4,167,000
Purchase Price: $3,462,000
Appraised Value: $3,490,000
Loan Amount: $0
Equity Raise: $4,167,000
Gross Load to All-In Ratio: 16.92%
Gross load to Equity: 16.92%
Reserves: $70,082
Reserves to All-In Price: 1.68%
Net Load: $634,918
Net load to equity: 15.24%
Net Load to All-In Ratio: 15.24%
Appraised Net Load: $606,918
Appraised Net Load to Equity: 14.56%
Appraised Net Load to All-In Price: 14.56%
All-In $/Ft.: $416.70
All-In $/Bed: $260,437

Net Operating Income: $235,773
Purchase Cap Rate: 6.81%
All-In Cap Rate: 5.66%
Cap Rate Spread: 115 bps
Breakeven Exit Cap: 6.63%
Breakeven Exit Cap Rate Spread: -18 bps
Appraised Cap: 6.76%
Appraised Cap Rate Spread: -13 bps

This is an all-cash offering.

DST Due Diligence & Advisory Services

(415) 336-9225

The contents of this communication: (i) do not constitute an offer of securities or a solicitation of an offer to buy securities, (ii) offers can be made only by the confidential Private Placement Memorandum (the “PPM”) which is available upon request, (iii) do not and cannot replace the PPM and is qualified in its entirety by the PPM, and (iv) may not be relied upon in making an investment decision related to any investment offering by the issuing company, or any affiliate, or partner there of the issuer. All potential investors must read the PPM and no person may invest without acknowledging receipt and complete review of the PPM. With respect to the “targeted” goals and performance levels outlined herein, these do not constitute a promise of performance, nor is there any assurance that the investment objectives of any program will be attained. These “targeted” factors are based upon reasonable assumptions more fully outlined in the Offering Documents/ PPM. Consult the PPM for investment conditions, risk factors, minimum requirements, fees and expenses and other pertinent information with respect to any investment. These investment opportunities have not been registered under the Securities Act of 1933 and are being offered pursuant to an exemption therefrom and from applicable state securities laws. Past performance and statements regarding current occupancy and earnings are no guarantee of future results. All information is subject to change. You should always consult a tax professional prior to investing. Investment offerings and investment decisions may only be made on the basis of a confidential private placement memorandum issued by the issuer, or one of its partner/issuers. The issuer does not warrant the accuracy or completeness of the information contained herein. Some offerings are subject to a “cooling off” period and are not available to all investors. 
Thank you for your cooperation.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC, and the issuer are not affiliated.