Interview: Nodes of Value
Last week we had a very nice interview with Jim Reynolds from Nodes of Value. He has a very useful and informative website covering many aspects of passive investing. That interview is shared here.
Passive Income From US Real Estate
13th Oct 2019 - posted at the website: Nodes of Value
Interview with Mike Krieg one of the managing partners for Steeple Rock Partners.
Can you introduce yourself and your role on Steeple Rock Partners?
My name is Mike Krieg. I am one of the managing partners for Steeple Rock Partners. We are located in Austin, Texas. We are a private equity real estate investment company that acquires value-add multifamily apartments. My role with Steeple Rock is to look for opportunities in our target markets and develop our business strategy as a company. I spend time performing financial underwriting of our projects and talking with investors.
Can you describe Steeple Rock Partners in numbers?
Our portfolio right now consists of 15 projects worth over $400 million. For multifamily apartments, we are holding over 4100 units.
What investors are eligible to invest?
Our investors are U.S. citizens who mostly reside within the U.S., but we have some who live overseas.
What is the minimum investment that investors can invest in the fund?
$25,000 is the minimum on our investments, however some projects require a $50,000 minimum. Projects are open to accredited and non-accredited investors, depending on the project.
What is the minimum holding period of the investment?
We underwrite our projects for a 5-year hold usually, but some of them will be sold before that. We also target a refinance of the project at 2-3 years to return cash to investors. These refinance events are loved by investors because they can reduce their risk in the project without experiencing any dilution of ownership in the project. Then they can reinvest those proceeds into other projects for more cash flow.
What are the investor fees?
The fees on our projects are par for the course in a syndication but they are underwritten on the project as a whole and not taken directly from individual investor capital. For example, $25,000 invested in the project acquires 25,000 units of ownership in the LLC which holds the project.
The project structure is typical with us an 8% preferred rate and a 70/30 split. This means that the cash flow is paid first to investors up to 8%, before our management team participates. Above 8%, 70% of the rest of the profit goes to the investors. Fees that are underwritten into the project are usually a 2% acquisition fee (underwritten as a closing cost for sourcing, negotiating, and underwriting the project), a 1% asset management fee, and a 1% disposition fee when the project is sold.
These are fairly standard in the industry. It’s important to know that the projected returns to the investor are net of these fees, meaning these fees have already been factored in.
What are the different investment strategies offered on Steeple Rock Partners?
For multifamily apartments, we are finding two types of value add projects in the market right now. There are “blue-chipper” type projects that pay a higher distribution, usually a 7-8% cash on cash return fairly early in the project. We hold those until we’ve renovated all of the units and increased the net operating income to the project potential.
Growth projects present a higher value add opportunity but may not cash flow as much in the early phase. They appreciate much faster. We like to buy both of these to diversify our portfolio, but generally, they are all targeting an 18-22% average annual return over the life of the projects.
We like to be in different markets with a diverse and stable job and population growth. Generally, we don’t like to take on any unnecessary risk. We are a group of risk-averse investors looking to grow our wealth in a steady fashion with no drama.
Multifamily apartments are the core of our business, however we also invest in self-storage, one mobile home park fund, and have a couple of alternative investments. We own two self-storage projects at this point. Our alternative investments came to us through our relationships with our existing partners in the multifamily space who operate in some different niches. We invested in the Nashville Food Hall which is located right across the street from Bridgestone arena. There is a lot of development happening there and we were excited to be involved in that project. We also partnered on a livestock operation in Texas because we know the operator and the business plan makes a lot of sense to us.
Nashville Food Hall Project
How do each of the above investments generate passive income or profit?
Our projects are distributing cash to investors monthly and quarterly, depending on the project. Most are paying about an 8% annualized distribution. The cash-out refinances are returning cash to investors at the midpoint of the projects where it makes sense.
Can investors reinvest the interest automatically?
There are a few opportunities to roll investment dollars via a 1031 exchange into the next project, provided we have one on deck, but generally, for syndications you receive the distributions directly or into your Self Directed IRA account. The attributed capital expense conveyed on the K1 statement means that for most investors, their distributions are going to be highly tax-advantaged.
What is the default rate and the late payment rate of the loans on Steeple Rock Partners?
We have had no defaults.
How does Steeple Rock Partners make money?
We invest in our own deals and also own a part of the deal as the General Partner or Co-Sponsor. The fees stated prior also flow to the General Partner and anyone on the GP team.
What can we expect from Steeple Rock Partners in the future?
We are continuing to look for multifamily apartments and hope to land another self- storage project soon. We do about 7-8 projects per year and pass on 85-90 offers presented to us. 2020 should bring more opportunity and we are very optimistic about our teams ability to find “diamond-in-the-rough” investments.
Would you like to add more information?
We love to teach investors about real estate investing and what to look for in an opportunity. We’re always happy to answer questions and educate people about our approach to investing. Feel free to reach out to us and set up a call. We have a variety of articles and insights available on our website also. We’re here to serve!
For more information please visit: https://www.steeplerockpartners.com/
We thank Mike Krieg for the interview.