ullor asset management, ll • p.o. ox 14763 lenexa, ks...

Cullor Asset Management, LLC • P.O. Box 14763 Lenexa, KS 66285

Phone: 913.324.5900 • Fax: 866.629.4703

Sun Gate Apartments

Investment Highlights

Exclusive Partners, Exceptional Properties, and Dynamic Investments

THIS IS NOT AN OFFER TO SELL SECURITIES. This document does not provide the detailed information in the Private Placement Memorandum, which investors must read prior to investing. To receive a Private

Placement Memorandum all parties must complete the Offeree Questionnaire, be qualified to invest, and have a substantive pre-existing relationship. All the information in this document is believed to be accurate but

is not guaranteed, nor indicative of future results.

Page | 2

Sun Gate Apartments ................................................... 3

Investment Summary .................................................................... 3

Executive Summary ....................................................................... 4

Property Description .................................................... 5

Investment Plan ............................................................................. 7

Investment Highlights ................................................................... 8

Marketing Plan .............................................................................. 8

Capital Improvement Plan ............................................................. 9

Success Factors ............................................................................. 10

Location Overview ........................................................................ 11

Pictures ......................................................................................... 13

Unit Mix ........................................................................................ 16

Floor Plan ...................................................................................... 16

Competitive Occupancy and Rent Study ...................................... 17

Property Tax Comparison ............................................................. 19

Financial Overview ...................................................... 20

Overview, Acquisition Costs, Financing ........................................ 20

Year 1 Budget ............................................................................... 20

Budget vs. Current Expenses ........................................................ 21

Investor Summary ........................................................................ 21

Gladstone Demographics/Economic Overview ............ 23

Table of Contents

Page | 3

Sun Gate Apartments Investment Summary

Cullor Asset Management, LLC, (CAM) the managing member of

ApartmentVestors Fund 1, LLC (“The Fund”) is arranging for the acquisition of

Sun Gate apartments in Gladstone, MO, for the Fund. Sun Gate will be the

only property included in the Fund. An investment in Sun Gate apartments

will provide the investor with preferred returns on their investment as well as

profit sharing on additional returns.

Sun Gate is a 72-unit apartment complex located in a very solid area of

Grandview, MO, a suburb of Kansas City. Sun Gate has exceptional drive-by

visibility, easy access to 3 major highways, and large and desirable floor plans.

Sun Gate Apartments is a 3 story apartment complex constructed in 1970 with

an exterior of stucco and siding. All foundations are concrete slab and block.

Sun Gate consists of a leasing center and six residential buildings that contain

seventy-two two bedroom, one and half bathrooms each with over 1,000

square feet of living area. Each unit is equipped with a dishwasher, central air,

private deck or patio, spacious kitchen, as well as an individual heat pump and

hot water heater. Each unit includes an extra storage closet. Units are all-

electric and individually metered and are the responsibility of the residents.

The owner pays trash and common area lighting and water. Sun Gate also

provides tenants with an on-site pool, laundry facility, playground, and

resident clubhouse.

The property is being purchased by the Fund for $2,500,000 and Cullor Asset

Management is applying approximately $747,000 in Fund equity to complete

the acquisition, reserves, and additional capital items. The purchase price

includes a $200,000 repair credit from the seller to provide for immediate

repairs and upgrades to the property.

This package contains available information received from the current owner

relating to the property location, description, rent roll, budget, and

investment strategies. Please refer to the ApartmentVestors Fund 1

Operating Agreement and Private Placement Memorandum for risk factors

and other information. In addition, an independent inspection and report are

being completed. Thorough information has been secured form sources that

appear to be reliable; however, no representation by CAM, either expressed

or implied, is made as to the accuracy of any information on this property. All

information contained herein is further subject to correction, modification or

Sun Gate Apartments Overview

Sun Gate is an opportunity

for an investor to purchase a

quality multifamily property at a

very attractive purchase price

with great existing cash flow and

significant upside potential.”

Stock Photo

Page | 4

withdrawal without further notice.

Funds applied as an investment in this transaction will be applied and used for

the acquisition of this property, corresponding expenses, acquisition costs,

and property improvements, if any, as shown on the Pro-forma Acquisition

Expense table in this package.

Executive Summary

The acquisition of Sun Gate apartments provides ApartmentVestors Fund 1,

LLC, the opportunity to acquire a high-quality multifamily property, at a very

attractive purchase price, with value enhancement opportunities, with great

visibility, in the solid submarket of Kansas City, Gladstone, MO.

Sun Gate offers revenue enhancing opportunities including:

“Leasing up” to Market Occupancy

Bringing Rents up to Current Market Rental Rates

Management efficiencies including tighter expense control

Additional Revenue Enhancement Opportunities

Overview

Sun Gate is a multifamily property built in 1970 with 72-unit garden-style,

market-rate community located right on the highly trafficked 68th and

Broadway (over 15,000 cars daily) in Gladstone, Missouri. Sun Gate is right

across the street from Kindred Hospital and just minutes from shopping,

dining, employment, and minutes from 5 major highways (US 169, Interstate

29, Interstate 435, Interstate 35, and US 71).

Gladstone is a suburb of Kansas City. Gladstone’s population is 26,365 and is

considered part of Kansas City’s metro population of over 2.1 million people

(2010 Census). Gladstone is just minutes from downtown Kansas City.

Because of the unique nature of Gladstone’s local economy, Sun Gate offers

investors numerous promising features to be capitalized upon.

» First, it is located within close proximity to Kansas City, shopping, entertainment, jobs, and major highways.

» Located right in our own “backyard” will allow us to give it significant attention.

Sun Gate Apartments Overview

Page | 5

» The property's size allows for efficient use of staff.

» There is a clear opportunity to improve “the face of the property” both in marketing, curb appeal, and in on-site management presentation.

» $200,000 repair and upgrade credit from Seller to provide for strategic capital upgrades and asset protection.

» The property cash flow’s strongly at current rental rates way below market1.

» There is a clear opportunity to raise rents to market levels of $75-$160 per month per unit more than current rental rates.

» Purchased from long-term (15 years) out of town owners, giving us many opportunities to improve marketing, operations, and value.

» Leasing-up the property to market occupancy rates (approximately 94%)

» Utilizing "revenue enhancement" pricing to include additional revenue for water, trash, and covered parking.

Property Description

Sun Gate consists of all two bedroom units with one and a half bathrooms.

The complex location provides great drive-by visibility, easy access to all the

area attractions, entertainment, and employment. There is a pool, clubhouse,

playground, and a laundry facility on site. Each unit has a large kitchen with a

dishwasher and extra hallway storage.

Property & Unit Amenities:

» Swimming Pool & Playground

» Water, sewer, and trash included

» Huge floor plans with spacious kitchens complete with dishwashers

» Private Covered Balconies or Porches

» On-Site Laundry Facility

» Close to KC’s Attractions, Entertainment, Highways, and Employment Centers

» On-Site Management

» Quiet Setting with scenic views

» “All-Electric” utilities that tenants pay

» Half bathroom in master suite

» Extra storage closets with each unit, covered parking options

Sun Gate Property Description

1 It is anticipated that depreciation

expense (which is a non-cash deduction)

may offset current taxable income such

that the current distributions received

will be equivalent to an after-tax yield.

If one were to invest in an alternative

investment that did not have

depreciation expense shielding current

taxable income, to achieve a similar

after-tax yield of approximately 10%,

assuming a 35% tax rate, the pre-tax

yield would need to be approximately

Page | 6

Property Overview

Year Built 1970 Foundation Concrete Slab

No. of Stories 3 No. of Parking

Spaces

Building SF 72,575 # of Buildings 7

$ per SF $34.45 $ per Unit $34,722

Leasing Office Yes Pool Yes

HVAC Central Washer/Dryer On-Ste Facility

Roofs Pitched, Composite Fire Protection Smoke Detectors

Location Overview

Sun Gate is an attractive, well-designed and appointed community located on

the busy 68th and Broadway traffic way with great drive-by visibility. It is

located directly across the street from Kindred Hospital. Sun Gate is just

minutes from downtown Kansas City and numerous shopping, dining,

entertaining, and employment opportunities. Sun Gate has great access to 5

major highways that go throughout Kansas City.

Gladstone, MO is considered part of the 25th largest metropolitan market in

the country, Kansas City. Gladstone has over 26,000 full-time residents and

the Kansas City metro area is over 2.5 million.

Gladstone’s unemployment rate in August 2012 was 6.8% in comparison to

the National unemployment rate of 7.8%. Gladstone, MO boasts a very strong

rental market with a 5.8% rental vacancy rate (US Census).

Gladstone is located within Clay County, Missouri. The city of Gladstone was

awarded the national designation of “All-America City” on June 6th, 2008.

Gladstone was one of only 10 communities nationwide to receive this coveted

award in 2008. The All-America City Awards recognize communities for

collaboration, inclusiveness, and successful innovation. All-America Cities

demonstrate community-wide civic accomplishments, cross-sector

cooperation, grassroots participation, and creative approaches to issues facing

communities.

Property Description & Overview

Page | 7

Investment Plan

Sun Gate apartments offers a unique opportunity to buy a quality multifamily

property that is very well located, has great potential curb appeal, good

amenities, and with a repair credit for immediate capital improvements and

upgrades. Sun Gate is being purchased at a very attractive price point and

strong cash flow at current operation levels with multiple value-add

opportunities to significantly increase the value and cash flow of the

investment. The most significant opportunity is to bring Sun Gate up to

market rental rates (currently $75-160 per unit per month under market

rents), however Sun Gate already produces strong cash flow and the success

of our investment plan does not rely on achieving market rental rates. Other

value-add opportunities include replacing poor management, leasing up to

market occupancy, and adding additional revenue.

Cullor Asset Management plans on immediately deploying capital

improvements aimed at asset protection, increasing curb appeal, interior

renovations to bring current rents up to market rent levels, and to control

future expenses. These capital improvements are essential and will allow us to

significantly improve the property and its financial performance which will

enhance investor returns.

An aggressive marketing and rebranding strategy will be implemented on the

property to enhance its appeal to potential renters. This includes an aggressive

lease-up strategy complete with a new web site, marketing materials,

aggressive on-line marketing, resident referrals, an improved exterior and

interior, and preferred employer programs.

We plan on holding Sun Gate for 3-7 years and then either selling the property

at a maximized value or refinancing (returning the investors initial investment)

and holding for long term. During the hold period investors will benefit from

any cash flow, appreciation, loan principal pay down and the tax benefits such

as depreciation.

Investment Plan

Sun Gate already produces

strong cash flow and the

success of our investment

plan does not rely on

achieving market rental

rates.”

Page | 8

Purchase Price

$2,500,000 or $34,722 per unit and $33.07 per square foot (SF), which includes

$200,000 in capital improvements and strategic upgrades to the property that are

being funded by the Seller at closing. Therefore, investors will be investing in a

property that will be significantly improved shortly after acquisition.

ApartmentVestors Fund 1, LLC Equity

$747,000 (estimated) total equity including all closing costs, fees, reserves, and

capital upgrades.

Mortgage Financing

To be determined, but preliminary conversations with major local and regional

lending institutions indicate that the property will qualify for financing consisting

of 75% loan to value and a 5 to 10 year fixed term with 25 year amortization and

interest rates that are currently under 5.00%. We will lock rates after the due

diligence is completed to satisfaction. Current financing is very favorable for

quality multifamily properties such as Sun Gate.

Marketing Plan

Sun Gate apartments have great drive by traffic (over 15,000 daily2) and street

visibility. Because of that visibility, the first focus will be improving the curb

appeal. Exterior paint, additional lighting, new landscaping, signage, adding flags,

and adding shutters will dramatically improve the exterior looks and perception

from potential tenants. Once we make the noticeable upgrades to the outside of

the property and clean up the current clutter, the building itself will be our main

marketing tool.

In addition to the curb appeal, we plan on using our proven online and off-line

marketing program for lead generation. The online focus will be to create a new

website for the property focused on lead generation in addition to utilizing free

online advertising and resources. Offline we will be creating all new marketing

materials for the property including updated signage, new brochures, and

implementing a resident referral program will bring in highly qualified potential

residents to Sun Gate.

Stock Photo

2 Please see traffic counts in

Demographic overview starting on Page

Page | 9

Capital Improvement Plan

Overall, the property is in average condition for the area, but could really benefit

from strategic capital improvements in order to force appreciation. These

strategic capital improvements will allow us to improve the tenant profile, capture

market rental rates, provide asset protection, and potentially increase the

property’s value significantly. The roof’s were completely replaced 3 years ago

and are in great condition.

Upon purchase, we plan on instituting a capital improvement plan to increase the

property’s curb appeal, asset protection, and to increase the investments value by

eliminating major expenses. The capital improvements are being funded at closing

by the Seller leaving a repair and upgrade credit for the property of $200,000. We

believe by improving the exterior curb appeal we will attract a higher-quality

tenant and be able to raise apartment rent significantly. Also, by eliminating some

major future expenses we will be better able to control costs and increase the

investment’s value. Below is a summary of the anticipated capital improvements.

Capital Improvement Area Estimated Cost

Exterior

- Landscaping Upgrades

- Sidewalk replacement

- Signage Upgrades

- Pool Improvements

- Clubhouse Improvements

- Parking Lot Reseal & Stripe

- Parking Garages Repair

- Paint & Adding Shutters

- Playground Equipment

- Lighting Improvements

- Misc. Repairs

$100,000

Interior

- Flooring Replacement

- HVAC Replacements

- Hallway Improvements

- Half Bath Vanity Upgrades

- Appliance Replacement

- Adding Two-tone paint

- Upgraded lighting

- Chair rail in dining area

$100,000

Total $200,000

Capital Improvement Plan

Page | 10

Why is Sun Gate’s Current Performance Lacking?

We believe that Sun Gate has suffered recently from an absentee owner who left

the KC area after his divorce and moved 6 hours away about 3 years ago. He has

owned the property for 15 years and is ready to move on. He comes up one day a

week to run the property and has not been able to give it the attention it deserves.

The property is currently being almost exclusively managed by the maintenance

man with little oversight. Before the divorce, Sun Gate was being managed by the

owner’s wife who kept the property full and on top of maintenance issues. There is

no investment real estate asset class that suffers more from a lack of good

management than multifamily apartments and Sun Gate is no exception. Because

of the current owners lack of interest in the property, he has not kept rental rates or

maintenance up to the standards it should be and is renting exclusively on price and

as little effort as possible.

Why will we be successful?

We believe we will be very successful with Sun Gate due to our experience,

proximity to the asset, knowledge of the market, and ability to manage, market, and

lease multifamily properties efficiently. We see no reason why Sun Gate cannot be

one of the most desirable apartment complexes in the area once the capital

upgrades are completed.

At our purchase price, based on current operations, Sun Gate already provides great

cash flow which can meet investor returns. However, we believe we can greatly

improve those returns with efficient and effective management and strategic

upgrades to the physical property. We feel Sun Gate offers a great opportunity in

its current state, which will only be enhanced with our operational, marketing,

construction, and management expertise.

We feel strongly that by rebranding the marketing, applying aggressive online and

local marketing efforts we can lease the property to market occupancy levels

quickly and start to raise rental rates. Our tenant outreach programs will also help

keep our current tenants and reduce turnover.

Property Description & Overview

Page | 11

Property Location

Sun Gate Apartments

6829 North Broadway Avenue

Gladstone, Missouri 64118

» Gladstone, Missouri is part of the North Kansas City Metro area.

» Gadstone is within 30 minutes of almost anywhere in the Kansas City Metro area.

Property Location

Page | 12

Notable Employment, Shopping, and Entertainment is just a short drive away.

5 Minute Drive Time 10 Minute Drive Time 15 Minute Drive Time

1. Sun Gate

Apartments

2. Briarcliff Village –

High end shopping

center

3. Kindred Hospital

4. Creekwood

Commons

- Hyvee, Gordmans,

24 Hour Fitness,

Starbucks, Chipotle,

Panera, etc.

5. Vivian Oaks Center

- Office Max, Lowes,

Home Depot, Sams

Club, Price Chopper,

Car Dealerships, etc.

6. Down Town KC

Airport

7. Down Town KC

- KC Power and Light

District, Sprint

Center, H&R Block,

KC Convention

Center, Nelson

Performing Arts

Center, Crown

Center, etc.

8. Truman Sports

Complex

- KC Royals Stadium

- KC Chiefs Stadium

9. The Plaza

5, 10, & 15 Minute Drive Time

Page | 13

Exterior Pictures

Sun Gate Pictures

Page | 14

Sun Gate Pictures

Page | 15

Apartment Interiors

Sun Gate Pictures

Page | 16

Unit Mix & Rent Schedule

Unit Mix Units Sq Ft

Rent/ SF Total SF GPRI* GPRI/

1.5 Bath

72 1000 $495 $0.49 72,000 $432,000 $36,000

Total/Avg. 72 1000 $495 $0.49 72,000 $432,000 $36,000

*GPRI – Gross Potential Rental Income

Sun Gate is unique in that it has all 2 bedrooms, 1 and a half bath apartments that

are all considered “big” for the market. It also has plenty of additional storage for

tenants which are also highly desirable. We prefer this unit type in this submarket

as it is highly desirable (especially the extra half bath) and attracts a longer-term,

more stable tenant and tenant base.

Additional Revenue Opportunities

Sun Gate has several additional revenue opportunities that are not currently being

optimized. There are 14 garages that can be better utilized and rented for extra

revenue. They could be rented for $25 per month to tenants. We also believe

there are opportunities to increase the revenue by adding premium pricing for

ground floor units or those with a great view in addition to adding a small monthly

charge for water and trash on top of the base rent.

Floor Plan

Rent Schedule & Revenue Opportunities

Page | 17

Rent Comparables – Competitive Summary*

Property Type

Square

Monthly

Rent/SF

Location Property

Condition

1. Sun Gate 2/1.5 1000 $495 $.49

2. Willow Glen 2/1.5 864 $647 .75 Worse Better

3. Gladstone

Village

2/1 850 $550** .65 Worse Worse

4. French Riviera 2/1.5 835 $595

Worse Worse

5. Tanglewood 2/1

900 1116

$630 $660

$.70 $.59

Same Better

6. Broadway

Village

2/1 900 $515 .57 Worse Worse

7. Regency North 2/1 957 $610 .64 Same Worse

8. Vivian Oaks 2/1.5 1000 1300

$675 $825

.63 Better Equal

Average Market

984 $645 .66

Sun Gate @

Current Market

2/1.5 1000 $660 .66

*Current Rental Rates, Square Footage, and Terms were verified by phone on 10/24/2012 and are

subject to change.

Rent Comparables Summary

Sun Gate currently offers rental rates that are very low (30%+ below market)

compared to competing properties. It has very big unit sizes with above average

square footage, plenty of extra storage and an extra half bath in the master

bedroom. This unit type and size is very desirable in the market. During our

rental survey phone interviews to competing properties, it was almost

impossible to find a two bedroom apartment available without having to wait at

least a month or more. It was unusual to find a two bedroom available with

Rent Comparables – Competitive Summary

* The rent survey was conducted by

Cullor Asset Management through

phone interviews during the week

of October 26th, 2012 with the

respective property managers. All

numbers were self-reported by the

respective properties.

**Residents also have to pay shared

gas on top of base rent which

ranges from 50-100 per month in

addition to normal electric bill.

Page | 18

more than 1 bathroom.

Current rental rates at Sun Gate average approximately $495 per unit, per

month. During our rental survey, it was very hard to find a two bedroom unit

below $600 a month. The ones that did offer a rental rate below $600 were

either very poorly maintained, poorly located, or had long waiting lists indicating

either lazy management or rental rates that are too low for the market. Our

rental survey indicated the market rental rate was $.66 per square foot. Since

the unit size at Sun Gate is bigger, we believe it might bring down the per square

foot rate a little, however we believe the current rental rate is somewhere

between $.60 and $.66 per square foot, which would bring rents up to $600 to

$.660 per month. This would be an increase of $100 to $160 per month or up to

33%. We believe to achieve these rental rates, we will have to improve the curb

appeal and interiors of the apartments (see the Capital Improvements plan). We

believe we will be able to achieve much higher rental rates and occupancy once

the capital improvement plan has been implemented.

We will immediately upgrade vacant units and lease them at higher rates while

raising current tenant’s rental rates more gradually over time. Our experience

has shown that current tenants will accept gradual increases, but will be

resistant to bigger ones. We will have to “turn” and replace a lot of the current

tenants over the first two years leading to a higher initial turnover rate.

However, we feel the turnover rate will be greatly reduced after the initial

increases. We have a plan in place to replace those tenants with those of a

higher tenant profile and at a higher rental rate.

Another very desirable feature is that this is an “all electric” apartment complex

and tenants do not have to deal with gas service as they have to with several

competing properties. This is definitely an advantage.

Sun Gate’s location is also very good and has very high drive-by traffic and very

good “walk-in” rental traffic. This will lower our marketing costs and allow us to

keep the property at market occupancy levels. According to the US Census the

market occupancy for rental units in Gladstone is approximately 94% across all

properties, making it a very solid rental market.

There are no new multifamily properties being planned or built in Gladstone

currently, however there is at least one major renovation of a current property

taking place.

Rent Comparables – Competitive Summary

Page | 19

Property Taxes

Property Taxes Land Improvements Total Assessed

Estimated

Property

Current $489,600 $924,200 $1,413,800* 268,620 $18,934

Residential Properties in Clay County, Missouri are assessed at 19% of value

At Sale Price

$2,500,000 $475,000 **$24,398

Property taxes in Clay County, Missouri are re-assessed every two years during

odd number years based on the value on January 1st. They are scheduled to be re-

assessed on January 1st, 2013. We plan on delaying the closing until right after the

start of the year so that the property should not be re-assessed at the sale price

until January 1st, 2015, allowing us to save money in property taxes over the next

two years. However, this cannot be guaranteed. Residential property taxes are

assessed at 19% of the market value and Mill rates change every year.

Property Taxes

* Valuation was based on sale price

15 years ago.

**This is only estimated based on

current Clay County current mill

rates and subject to change.

Page | 20

Financial Overview

Page | 21

Financial Overview

Expense Comparison – Current vs Year 1 Budget

Summary of Projected Cash flow Returns

3 It is anticipated that depreciation

expense (which is a non-cash deduction)

may offset current taxable income such

that the current distributions received

will be equivalent to an after-tax yield.

If one were to invest in an alternative

investment that did not have

depreciation expense shielding current

taxable income, to achieve a similar

after-tax yield of approximately 10%,

assuming a 35% tax rate, the pre-tax

yield would need to be approximately

Page | 22

Financial Overview

Year 1 Budget Additional Details:

» Gross Potential income reflects a $500 average rent per unit, which is conservative.

» Occupancy levels reflect 92% average occupancy.

» Property taxes were kept level as they were recently reduced and because we are closing after January 1st, they should not be re-assessed until January 2015 according to Clay County, MO.

» Administrative expenses were increased to more reasonable levels.

» Standard management fees were added to pay for professional property management.

» The current owners treated capital expenses, capital replacements, and repairs and maintenance expenses as repair items. We have taken out the capital replacements and put them in their own category to represent standard multifamily accounting practices.

» Marketing was increased for online advertising, printing of materials, etc.

» Utility expenses reflect current operation levels.

» Contract Services were increased to budget for snow removal and more thorough lawn care.

» Payroll was increased to account for a full-time maintenance person and part-time leasing agent.

» Capital Replacement Reserves will be funded in order of $350 per unit per year to account for aging HVAC, appliances, carpet, and other capital replacements that are being anticipated.

Page | 23

Gladstone, MO Demographic Information

For demographic information, traffic counts, and additional information, please

refer to the members area of ApartmentVestors.com

ullor asset management, ll • p.o. ox 14763 lenexa, ks...

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