Supplement No. 1 to Confidential Private Placement Memorandum Timberland Partners Apartment Fund VII, LLC Up to $100,000,000 of Preferred Units (Subject to Increase) $25,000 Per Preferred Unit This Supplement No. 1 to the Confidential Private Placement Memorandum (this “Supplement No. 1”) supplements and should be read with the Confidential Private Placement Memorandum dated December 20, 2019 (the “Memorandum”) relating to the offering of up to 4,000 of Preferred Units of limited liability company interest (the “Preferred Units”) in Timberland Partners Apartment Fund VII, LLC (“we” or the “Fund”) at an offering price of $25,000 per Preferred Unit, for an aggregate offering of up to $100,000,000 (the “Offering”). This Supplement No. 1 is being provided to investors to inform them of certain events that have occurred since the date of the Memorandum. In addition to this Supplement No. 1, each investor should carefully read the Memorandum, including the documents and information incorporated therein by reference, as well as the information set forth in the Memorandum under “Risk Factors and Conflicts of Interest.” The Memorandum and the documents and information incorporated therein by reference contain more detailed information about the Fund, its business and financial condition and the securities the Fund is offering in the Offering. In making an investment decision, investors must rely on their own examination of the Fund and the terms of the Offering, including the merits and risks involved. The Preferred Units have not been recommended by any federal or state securities commission or regulatory authority. Furthermore, the foregoing authorities have not confirmed the accuracy or determined the adequacy of the Memorandum or this Supplement No. 1. Any representation to the contrary is a criminal offense. This Supplement No. 1 contains forward-looking statements, descriptions of goals, and objectives. Although these forward-looking statements, stated goals, and objectives are based upon assumptions that the Manager and the Fund believe are reasonable, actual results of operations and achievements may differ materially from the statements, goals, and objectives set forth herein. All of the capitalized terms used in this Supplement No. 1 have the same definitions ascribed to them in the Memorandum, unless otherwise indicated herein. Except as otherwise expressly amended by this Supplement No. 1, the Memorandum remains in full force and effect. The date of this Supplement No. 1 is July 23, 2020
Transcript
Supplement No. 1 to Confidential Private Placement Memorandum
Timberland Partners Apartment Fund VII, LLC
Up to $100,000,000 of Preferred Units (Subject to Increase) $25,000 Per Preferred Unit
This Supplement No. 1 to the Confidential Private Placement Memorandum (this “Supplement No. 1”) supplements and should be read with the Confidential Private Placement Memorandum dated December 20, 2019 (the “Memorandum”) relating to the offering of up to 4,000 of Preferred Units of limited liability company interest (the “Preferred Units”) in Timberland Partners Apartment Fund VII, LLC (“we” or the “Fund”) at an offering price of $25,000 per Preferred Unit, for an aggregate offering of up to $100,000,000 (the “Offering”).
This Supplement No. 1 is being provided to investors to inform them of certain events that have occurred since the date of the Memorandum.
In addition to this Supplement No. 1, each investor should carefully read the Memorandum, including the documents and information incorporated therein by reference, as well as the information set forth in the Memorandum under “Risk Factors and Conflicts of Interest.” The Memorandum and the documents and information incorporated therein by reference contain more detailed information about the Fund, its business and financial condition and the securities the Fund is offering in the Offering.
In making an investment decision, investors must rely on their own examination of the Fund and the terms of the Offering, including the merits and risks involved. The Preferred Units have not been recommended by any federal or state securities commission or regulatory authority. Furthermore, the foregoing authorities have not confirmed the accuracy or determined the adequacy of the Memorandum or this Supplement No. 1. Any representation to the contrary is a criminal offense.
This Supplement No. 1 contains forward-looking statements, descriptions of goals, and objectives. Although these forward-looking statements, stated goals, and objectives are based upon assumptions that the Manager and the Fund believe are reasonable, actual results of operations and achievements may differ materially from the statements, goals, and objectives set forth herein.
All of the capitalized terms used in this Supplement No. 1 have the same definitions ascribed to them in the Memorandum, unless otherwise indicated herein. Except as otherwise expressly amended by this Supplement No. 1, the Memorandum remains in full force and effect.
The date of this Supplement No. 1 is July 23, 2020
Status of the Offering:
On January 26th, 2020 we conducting our first closing on investments in the Offering, closing on Subscription
Agreements from 261 investment partners for a total of $36,775,000 in equity. Since the first closing, we have received additional commitments of over $12,675,000.1 We plan to conduct a second closing on August 24, 2020 on
subscriptions received since the initial closing. Based on our experience with similar offerings for prior funds, we anticipate, but cannot guaranty, a significant increase in interest in the Offering immediately prior to the announced
date of the next closing.
Duration of the Term of the Offering:
The Fund anticipates holding at least one additional closing – likely in the fourth quarter of 2020 – after the August 24 closing. The Chief Manager of the Fund reserves the right to extend the offering to accommodate the inclusion of
additional investors if deemed necessary.
Anticipated Acquisitions:
Synergy at the Meadows in Lake St. Louis, MO: Information in Appendix A
Capital Park @ 72 West in Huntsville, AL: Information in Appendix B
Completed Acquisitions:
On January 28, 2020, the Fund acquired the 180-unit Meadowridge Apartments in St. Peters, MO; such property is more fully described in Exhibit E to the Private Placement Memorandum. The property is currently 95.00%
occupied. Cash flow from operations from acquisition through June 30, 2020 totaled $365,625 or 13.05% on the $6,600,000 investment.
On January 29, 2020, the Fund acquired a 55% interest in the 400-unit Trails at Cahaba River in Birmingham, AL;
such property is more fully described in Exhibit E to the Private Placement Memorandum. The property is currently 97.25% occupied. Cash flow from operations from acquisition through June 30, 2020 totaled $250,080 or 7.65% on
the $7,748,878 investment.
On January 30, 2020, the Fund acquired a 22.086% interest in the 248-unit Encore Memorial in Bixby, OK; such property is more fully described in Exhibit E to the Private Placement Memorandum. The property is currently 94.76% occupied. Cash flow from operations from acquisition through June 30, 2020 totaled $61,765 or 11.91% on
the $1,236,827 investment.
On February 6, 2020, the Fund acquired the 220-unit Meridian at Walnut Creek in Rogers, AR; such property is more fully described in Exhibit E to the Private Placement Memorandum. The property is currently 94.09%
occupied. Cash flow from operations from acquisition through June 30, 2020 totaled $294,350 or 7.59% on the $9,700,000 investment.
Timberland Partners Apartment Fund VII Performance:
On April 21, 2020 Timberland Partners Apartment Fund VII issued its quarterly report to investors discussing the
status of the equity raise, acquisitions, and the initial operations through March 31, 2020. The complete report is attached in Appendix C
On July 21, 2020, Timberland Partners Apartment Fund VII issued its quarterly report to investors discussing the
status of the equity raise, acquisitions, and the initial operations through June 30, 2020. The complete report is attached in Appendix D
Affiliated Fund Performance:
Performance for Timberland Apartment Fund I, LLC (“TPAF I”), Timberland Apartment Fund II, LLC (“TPAF II”),
Timberland Partners Apartment Fund III (“TPAF III”), Timberland Partners Apartment Fund IV (“TPAF IV”),
1 As of July 7, 2020.
Timberland Partners Apartment Fund V (“TPAF V”), and Timberland Partners Apartment Fund VI (“TPAF VI”) continues to be favorable.
TPAF I, which began in 2007 and originally capitalized with $8,325,000, has paid an average annual cash yield to
its Preferred Members since inception of 22.95% through December 31, 2019. Through June 30, 2020, TPAF I distributed $245,000, which when annualized is a 5.9% return to investors. The value of a preferred unit in TPAF I
has increased since inception from a par value of $25,000 to $48,500 – a 94% increase.
TPAF II, which began operations in early 2011 and was originally capitalized with $12,600,000, has paid an average annual cash yield to its Preferred Members since inception of 9.04% through December 31, 2019. Through June 30,
2020, TPAF II distributed cash flow returns totaling $627,653 which when annualized is a 10.0% return to investors. The value of a preferred unit in TPAF II has increased since inception from a par value of $25,000 to $56,100 – a 124% increase.
TPAF III, which began operations in the third quarter of 2012 and was originally capitalized with $17,075,000, has paid an average annual cash yield to its Preferred Members since inception of 16.7% through December 31, 2019. Through June 30, 2020 TPAF III distributed $566,422, which when annualized is a 6.6% return to investors. The
value of a preferred unit in TPAF III has increased since inception from a par value of $25,000 to $46,900 – an 88% increase.
TPAF IV, which began operations in the second quarter of 2014 and was originally capitalized with $25,425,000,
has paid an average annual cash yield to its Preferred Members since inception of 14.4% through December 31, 2019. Through June 30, 2020, TPAF IV distributed $1,220,349 which when annualized is a 9.6% return to investors. The value of a preferred unit in TPAF IV has increased since inception from a par value of $25,000 to $42,500 – a
70% increase.
TPAF V, which began operations in the third quarter of 2015 and was originally capitalized with $38,650,000 has produced an average annual cash yield to its Preferred Members since inception of 7.6% through December 31,
2019. Through June 30, 2020, TPAF V distributed $1,401,063, a 7.25% annualized return. The value of a preferred unit in TPAF V has increased since inception from a par value of $25,000 to $36,500 – a 46% increase.
TPAF VI, which began operations in the third quarter of 2017 and was originally capitalized with $51,450,000 has
produced an average annual cash yield to its Preferred Members since inception of 7.94% through December 31, 2019. Through June 30, 2020, TPAF VI distributed $1,672,125, a 6.5% annualized return. The value of a preferred
unit in TPAF VI has increased since inception from a par value of $25,000 to $28,700 – a 15% increase.
The past performance of investments made by TPAF I, TPAF II, TPAF III, TPAF IV, TPAF V, and TPAF VI should not be viewed as predictive of the Fund’s future performance. As with any investment, there can be no assurance that the Fund’s investment objectives will be achieved or that an investor will not lose a portion or all of
his or her investment.
Additional Risk Factor:
The following additional risk factor (together with those factors set forth in the section of the Memorandum titled “Risk Factors and Conflicts of Interest”) should be carefully considered in connection with an investment in the
Fund. Prospective investors should consult their own financial, legal and tax advisors prior to investing in the Fund.
The novel coronavirus (COVID-19) could result in material adverse effects on our business, financial position, results of operations and cash flows. The United States has been subject to significant economic disruption caused by the onset of COVID-19. Nearly every industry has been impacted directly or indirectly, and the
U.S. multifamily real estate market has come under severe pressure due to numerous factors, including preventative measures taken by local, state and federal authorities to alleviate the public health crisis such as mandatory business closures, quarantines, restrictions on travel and “shelter-in-place” or “stay-at-home” orders. There is uncertainty as
to the time, date and extent to which these restrictions will be relaxed or lifted.
The Fund derives revenues primarily from rents received from tenants under leases at the Fund’s properties. The
Fund’s operating results therefore depend materially on the ability of its tenants to make required rental payments. The extent to which the COVID-19 pandemic impacts the ability the Fund’s tenants to make required rental
payments, and the Fund’s operations and financial condition, will depend on future developments which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the
actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and such containment measures, among others. While the extent of the outbreak and its impact on the Fund, its tenants and the U.S. apartment market is uncertain, a prolonged crisis could result in continued disruptions
in the credit and financial markets, a continued rise in unemployment rates, and an overall worsening of global and U.S. economic conditions. The factors described above, as well as additional factors that the Fund may not currently
be aware of, could materially negatively impact the Fund’s ability to collect rent and could lead to termination of leases by tenants, tenant bankruptcies, decreases in demand for units at the Fund’s properties, difficulties in
accessing capital, and other impacts that could materially and adversely affect the Fund’s business, results of operations, financial condition and ability to make distributions to Preferred Unit holders.
Additional Information:
If you have questions or desire additional information regarding this Supplement No.1 or the properties we anticipate acquiring, please contact Gregory Ribich, Vice President of Investor Relations, at (952) 843-2035 or Sam Eaton, Director of Investor Relations, at (952) 208-1999.
What we are asking you to do:
Please sign the attached Acknowledgment and Agreement and return it by email or US mail.
* * *
An investment in the Preferred Units is highly speculative, involves a high degree of risk and is suitable only for investors with substantial means who can bear the economic risk of the investment for an indefinite period of time, have no need for liquidity of the investment, and have adequate means of providing for their needs and contingencies. An investment in the securities should be made only by persons able to bear the risk in the event the investment results in a total loss.
A-1
APPENDIX A
Synergy at the Meadows Apartments 1000 Fountain Grass Drive Lake St. Louis, Missouri
Salient Facts
Timberland Partners, Inc. (“Timberland Partners”) has identified a multifamily acquisition opportunity that the Fund believes meets its target investment guidelines as an acquisition of a high quality, new asset with the ability to increase future cash flows. The Fund is expected to close on the acquisition of Synergy at the Meadows in late July of 2020.
Acquisition Price: $32,000,000 Year Built: 2019/2020
Price Per Unit: $145,455 Units: 220
Price Per Foot: $145.39 Average Sq Ft Unit Size: 813
Equity Required: $10,000,000 Average Rent per Unit: $1,368
Occupancy (as of 7/13/2020):
25.9% As-Stabilized Cap Rate 6.0%
Submarket Occupancy (Q2 2020)
93.0%
Investment Highlights
The Fund believes that the acquisition of Synergy at the Meadows will result in the addition of a well-located, newly constructed, Class “A” quality apartment community. We feel there is value to be created by implementing our professional, best-in-class on-site management practices with additional upside in being able to complete the lease-up process. Once the property is stabilized, we will have the ability to refinance and utilize long-term fixed rate debt, which creates an opportunity for a potential cashout refinance as a result of the increased value of the property.
Property Description
Synergy at the Meadows (“Synergy”) is a newly constructed (2019-2020), 220-unit property in Lake St. Louis, MO (St. Charles County). The units are made up of one-, two-, and three-bedroom units with an open concept floor plan, bar seating, and patio/balcony in select units. The units feature gourmet kitchens, 9-foot ceilings, stainless steel appliances, granite countertops, tile backsplash, LVT floors, and full-size washer/dryer in all units. The common area amenities include a community lounge, two fitness centers, pool, multiple courtyards with grilling stations, and a dog park. One of the best amenities at this property is being located at The Meadows at Lake St. Louis lifestyle center and is walkable to dining, shopping, and entertainment options. In addition to the retail space, The Meadows allows residents to walk to and experience local artisans, fitness studios, concerts, and the farmers market.
We were able to source Synergy at the Meadows off-market and we believe we negotiated an attractive purchase price for the property that is below current replacement value as a result of the current economic environment. Over the past 12 months, the average sale price per unit for Class A suburban, garden style apartments in the St. Louis metro area averaged $175,000 per unit. To provide further context to the market and the basis, a 1985 garden style apartment complex in an inferior location in the same sub-market traded for
A-2
~$138,000/unit and is a property that is in need of capital improvements. In addition, we have the ability to create value by taking on lease-up and stabilization responsibilities. The property was previously under contract with another buyer at $33M in Q1 2020 and shortly after, fell out of contract as the institutional equity in the deal at the time backed out due to the uncertainty in the market. The current owner is a merchant builder/developer and primarily focuses on new development and sells shortly after completion of construction.
Upon closing, Timberland Partners (and its affiliates) will own seven properties totaling 2,186 units in the St. Louis market joining Green Mount Lakes, Parkway Lakeside, Pelican Cove, Vance Station, Willowbend, The Finn, and Meadowridge
Location/Market Overview
Synergy is located in Lake St. Louis, MO, part of the St. Charles County submarket. St. Charles County is an affluent and fast-growing part of the St. Louis metro. The submarket typically performs better than most areas of the metro, with some of the lowest vacancies and highest rents; vacancies have not yet risen significantly as a result of the recent economic crisis. Rents are above the metro average, and have continued to grow in 2020.
Well-educated and relatively affluent new residents have been the main drivers of recent population growth, which has contributed to strong fundamentals in St. Charles County. The submarket has experienced the fastest population growth in the metro this cycle, at around 10.0%. Comparatively, metro wide growth was closer to 1.0% and several competing submarkets have experienced population declines.
Median household incomes have grown by more than 10% since 2010, at almost twice the metro average. In this time, St. Charles County gained the most residents holding a bachelor’s degree or above out of any submarket in the metro. The average household income within a three-mile radius of Synergy is $112,350 while the median home value is $266,320 according to CoStar.
St. Charles County is home to a mix of large office and industrial employers, providing a renter base across a range of income levels. The largest employer in the submarket is CitiMortgage alongside Mastercard Worldwide and General Motors.
Financing
Because we have the opportunity to complete the lease-up at the property, the Fund is planning to finance the acquisition of Synergy at the Meadows with a 3-year, floating rate loan. The short-term loan will allow the appropriate time to lease the property up to stabilization. Once stabilized, it is the Fund’s intention is to finance the property with a long-term Fannie Mae or Freddie Mac loan.
The loan proceeds are expected to be $23,000,000. The loan includes 24-months of interest-only payments at an interest rate of 1M Libor + 2.00% (floor of 3.25%). The loan will be pre-payable at any time without a prepayment fee.
20041873v2
B-1
APPENDIX B
Capital Park @ 72 West 6941 Hwy 72 W Huntsville, AL
Salient Facts
Timberland Partners has identified a multifamily acquisition opportunity that the Fund believes meets its target investment guidelines as an acquisition of a high quality, newly constructed asset with solid in-place and increasing future cash flows. The Fund plans to close on the acquisition of Capital Park @ 72 West at the end of August 2020.
Acquisition Price: $43,000,000 Year Built: 2015
Price Per Unit: $184,549 Units: 233
Price Per Foot: $170.09 Average Sq Ft Unit Size: 1,085
Occupancy (as of 7/8/2020):
99% Year One Capitalization Rate: 5.3%
7-year Average Cash-on-Cash: 9.75%
Investment Highlights
The Fund believes that the acquisition of Capital Park @ 72 West will result in the addition of a high-quality, Class “A” apartment community with steady and increasing cash flows.
Completed in 2015, Capital Park @ 72 West offers an opportunity to acquire a well-located, newly constructed property with upside potential of outsized future rent growth.
Property Description
Capital Park is a high-quality, Class “A” gated apartment community built in 2015. The property benefits from spacious, well-designed 1, 2, and 3-bedroom floorplans that are among the largest of the competitive set. The attractive units average 1,084 square feet. All units have wood-look plank flooring, 9-foot ceilings, and well-equipped kitchens that include subway tile backsplashes, full stainless steel appliance packages, and wine racks above the fridges. All units are equipped with full-size washer/dryer connections and select units include a washer and dryer. The community also has a select number of “carriage” units that are located above the detached garage buildings and benefit from direct access to a garage similar to a townhome unit.
The comprehensive common areas and amenities are by far the largest in the area. The comprehensive amenity package includes: a 2,000 square foot fitness center with cardio, weight training, and a cross training room; a large leasing center with coffee bar, conference room, and business center; two poolside covered lounge areas—one with a TV and fireplace; a second coffee bar in the expansive clubroom building that contains a resident kitchen and party room; bocce ball court; outdoor wood-burning fire pit; car care center; pet park and grooming pet spa; and grilling stations.
B-2
Location/Market Overview
Capital Park @ 72 West is located in the busy and fast-growing Madison/West Huntsville submarket that boasts high resident incomes and a very strong base of employers. Known as Rocket City, USA, Huntsville is the national leader for space, defense technology, and STEM-related employment. The metro boasts the highest concentration of engineers in the entire country. A few of the many well-known employers in the city that are located between 5 and 25 minutes from the property are NASA, Blue Origin, Toyota Motors, Facebook, The Federal Bureau of Investigations, Polaris, GE Aviation, and Huntsville Hospital. In addition to these employers, the area boasts multiple higher education institutions and public school systems that consistently rank among the best in the nation. Just over 5 minutes from the property sits the expansive Cummings Research Park that contains over 27,000 jobs and 12,500 students. This research park is the 4th largest in the world and 2nd largest in the United States. Across the interstate from the research park is the Army's Redstone Arsenal that employs over 37,000 people. This 4.6 million square-foot, mixed-use, Class "A" office park is 100% occupied with another seven buildings or 662,000 square feet under construction. Huntsville has been experiencing incredible economic and population growth since 2000 and this growth has continued despite the pandemic.
In 2020 alone, Blue Origin opened a $200 million facility that will employ over 500 by 2021. Huntsville Hospital’s Orthopedic Spine Center is halfway complete and expected to add over 100 jobs to downtown Huntsville, Polaris is nearing full production capacity at its 453-acre site that is expected to reach over 2,000 employees in 2021, Redstone Federal Credit Union’s new 67,000 square foot downtown office is opening later this year and eventually bringing an additional 400+ jobs downtown, and Facebook announced a 2020 opening of a $750 million data center in Huntsville that will contribute another 100 or more jobs to the city. In 2019, the FBI announced relocation of 1,500 employees and $1 billion of future investment in Redstone Arsenal. In 2018, Toyota and Mazda announced a joint $1.6 billion manufacturing plant 25 minutes from Capital Park that will create up to 4,000 jobs by 2022 at the earliest.
At the property alone, the median annual household income is $75,000 with over 10% of the residents earning over $150,000 per year. The median annual household income is even higher in the immediate area measuring over $88,000 per year.
Financing
The Fund is planning to finance the acquisition of Capital Park @ 72 West with either a Freddie Mac or a Fannie Mae loan. The expected loan proceeds are in excess of $32,000,000. The 10- or 12-year loan term will likely include 5 or 6 years of interest-only payments at an interest rate of approximately 2.85% - 3.08%.
APPENDIX C
QUARTERLY REPORT (Q1 2020)
(See attached)
Executive Summary
Enclosed is the initial financial report for Timberland Partners Apartment Fund VII, LLC summarizing activity from inception through the first quarter of 2020. We will concentrate on three areas of activity: equity, acquisitions, and operations. Below is a brief discussion of each. Equity We formed Timberland Partners Apartment Fund VII, LLC on December 4, 2019 and began raising equity in late December. Our initial closing was held on January 24, 2020 and totaled $36,775,000. The sponsors of the Fund have purchased 149 Preferred Units for a total of $3,725,000, or 10.13% of the total raised. Since then, additional commitments of $10,850,000 have been received, bringing our total capital raise to $47,625,000. Although we paused our acquisition activity while we seek to gain clarity on the market and economy, the fund remains open for investment. We continue to accept investment commitments to position the fund to become an opportunistic buyer coming out of the recession. A date for the second closing will be set when we identify our next investment opportunity. If you would like to increase your investment, please let us know. Acquisitions We have purchased four properties to date at a combined purchase price of $97,172,752. These properties met the acquisition objectives of the Fund and $25,285,715 of the total equity raised was invested in these properties. On January 28, 2020 we purchased Meadowridge Apartments in St. Peters, Missouri (suburban St. Louis). This 180-unit property was purchased for $28,400,000 and required $6,600,000 in equity. On January 29, 2020, we purchased a 55% interest in the 400-unit Trails at Cahaba River in Birmingham, Alabama for $25,594,500 and it required $7,748,878 in equity. On January 30, 2020 the Fund acquired a 22.086% interest in Encore Memorial. This is a 248-unit property located in Bixby, Oklahoma (suburban Tulsa). Finally, on February 6, 2020 the Fund acquired Meridian at Walnut Creek in Rogers, Arkansas. This 220-unit property was purchased for $36,950,000 and required $9,700,000 in equity. Exhibit E of our Private Placement Memorandum further describes these properties. As mentioned above, we have paused our acquisition activity while we sort out the economic impact of the intentional shut down of the US economy in response to the COVID-19 pandemic. We continue to strengthen our relationships with brokers and owners seeking opportunities that meet the Fund’s objectives. We are approaching the current environment with caution and will begin aggressively seeking assets when we gain some clarity. We will keep you informed as this continues. Operations All four properties were in operations for about two months during the first quarter. The transition of ownership went smoothly and our management is bringing the Timberland Partners brand to each property. Given the short ownership period of each asset, no conclusions can be drawn from the financial reports except that we are encouraged by our start. A summary of cash flow and the operating statements for the four properties are attached. Below is the percent of occupied units and percent of unpaid April rent as of April 15th.
Property Occupancy Unpaid
April Rent Meadowridge 95.56% 3.01% Trails at Cahaba River 90.25% 10.80% Encore Memorial 93.15% 6.31% Meridian at Walnut Creek 93.18% 1.04% Weighted Average 92.46% 5.98%
Timberland Partners Apartment Fund VII Investors
Robert Fransen, President and Gregory A. Ribich, VP of Investor Relations
April 21, 2020
Timberland Partners Apartment Fund VII– 1st Quarter 2020
The cash position of the Fund at the end of the quarter is $13,854,620. This includes $11,489,285 remaining from the original capital raise ($36,775,000 less $25,285,715 equity in real estate), and $2,365,335 in cash and replacement reserves at the properties. Cash flow distributions will begin once the capital raise is complete and we have a majority of the proceeds invested in apartment properties. We will continue to update you on Fund activity on a quarterly basis. You can expect to see reports with operations updates and operating statements for each of the properties in the Fund approximately three weeks following the end of every quarter. If you are interested in viewing your quarterly reports online please contact Jessie Clausen at (952) 843-2057 or [email protected]. Thank you for being our partner, and please call if you have any questions or concerns.
Robert Fransen Gregory A. Ribich President Vice President of Investor Relations (952) 843-2040 (952) 843-2035 [email protected][email protected]
Timberland Partners Apartment Fund VII Summary of Property Performance
Amount of Fund Investment $6,600,000 $7,748,878 $1,236,837 $9,700,000 $25,285,715
Date of Acquisition 1/28/2020 1/29/2020 1/30/2020 2/6/2020
Principal Payment Start Date 3/1/2026 3/1/2026 Inception 4/1/2026
Loan Maturity Date on Cash Return 8.22/1/2032 8.22/1/2032 24/1/2055 8.23/1/2032
Principal Reduction 6.52% 2.82%
Total Yield 21.78% 11.10%
Timberland Partners Apartment Fund VII, LLC Property Performance Review – Q1 2020 Meadowridge – 180 units, St. Peters, Missouri
Meadowridge was acquired on January 28, 2020. Occupancy averaged 94.1% during the first quarter since acquisition and the property is currently 95.6% occupied. Total cash flow in the first quarter was $180,673 after adding rehab improvements paid through initial equity proceeds at acquisition. The Fund initially set out to invest $250,000 in Meadowridge for the capital improvements below that were planned at closing. After carefully reviewing our strategy in the wake of the economic downturn, we placed these items on hold and will invest only in the items that are absolutely necessary.
We will revisit this decision as the economy improves.
Project Cost Status Exterior power wash and caulking $30,000 On hold Add cabinet hardware, faux blinds, and backsplash $100,000 On hold Pool furnishings $20,000 On hold Clubhouse and model unit update $12,500 On hold Update fitness center / resident lounge $15,000 On hold Add pet spa and storage lockers $20,000 On hold Landscaping/other $30,000 Ongoing Contingency $22,500 Total $250,000
The property is financed with a 12-year Freddie Mac loan totaling $22,720,000 at a fixed rate of 3.74%. The loan amortizes over 30 years following an interest-only period of six years. TPAF VII invested $6,600,000 in Meadowridge. Trails at Cahaba River – 400 units, Birmingham, Alabama
We closed on Trails at Cahaba River on December 29, 2020. Occupancy at Trails at Cahaba River is currently 90.3% and averaged 91.6% during the first quarter since acquisition. The competitive sub-market continues to report an average occupancy of 91% to 93%. Cash flow for this same period totaled $221,236 after adding back rehab improvements paid with equity proceeds at acquisition. Rehab improvements completed so far included $7,700 in tree trimming and landscape improvements, and $15,400 to purchase washers and dryers to install in units. In total, the Fund has planned a $2,500,000 renovation budget for Trails at Cahaba River. The improvements include the property enhancements below.
Project Cost Status
New dog park $25,000 Pending New grills and fire pits $40,000 Pending Roof replacement $18,000 Pending Exterior cat walk repairs $15,000 In process New resort style pool $500,000 Pending Crawl space repairs $100,000 Complete Tree trimming $60,000 Ongoing Reseal and stripe parking lot $40,000 Pending New cabinet fronts (unit renovation) $56,000 Pending New interior paint (unit renovation) $61,000 Pending New appliances (unit renovation) $87,000 Pending New tile backsplash (unit renovations) $160,000 Pending Granite countertops (unit renovation) $153,000 Pending Flooring (unit renovation) $467,000 Pending Lighting (unit renovation) $10,000 Pending Add washer/dryers (unit renovations) $380,000 Ongoing Miscellaneous $101,000 Pending Contingency $113,500 Construction management fee $113,500 Total $2,500,000
Trails at Cahaba River is financed with a Fannie Mae loan in the amount of $33,395,000 at an interest rate of 3.67% and a 12-year term. The loan amortizes over 30 years following an interest-only period of six years. The total investment in The Trails at Cahaba River is $14,089,549. Timberland Partners Apartment Fund VII (55% owner) invested $7,748,878 and Timberland Partners Apartment Fund II (45% owner) invested $6,340,681.
Meridian at Walnut Creek – 220 units, Rogers, Arkansas
Meridian at Walnut Creek was acquired on February 6, 2020. Occupancy averaged 92.2% during the first quarter since acquisition and the property is currently 93.2% occupied. Total cash flow in the first quarter was $139,68. Total cash flow in the first quarter was $180,673 after adding rehab improvements paid through initial equity proceeds at acquisition. The Fund initially set out to invest $300,000 in Meridian at Walnut Creek for the capital improvements below that were planned at closing. After carefully reviewing our strategy in the wake of the economic downturn, we placed most items on hold and will invest only in the items that are absolutely necessary. We will revisit this decision as the economy improves.
Project Cost Status
Add washers and dryers to majority of units $198,000 On hold New signage 50,000 Ongoing Landscaping 10,000 On hold Add dog park 15,000 On hold Common area / clubhouse update 5,000 On hold Contingency $22,000 Total $300,000
The property is financed with a 12-year Freddie Mac loan totaling $28,145,000 at a fixed rate of 3.67%. The loan amortizes over 30 years following an interest-only period of six years. TPAF VII invested $9,700,000 in Meridian at Walnut Creek. Encore Memorial – 248 units, Bixby, Oklahoma
Timberland Partners V, LLP acquired Encore Memorial on January 30th, 2020. Occupancy averaged 93.2% during the first quarter since acquisition and the property is currently 93.15% occupied. Total cash flow in the first quarter was $167,710 after adding rehab improvements paid through initial equity proceeds at acquisition. Timberland Partners V, LLP set out to invest $500,000 in Encore Memorial for the capital improvements below that were planned at closing. After carefully reviewing our strategy in the wake of the economic downturn, we placed most items on hold and will invest only in the items that are absolutely necessary. We will revisit this
decision as the economy improves.
Project Cost Status Exterior painting $220,000 Ongoing Siding and trip repairs/replacements 25,000 Ongoing Balcony sealing 15,000 On hold Parking lot repairs and stripe / add concrete pathways 30,000 On hold Landscaping 25,000 On hold Gutter and downspout repairs/additions 15,000 On hold Pergola and grill station at pool 25,000 On hold Pool furnishings / upgrades 20,000 On hold Add playground 25,000 Ongoing Led exterior lighting 45,000 On hold Signage 15,000 On hold Contingency 40,000 Total $500,000
The property was financed by assuming an existing HUD 223(f) loan and was refinanced shortly after the initial closing by completing a HUD 223(a)7. The refinance closed on March 26th, 2020 and resulted in a reduction in interest rate from 4.09% to 3.87%. In addition, the loan amount was increased to the original loan balance of $24,000,000, an increase of $559,919. The loan has a 35-year term and is fully amortizing. TPAF VII invested $1,236,837 for a 22.086% interest in Timberland Partners V, LLP, which owns 100% of Encore Memorial.
Jan Feb Mar Total
GROSS SCHEDULED INCOMEGross Potential Rent 26,790 217,984 218,970 463,744 Vacancy Loss - (13,797) (12,185) (25,982) New Lease Concessions - (3,898) (1,404) (5,303) Other Concessions - (36) (25) (61) TOTAL RENT REVENUE 26,790 200,252 205,357 432,399
OTHER INCOMERubbish Recovery - 26 135 161 Pest Control Recovery - 5 24 28 Late Fees - 635 275 910 Return Check Fee - 50 - 50 Application Fees - 1,250 500 1,750 Pet Rent - 1,653 1,688 3,341 Retained Security Deposits - - 467 467 Non-Refundable Pet Fee 200 350 800 1,350 Lease Administration Fee - 2,400 1,200 3,600 Lease Buy Out Fee - - 7,855 7,855 Month-to-Month Fee - 500 500 1,000 Fee Concessions - (400) (450) (850) Bad Debt Write-offs - - (58) (58) Legal Fee Income - - 259 259 License Fee Permit Income - 235 500 735 TOTAL OTHER INCOME 200 6,704 13,694 20,598
EFFECTIVE GROSS INCOME 26,990 206,956 219,051 452,997
PARTNERS' CAPITALYTD Earnings (235,264.27)Partners' Capital 36,775,000.00
TOTAL PARTNERS' CAPITAL 36,539,735.73
TOTAL LIABILITIES PARTNERS' & CAPITAL 112,394,313.21
March 31, 2020
Timberland Partners Apartment Fund VII, LLCConsolidated Balance Sheet
APPENDIX D
QUARTERLY REPORT (Q2 2020)
(See attached)
Executive Summary
Enclosed is the financial report for Timberland Partners Apartment Fund VII, LLC summarizing activity from inception through the second quarter of 2020. We will concentrate on three areas of activity: equity, acquisitions, and operations. Below is a brief discussion of each.
Equity
Timberland Partners Apartment Fund VII, LLC was formed on December 4, 2019 and we began raising equity in late December. Our initial closing was held on January 24, 2020 and totaled $36,775,000. The sponsors of the Fund purchased 149 Preferred Units for a total of $3,725,000, or 10.13% of the total raised. Since then, additional commitments of $12,975,000 have been received, bringing our total capital raise to $49,750,000.
Our acquisitions team has located two additional investment opportunities that are further described in the paragraphs below. In order to purchase these properties, we are holding the second closing of our capital raise on August 24, 2020. Please let us know if you would like to invest additional funds and, as always, feel free to recommend this opportunity to other qualified individuals.
Acquisitions
We purchased four properties during the first quarter at a combined purchase price of $97,172,752. These properties met the acquisition objectives of the Fund and $25,285,715 of the total equity raised was invested in these properties. On January 28, 2020 we purchased Meadowridge Apartments in St. Peters, Missouri (suburban St. Louis). This 180-unit property was purchased for $28,400,000 and required $6,600,000 in equity. On January 29, 2020, we purchased a 55% interest in the 400-unit Trails at Cahaba River in Birmingham, Alabama for $25,594,500 and it required $7,748,878 in equity. On January 30, 2020 the Fund acquired a 22.086% interest in Encore Memorial. This is a 248-unit property located in Bixby, Oklahoma (suburban Tulsa). Finally, on February 6, 2020 the Fund acquired Meridian at Walnut Creek in Rogers, Arkansas. This 220-unit property was purchased for $36,950,000 and required $9,700,000 in equity. Exhibit E of our Private Placement Memorandum further describes these properties.
We are now under a purchase and sale agreement for two additional properties. Synergy at the Meadows in Lake St. Louis, Missouri is a 220-unit suburban “Class A” property built in 2019. Currently under lease up, we are able to acquire this property below its replacementcost by assuming the lease-up risk on the remaining 70% of the units on the property. We believe this will be an excellent value-addopportunity to the portfolio. Capital Park @ 72 in Huntsville, Alabama is a 233-unit suburban “Class A” property built in 2015. The propertyis currently 99% occupied and rents are on the rise in Huntsville. We believe this acquisition offers an opportunity to acquire a well-locatedsuburban asset in a market with an upside of continued rent growth. The median household income in the immediate area is $88,000 peryear.
Operations
All four properties were in operations for the entire second quarter. The transition of ownership went smoothly and our property management team is bringing the Timberland Partners brand to each property. We are off to a strong start with each of our properties performing at or above our projections at the time of acquisition. A summary of cash flow from operations including the cash-on-cash return and the operating statements for the four properties are attached.
Below is the percent of occupied units and percent of unpaid July rent as of July 15th.
Property Occupancy Unpaid July Rent Meadowridge 95.00% 4.39% Trails at Cahaba River 97.25% 6.41% Encore Memorial 94.76% 4.05% Meridian at Walnut Creek 94.09% 0.63% Weighted Average 95.61% 4.20%
Timberland Partners Apartment Fund VII Investors
Robert Fransen, President
Gregory A. Ribich, VP of Investor Relations
July 21, 2020
Timberland Partners Apartment Fund VII – 2nd Quarter 2020
The cash position of the Fund at the end of the quarter is $13,685,908. This includes $11,489,285 remaining from the original capital raise ($36,775,000 less $25,285,715 equity in real estate), and $2,196,623 in cash and replacement reserves at the properties. Cash flow distributions will begin once the capital raise is complete and we have a majority of the proceeds invested in apartment properties. We will continue to update you on Fund activity on a quarterly basis. You can expect to see reports with operations updates and operating statements for each of the properties in the Fund approximately three weeks following the end of every quarter. If you are interested in viewing your quarterly reports online please contact Jessie Clausen at (952) 843-2057 or [email protected]. Thank you for being our partner, and please call if you have any questions or concerns.
Robert Fransen Gregory A. Ribich President Vice President of Investor Relations (952) 843-2040 (952) 843-2035 [email protected][email protected]
Timberland Partners Apartment Fund VII Summary of Property Performance
January 24, 2020–June 30, 2020
Trails at Cahaba River
Meridian at Walnut Creek Meadowridge
Encore Memorial TOTAL
Effective Gross Income 1,101,170 1,242,162 1,097,604 283,632 3,724,568 Less: Operating Expenses 537,729 502,158 350,129 107,695 1,497,711 Net Operating Income 563,441 740,004 747,475 175,937 2,226,857
Cash Flow from Operations 250,079 294,349 365,625 61,765 971,818
Amount of Fund Investment $7,748,878 $9,700,000 $6,600,000 $1,236,837 $25,285,715
Annualized Cash on Cash Return 7.65% 7.59% 13.05% 11.91% Principal Reduction 0.00% 0.00% 0.00% 2.30% Total Yield 7.65% 7.59% 13.05% 14.21%
Date of Acquisition 1/29/2020 2/6/2020 1/28/2020 1/30/2020 Principal Payment Start Date 3/1/2026 4/1/2026 3/1/2026 Inception Loan Maturity Date on Cash Return 8.22/1/2032 8.23/1/2032 8.22/1/2032 24/1/2055
Timberland Partners Apartment Fund VII, LLC Property Performance Review – Q2 2020 Meadowridge – 180 units, St. Peters, Missouri
Meadowridge was acquired on January 28, 2020. Occupancy averaged 94.4% during the second quarter and the property is currently 95.0% occupied. Total cash flow in the second quarter was $184,952 after adding rehab improvements paid through initial equity proceeds at acquisition. The Fund initially set out to invest $250,000 in Meadowridge for the capital improvements below that were planned at closing. Many of the rehab improvements are in process and are being positioned to be completed in 3Q20 after placing many of the projects on hold over the past few months. The capital improvements are shown below:
Project Cost Status
Exterior power wash and caulking $30,000 In process Add cabinet hardware, faux blinds, and backsplash $100,000 Ongoing Pool furnishings $20,000 In process Clubhouse and model unit update $12,500 In process Update fitness center / resident lounge $15,000 Pending Add pet spa and storage lockers $20,000 In process Landscaping/other $30,000 Ongoing Contingency $22,500 Total $250,000
The property is financed with a 12-year Freddie Mac loan totaling $22,720,000 at a fixed rate of 3.74%. The loan amortizes over 30 years following an interest-only period of six years. TPAF VII invested $6,600,000 in Meadowridge. Trails at Cahaba River – 400 units, Birmingham, Alabama
We closed on Trails at Cahaba River on January 29, 2020. Occupancy at Trails at Cahaba River is currently 97.3% and averaged 92.7% during the second quarter. The competitive sub-market continues to report an average occupancy of 92% to 93%. Cash flow for this same period totaled $233,485 after adding back rehab improvements paid with equity proceeds at acquisition. Rehab improvements completed this quarter included $26,800 in catwalk repairs, $98,700 in planned repairs of building crawlspaces, and $101,500 on unit renovations. We have completed and rented a total of six renovated units achieving a 20% return on investment. In total, the
Fund has planned a $2,500,000 renovation budget for Trails at Cahaba River. The improvements include the property enhancements below.
Project Cost Status New dog park $25,000 Pending New grills and fire pits $40,000 Pending Roof replacement $18,000 Pending Exterior cat walk repairs $15,000 Complete New resort style pool $500,000 Pending Crawl space repairs $100,000 Complete Tree trimming $60,000 Ongoing Reseal and stripe parking lot $40,000 Pending New cabinet fronts (unit renovation) $56,000 Ongoing New interior paint (unit renovation) $61,000 Ongoing New appliances (unit renovation) $87,000 Ongoing New tile backsplash (unit renovations) $160,000 Ongoing Granite countertops (unit renovation) $153,000 Ongoing Flooring (unit renovation) $467,000 Ongoing Lighting (unit renovation) $10,000 Ongoing Add washer/dryers (unit renovations) $380,000 Ongoing Miscellaneous $101,000 Pending Contingency $113,500 Construction management fee $113,500 Total $2,500,000
Trails at Cahaba River is financed with a Fannie Mae loan in the amount of $33,395,000 at an interest rate of 3.67% and a 12-year term. The loan amortizes over 30 years following an interest-only period of six years. The total investment in The Trails at Cahaba River is $14,089,549. Timberland Partners Apartment Fund VII (55% owner) invested $7,748,878 and Timberland Partners Apartment Fund II (45% owner) invested $6,340,681.
Meridian at Walnut Creek – 220 units, Rogers, Arkansas
Meridian at Walnut Creek was acquired on February 6, 2020. Occupancy averaged 92.3% during the second quarter and the property is currently 94.1% occupied. Total cash flow in the second quarter was $154,669 after adding rehab improvements paid through initial equity proceeds at acquisition. The Fund initially set out to invest $300,000 in Meridian at Walnut Creek for the capital improvements below that were planned at closing. Rehab improvements are underway and the process of adding washers and dryers to units has begun and will continue as units turnover. In the second quarter, $15,830 was spent to purchase washers and dryers. The remaining capital improvements are shown below.
Project Cost Status
Add washers and dryers to majority of units $198,000 In process New signage 50,000 In process Landscaping 15,000 Ongoing Add dog park 5,000 Pending Common area / clubhouse update 10,000 Pending Contingency $22,000 Total $300,000
The property is financed with a 12-year Freddie Mac loan totaling $28,145,000 at a fixed rate of 3.67%. The loan amortizes over 30 years following an interest-only period of six years. TPAF VII invested $9,700,000 in Meridian at Walnut Creek. Encore Memorial – 248 units, Bixby, Oklahoma
Timberland Partners V, LLP acquired Encore Memorial on January 30, 2020. Occupancy averaged 92.2% during the second quarter and the property is currently 94.8% occupied. The competitive sub-market continues to report occupancy of 91% to 93%. Total cash flow in the second quarter was $111,945 after adding rehab improvements paid through initial equity proceeds at acquisition. Timberland Partners V, LLP set out to invest $500,000 in Encore Memorial for the capital improvements below that were planned at closing. Rehab improvements completed this quarter included $228,654 on exterior painting, siding and trim repairs, balconies, gutters/downspouts.
Project Cost Status
Exterior painting $220,000 Complete Siding and trim repairs/replacements 25,000 Complete Balcony sealing 15,000 Complete Parking lot repairs and stripe / add concrete pathways 30,000 Ongoing Landscaping 25,000 Ongoing Gutter and downspout repairs/additions 15,000 Complete Pergola and grill station at pool 25,000 In process Pool furnishings / upgrades 20,000 In process Add playground 25,000 Complete Led exterior lighting 45,000 Pending Signage 15,000 In process Contingency 40,000 Total $500,000
The property was financed by assuming an existing HUD 223(f) loan and was refinanced shortly after the initial closing by completing a HUD 223(a)7. The refinance closed on March 26th, 2020 and resulted in a reduction in interest rate from 4.09% to 3.87%. In addition, the loan amount was increased to the original loan balance of $24,000,000, an increase of $559,919. The loan has a 35-year term and is fully amortizing. TPAF VII invested $1,236,837 for a 22.086% interest in Timberland Partners V, LLP, which owns 100% of Encore Memorial.
PARTNERS' CAPITALYTD Earnings (697,831.65)Partners' Capital 36,775,000.00
TOTAL PARTNERS' CAPITAL 36,077,168.35
TOTAL LIABILITIES PARTNERS' & CAPITAL 111,785,261.98
June 30, 2020
Timberland Partners Apartment Fund VII, LLCConsolidated Balance Sheet
SUPPLEMENT No. 1 ACKNOWLEDGEMENT AND AGREEMENT
In connection with the offer and sale by Timberland Partners Apartment Fund VII, LLC (the “Fund”) of up to $100,000,000 of its Preferred Units, pursuant to that certain Confidential Private Placement Memorandum of the Fund dated December 30, 2019, the undersigned hereby acknowledges and represents to the Fund that the undersigned has received and carefully reviewed and understands Supplement No. 1 to the Confidential Private Placement Memorandum, dated July 23, 2020, and that the undersigned agrees to continue with the undersigned’s investment in Preferred Units in the Fund.
