Liberty Capital Real Estate Opportunity Fund I, LLC (LCREO or the Fund) is a “boutique” investment fund focused on real estate secured investments primarily in the Pacific Northwest.  The strategy of the Fund is to achieve above market returns through diversified assets all collateralized by real property..  This diversification includes the purchase of [...]]]> The Opportunity

Liberty Capital Real Estate Opportunity Fund I, LLC (LCREO or the Fund) is a “boutique” investment fund focused on real estate secured investments primarily in the Pacific Northwest.  The strategy of the Fund is to achieve above market returns through diversified assets all collateralized by real property..  This diversification includes the purchase of performing and non-performing Notes; significantly discounted residential and commercial real estate, and a primary focus of originating Bridge loans.

The Offering

The Liberty Capital REO Fund 1, LLC will be open to investors until the $30,000,000 USD objective is met.  The distribution is based on a preferred return of 6% annually and a profit split above the preferred return after an annual management fee of 1.5%. For accounts with less than $250,000 in capital, the profit split is 50%.  The investor receives a 60% profit split if the account balance is between $250,000 and $374,999; 65% profit split if the account is between $375,000 and $499,999; 70% profit split if the account is $500,000 to $999,999; 75% profit split if the account is $1,000,000 or greater.  The realized return on the fund is payable quarterly or compounded at the investors discretion.  The preferred return may be paid out monthly for investors with capital accounts at $250,000 or greater.  The investment is offered only to accredited and qualified investors with a minimum initial investment of $100,000.  The target return to the investor is 14%+.

Business Model, Use of Proceeds, and Historical Returns

The investment model is structured to give the investors a preferred return and unlimited upside participation.  In addition, as the investor’s account grows the investor receives more of the profit split.  LCREO’s performance in its first year (2009) paid a net distribution to investors of 16.64% in its lowest tiered split structure (ARR 17.69% net of all fees).  Through the first two quarters of 2010 the Fund has now paid out a net distribution of 21.76% with an ARR of 23.79%.

The Fund’s investment strategy is multi-fold.  LCREO will generate profits based on short-term bridge loans to meet the demand of qualified borrowers who have been squeezed by the illiquidity within the residential and commercial lending markets.  This illiquidity, also termed as the “credit crunch”, provides tremendous opportunity for private lenders like LCREO.  When originating new bridge loans for the portfolio, LCREO will target to underwrite performing loans with annualized yields of 18% or greater.  The interest and fees earned are distributed through the Funds investment model.  Each loan will be secured by real estate.  If secured in second lien position the fund will look to cross collateralize multiple properties.  For an additional level of security the loans will be presented to the borrower as “full recourse” through personal guarantees.  From time to time the Fund managers may elect to syndicate a bridge loan or sell off the Note in its entirety to maximize the returns to the Fund.

Additionally the Fund will acquire performing and non-performing loans.  The loans will be acquired at a discount and/or the collateral for the loans will have significant equity.  The strategy will be to earn the Note rate or default rate, carry the property thru liquidity where the note is made whole, or take title to the property. Each property, once owned, will be managed with a blended analysis of portfolio income needs, tax advantage assessment, and overall rate of return.  Federal Lending regulations have tightened dramatically over the past 14 months and lenders are struggling to keep up. It is inevitable that many of these

institutions will need to unload a major portion of their real estate portfolios (Notes or REO’s) in order to meet these new guidelines and remain a going concern.  The investment opportunity around these types of bank restructures are enormous as lenders write down the non-performing loans and take unrealized losses all the while holding the defaulted notes on their balance sheets.

The Fund will be opportunistic in acquiring real estate at a considerable discount.  The acquisition opportunities will be for residential, commercial, and land.  The real estate owned (REO) by financial institutions is clogging up their balance sheets.  These assets have often been referred to as ‘troubled, or toxic assets’.  In order to continue lending these assets must be liquidated.  This loss at a banking level is a gain for our investors.  Financial institutions are looking to unload assets in multi-million dollar blocks at deep discounts and we will be looking to participate in purchasing REOs from financial institutions in bulk.

In addition to the three main focuses listed above LCREO will, from time to time, acquire other debt instruments secured by real estate and will actively seek to syndicate and sell Notes originated by the Fund.

The Company, Management, and Servicing Agreement

LCREO is a state of Delaware based Limited Liability Company.  The manager for the Company is Liberty Capital Funds Management, LLC (LCFM).  Under the terms and conditions for the manager, LCFM administrates the LCREO’s assets and manages the fund’s normal course of business.  The full description of the rights for each member and manager are fully described in the Company’s Operating Agreement.

About the History of Liberty Capital

Liberty Capital opened its doors in January of 2006 with the launching of its first fund Liberty Capital Partners I (LCP), LLC.  The LCP fund focused on purchasing distressed real estate by primarily acquiring homes at the foreclosure auction.  At inception there was strong anticipation from the management team that foreclosures would be on the increase over the coming years.  The LCP fund’s model was to acquire real estate at a discount, immediately remodel to add value and move to quickly sell the property.  In 2006 the fund raised $5M and throughout 2006 and into the summer of 2007 purchased over 50 homes successfully selling half of them producing over a 30% net return for our investors over this timeframe.  In November of 2006, Liberty Capital Bridge, LLC (LCB) was formed to meet the growing need for bridge financing.  LCB funded over $50M in loan volume.  The LCB fund provided a fixed income investment vehicle for investors looking for passive income.  Loans in the LCB fund were secured by real estate and generally personally guaranteed by the borrower.   Since inception the Fund paid out a monthly dividend payment equating to a 12% annual return until closing the Fund and liquidating in July of 2009.

The management team for the Fund has over 17 years of experience analyzing real estate here in the Northwest.  Our experience with the management of our first two funds and the incredible opportunity in the market place today has led us to Liberty Capital Real Estate Opportunity Fund I, LLC.  This allows investors to participate in the abundant opportunities that are present due to the current credit market crisis we are experiencing in our economy.

Accounting & Legal Counsel

Cairncross & Hempelmann, P.S. 524 Second Avenue, Suite 500 Seattle, WA 98104
PKM + Associates  10900 NE 8th Street Suite 900 Bellevue, WA 98004

Whispering Brook Condominiums is a sixty-unit (60) complex consisting of four residential buildings, a pool, and a clubhouse.  It is located just outside the quaint downtown community of Des Moines. The property was originally developed in 1984 as an apartment and has now been converted to condominiums.  Fifty eight of the sixty units [...]]]> Project Overview

Whispering Brook Condominiums is a sixty-unit (60) complex consisting of four residential buildings, a pool, and a clubhouse.  It is located just outside the quaint downtown community of Des Moines. The property was originally developed in 1984 as an apartment and has now been converted to condominiums.  Fifty eight of the sixty units in the project are complete, with the two remaining units scheduled to be completed before the end of 2009.

Among the sixty original units, nine units have been signed up as lease purchases, leaving thirty seven units available to be sold to the market. The ten closings in the project have sold for an average price of $206.00 per sq ft. The remaining units total 33,750 sq ft which would indicate comparable sales value at $6,980,000 (appraisal written on November 13th, 2009 for the Bank). The “as is” value of the project was considered to be $6,980,000, with a bulk sale value listed at $4,950,000. Whispering Brooks has three floor plans with slight variations in each building.

The current outstanding value of the Note secured in first Deed position is approximately $2,710,000. Two sales have occurred in the project within the last thirty days which support the above listed value; a full CMA of surrounding comps has been performed to show that the expected sales price is in-line with market conditions. Financing on the project is currently available by the construction lender, and Key Bank. All requirements have been submitted by the current owner for FHA financing and the expectation is to have this option available by the end of the year.
The subject site is 4.5 acres. It is located 1.6 miles from a major exit off of I-5. There are thirty nine covered parking spots at the community and additional uncovered parking supports over two spots per unit. There is a bus stop directly in front of the community which provides for easy commuter transportation. The property is large enough to support additional construction however the feasibility of this is undetermined at this point and may be precluded by the condominium association.

History of the Project

In May of 2008 the borrower obtained construction financing, secured by a first Deed of Trust, for the purpose of converting Whispering Brooks into condominiums. The borrower had originally purchased this property in November of 1994 for $1.985M and had managed the buildings as an apartment. Near the peak of the real estate market the borrower invested more principle into the project to secure construction financing, paying off his $1.4 million first lien. The project was well underway when the banking crisis was first felt here in the Northwest. As the completion drew near there was no readily available financing that could be obtained to sell the units within the time frame of the original construction loan. The Bank made an extension for one year that expired December 1st, 2009 leaving the current balance of the Note in default. The Bank is unwilling to continue extending the Note and is looking for a refinance or sale before the end of 2009. The Sponsor has researched the Banks finances, their listed troubled asset ratios, and has made an offer to purchase the Note at less than full face value.

Investment Opportunity

On December 4th the Sponsor successfully signed a Letter of Intent (LOI) to purchase the Note secured in First Deed of Trust on the subject property described above. The purchase price will include a 7.5% discount from the outstanding principle balance of the Note, and will accrue interest at the default rate of 21%. In addition, the borrower has failed to pay a $31,000 extension fee and the Bank has yet to enforce it. Through the purchase of the Note the Sponsor has negotiated this $31,000 as a straight discount to be added to the 7.5% that will be based off the principle balance owed on the Note. Currently this outstanding principle balance is approximately $2,710,000; although it is expected to decrease with the closing of the 11th sale in the project prior to the purchase of this Note. The entity that will purchase the Note will be a single purpose LLC. The Sponsor will act as the managing member of the LLC and each investor will be a limited member with rights subject to the Operating Agreement. The purpose of the LLC will be to acquire the Note. The managing member will then contact the borrower regarding default status and start foreclosure on the project. The estimated timeline of foreclosure is 190 days from the date of default (Dec 1st, 2009). It is the belief of the Sponsor that the borrower quite possibly will obtain adequate financing to repay the full balance of the Note plus fees and interest that will accrue. Should the borrower be unable to obtain financing the property will go through a non-judicial foreclosure sale in early July. In the event the property is retained through foreclosure the Sponsor will then act in the interest of the LLC to sell the remaining units at full face value. The Sponsor has extensive experience selling residential real estate in the Northwest. A third scenario may develop where the Sponsor would negotiate a loan extension in exchange for participation in the equity of the project.

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