1601 & 1615 BUENA VISTA SAN ANTONIO, TEXAS

P.O. BOX 6502 • SAN ANTONIO, TX 78209 • 210.827.4883 or 210.683.7569 • www.gruenefund.com

INVESTMENT PROPOSAL

1601 & 1615 BUENA VISTA

SAN ANTONIO, TEXAS

February, 2013


INVESTMENT SUMMARY

Transaction Overview

Gruene Fund, LP is establishing a limited partnership, Prospect Hill, LP (“Company”) that will purchase 1601 Buena Vista and 1615 Buena Vista (“Property”) in San Antonio, Texas. The property consists of one multifamily rental building containing 55 residential units and one triplex located adjacent to the main building for a total of 58 residential units.

The Company will be owned by its managing partner and limited partners. The managing partner, Gruene Fund, LP will be controlled by Mike Kelleher and Paul McCutchen (“Managers”)

The purchase price of $1,675,000 represents a 9% going-in cap rate on the projected year one net operating income. The financial projections are shown in detail in the “Financials” section of this document. The projection is very conservative and includes the following assumptions:

o A 5% vacancy loss (although the property stays 100% occupied there will be make-ready time for turnover.)

o Doubling of property taxes based on assessed value equal to 80% of purchase price. o Management fee of 5% since property will be professionally managed by Drought

Properties. o Increases in insurance premiums and repair allowances over historical norms.

Multifamily is one of the few sectors within commercial real estate where investors are able to

obtain financing in the current economy. The Managers are currently in discussions with lenders to provide acquisition financing for 75% of the purchase price at an interest rate of less than or equal to 5.5%. The closing of this transaction will be contingent upon the Company obtaining financing for a minimum of 75% of the purchase price.

The Property will provide a cash on cash preferred return of 8% starting from day one until liquidation or a cash-out refinancing transaction. Investors will also receive 25% of the net proceeds from a sale of the property. Assuming a conservative exit cap rate of 9% provides a 16-17% return to the limited partners over a 10 year projected holding period. Considering the stability of the underlying asset and its cash flows, this investment provides an opportunity for strong risk-adjusted returns.


Project Metrics Address: 1601 and 1615 Buena Vista, San Antonio, Texas Property Type: Multifamily Number of Units: 58 Price: $1,675,000 Price Per Unit: $28,879 Year 1 Net Operating Income $156,201 Going In Cap Rate 9% Gross Rent Multiplier 4.7 Year 1 Cash on Cash Yield to Investors 8% Total Annual Return After Sale 16-17% Sources and Uses Sources: Amount 1st Mortgage 1,256,250 Limited Partner’s Equity 468,750 ____________________________________________________ Uses: Amount Purchase Price 1,675,000 Closing Costs, Points, etc. 50,000 Minimum investment by each investor is $25,000. Cash Flow Distributions 1. 8.0% cumulative preferred return to limited partners based on their respective equity

investments. 2. Return of capital. 3. Split of 25% of net profits upon sale or cash-out refinance of property to be divided according

to each limited partner’s pro-rata share of equity.


STRATEGY

Completion of Due Diligence

Gruene Fund conducts its own due diligence on all potential investments. For this transaction, this process is supplemented by the due diligence requirements of potential lenders. Prior to closing on this investment, the Manager expects to complete its review of the following items.

Obtain the following third party reports: Appraisal Title Search Engineering/Property Condition Assessment Report Environmental Report (“Phase 1”)

Review legal and regulatory documentation related to: Outstanding building violations Zoning Certificates of Occupancy

Review historical income and expense operating statements Review current rent roll Review documentation for existing contracts with vendors and suppliers. Investigate potential for

cost savings.

Obtain Financing

Acquisition financing for this transaction will meet the following two objectives:

1. Minimize the upfront equity investment for the Company within prudent leverage parameters. 2. Increase the returns for the Company to maximize end value for investors. As the property is

being purchased at a going-in 10% cap rate and will be financed at a rate less than or equal to 5.5%, positive leverage will be created.

The Manager is currently in discussions with prospective lenders to provide financing and will continue to work throughout the due diligence period to obtain the most favorable rate and terms available. At this time, the Manager anticipates the following for acquisition financing:

Loan-To-Value: 75% of the purchase price Interest Rate: 5.5% or less Amortization: 25 years Term: 5 years


Property Management Prospect Hill Apartments will be managed by Drought Properties, Inc., a local, well respected property management firm. Attached is a company profile outlining their experience and capabilities and resume of Mrs. Sandra Schultz who will be directly managing the property. Management will focus on the following issues:

Maintain Occupancy at or near 100% with desirable tenants. At the time of entering into a purchase contract, the Property was 100% occupied. Historical rent rolls confirm the Property maintains near 100% occupancy with vacancies limited to turnover and make-ready allowances. The San Antonio Housing Authority maintains a database of pre-screened tenants with a large waiting list to be accepted into the Property.

Maximize Rental Income. The monthly rents are fixed at $517 for 1 bedroom 1 bath units and $495 for efficiency units for the 2013 fiscal year contract. In general, rents for the property are within the expected range for the local market. Rent increases are calculated by HUD personnel each year and are expected to grow at around 3% per year based on historical data.

Property Maintenance and Upgrades. Based on the findings of a 3rd party condition

assessment report, Management will make a determination as to what repairs and/or upgrades are of most immediate concern. Upgrades affecting safety issues will be addressed first and are expected to be minimal based on the 3rd party inspection. A generous repair allowance has been budgeted for annually as well as $250 per door in annual capital reserves for major capital improvements.

Leases. Tenants are currently on annual leases which will need to be renewed for each

unit throughout the year. Tenants are screened by Management through a criminal background check and database of non-payment history. Turnover for the Property is historically very low which will lower make-ready and other expenses.

On-Site Management. The property manager will determine the optimal staffing needs for

the Property to include an on-site manager, possibly part time, and maintenance personnel for upkeep of the Property. Preventive maintenance will be a high priority to avoid larger capital expenditures in the future.

7700 Broadway Suite 200 San Antonio, Texas 78209 (210) 824-1133 Office (210) 824-7110 Fax

Company Profile

Drought Properties, Inc. “DPI” or “the company” was founded in 1995 by Harry T. Drought. DPI’s management services include conventional, subsidized and tax credit apartment communities, retail, office and mini storage complexes. DPI’s managed inventory includes 1,800 apartment units and 1,595,300 square feet of commercial, industrial, and office properties. DPI currently staffs 51 employees including onsite personnel. The main focus of the company is to provide quality management services with personal supervision of staff and assets. The company is prepared to offer a sophisticated range of services to its clients. The following is a list of services provided: Asset and Property Management Real Estate Brokerage – Sales, Acquisitions, and Leasing Facilities Management Construction Management Valuation and Feasibility Analysis Research and Market Analysis Real Estate Consulting Prior to founding DPI, Mr. Drought was CEO of the property management division at Guy Chipman Company for 16 years. Mr. Drought also holds the aspired designation of Certified Property Manager (CPM®) and is a former president of the local chapter of the Institute of Real Estate Management. In addition, Mr. Drought has served as director of the local San Antonio Board of Realtors, Texas Association of Realtors, and the Commercial Investment Division.

7700 Broadway Suite 200 San Antonio, Texas 78209 (210) 824-1133 Office (210) 824-7110 Fax

Sandra R. Schultz Vice President

Mrs. Schultz is the vice president with Drought Properties overseeing 28+ multifamily housing communities and storage facilities. She has represented the Drought team for over a decade. Her skills include preparing budgets, operations, human resources, overseeing property accounts, resident relations, budgets, profit & loss reports, marketing, weekly outreach, managing property vendors, conducting contractual negotiations, quality control, communications with property owners (both written and verbal) and analyzing and creating monthly owner reports. With 16+ years of industry experience, Mrs. Schultz is results oriented and conscience driven. She continues a relentless pursuit to improve each property for which she is responsible. An example of the size and scope of three communities under her management include Blanco Crossing (324 units), Stone Oak Apartments (263 units), and Summerview Apartments (244 units). Mrs. Schultz increased income revenue for Blanco Crossing Apartments by an average of $14,000 per month and increased occupancies from 90% to 96%. She effectively manages capital improvements, improves profits, and enhances the overall quality of every community in her portfolio. Mrs. Schultz has been married 11 years and is the proud mother of 3 beautiful children. She is a sports fanatic and an avid follower of Nascar Racing.


Exit Strategy

Gruene Fund will actively monitor market conditions and related issues to determine when and how to best execute an exit strategy for this investment. A maximum 10 year holding period has been calculated for investor returns but may be affected by more favorable opportunities in a shorter time frame. Potential exit strategies include:

Sale of the property when optimal conditions occur. While management does not anticipate a near term sale, there is always the possibility that an aggressive buyer will come along to offer a sufficiently high and above market price. Market conditions can become overheated in certain commercial sectors at different times leading to overpricing of assets.

Refinance at a future date. Management will actively monitor the debt markets to evaluate whether or not better financing can be obtained at a later date. As the debt service coverage ratio increases above normal lender requirements through rent increases it may provide an opportunity to refinance out a significant portion of the initial investor equity.

Long –term ownership and management. With an annual yield of 8% over the life of the investment, participation in the pay down of the principal balance on the note and Property appreciation, management believes the Property will provide extremely safe, risk adjusted returns through the total holding period.


PROPERTY OVERVIEW

Property Description

Property Type: Multifamily rental building and adjacent triplex Address: 1601 Buena Vista & 1615 Buena Vista, San Antonio, TX 78207 Location: West side of downtown San Antonio, one block South of Commerce St. Year Built: 1911, Renovated under HUD Mod Rehab program 1999 Number of Units: 58 total: 11-efficiencies, 45-1 bedroom 1 bath, 2-2 bedroom 1 bath Roof: Rubber with silver coat Utilities: Tenant pays electric, owner pays water, sewer & common area electric Parking: 21 spaces plus on street parking. (Most tenants use public transportation) Laundry: On-site coin operated

Prospect Hill Apartments is a 55 and over unassisted facility, rents subsidized 70% by SAHA, vacancies covered at 85% of rent for up to 60 days, tenant referrals from SAHA with backlog of applicants.


PICTURES



Financial Overview

Global Inputs Taxation InputsInflation rate 3.00% Marginal tax rate 30.00%Vacancy rate 5.00% Cap gain rate 15.00%

Purchase Inputs Sales Exit InputsPurchase price 1,675,000.00$ Exit cap rate 9.00%Down payment 418,750.00$ Exit selling costs 6.00%Depreciable basis 1,340,000.00$ Closing costs 14,000.00$ NPV Calculation Inputs

Pretax discount rate 10.00%Loan costs and cash flows Aftertax discount rate 8.00%Loan fee 25,125.00$ Loan amount 1,256,250.00$ Loan interest rate 5.000%Loan term 300

Mnthly loan payment (7,343.91)

Part I - Forecast of Operating Income, Operating Expenses, and Operating Cash Flows

Operating IncomeRental Income Monthly Units Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11

Efficiencies 485.00$ 11 64,020.00 65,940.60 67,918.82 69,956.38 72,055.07 74,216.73 76,443.23 78,736.52 81,098.62 83,531.58 86,037.53 One bedrooms 517.00$ 45 279,180.00 287,555.40 296,182.06 305,067.52 314,219.55 323,646.14 333,355.52 343,356.19 353,656.87 364,266.58 375,194.57 Two bedrooms 575.00$ 2 13,800.00 14,214.00 14,640.42 15,079.63 15,532.02 15,997.98 16,477.92 16,972.26 17,481.43 18,005.87 18,546.05

Other Income Price QuantityLaundry 3.00$ 500 1,500.00 1,545.00 1,591.35 1,639.09 1,688.26 1,738.91 1,791.08 1,844.81 1,900.16 1,957.16 2,015.87 Late Fees 25.00$ 12 300.00 309.00 318.27 327.82 337.65 347.78 358.22 368.96 380.03 391.43 403.17 Parking -$ - - - - - - - - - - - -

Total Potential Income 358,800.00 369,564.00 380,650.92 392,070.45 403,832.56 415,947.54 428,425.96 441,278.74 454,517.11 468,152.62 482,197.20

Vacancy Allowance 17,940.00 18,478.20 19,032.55 19,603.52 20,191.63 20,797.38 21,421.30 22,063.94 22,725.86 23,407.63 24,109.86

Forecasted Income 340,860.00 351,085.80 361,618.37 372,466.93 383,640.93 395,150.16 407,004.67 419,214.81 431,791.25 444,744.99 458,087.34

Operating ExpensesAdvertising - - - - - - - - - - - Auto and travel - - - - - - - - - - - Cleaning and maintenance 11,600.00 11,948.00 12,306.44 12,675.63 13,055.90 13,447.58 13,851.01 14,266.54 14,694.53 15,135.37 15,589.43 Commissions - - - - - - - - - - - Insurance 12,000.00 12,360.00 12,730.80 13,112.72 13,506.11 13,911.29 14,328.63 14,758.49 15,201.24 15,657.28 16,127.00 Legal and other professional fees - - - - - - - - - - - Management fees 17,043.00 17,554.29 18,080.92 18,623.35 19,182.05 19,757.51 20,350.23 20,960.74 21,589.56 22,237.25 22,904.37 Payroll 40,600.00 41,818.00 43,072.54 44,364.72 45,695.66 47,066.53 48,478.52 49,932.88 51,430.87 52,973.79 54,563.01 Repairs 17,400.00 17,922.00 18,459.66 19,013.45 19,583.85 20,171.37 20,776.51 21,399.81 22,041.80 22,703.05 23,384.15 Supplies - - - - - - - - - - - Taxes 41,000.00 42,230.00 43,496.90 44,801.81 46,145.86 47,530.24 48,956.14 50,424.83 51,937.57 53,495.70 55,100.57 Utilities 21,860.00 22,515.80 23,191.27 23,887.01 24,603.62 25,341.73 26,101.98 26,885.04 27,691.59 28,522.34 29,378.01 General/Admin. 8,656.00 14,935.00 15,383.05 15,844.54 16,319.88 16,809.47 17,313.76 17,833.17 18,368.17 18,919.21 19,486.79 Other - - - - - - - - - - -

Total Operating Expenses 170,159.00 181,283.09 186,721.58 192,323.23 198,092.93 204,035.71 210,156.79 216,461.49 222,955.33 229,643.99 236,533.31

Operating Income 170,701.00 169,802.71 174,896.79 180,143.70 185,548.01 191,114.45 196,847.88 202,753.32 208,835.92 215,100.99 221,554.02 Capex Reserve 14,500.00 14,935.00 15,383.05 15,844.54 16,319.88 16,809.47 17,313.76 17,833.17 18,368.17 18,919.21 19,486.79 Cash Flow After Capex 156,201.00 154,867.71 159,513.74 164,299.15 169,228.13 174,304.97 179,534.12 184,920.14 190,467.75 196,181.78 202,067.24

Part II - Forecast of Pretax Cash Flows and Rate of Return

Total Annual Loan payments (88,126.95) (88,126.95) (88,126.95) (88,126.95) (88,126.95) (88,126.95) (88,126.95) (88,126.95) (88,126.95) (88,126.95)

Pretax Cash FlowsInitial Investment (57,875.00) Operating Income 156,201.00 154,867.71 159,513.74 164,299.15 169,228.13 174,304.97 179,534.12 184,920.14 190,467.75 196,181.78Loan payments (88,126.95) (88,126.95) (88,126.95) (88,126.95) (88,126.95) (88,126.95) (88,126.95) (88,126.95) (88,126.95) (88,126.95)Sales proceeds 2,461,711.36Selling costs (147,702.68)Preferred Equity (32,000.00) (32,000.00) (32,000.00) (32,000.00) (32,000.00) (32,000.00) (32,000.00) (32,000.00) (32,000.00) (778,333.11) (1,066,333.11)Loan repayment (928,676.22)

Total Pretax Cash Flows (57,875.00) 36,074.05 34,740.76 39,386.79 44,172.20 49,101.18 54,178.02 59,407.17 64,793.20 70,340.80 715,054.17

Investor Cash Flows (400,000.00) 32,000.00 32,000.00 32,000.00 32,000.00 32,000.00 32,000.00 32,000.00 32,000.00 32,000.00 778,333.11 666,333.11

Investor Total Annual Return 16.66%


CONTACT INFORMATION

For more information about this investment please contact:

Mike Kelleher Paul McCutchen

210-827-4883 210-683-7569

[email protected] [email protected]

Website: www.gruenefund.com

mailto:[email protected]

mailto:[email protected]

http://www.gruenefund.com/

Documents

1601 & 1615 BUENA VISTA SAN ANTONIO, TEXAS