In November 2017, MMPartners launched an offering for an adaptive reuse of one of the oldest medical facilities in Philadelphia, converting the site into a multifamily/retail mixed-use property. The project also included a 35,000 square foot parcel of unimproved land.
The business plan called for repositioning the property to a heavily amenitized, Class A mixed-use asset by fitting out the multifamily units and commercial/retail space on the ground floor, upgrading the lobbies, elevator interiors, electrical, plumbing, HVAC, and façade. Once the property was repositioned and cash flowing, MMPartners planned to refinance and continue to hold the asset until sale in Year 10.
Capital Stack Changes & Preferred Equity Admittance
MMPartners had acquired the project in April 2017 before it was presented on CrowdStreet’s Marketplace. The closing of the transaction had a tight deadline and MMPartners made a large co-investment with the intention to replace some of this balance with additional debt and capital raised in the future. However, this did not occur when the transaction closed in CrowdStreet’s Marketplace. Furthermore, the overall cost of the project increased and loan funds associated with the commercial leases were not disbursed. As a result, MMPartners admitted a preferred equity member to cover the additional costs of the project and to de-leverage the MMPartners’ equity participation, as originally planned.
Reforecast & Preparation for Sale
MMPartners unexpectedly informed investors that it had executed a term sheet to effectuate a buy-out and sale of West Girard Lofts, projecting the sale to close in December 2019. MMPartners explained that in addition to higher than anticipated project costs, market conditions were not as favorable as originally projected. They also reported that the project was significantly behind pro forma and that it may soon be in need of new additional capital. On a positive note, the excess land was appraised and had doubled in value since acquisition, which was not accounted for in the original underwriting. Taking everything into consideration, MMPartners prepared a reforecast and concluded that it was in the best interest of investors to pursue an early exit as it would produce a similar IRR in comparison to a continued hold until Year 10.
The sale transaction officially closed in February 2020. In comparison to the original offering, final returns to investors were significantly lower than anticipated because the business plan was not executed and the project did not produce the projected operating cash flow or the planned refinancing proceeds. At the time of sale, the project was leasing-up, but it was still far from stabilization. Moreover, the preferred equity admittance further diluted investor proceeds at sale.
Increased capital needs coupled with unfavorable local market conditions forced MMPartners to deviate from the original business plan and sell the asset approximately eight years earlier than planned, achieving lower-than-projected returns for investors.
*Net of the most onerous fees charged to clients of CrowdStreet Advisors, LLC, our registered investment advisor subsidiary; an investor’s actual returns on a realized investment may differ.
This report contains explanations of a series of events associated with the West Girard Lofts offering that resulted in an approximate 6.5% (net of most onerous fees) IRR to investors (including those from the CrowdStreet Marketplace). Certain aspects of the report such as dates of major events and the final outcome are easily verifiable while others, particularly underlying reasons behind the sponsor’s business plan execution, are not.
The report partially relies upon the sponsor’s explanations, the information contained within sponsor-produced quarterly reports, and conference calls. This analysis is not an assertion of independently verified facts but, rather, is for informational purposes only, to convey CrowdStreet’s understanding of what transpired.
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