This document describes Opportunity Partners Fund II, LP and its investment strategy. The fund will pursue opportunistic purchases of distressed real estate assets in the Twin Cities area that have been significantly devalued due to the economic downturn and tight credit markets. The general partner has over 100 years of combined real estate experience and successfully executed a similar strategy with Fund I, achieving returns above targets. Fund II seeks $25 million in commitments to continue acquiring undervalued properties with a focus on downside protection and strong potential returns.
10. CRE Loans at US Banks10Gross Loans ($ in millions)Source: Federal Reserve
11. 11OpportunityAs real estate has historically been a very leveraged asset class, this lack of credit is greatly impacting real estate valuesThe combination of the challenging economy and credit market turmoil is creating huge and continuing downward pressure on real estate values (all types)History suggests that this distressed market will provide many opportunities to make excellent buys on real estate
14. 14StrategyMake opportunistic buys of real estate and real estate related assetsFocus on assets in which our group has particular knowledge and/or expertiseAttention to downside protectionRemain patient – majority of value created on the buy
15. Bank Failures, 1970-201015Annual U.S. Bank FailuresS&L Crisis:2,935 Bank Failures2010:*Current -110Est. - 1722009:140 Banks* As of 08/20/2010 Source: FDIC
22. 22StrategyMuch of real estate we intend to buy is owned by (or mortgaged to) regional and community banksWe will utilizeStrong bank relationshipsProprietary bank researchGovernment bank programs – loss sharing agreements
23. 23Strategy - ExampleSkyscapeMinneapolis, MNInvestment ~$11.6MM72 units purchased50% below 2006 development cost55% below 2007 pricesExpecting a 25% unlevered return (net profit of ~$7 million)
24. 24Strategy - ExampleSkyscapeMinneapolis, MNPatience – 2 year pursuitRelationships – negotiated dealDownside protection – 50% below replacement costArea of expertise
25. 25StrategyAsset TypesResidential real estateCommercial real estateLand assetsPerforming and non-performing loans secured by the abovePurchase FormatsNegotiatedAuction
30. 30General PartnerMore than 100 years collectively of real estate experienceBank ownership and managementImpressive track record with Fund IProven ability to remain patientProven ability to close deals
31. 31Fund I InvestmentsSkyscapeMinneapolis, MNInvestment ~$11.6MM72 units purchased50% below 2006 development cost55% below 2007 pricesExpecting a 25% unlevered returnSummercrestBrooklyn Park, MNInvestment ~$2.3MM18 units purchased25% below 2004 development cost45% below 2007 pricesExpecting a 15% levered return
32. Fund I InvestmentsResidential 1st mortgage land loanBloomington, MNInvestment ~$1.25MMPerforming< 50% LTV at today’s valuesExpecting a 19% unlevered returnSFH Foreclosure PortfolioMinneapolis, MNInvestment ~$750kBuy and fix-up for ~$80k averageSell at ~$120k averageExpecting a 30% unlevered return32
33. 33Fund I ReturnsOverall, Fund I expects to deliver a 16% IRR to limited partnersConsistent with original expectationWith limited downside riskIn spite of very limited leverage
34. 34Fund I ExperienceFund II investors will benefit from Fund I experienceProven investment methodologyEstablished relationshipsMarket researchMarket credibilityDeal pipeline
43. GP members will collectively invest 5% of fund capital (minimum $1 million)37Fund IIReturn allocationLPs receive return of capital invested; thenLPs receive 10% preferred return; thenGP receives “catch up”; thenSplit 80% LP, 20% GP to 15% IRR to LPsAfter LPs receive 15% IRR, profit split is 70% LP, 30% GPLP target return is 18-20%
44. Allocation ExampleAssume: $1,000,000 purchaseSell in (1) year for $1,250,000Profit is $250,000Distribution:$1,000,000 to LPs (return of capital)$100,000 to LPs (preferred return)$25,000 to GP (“catch up”)$62,500 to LPs/GP in 80/20 ratio$62,500 to LPs/GP in 70/30 ratioProfit to LPs: $193,750Profit to GP: $56,25038
45. 39Summary…To purchase at historic lows…Huge opportunity now exists……Using our deep relationships, experience and proven track record to select the best opportunities!OpportunityStrategyExpertise