DEAL TIME! Equity Investment on RealtyMogul
Sponsor: Rilea Group
Listen To or Watch the Rilea Group's Equity Investment in the Mohawk at Wynwood Here
Sponsor: Rilea Group
Deal name: Mohawk at Wynwood
Asset Class: Class A, ground-up residential & mixed use
Investment type: Equity
Total estimated project cost: $103.4 million
Total equity required: $41.4 million
Opportunity close date: June 2, 2021
- 211,477 leasable sf
- 225 residential units
- 12 story building
Projected IRR: 20.26%
Projected Equity Multiple: 2.43x
Projected stabilized cash-on-cash: 9.89%
Target hold period: 5 years
Adam Gower: Diego. I'm so happy to see you again. I cannot wait to talk about MOHAWK at Wynwood. Oh my goodness. When that flew across my screen this morning, I just knew we had to talk. So, why don't you start off and tell me your name, company name and position. Just a brief self introduction. Who are you, as it relates to MOHAWK at Wynwood.
Diego Ojeda: Great to be here with you, Adam. Thank you so much, first of all. So, my name is Diego Ojeda. I'm President of Miami-based real estate development company, Rilea Group and I am the developer of a project we're going to be talking about today called MOHAWK at Wynwood.
Adam Gower: And the way that you have put this pitch deck together is.... Perfect. You start with the most amazing photographs. So, for those who can't see it right now but are listening to you. Talk about it. Tell me about this deal. Get me excited to start.
Diego Ojeda: Right.
Adam Gower: What's this deal about?
Diego Ojeda: So Wynwood is the artistic neighborhood of Miami that has captivated the hearts and minds of the artistic community of the country. It is voted by Vogue Magazine as one of the coolest neighborhoods in the world. And, so many artists have just flocked there for a great graffiti scene, art scene, gallery scene. It's just fantastic. So, when I was looking to design, to think of the design of the project, I was inspired by the classic brick buildings from the Northeast, you know, the industrial base buildings. And, I wanted to bring something like that to Miami. And I teamed up with an architect, to form a studio, here in Miami. And together, we came up with this all-brick building concept. So, it's very, very exciting. Rooftop amenities. I think it's going to be spectacular.
Adam Gower: Next-gen residential. What's next gen residential? That's so intriguing.
Diego Ojeda: Next gen residential community - inspired by the strength and sophisticated architecture, you know, boldness of the creative culture that chooses to live on the edge, which is Wynwood. It's a stylish, bold, it's unapologetic. It's Mohawk. Whatever - Mohawk - when you hear that word and you think of that, what comes to your mind. You know, punk rock of the 80s or attitude, that's what we're looking to do here, in this project. All that mixed with cool, cool factor. And that's what Miami is, and what MOHAWK at Wynwood will be. You know, it's going to be Miami's most forward-thinking, artistic, expressive project.
Adam Gower: So, if you're listening, you have to look at the pitch deck. It is super duper cool, but, on the podcast, let's just dive into some of the slightly more boring numbers, if you don't mind. Tell me, how many square feet. You've got mixed-use in there, so what are the three uses you've got. How many square feet? How many units? Kind of, give me some basic stats. Let's get into details.
Diego Ojeda: So, this is a 12 story, 225 unit multifamily project, with 212,000 square feet of leasable space. 22,000 square feet of retail at ground floor level. And in a great, great area to have retail. Trader Joe's is just announced that they're going to open in front of us, one block away. And then, we're also going to have 3,500 square feet of office space, but not traditional office space. These are offices geared to the people that want to work from home, and they want their six foot by six foot office with a door and a lock. And in there, they have their private desk and they can work from home. Now, especially after COVID, we've seen that there's many, many people that want to work from home. Maybe not inside their apartment, but within their building. So, these offices will be strictly for our residents.
Adam Gower: That's interesting. I didn't actually get that. Just explain that again. So, this is work at home, but they will have a separate unit and then.
Diego Ojeda: So...
Adam Gower: Explain that, actually, kind of, the physical layout, what that looks like.
Diego Ojeda: So, there's 3,500 square feet of offices and the way we're breaking them up- so, imagine six foot by six foot cubicles. OK but, each of them has a door and a lock. And inside that cubicle you have your desk, and you have your printer and you set up whatever way you like it and it's yours. And you pay a certain amount a month, call it two-three hundred bucks and it's your private space. So, if you are someone that works from home. You don't necessarily have to be inside your home-home. You could be within your building, in a place with windows and it's beautiful, the way we're setting it up. But yeah.
Adam Gower: Alright, so tell me a bit more about Wynwood. And, if you can. I know that you've been further afield than just Miami. I know that. So, tell me if there are some areas that you could compare Wynwood to and let those who don't know where it is.
Diego Ojeda: Oh yeah. So Wynwood is Miami's "SoHo". Just the way New York has SoHo and the meatpacking district and these are neighborhoods that started off being, you know, largely abandoned neighborhoods that the artist community went into and really helped it flourish. And then, you know, the development community went in there and started building really cool projects - always keeping the aura and the feel of the neighborhood. That's the same way - what is happening in Wynwood. The Goldman family where the family that really launched SoHo in New York, many decades ago. Well, they're the same family that came to Miami and replicated that formula and started bringing artists and doing events and really pinpoint exactly the way this was going to flourish. And it's worked really, really well. And today, Wynwood has a "Wynwood Review Board" Design Review Board which makes recommendations for projects to stay in the same feeling so that everything is geared towards the artists and towards beautiful murals and and you don't want the wrong stores in there and the wrong brands in there. So, it's what's helped keep this neighborhood intact and keep having the real soul of Wynwood.
Adam Gower: Diego, tell me the story of the deal. Like get back to when you found the land or whatever it was. Just, kind of, tell me the story of the deal and why you liked it, in the beginning.
Diego Ojeda: Yes. So, this site is owned by a local family, a great Miami family, and it's a 1.5 acre sized site. What I love about it, is the location. Wynwood - we're right on 29th Street and the reason that street is important is because it divides Wynwood from another neighborhood called Midtown. And, we're on the border of both. What I love about it is that you can walk into the hustle and bustle, the heart of Wynwood and be at the Wynwood walls in a few minutes, or take a scooter or whatever. It's a nice stroll into there. Or, you can walk into Midtown, which is a much more established neighborhood, whereas in Wynwood, you have maybe two buildings. In Midtown, you have over a dozen. And, you have shops in both but you have a shopping center in Midtown. So, Trader Joe's is going to open up in Midtown, just one block away from us and one block behind us in Wynwood, there's about a 90% approved train station that's coming. So, if you Google "train station Wynwood", you'll find all the information necessary. So, what I love most about this, is the exact location of where this is going to be and that was the canvas to allow us to bring MOHAWK to reality.
Adam Gower: Beautiful. Now, the plan is, this is ground-up development. Those aren't easy. Oh, my goodness, that's an annoying intrusion. Sorry about that. Those are not easy. So, what stage of production, or of construction, or development, are you at the moment? Just explain, kind of, the timeline and where you are, at the moment.
Diego Ojeda: So we're buying in titled land. This is a zoning called Miami 21 and the Wynwood NRD. So we're buying as of right land and, once we buy the land, then we'll start going through plans and permitting. The plans is our architectural plans. We'll do those and you go through a permitting process as you're doing the plans, you know, with the city getting comments back and forth. And then once we have our building permit, is when we'll start construction. Construction on a project of this size could be around 24 months. Plans and permitting could be about 14 months, give or take. So, it's 14 months, 2-years of construction. And then, once we're open, a project with 225 units like this one, I think we can lease about 20 units a month. That's, like a, normal, healthy pace here, in South Florida. So, within a year, we should be fully stabilized. So, this project, start to finish, four and a half years until you have fully, fully full operating project.
Adam Gower: And stabilized?
Diego Ojeda: Stabilized. Stabilized, you know, fully occupied, completed project.
Adam Gower: Ok. So, tell me now, what's in it for investors? The minimum investment. What are the returns? What are the splits? Projected? Everything. Give me, like the numbers. How am I going to make money?
Diego Ojeda: Yes. So. So, we've teamed up with a crowdfunding company called RealtyMogul. They have a fantastic operation, super user-friendly and with great track record. They've already raised hundreds of millions of dollars for projects and they have a fantastic team. This is our first time doing this, so we wanted to make sure that, given our track record and our history, that we were partnering up with the right people. And obviously, the folks at that company have just been superb. So, the minimum investment in our project via RealtyMogul is $35,000. And, the returns, if we were to sell this, we're assuming this project is going to be a five, five and change year project. Right? If we were to sell this project after five years, the return IRR is 20% - 20.5%, around there. The project return on cost is about a 6.7% and then the cash-on-cash, stabilized, is approximately 9.5%.
Adam Gower: Let me clarify that. So, you're building to a cash-on-cash 9.5%, is that correct? So, once stabilized, the invested capital will be earning 9.5% but it will have accrued a Pref for the 5 years. What's the Pref, did you tell me that already?
Adam Gower: No.
Diego Ojeda: No, No, I haven't said it. So the Pref is an 8% preferred return, which is accrued annually. And once we have - so, first we return the capital to our partners and then we give the 8% annual. And once we've given that 8%, then it splits. 75/25. 75 to the investors, 25% to the development company. And then, we keep returning capital. And then once we hit, if we hit a 15%, anything after that, and that 15% is annual. So once the investors have received 15% on their money, every single year, during the life of that project, then it splits 65/35 above that. There's no third hurdle. We stop it there.
Adam Gower: Yes. Well, that - it's a good thing to do. Third hurdle. Imagine how complicated that gets. Alright. Let's hope it would make it all the way to the third hurdle. Alright so, I noticed in the pitch deck, that you have existing NOI - I'm reading this, from my notes. Existing NOI for certain carrying costs. So, but that is not going to bleed into investor returns, presumably, even during your entitlement phase.
Diego Ojeda: Yes. So, what I'm saying. No, no. So, right now, we're buying land that has some retail on it. So, it's covered land play, as they say, which is good because during the plans and permit, in part, where sometimes you have an empty piece of land which is not generating any cash flow. Here, we're going to have all the tenants, month-to-month. They can stay on the project, right up until we start construction. So, all that income will be coming into the company. And, you know, I'm not saying it's a lot, but it's some income that will help pay some bills, that the company will have, you know, carrying costs, real estate taxes, things like that.
Adam Gower: So what are - now your objectives to this project is to build it. Stabilize it. In other words, rent it out across the board, and then ideally you would like to do what with it? Would you like to hold it or sell it, just tell me that, because you do talk about that in your in your deal memo.
Diego Ojeda: Yeah, yeah. So the idea here is to do, you know, a 5-7 year life of the project. At around year-5 is when we'll start opening the idea to selling the project. At that time, this project will be fully leased. We think we'll have a phenomenal project, in the heart of Wynwood/Midtown. And we think, because of all the different attributes that the project has, which we can go into now, that we will have achieved really good rents and that's the objective. And then I think at that point, will be a good time to really assess, look and say, speak with the investor group and say, you know, right now might be a good time to sell and let's sell the project. So that's the way we're pitching it to our investors. We're not going and saying, this is a forever hold. You know, the idea is to do a 5-year, always assuming that we're in the right market to sell. We would never want to sell this at the wrong time, just because we have to sell. So, that's important to say. But, as soon as that window opens, I think it will be the right time.
Adam Gower: Now, you mentioned deal attributes. So, you actually injected another question into those that I was going to ask. You said we'll talk about deal attributes. So tell me some more of the deal attributes, that you really want, prospective investors to know about, yeah.
Diego Ojeda: Amenities of the project, things like that?
Adam Gower: Yeah.
Diego Ojeda: So this project, aside of the esthetically beautiful things the project has going for it, we're going to have, you know, roof-top pool, roof-top amenities, 2-story gym. One important thing that none of the projects in the neighborhood have, which we always like to cater to, is families. We're going to have two kids - two rooms, an outdoor and an indoor. The plan is to have two of them - kids rooms. You know, for those new parents that are working professionals or millennials that just had a kid, especially during COVID, you know they can get cabin fever, being in the apartment all day long. So, the fact of having a nice space for them to run around and just blow off steam is great. Great for them, great for the parents. And, if you look at the comparables in the neighborhood, none of them really have a kid's room. And, we always like to do that. If you go on our website at RileaGroup.com and you look at our projects, for example, The Bond and One Broadway, you'll see the type of kids rooms that we did and those are huge. So, we're also going to have a beautiful lounge, maybe with a fireplace, you know, with beautiful views and, we're going to have a game room which will have billiards, ping pong, but always done with a very cool esthetic feel to it, always with the MOHAWK attitude throughout. We're going to have - in our last project, The Bond. We did a partnership with a very famous, unfortunately now deceased photographer called Terry O'Neill. Terry O'Neill was a phenomenal British photographer who became famous in the swinging 60s because he would photograph James Bond, the Rolling Stones, the Beatles, Royalty, just everyone. He was married to Faye Dunaway. So, I mean, I'm sure you know all about him. So, we bought 30 collector item photographs, signed by Terry O'Neill, that today, hang in all the public areas of that project. So, you walk into the lobby and you have Elton John, you have Mick Jagger, you have Twiggy. That project was all British-themed. This project is going to be Mohawk themed. And by Mohawk, I mean attitude. I mean, you know, there's a gallery in New York that we're looking at approaching and we would love to buy some works from and we want to hang those those works throughout throughout the lobby. It's called the Morrison Hotel Gallery, and they have beautiful photographs of the Beatles. But with Muhammad Ali or Bob Dylan or Tupac or the Beastie Boys, Led Zeppelin. So imagine having these big black and white photographs throughout your lobby and throughout the amenity rooms. This is a great place, a cool place to live.
Adam Gower: Yes, I got that vibe from the pitch deck and hearing you talk about, it just sounds phenomenal. Alright, let's move towards wrapping up this pitch for the MOHAWK. Let me ask you this. Pragmatically speaking, this is a 5-year project. Ground-up development. Innovative idea. What are the biggest risks to this project and how are you planning to mitigate those risks?
Diego Ojeda: So, in real estate, the biggest risk is always how much debt you put - everyone that goes broke in real estate, it's because in general, because they over-leveraged. They've got too much debt. Our company is a conservative company in the sense that, we don't like to take on too much debt. We always plan for the worst, you know, shoot for the best and plan for the worst. And that's the way we develop. So, we will never take a construction loan that will be too big to handle. In case we find ourselves in COVID number 2 and we need to lower rents or occupancy goes down for, you know, huge reasons that are out of our control. We need to always be able to cover all of our costs and pay all of our bills. So, that is one thing that is very important to us and just, bare point, for example, the construction. When we do the construction, we always do two very important things. One is with our general contractor, we always select the general contractor who's been working for many, many decades and that has a huge track record. Then, we'll sign the construction contract with them, is one called a GMP, which is a Guaranteed Maximum Price, which is a "locked price". Which basically says, for our plans, with all the specs, all the finishes, everything that you see in the renderings, we agree with that general contractor that we have a maximum price that cannot go over that. And they have to deliver that project. If later on, there's items like tariffs or one of their subcontractors went belly-up for whatever reason, that's on them and we know that we are with a reputable general contractor. Second of all, we get what is called a payment and performance bond, which is a double-sided insurance, which basically says, every month we pay our general contractor. How do we know that they're turning around and paying all of their subcontractors? Well, you have any insurance that does that, just in case, they are not. You have someone that covers that. And then, worst case scenario, imagine your general contractor goes belly-up for whatever reason. You know, they took on too much work or whatever. You have an insurance policy that comes in and steps in and says, you know, they'll bring in a similar size, similar company, general contractor to finish your exact project. So, that insurance and that type of contract is something that we always do. Many of the banks that give you the construction loan, many require it and that's very smart that they do that, but, we will always have that. So with us, it's a pragmatic, conservative, you know, careful company.
Adam Gower: Diego, last question. So, a foreign investor listening to this. They remember nothing of what we've been talking about, except the last sentences that you're about to tell me. What would it be, that you would want them to take away from this conversation about MOHAWK at Wynwood, about you, about Rilea Group? What would it be that you would want them to remember the most?
Adam Gower: Our partner RealtyMogul is a fantastic crowd funding company and I would urge people to go onto RealtyMogul. Find our project: MOHAWK at Wynwood. Look through the information. Look through the numbers. Look at a very cool video we have on there and if after looking at everything, looking at the numbers, after you do your own assessment, you think that this project is right for you, we would love to have you as partners. And, you will be partnering up with a company who has a 40-year track record, developing iconic projects in South Florida. Just check us out at www.rileagroup.com. Rilea is R-I-L-E-A Group.com Thank you very much.
Adam Gower: Diego Ojeda. You're a superstar. Rilea Group. Thanks so much for being on the show today.
Diego Ojeda: Thank you, Adam. My pleasure.
Adam Gower: If you want more information on this deal and on all the others in this new series, plus if you want access to the latest news from the real estate crowdfunding industry and if you want to be the first to know about some amazing proprietary industry data that we're putting together for you, subscribe now to the Gower Crowd newsletter at GowerCrowd.com. It's totally free and it is the most comprehensive source of news and information about real estate crowdfunding anywhere on the planet all there at GowerCrowd.com. Thank you for joining me and for listening in to today's deal. This is Adam Gower wishing you well and signing off.
More information about this deal:
- Mohawk at Wynwood is a new, forward-thinking community being crowdfunded to transform 1.5 acres in Wynwood, Miami into a 225-unit, 12-story, luxury multi-family building containing 220,750 sf of leasable square feet with 22,000 sf of prime ground floor retail.
- The project will bring a stylish, modern community to an area that already leads the nation in artisanry - and the mechanism being used to finance this development is equally innovative: crowdfunding.
- $10 million of the project's $100 million price-tag is being raised, beginning this week, via RealtyMogul, one of the top real estate crowdfunding platforms with a community of over 200,000 investors across a $2.8 billion portfolio that includes over 15,000 multifamily units.
- The developer is Rilea Group, with a 40-year track record of successful developments in South Florida.
- Mohawk will provide not just residences, but a turn-key lifestyle, built-in social scene, art, yoga, activities, food and culture to those who live there.
- Located at the crossroads of Miami’s trendy and bourgeoning Wynwood and Midtown neighborhoods, Mohawk is bringing much-needed units to an area where housing demand far exceeds supply.