What Types of Properties Do You Invest In?

We actively invest in (and syndicate) stabilized, income-producing commercial properties selling at below market value, properties with incoming CAP rates in the 8 to 10 range with market CAPs of eight or better, with at least 30% credit tenants with five or more years remaining on primary lease term, a price range of $2M to $20M, medical office buildings, retail centers, office, industrial and flex buildings. We do not syndicate pure land deals, development projects, or multi-family.

Who Can Invest?

Two types of investors may invest with us:

Accredited Investors are defined as having:

• A Net Worth of at least $1,000,000 (not including the value of your primary residence); OR
• An income of at least $200,000 per year (individual) or $300,000 (family) for the last two years.

Sophisticated Investors are defined as possessing:

• Financial acumen, and possessing sufficient knowledge and experience to evaluate investment risks, and the ability to bear those risks and in receipt of the same disclosures as accredited investors.

How Much can I Invest?

The minimum investment per property in small properties is $50,000 and $100,000 in larger ones. We accept traditional or retirement funds and can accommodate some 1031 exchanges. In certain situations, we can accept non-traditional investments such as free-and-clear properties or promissory notes. You can invest as an individual, a married couple, corporation or trust.

Who is a Good Candidate for this Investment?

Someone who possesses:

• A basic understanding of the risks and rewards of investing in income-producing products.
• A medium to long-term (7-10 or more years) investment horizon.
• A comfort level with an illiquid investment.
• A desire for a completely passive income, which provides tax benefits such as accelerated depreciation.

Who is a NOT a Good Candidate for this Investment?

• Someone who just wants a huge return without understanding the inherent risks of investing in real estate, OR wants to get into an investment and out quickly, OR does not have other sources of income to handle emergencies, OR wants to be actively involved in the management of the property.

What Should I Expect as an Annual Return on Investment (ROI)?

For most of our properties during the holding period, we’ve targeted a 9-10% annual cash-on-cash return on investment, which is delivered as follows:

A 7-8% annual Preferred Return on Investment (ROI)

• Paid based upon your capital contribution.
• Paid monthly on or before the 15th of each month (for the prior month's return).
• "Preferred" does not mean “guaranteed,” but it does mean that this portion of your return will be paid to you before the Sponsor receives any return.
• This is not "guaranteed," but portion of your return.
• Note: Some properties may be offered that have less than an 8% preferred return, but the will be made clear by that investment’s documentation and disclosures.

An (approximate) 2% annual Cash Flow Return (or “Quarterly Return”) on Investment (ROI)

• Paid based upon your percentage ownership of the property.
• Both capital contributors and the Sponsor receive this cash flow.
• Paid quarterly on or around January 15, April 15, July 15, and October 15 (for the prior quarter's cash flow).
• Cash flow can vary from quarter to quarter depending on financial results on the property.
• If it's not possible to pay a cash flow return one quarter, it does NOT accrue to the next quarter (i.e. it's not "preferred").
• Note: some properties have less than a 2% cash flow component, but normally we won't acquire a property that we don't think can generate at least 2% in cash flow.

How Does Ownership of a Property Work?

• Each investor’s ownership percentage is determined by the figure invested. In addition:
• The Safety normally receives 10-22% of the ownership. This allows investors to not have to worry about signing on debt. Because of this, you risk only the money that you invest; the Guarantor is solely responsible in the event of a default on the property (something that has never happened on a HighMark property).
• Finders typically receive 8-15% of the ownership. A Finder can be someone who found the deal, or any party the Operations Team deems necessary for the purchase coming to fruition.
• The Operations Team receives the balance of the ownership for all of the activities required to acquire, manage, increase the value of and ultimately sell the property.
• Note: The Sponsor only receives cash flow distributions during the property's holding period only if the property is performing well enough to provide the cash flow in excess of that required to pay the preferred returns. The Sponsor makes the bulk of their profits by finding below-market opportunities and building equity right alongside the investors over the holding period.

How Much Money Do You Raise for Each Property?

The amount of the raise varies from property to property and is determined by various factors such as loan terms, complexity of the acquisition and the amount of operating reserves required. A typical scenario would require a raise of roughly one-third of the acquisition price. Here is the breakdown of the usage of these funds:

• Down payment (typically 20-30% of the acquisition price)
• Loan costs (typically 1.0 to 1.5% of the loan value)
• Closing costs (typically 0.5% of the acquisition price)
• Legal work (typically $20,000 to $50,000 per transaction, depending on complexity)
• Transaction fee (typically $25,000 to $50,000 per transaction, depending on size and complexity)
• Broker commissions (3.0% of the money raised pays broker dealers who refer capital and debt signer closing fee)
• Operating Reserves (typically 3-10% of the purchase price — used for Tenant Improvements, Leasing Commissions, Deferred Maintenance, and unexpected expenses)

What Happens When You Sell a Property?

The Operations Team makes the decision when to dispose of the property. We formulate a holding/exit strategy at acquisition to maximize shareholder profits; however, we sometimes change our strategy when market conditions warrant. At disposition, we pay for Cost-of-Sales, which is typically 4-6% off the top of our gross sales proceeds. We also pay off the mortgage on the property, give investors their original investments back and distribute the remainder as profits to all of the owners (both Investors and Syndicators) based on ownership percentage.

What About 1031 Tax Deferments When You Sell A Property?

For investors who come in with Self-Directed IRA money (which must be treated as a loan), those funds are repaid immediately at closing at the same time as the mortgage. Note that SDIRAs do not actually hold B shares, but are treated just like regular investors who do. The SDIRAs receive the same ownership benefits including Preferred and Quarterly cash-flow payments and funds at disposition. The capital gains on these types of funds are already deferred, so there is no immediate tax consequence. For regular investors, the Operations Team will decide if the capital gains (i.e. profits at disposition) will be returned directly to the investors (wherein they will be responsible for capital gains taxes) or deferred with a 1031 exchange. In the event that a 1031 exchange is selected, the gains will be rolled into another HighMark acquisition.

What Kind Of Total Return Can I Expect?

We target a pre-tax-Internal-Rate-of-Return (IRR) of 15-20% based on the following:

• A 7 - 10 year holding period
• A 6 - 8% cost of sales
• A CAP rate of 8% at time of sale (usually about 1 to 1.5% less than our CAP at time of purchase)
• A return of about 85% of the original Reserves for the property. Note that we usually replenish our reserves with rent increases as they occur, keeping our original cash-on-cash returns fairly constant over the life of our ownership of the property. This ensures that we keep plenty of money in the Operating Reserves account for unexpected expenses, maintenance and Tenant Improvements.

We usually don't "flip" properties. But on occasion, we go into a purchase with a plan to hold a property less than our typical holding period. In such cases, we always inform investors of our plan up front before receiving investment money, by stating it on the Holding Strategy page in the property's Opportunity Profile.

Are there Other Investment Benefits?

We order Cost Segregation studies on our acquisitions. These studies allow us to accelerate depreciation, ensuring the maximum first-year deduction for qualifying property. The depreciation credits are distributed to investors; a great tax benefit for investors especially those who may be facing capital gains taxes from other investments.