"AE HGF NON-PERFORMING NOTES FUND"
Altus Equity Group Inc. is collaborating once more with Housing Group Fund (HGF) to offer a debt fund specifically for accredited investors. The AE HGF Non-Performing Notes Fund, LLC, allows investment into a portfolio of collateralized, non-performing mortgages with a 10% preferred return and additional profit sharing. The fund aims for a 15-18% internal rate of return over five years, with redemptions available at the five-year mark and every three years subsequently. Investments are safeguarded by purchasing loans at a maximum of 65% of the property’s market value and through strategic loan acquisition, robust loan servicing, and risk mitigation practices. External service providers are engaged for loan documentation, asset management, and a full legal team to handle various legal scenarios.
NPL Fund Features
Capital Preservation
All loans are secured against real property
Redeemable Preferred Shares
Redemption opportunities at year 5 and ongoing every 3 years thereafter
10% Preferred Annual Return
Preferred Shares receive a cumulative, non-compounding 10% annualized
Diversification
Loans throughout multiple states
60% Profit Share
Investors receive 60% of the distributable cash after the 10% preferred return is paid
Superior Risk-Adjusted Returns
Loans acquired have 35% or greater collateral coverage / equity
Benefits of Investing in Non-Performing Mortgages
- Discounted Purchase Price: Non-performing mortgages are often acquired at a discount from their face value or the underlying property’s market value, which can provide a margin of safety and the potential for significant gains if the loan is restructured or the property is sold at a higher value.
- Asset-Backed Security: The investment is secured by the real estate collateral. If a borrower defaults, the Fund has the right to foreclose on the property, recovering the investment through the sale of the asset.
- Opportunity for Loan Restructuring: The Fund will have the opportunity to restructure the loan terms with the borrower, resulting in a performing loan that can either be held for its cash flow or sold at a premium to its non-performing purchase price.
- Diversification: Investing in non-performing loans can diversify an investor’s portfolio, as the performance of these assets may not be closely correlated with traditional equity and fixed-income markets.
- Potential for Capital Appreciation: If the property underlying the mortgage appreciates in value over time, the investor can benefit from increased equity in the event of a sale or refinancing.
- Influence Over Outcomes: As the mortgage holder, the Fund can actively manage the workout process, whether through modification, foreclosure, or sale, which gives them significant control over the potential outcomes and timing of their investment returns.
Buying Methodology
ACQUISITION OF LOANS ON THE SECONDARY MARKET.
- The fund will purchase senior and junior non-performing mortgage loans that provide financing to property owners. Additionally, the Fund may provide financing secured by mortgages or deeds of trust in turn secured by real estate.
NON-PERFORMING LOAN PURCHASE CRITERIA
- Loan purchase price less than 65% Cumulative Loan to Value (CLTV) at loan purchase
- A focus on metropolitan areas where the estimated rental income of a comparable property as the collateral is a minimum of 120% of the subject property’s senior monthly loan payment
- All loan documents must be verified as collectible without any missing loan information or documentation
- Any bankruptcy must be in compliance and enforceable
Fund Structure
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AE HGF Non-Performing Notes Fund Structure
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Investor Preferred Return
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10%
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Minimum Investment
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Proforma Investor IRR
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15-18%
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Proforma Avg Annual Yield (initial 5-year period)
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6-10%
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Manager Compensation
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Promote
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60/40 Preferred/Common After 10% Pref is Earned
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Target Acquisition LTV
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Below 65%
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Investor Redemption Period
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Initial Redemption Year 5
Every 3 Years Thereafter
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Past NPL Fund Performance
HGF is currently managing a separate fund with a similar NPL strategy. That Fund was formed in early 2019 and has performed exceptionally well, despite a dearth of NPLs available to purchase during that time frame (and until quite recently). Below is a high-level overview of that Fund’s performance as of Q4 2023. Because of the nature of the NPL business plan, the data below have been separated in two categories which include Fund-Level return calculations based on both unrealized and realized gains. Unrealized gains would include the valuations of active loans in the portfolio while realized gains include actual investor returns to date. Both categories calculate Fund-Level returns before the sponsor promote structure.
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Fund-Level Returns Including Unrealized Gains*
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IRR (Including Unrealized Gains)
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36.61%
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Equity Multiple (Including Unrealized Gains)
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Fund-Level Returns Excluding Unrealized Gains*
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IRR (Excluding Unrealized Gains)
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25.8%
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Equity Multiple (Excluding Unrealized Gains)
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This presentation has been prepared by Altus Equity Group Inc. & HGF Management Company LLC exclusively for informational and discussion purposes only and is intended only for the person to whom it has been delivered. This presentation is not an offer or solicitation with respect to the purchase or sale of any security. Any financial information contained herein is preliminary and unaudited. If Altus Equity Group Inc. & HGF Management Company LLC organizes an entity to invest in the project described herein and makes an offering of that entity’s interests, any investment decision in connection with such entity should be made based only on the information contained in the applicable offering documents, which will be provided to prospective investors. Any information contained in this presentation is subject to, and qualified in its entirety, by the information provided in any such offering documents. This presentation is strictly confidential and may not be reproduced or redistributed in whole or in part nor may its contents be disclosed to any other person under any circumstances. It is not intended to constitute legal, tax or accounting advice, or investment recommendations. No representation or warranty is made as to the accuracy, content, suitability or completeness of the information, analysis or conclusions or any information furnished in connection herewith contained in this presentation. Altus Equity Group Inc. & HGF Management Company LLC (HGF) and its members, partners, or associates expressly disclaim any and all liability for express or implied representations or warranties that may be contained in, or for omissions from or inaccuracies in, this presentation or any other oral or written communication transmitted or made available to a prospective investor. Information in this presentation constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “target,” “project,” “estimate,” “intend,” “continue” or “believe” or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance of any investment may differ materially from those reflected or contemplated in such forward-looking statements. More specifically, the projections described herein may be adversely affected by various factors, including but not limited to: future operating results, the value of the assets and market conditions at the time of disposition, any related transaction costs, and the timing and manner of sale, all of which may differ from the assumptions contained herein on which the valuations contained herein are based.