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Altus Mid-Month Update

November 2022

At Altus, we are extremely fortunate that all of our investors have come to us via referrals. Referrals are the lifeblood of our business, and without our thoughtful investing community, wouldn’t be where we are today. We feel that we are able to differentiate ourselves from other investment options by providing superior service, transparency, and risk adjusted returns that our competitors have a difficult time matching. To date, 93.7% of our investors have invested in more than 1 Altus offering, with numerous investors having diversified with several Altus opportunities.

The main inquiry that comes up when speaking with new referrals (and sometimes current investors) is “what kind of investments can Altus provide for my investment portfolio?”. At Altus, we pride ourselves in solving problems for both our investors and our investment partners, so we would like to use this month’s Mid-Month format to delve into the details on the types of investment opportunities we provide. You may be surprised the varying ways in which you can invest with Altus.

The two primary categories are Equity Investments and Debt Investments, both of which have multiple different investment types under each category. A breakdown of the various investments is as follows:

Real Estate Equity Investments: The majority of our business is currently in real estate equity investments. These investments are spread across a few different buckets, with the common theme being the maximization of risk adjusted returns. The different types of equity investments are as follows:

  1. Existing Cash Flow Investments: Harder and harder to achieve over the past few years, and almost impossible in the current pricing/interest rate environment. An opportunity to beat the market with a simple cash flow focused purchase is the holy grail to a company holding a similar investment philosophy to Altus. When we have been able to find these opportunities, it is often through being able to solve a non-obvious problem for the seller (fast close, tax structures, etc.).
  2. Repositioning/Value Add: This investment description covers a huge range of investment possibilities. On one end are properties similar to a retail property we purchased earlier in the year. It had solid day one cash flow and we were able to lock in our interest rate based on that cash flow, but at the same time it also had 15% vacancy and several messy leases at purchase, which provide the opportunity for upside during ownership. On the other side of the spectrum is our most recent purchase, a newly constructed but not yet leased industrial building in Greenville, South Carolina. While this sort of purchase is not something we would normally consider, we had two different buckets of 1031 exchange funds that needed a home, and Greenville is a market we love with great industrial leasing activity.
  3. Construction: In broad strokes, but certainly not a universal truth, construction projects often have greater risk than cash flow projects and most repositioning projects. Part of this is construction related risk, which in many cases can be substantially mitigated. A large portion of this is generally lease up risk. It should be expected that successful construction projects produce higher returns than successful cash flowing or repositioning projects as compensation for taking on the higher implicit risks.
  4. Distressed: Severely lacking from the marketplace over the past many years, if executed correctly, distressed purchases should produce better returns than the three previous investment types discussed. A portion of the higher returns can be attributed to perceived increased risk through lack of information, though this can be largely mitigated in the offer/project structure. Another aspect of the higher returns are due to the increased speed that these transactions often require. That higher speed requirement (shorter close timelines) increases the intensity of the workload on the real estate sponsor (i.e. Altus), and often increases the cost of the financing. Generically, distressed opportunities produce the highest level of return versus risk, but success is highly dependent on the abilities/expertise of the sponsor.

Real Estate Debt Investments: For many people debt isn’t as exciting as equity, but we don’t necessarily agree. We view debt as an important, and growing part of our business. Debt investments can produce excellent risk adjusted returns. As both an equity investor and debt provider, We (through sister company Altus Capital Group Inc) are able to fill a niche by understanding the needs and concerns of both borrowers and lenders. Different types of debt investments are as follows:

  1. Private Money Debt: For several years Altus has brokered private loans for those within our network. We did almost no marketing to grow the business, and yet the business has continued to grow as borrowers appreciated our understanding of their needs. As a result, our investors loved being able to obtain investments to fill up the “bond” portion of their investment portfolio. Seeing the demand for our expertise, we have recently increased our investment into this business line, most specifically with the hire of Ian Tavelli to lead our growth efforts (read about Ian’s hire here). We believe Ian is a great fit with Altus, and he has the capacity to do 3rd party loan brokering to boot. Ian will be reaching out to many of our existing investors in the coming weeks and months to get feedback on how we can best provide debt products to fit our investors’ needs.
  2. Debt Liquidity Fund: The Debt Liquidity Fund provides investors with a place to park cash, with the ability to liquidate within 30-days notice (usually much sooner). We don’t view the Liquidity Fund as an investment, but rather a savings account or CD substitute with a far better yield (currently 4.39% and expected to increase starting December 1st). Cash placed in the fund is secured by a portfolio of 1st position loans, all of which are less than 50% LTV at funding/purchase. There is also a 1st loss position buffer for the common equity investors of 20% of the total equity in the Fund.
  3. Distressed Debt: Long part of our business plan, there has been very little distressed debt to purchase over the past several years. We are seeing evidence that this is changing quickly and we expect to have distressed debt opportunities to offer to our investors in the coming months. This may be one off opportunities (most likely investment loans) or through a fund structure (which would include residential loans).

In addition to the broad categories above, Altus provides specific strategies to fit the needs of different investors:

  1. Tax Deferred (1031) Exchanges: In addition to using 1031 exchanges to reinvest proceeds from the sale of Altus assets, Altus often works with investors for the investment of their private 1031 exchange proceeds. We have found many seasoned real estate investors no longer want to deal with the effort required in finding, negotiating, financing, and running a real estate investment. Over time, we have refined a structure that allows us to take on those responsibilities and turn the 1031 holder into a passive investor.
  2. Qualified Opportunity Zone Investments: A tax reduction opportunity introduced in the 2017 Tax Cuts and Jobs Act, investors can take advantage of huge tax reductions through investment into a Qualified Opportunity Fund (QOF). We pride ourselves in complex deal/investment structures, and with the help of our highly qualified legal and accounting representatives, we have had considerable success in identifying and structuring investments to comply with the QOZ code. We currently have active QOZ projects in four different states, though only one of those (Texas) is currently available to new investors. We are close to having a new QOZ project in contract in Louisville, Kentucky, and will be able to share additional information about that project once the details are finalized.
  3. Structured Programs: By overlaying investment strategies across different asset classes (including real estate), investors can enjoy increased tax efficiency, reduce correlated risk, and increase the efficiency of their investment equity. It is very difficult to provide a generic investment vehicle incorporating these sort of strategies, so we custom tailor each strategy to fit the needs of each investor This program also requires a base level of investment that is much higher than a typical equity investment. But, for those investors which are able to participate in this sort of encompassing structure, the benefits can be substantial.
  4. Tax Efficiency: While we are not experts in the tax code, we do try to keep current on the constant changes that are implemented, as those changes often mean opportunity for our investors. Solar installations and new home builder tax credits are two such examples that we have been able to use to boost investor after tax returns.

The Future: Altus feels pretty good with our current offerings and don’t expect many changes in the next few years. There will of course be varying iterations within our current offerings. A few things that we have been working on behind the scenes:

  1. A Fund: We are extremely fortunate to have produced strong risk adjusted returns across our portfolio. But when we review results, our funds have substantially outperformed our single purpose entity investments. We are working on a couple different strategies, and hope to roll out at least one fund in the coming months.
  2. Business Purchases/Investment: For several years we have seen opportunity in the purchase of, or investment in, certain types of businesses in the $1 – $10 Million annual revenue size. Not having expertise or the internal resources to take on the associated responsibilities with such a purchase/investment, we have instead continued to research and obtain knowledge. At some point in the coming years, we will expand into business investments. The initial investments will be made from Altus principal’s equity, and opportunity will then be offered to Altus investors once we are able to prove the concept.

Do you have any thoughts on the above? Anything you would love to see from Altus? Anything we are currently doing that we should reconsider? We would love to hear your wide-ranging thoughts…

Next month we will return to our regular Mid-Month Update programming.

Have a wonderful Thanksgiving!

The Altus Investment Team

This message is not an offer or solicitation of an offer to buy or sell any securities.  Offers are made only by prospectus or other offering materials.  The information contained herein has been obtained from a variety of sources which are believed to be reliable, but have not been independently verified, and may be subject to change without notice.  To obtain further information, you must complete our investor questionnaire and meet the suitability standards required by law.