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Sponsored: Tri-Land Equity Investor Fund – A Unique Investment Strategy Creating Additional Investor Yields

By RJ Johnson, vice president of business development, Tri-Land Properties

Executive Summary

In the landscape of private placement investments, Tri-Land Equity Investor Fund produces an innovative investment approach. This white paper explains the strategy employed by Tri-Land Properties, leveraging “Letters of Credit” or “Pledge Agreements” as a substitute for traditional cash investments. This method not only optimizes investment efficiency but also offers investors an avenue to diversify a stock or bond portfolio without liquidating existing assets.

 Introduction

The conventional investment structure typically necessitates direct cash injections from investors, which can often lead to the liquidation of valuable assets or the incurrence of debt. Tri-Land Equity Investor Funds challenge this norm by introducing an investment mechanism that allows investors to pledge assets like bonds or stock portfolios as collateral. This approach allows Tri-Land Properties to facilitate the acquisition of grocery-anchored shopping centers, leveraging pooled resources from these non-cash investments while eliminating the need to sell the underlying securities for this investment.

 Investment Mechanism

The fund’s investment strategy hinges on the utilization of “Letters of Credit” or “Pledge Agreements.” These instruments enable investors to pledge existing assets as collateral, rather than providing cash up front. This collateral secures an acquisition line of credit, which the fund then employs to purchase its real estate assets.

Case Study No. 1: Joe’s Pledge Agreement Investment Journey (Hypothetical)

For example, consider the case of Joe, a prospective investor with a $1 million nonqualified TD Ameritrade account. Under the fund’s terms, provided in the Private Placement Memorandum, Joe can make a $500,000 investment via a Pledge Agreement, leveraging his account as collateral. This arrangement mandates a 1:2 coverage ratio to ensure sufficient coverage against market fluctuations, with a requirement to maintain a minimum account balance that supports a 1:1.2 coverage ratio throughout the investment tenure.

This approach negates the need for Joe to liquidate his portfolio or incur debt for investment purposes. Instead, Joe retains his market investments while also participating in the Tri-Land Equity Investor Fund, enabling dual avenues for return generation.

Case Study No. 1 Financial Returns

The utilization of Joe’s Pledge Agreement toward the acquisition of a $10 million shopping center illustrates the financial benefits of this strategy. With an initial pledge of approximately $350,000, Joe stands to earn a significant return through a combination of a commitment fee and a return on equity fee. Assuming the property is syndicated in six months, Joe earns $21,000, and he potentially achieves an annualized return of around 12%.

  • Return Calculation #1: What is Joe’s return on cash investment?
    • Cost of capital = $0, as typically there are not any fees for a Pledge Agreement
    • Simple return calculations (income/costs): $21,000/$0 = infinite return
  • Return Calculation #2: What is Joe’s return on “at risk” investment?
    • At risk capital = $350,000
    • Simple return calculations (income/capital): $21,000/$350,000 = 6% (12% annualized)

Case Study No. 2: A Family Office Letter of Credit Investment Journey (Actual)

For example, consider the case of Joe, a prospective investor with a $1 million nonqualified TD Ameritrade account. Under the fund’s terms, provided in the Private Placement Memorandum, Joe can make a $500,000 investment via a Pledge Agreement, leveraging his account as collateral. This arrangement mandates a 1:2 coverage ratio to ensure sufficient coverage against market fluctuations, with a requirement to maintain a minimum account balance that supports a 1:1.2 coverage ratio throughout the investment tenure.

This approach negates the need for Joe to liquidate his portfolio or incur debt for investment purposes. Instead, Joe retains his market investments while also participating in the Tri-Land Equity Investor Fund, enabling dual avenues for return generation.


Case Study No. 2 Financial Returns

For these calculations, it is assumed that the Letter of Credit, issued by Leaders Bank incurred a cost of 1% per year which is paid by the family office directly to Leaders Bank. During this investment period, Tri-Land Properties is able to purchase seven shopping centers and complete final syndications for each shopping center within the guidelines of the fund. Five separate distributions are made to the family office totaling $255,500 for the two-year investment. A full description of investment returns can be found in the investor reports link above.

  • Return Calculation #1: What is the family office’s return on cash investment?
    • Cost of capital = total cash investment was $20,000/year or $40,000 for the investment period
    • Simple return calculations (income/costs): $255,500/$40,000 = 638%
  • Return Calculation #2: What is the family office’s total return for their “at risk” capital?
    • At risk capital = $2,000,000
    • Simple return calculations (income/capital): $255,500/$2,000,000= 12.75%

Benefits of the Investment Strategy

  • Asset retention: Investors like Joe and the family office do not have to sell off their assets, allowing them to stay invested in the market while diversifying their portfolio.
  • Leverage: The use of a Pledge Agreement or Letter of Credit magnifies investment potential without additional financial burden.
  • Flexibility: The mechanism offers a flexible investment option with the potential for high returns without the direct risks associated with property ownership.

 Conclusion

Tri-Land Equity Investor Funds offer a unique investment opportunity that goes beyond traditional real estate investments. By allowing investors to leverage existing assets through Letters of Credit or Pledge Agreements, the fund opens new possibilities for portfolio diversification and wealth generation. This approach not only enhances investment flexibility but also aligns with the goals of investors seeking to maximize their returns without compromising their existing asset base. If you would like to learn more about this strategy, please contact RJ Johnson at Tri-Land Properties at rjohnson@trilandproperties.com.

RJ Johnson

RJ Johnson has over two decades of building processes, assembling teams, and scaling companies to achieve bottom-line growth. Currently serving as the vice president of business development for Tri-Land Properties Inc., Johnson brings a wealth of entrepreneurial background and a diverse experience working with both private and public companies. Since his time at Tri-Land, Johnson has completed the raise of three private placement funds totaling over $20 million. Beyond his professional life, Johnson finds joy in his family life, married since 2005 with three children. He loves to travel with his family, strums the guitar during leisure moments, and actively plays in multiple adult hockey teams.

 

About Tri-Land

Established in 1978, Tri-Land is a Chicago-based real estate developer who focuses on repositioning underperforming retail shopping centers located in high density markets throughout the Midwest, Southeast and Mid-Atlantic markets. Tri-Land’s foundation was built by studying food retailing, micro-demographic trends and strategic site evaluation while consulting for corporate grocery companies. This unique foundation has given Tri-Land a competitive ability to evaluate site selection related to necessity-based assets. Tri-Land has raised over $216 million in private and institutional capital, completed over $670 million in retail developments across more than 50 assets, and has successfully negotiated over $72 million in government entitlements.

THIS IS NOT AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY SECURITIES.

PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. THE EXAMPLES PROVIDED ARE FOR ILLUSTRATIVE PURPOSE ONLY.

An investment in the units is speculative, illiquid and involves a high degree of risk including the entire loss of investment. There is no guarantee that investors will receive any return. There will be no public market for the units. The projects will be subject to the risks generally associated with the acquisition, ownership, and operation of real estate including, without limitation, environmental concerns, competition, occupancy, easements and restrictions and other real estate related risks. The company intends to use leverage to acquire the projects. The company is a newly formed entity with no history of operations, no experience managing or operating funds, and has limited capital. The manager, the company and their affiliates will be subject to certain conflicts of interest. An investment in the units involves certain tax risks. The company will invest only in a limited number of shopping centers and retail properties and thus, will have limited asset class diversification and be subject to the same property-related and industry-related risks. The company intends to rehabilitate and redevelop the projects and there is no assurance that the rehabilitation and redevelopment of the projects will result in projected occupancy levels and rental rates, or an increase in the fair market value of the projects. The projects will be subject to various construction risks, including weather conditions, delays in construction schedules, cost overruns, work stoppages, shortages of building materials and the availability of materials and labor.

Tri-Land is a sponsor of The DI Wire, and the article was published as part of their standard directory sponsorship package.

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