729 Lime Avenue

OFFERING OPEN

Retro Long Beach, CA units tucked into a 1920s building.

About the project

729 Lime, LLC (the “Company”) is seeking to raise approximately $852,000 of equity for the purchase and renovation of a 13-unit, multi-family building at 729 Lime Avenue in Long Beach, California. The City of Long Beach has tremendous access to employment (see “About the Market”.) The property is in close proximity to the desirable and trendy East Village Arts District  and has been purchased for total purchase price of $2,100,000. 

Built in 1923, the property has a total of 13 units with a mix of 4 studios, 7 one bedroom/one bathroom units, 1 two bedroom/one bathroom unit and 1 three bedroom/one bathroom unit. The units average 515 square feet in size and amenities include an on-site laundry and gated entry. Total rentable square footage is approximately 6,696 square feet and the lot size of the property is 7,500 square feet.

The Company, which closed on the property on October 12, 2018,  plans to renovate each unit as it comes vacant, spending approximately $18,000 - $23,000 per unit on interior improvements and $90,000 - $95,000 on the exterior and common areas of the property. This renovation period is anticipated to begin in January of 2019 and end by the summer of the same year. The Company estimates renovating 2 to 3 interiors per month until the building is fully refurbished. Once renovated, the average rents are expected to increase from approximately $1.90 per square foot to $2.80 per square foot. 

The Company is owned 40% by Morongo Moraga LLC, 40% by Rex Licklider and 20% by Cochise Capital, LLC. Morongo Moraga, LLC is the Manager and has sole control. Members only vote on extraordinary transactions. Mike Talla controls Morongo Moraga (“the Manager”) and Cochise Capital (“the Sponsor”).
 

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About the change

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About the offering

The Company is engaged in two simultaneous offerings of its securities: An offering under Regulation CF (where anyone can invest), which we refer to as the “Reg CF Offering”; and an offering under SEC Rule 506(c) (where only “accredited Investors” can invest), which we refer to as the “Reg D Offering.”

We plan to use the proceeds of the two offerings, which together have a maximum offering goal of $300,000 along with a loan from a bank, procured and guaranteed by Mike Talla and Rex Licklider, along with additional equity provided by the sponsor and family and friends, to purchase, renovate and lease the 13-unit property at 729 Lime Avenue in Long Beach, CA.

It doesn’t matter how much is raised in the Reg CF Offering and how much is raised in the Reg D Offering. Thus, if we raise $1,000 in the Reg CF Offering and at least $99,000 in the Reg D Offering we will proceed, and vice versa.

In an offering under Regulation CF the issuer is required to state a “Target Amount,” meaning the minimum amount the issuer will raise in the Regulation CF offering to complete the offering. For the reason just described, our Target Amount for the Reg CF Offering is $1,000.

However, we will not complete the Reg CF Offering OR the Reg D offering unless we have raised a total of at least $100,000 (minimum goal) by January 30, 2019, EST. If we haven’t, both offerings and all investment commitments will be cancelled, and all committed funds will be returned. 

The minimum investment in the Reg CF offering is $1,000, and the minimum investment in the Reg D ( 506 ©) offering is $8,000. Investments above $1,000 in the both offerings may be made in $1,000 increments (e.g., $1,000 or $2,000 but not $1,136). Investors can cancel their commitment up until 11:59 pm on January 28, 2019. After that, any funds raised will be released to the Company and Investors will become Members of the Company. The Company may decide to change the Offering Deadline but will provide at least five days’ notice of such a change to all Investors. Investors will also be notified and asked to reconfirm their commitment if any other material changes are made to this offering.

Each Investor will receive an annual preferred return of 6% on their investment quarterly. In addition, Investors will receive a pro-rata share of 80% of any profit on the project. This 80% is assigned to the total equity goal of $852,000. If, for example, an Investor was to invest $1,000, they would receive a 1/852nd  (or approximately 0.117%) pro-rata share of 80% of profits available (the “Original Funds Percentage”). The Company intends to sell the property for a net profit after five years. (See “About Investor Return” for a description of the return of equity to Investors)

The full disclosure documents, which include Form C can be downloaded here and viewed on the Securities and Exchange Commission’s website here.

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About the building
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About the developer

Michael Talla is the managing member of Morongo Morago, LLC, the manager with sole control of the Company. Mr. Talla is an accomplished real estate developer and entrepreneur. Mr. Talla’s companies have developed more than 4,000,000 square feet of real estate over the last 30 years including high-rise, mixed-use, and commercial properties in Los Angeles, New York, San Francisco, Washington, DC, and Las Vegas. Mr. Talla began his career in the health and racquetball club industry. In 1976, he founded the Sports Connection to develop, own and operate full service health and sports clubs. Through the Sports Connection, Mr. Talla developed more than 30 clubs in California. In 1978, he started the Talla Development Company to invest in and develop commercial and residential real estate throughout California. Another investment company, which develops and manages retail centers in Los Angeles and Las Vegas, West Hollywood Development, was launched in 1981.  In 2007, he developed the 340,000 square foot Carlyle condominium high-rise on Wilshire Boulevard (pictured to the right), which is the premier residential building in Los Angeles.

Mr. Talla is best known for founding The Sports Club Company in 1994 and has served as both the Chairman of the Board and CEO of the Company since its inception. The Sports Club/LA is the premier brand in the club industry with large facilities in Los Angeles, New York, Boston, Miami, Washington D.C., and San Francisco. Mr. Talla resigned as the CEO in March 2004 to devote his full attention to his real estate companies and development projects. The Sports Club Company completed the sale of its clubs in 2012 for a total of $245,000,000.

His investment company, Cochise Capital, LLC, has ownership interests in companies encompassing industries in real estate, hi-tech, finance, and hospitality. He is the largest Fatburger franchisee in the world and his operating night-clubs had revenues of $110,000,000 last year.

Additionally, he is active in the community and several local youth organizations, including serving on the Board of Trustees at Curtis School, EPICC, the For Kids Only Foundation, West L.A. Little League, AYSO Youth Soccer organization, Prostate Cancer Foundation, and the M.D. Anderson Medical Facility. 

Other partners in the Company include Cochise Capital and Rex Licklider.

Cochise Capital is a Los Angeles-based real estate and investment firm owned and operated by David M. Talla and Rex A. Licklider. Business partners for over thirty years, Mr. Talla and Mr. Licklider began their respective careers in physical fitness and telecommunications. With each new fitness facility or telecommunications center transaction, Mr. Talla and Mr. Licklider quickly deduced the value of owning the underlying real estate and evolved to include ownership of the real estate in each venture. In 2011, they founded Cochise Capital, LLC as a real estate-focused arm of their various operations. Today, Cochise Capital, LLC targets mid-size multi-family and commercial properties in the greater Los Angeles area with an emphasis on value-added properties.

Rex Licklider became CEO of The Sports Club/LA in March 2004, and remained in that role until the company was purchased in 2011. Prior to that, Mr. Licklider had a long career in telecommunications which provided him with the organizational background and financial experience to effectively plan, finance, and manage real estate. From 1975 to 1992, Mr. Licklider served as Chairman of the Board and Chief Executive Officer of the company he founded, Com Systems, Inc. As the founder and guiding principal, Mr. Licklider oversaw the growth of this long distance telecommunications company from inception through its initial public offering, to its eventual merger with Worldcom, Inc. During the seventeen years that Com Systems, Inc. was under Mr. Licklider’s control, the company’s annual revenues grew to $300,000,000. 

Mr. Talla and Mr. Licklider now focus their entrepreneurial skills on the acquisition of multi-family and commercial real estate. Their combined experience and cooperation make Cochise Capital an energetic and efficient real estate company capable of moving quickly to seize opportunities as soon as they arise.

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About the Market

With a total population of 471,000, Long Beach is located just 25 miles south of the city of Los Angeles on the coast. Its central location between Los Angeles and Orange County and its proximity to a diverse labor pool have made the city a logical choice for many domestic and international businesses. The city is anchored by two world-class ports and a modernized airport and offers numerous amenities and a well-developed infrastructure including quality office and commercial space, public transit options, and freeway accessibility. Long Beach has multiple options for public transportation, including the Metro Blue Line which connects the city to Downtown Los Angeles.

The ports of Long Beach and Los Angeles make up the San Pedro Bay Port Complex, the busiest cargo shipping complex in the country. Together, the ports create over 177,000 jobs throughout Long Beach and Los Angeles, with Longshoremen often make upwards of $100,000-$300,000+ a year. In addition to the local jobs created, the ports create nearly one million jobs within the Southern California region, and 1.7 million jobs throughout the United States. Major employers include: Long Beach Unified School District, Boeing Company, CSU Long Beach, Long Beach Memorial Medical Center, Bragg Companies and Epson America Inc.

The Long Beach submarket  is among the strongest performing areas in metro Los Angeles County, with an average occupancy as of third quarter 2017 of 97 percent and average effective rent increase of 7.3 percent year-over-year since third quarter 2016. A vast majority of households are priced out of single family home ownership in Long Beach as the average monthly mortgage payment on a median priced single-family home exceeds average monthly rents in the area by $1,590. The average household income in Long Beach is projected to grow 13.7 percent to $92,060 and median household income is projected to increase 15.4 percent by 2022 to $63,409. You can download a detailed Long Beach/Ports Submarket report here.

More than $2.5 billion in public and private capital is pouring into Long Beach. Dozens of projects are transforming the city’s landscape including Douglas Park and the Long Beach Exchange. Some of the development and economic development driver highlights include:

  • Long Beach Exchange (LBX), a 266,000-square foot retail and entertainment center within the Douglas Park planned development;
  • Queen Mary Island, a planned $250 million, 65-acre mixed use waterfront development;
  • CenterCal/Whole Foods, a planned 245,000-square foot grocery and retail development;
  • Douglas Park Redevelopment, a $350 million, 261-acre mixed-use project on the site of the former Boeing campus;
  • Broadway Block, a $154 million, 21-story, 375-unit mixed-use project in downtown Long Beach;
  • The Port of Long Beach, the second busiest container cargo seaport in the United States; and
  • Long Beach Civic Center, a $520 million Civic Center in downtown to include a new library, a new headquarters for both City Hall and the Port of Long Beach, 650 multifamily units, 200 hotel rooms, and an expansion of Lincoln Park. 
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Key deal points
  • Desirable. Sought after location close to the trendy East Village Arts District
  • Walker’s Paradise. Walk-score of 91 with a 14 minute walk to downtown
  • Bikeable. Bike score of 80, flat as a pancake, with a 3 minute ride to downtown
  • Excellent transit. Plenty of options nearby
  • Affordable. Below market rate and affordable compared to monthly payments on a median-priced single-family home 
  • Anticipated upside. Anticipated 40% - 50% upside in rents once value-add work has been completed
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About the finances

The purchase price of the property is $2,100,000. Add to that closing costs and anticipated rehab costs and the total project cost is expected to be approximately $2,531,375. The Company has financed the purchase with a line of credit secured by the Sponsor.

The line of credit is for 80% of the purchase price and interest only, floating at prime minus 50 bps, subject to a 5.75% floor. When the property is stabilized, after improvements have been made at approximately 12 months post purchase, the Company has the option of converting the credit line to a permanent loan (5-year term, 1-year interest only) with the same lender. Interest on the permanent loan will be based on 5-year treasury + 200bps with a 5% floor.

Total equity required includes the down payment of 20% plus closing and rehab costs and is expected to be around $852,000. The Manager will invest a minimum of 10% of the total equity requirement on the same terms as other investors. Any additional equity needed that is not raised through this offering or from the Sponsor may be raised from family and friends.  

The Company plans to renovate each unit as it comes vacant, spending approximately $18,000 - $23,000 per unit on interior improvements and $90,000 - $95,000 on the exterior and common areas of the property. This renovation period is anticipated to begin in January of 2019 and end by the summer. We estimate renovating 2 to 3 interiors per month until the building is fully refurbished. Once renovated, the average rents are expected to increase from approximately $1.90 per square foot today to $2.80 per square foot. 

The financing assumptions to purchase and develop the project are as follows:

Estimated project costs  
   Building purchase $2,100,00
   Closing costs $32,200
   Rehab costs $399,175
Total estimated project costs $2,531,375
Planned sources  
   Credit line $1,680,000
   Equity $851,375
Total sources $2,531,375

The Company intends to sell the property for a net profit after five years. (See “About Investor Return” for a description of the return of equity to Investors). Exhibit A: Projections, provides a detailed overview of the projected finances. 

The building was purchased at a price of $313.62 per square foot or $161,538 per unit. The table below provides a selection of recent sales of properties of comparable size and quality in the near vicinity.

Property Year built Units Gross sf Price Current cap $/unit $/sf
1050 E. Hellman St 1924 6 3,542 $1,188,000 5.00% $198,000 $335.40
526 Lime Ave 1940 7 4,770 $1,392,000 4.23% $198,857 $291.82
1900 East 7th St 1942 8 4,170 $1,385,000 4.00% $175,000 $332.00
729 Lime Ave 1923 13 6,696 $2,100,000 3.77% $161,538 $313.62

The table below provides a selection of after renovation rent comparables near the property:

Property Studio av. rent 1 bed/1 bath av. rent 2 bed/1 bath av. rent 3 bed/1 bath av. rent
545 Linden Ave $1,295 $1,595 N/A N/A
619 Elm Ave $1,000 $1,295 N/A N/A
701 Linden Ave $1,350 N/A N/A N/A
1050 Gaviota Ave N/A N/A $1,795 $2,395
746 Olive Ave N/A N/A N/A $2,395
729 Lime Ave $925 $970 $1,300 $1,365

 

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About investor return

Available Cash Flow from operations will be first distributed to each Member, proportionally based on each Member’s respective Original Funds Percentage, until each Member has received distributions equal to all current and accrued Preferred Return on each Member’s respective capital investment.  Thereafter, distributions are made pro-rata based on each Member’s respective Percentage Interest. 

Upon sale, available Cash Flow will first be first distributed to each Member, proportionally based on each Member’s respective Original Funds Percentage, until each Member has received distributions equal to all current and accrued Preferred Return on each Member’s respective capital investment.  Next, distributions are made proportionally, based on each Member’s respective Original Funds Percentages, until each Member has received distributions equal to their initial capital contribution.  Thereafter, distributions are made pro-rata based on each Member’s respective Percentage Interest. 

The table below illustrates our estimate of how much an Investor is expected to receive for a $1,000 investment made under two scenarios, either a 4.5% market cap rate or a 5.0% market cap rate, if repaid in 5 years.

$1,000 investment Cap rate 4.5% Cap rate 5.0%
Net operating income, year of sale $153,792 $153,792
Capitalized value $3,417,610 $3,075,847
Less closing costs ($102,528) ($92,275)
Less balance on loans ($1,824,070) ($1,824,070)
After sales cash available $1,491,011 $1,159,502
Less return of equity ($851,375) ($851,375)
Remaining profit $639,637 $308,129
Profit to investors @ 80% $511,709 $246,503
Estimated return on $1,000 investment    
Pro-rata share of profit $601 $290
Total preferred return $300 $300
Return of equity $1,000 $1,000
Total estimated return $1,901 $1,590

Caution:  The tables above are merely an illustration based on current assumptions and estimates as of the date of this offering and may change at any time based on market or other conditions and may not come to pass. All investments carry risk of loss and there is no assurance that an investment will provide a positive return. Many things could go wrong with this offering, including those listed in the Exhibit B: Risks of Investing. 
 

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About the risks

A crowdfunding investment involves risk. You should not invest any funds in this offering unless you can afford to lose your entire investment. 

In making an investment decision, Investors must rely on their own examination of the Companies and the terms of this offering, including the merits and risks involved. These securities have not been recommended or approved by any federal or state securities commission or regulatory authority. Furthermore, these authorities have not passed upon the accuracy or adequacy of this document. The U.S. Securities and Exchange Commission does not pass upon the merits of any securities offered or the terms of this offering, nor does it pass upon the accuracy or completeness of any offering document or literature related to this offering. These securities are offered under an exemption from registration; however, the U.S. Securities and Exchange Commission has not made an independent determination that these securities are exempt from registration.

There are numerous risks to consider when making an investment such as this one and financial projections are just that - projections. Returns are not guaranteed. Conditions that may affect your investment include unforeseen construction costs, changes in market conditions, and potential disasters that are not covered by insurance. You can download a more expansive list of potential risks here.

Unless otherwise noted, the videos and images on this page are used to convey the personality of the neighborhood in which the Project is planned.

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