Four by Four

OFFERING OPEN

Vacant homes to affordable housing in Baltimore's Four by Four neighborhood.

About the Change

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About the Project

Community Redevelopment Fund, Inc. (CRF) was created in early 2018 to fund the redevelopment of abandoned, foreclosed and other distressed property in America’s inner cities.

CRF also plans to create public private partnerships to allow for more efficient deployment of capital for affordable housing initiatives. Towards this end, CRF has incorporated CRF Baltimore Affordable Housing, LLC, the developer and issuer of this offering (the “Company”), in order to acquire, renovate and resell abandoned and foreclosed inner city homes in Baltimore thereby creating new affordable housing for future occupants.

CRF believes affordable housing is a major catalyst for the stabilization and crime reduction of inner-city areas. In turn, reducing crime leads to a safer environment for the children and families in these communities. We have built strong relationships with government and non-profit entities in Baltimore, all of whom have the same goal - a desire to redeem old, high crime neighborhoods by the introduction of capital and the renovation of homes, allowing new occupants to purchase or lease affordable housing. 

We intend to initially focus on a neighborhood in Baltimore known as Four by Four. The neighborhood was named Four by Four because it is a matrix of four roads by four roads, comprising 16 square blocks. According to City-Data, the community includes 807 homes, of which 745 were built before 1960 and 470 built before 1940.  

We are also exploring other neighborhoods in east Baltimore including Belair-Edison, which according to the BelaireEdison website, has 375 acres of green space, located 15 minutes from downtown with 6,600 porch-front homes. The Four by Four community is on the southern edge of Belair-Edison. Another neighborhood, Oliver, is also located on the east side of Baltimore city’s downtown. This neighborhood is close to John Hopkins Medical Campus. According to Live Baltimore, “the Oliver neighborhood has been in the news recently, not for blight and bad news, but because the neighborhood is being revitalized with astounding speed and momentum. On a regular basis, homes are being newly-renovated and homeowners are investing in the community.”

We plan to use the proceeds of the two offerings to acquire, renovate and sell an estimated 30 homes per year. With an expected total investment per home of approximately $45,000, the LLC may own up to 10 homes at any given time. We expect that the process of purchasing, renovating, selling and then purchasing a second home should take approximately 16 weeks. Therefore, the LLC should be able to reinvest its funds approximately three times per year, for a total of up to 30 homes. 

Depending on the condition of the homes purchased, we anticipate taking one of the following three actions:

Resell the renovated property:

We will work to renovate each property by replacing broken windows and doors, repairing or replacing walls, ceilings and floors, removing old fixtures, cabinets and built-ins, cleaning up, landscaping and painting the interior of the home. Once renovation is complete we anticipate selling each home to another developer or a non-profit agency to complete and then sell or lease to an occupant. Initially, the Company intends to focus on limited rather than full renovations. Once we are established in the market, we anticipate selectively fully renovating homes as described below.

Renovate and sell to home-owner:

We will work to fully renovate each home by going further and adding new cabinets, fixtures and other amenities as needed on a case by case basis. Upon completion we plan to sell the home to a home owner, using readily available government mortgage to pre-screened buyers who have already been approved for home ownership.

Renovate and lease to a tenant:

We will work to fully renovate each home and then lease to a tenant. Once occupied, we’ll refinance the home, with the goal of eventually owning the property outright and netting approximately $500-750 per month in cash flow. 

Upon the funding and closing on a minimum of $100,000 by the LLC in this offering, we plan to begin acquiring homes. We expect, on average, to purchase homes for about $30,000 and anticipate that our total investment, including closing costs and renovation costs will approximate $45,000. Purchase and renovation of each property is expected to take approximately 6 weeks, at which time we will work to identify a buyer. In total, we expect the process of purchasing, renovating and reselling each renovated home will take approximately 10-12 weeks. 

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About the Developer

The project’s Manager is Community Redevelopment Fund, Inc. (“CRF”), which is owned by Cleon Mitchell, CRF’s President and Jeffrey Villwock, CRF’s CEO. Cleon (Anthony) Mitchell, President, is visionary and co-founder of CRF. Born in Jamaica, his mother moved the family to the Washington DC area and instilled in Anthony the work ethic and belief system that allowed him to thrive. She provided him with a model of how a hard-working single parent can successfully raise a family in difficult circumstances. Anthony became a star athlete and was the full back for the University of Tennessee in 1992-1993. Post college, he was recruited into the financial services industry and has worked with high net worth individuals since. Most recently, he moved to Gainesville, GA, a northern suburb of Atlanta, to join CRF's other co-founder, Jeffrey Villwock, at Lanier Securities LLC, a FINRA member 
broker/dealer. Anthony studied International Economics and Psychology at the University of Tennessee. Jeffrey Villwock, CEO, is a long-time veteran investment banking executive and co-founder of CRF. Anthony approached Jeff with his vision on how to transform communities in Baltimore, and potentially in other cities around America. Jeff’s responsibility is to provide the operational support for Anthony’s vision to be realized. Mr. Villwock is also the founder and CEO of Lanier Securities. His career in financial services began in 1976 and he has twice been recognized as a Wall Street Journal All-Star Analyst. He has completed over $2.5 billion in transactions in his career. Jeff holds a Bachelor of Applied Studies in Economics from Southern Methodist University. 
 

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About the Market

The city of Baltimore, like many other cities in the Northeast & Midwest, has struggled to provide safe, affordable housing. High unemployment and crime rates have resulted in many blighted communities with a large number of vacant homes. According to the Baltimore Sun there are 16,500 vacant buildings in the city.

The Company has been introduced to several non-profit organizations whose mission is to provide affordable housing, mostly to first time home buyers. The Federal and State government has provided loan assistance and incentives to banks to provide mortgages in these difficult neighborhoods. Buyers in some programs go through a personal finance course which teaches prospective home owners about the process of purchasing a home, the basics of mortgage financing and some of the skills needed to be successful as a home owner. Once through the course, the buyers are certified, and banks are ready to lend.

The limiting factor in getting new home owners into homes is the lack of suitable housing stock. For a bank to underwrite a mortgage, the home must be either ready for occupancy, or ready for the final renovation of adding kitchen cabinets, appliances and bath vanities. Yet to take a home from foreclosure or vacancy through the fix up requires capital, and non-profits generally do not have the capital for this first step in creating a renovated housing inventory.

The neighborhoods that the Company intends to invest in are difficult neighborhoods, generally with a high crime rate, and relatively high unemployment. The Four by Four neighborhood, where the Company will begin its activities, is a good example of typical statistics for these neighborhoods. You can review relevant statistics for crime, housing and demographics in the Four by Four neighborhood at Trulia

The Company seeks neighborhoods that have active non-profit organizational support and the support of a community that wants to improve the local neighborhood. Working with these governmental and non-profit organizations, the Company believes its activities in using capital to provide quality homes for buyers will lead to an overall improvement in crime, employment and neighborhood stability. The Company is working on developing relationships in many neighborhoods on the east side of Baltimore. 
 

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About the Neighborhood
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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, with a total goal of $500,000, to acquire, renovate and sell an estimated 30 homes per year. With an expected total investment per home of approximately $45,000, the LLC may own up to 10 homes at any given time. We expect that the process of purchasing, renovating, selling and then purchasing a second home should take approximately 16 weeks. Therefore, the LLC should be able to reinvest its funds approximately three times per year, for a total of up to 30 homes. 

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 (the minimum offering goal) by 11:59pm (EST) on January 16, 2019. If we haven’t, both offerings and all investment commitments will be cancelled, and all committed funds will be returned.

When the minimum offering goal of $100,000 has been met, as long as the offering has been open for a minimum of 21 days, we’ll conduct the first closing. Investors will be notified, the first $100,000 in funds raised will be released to the Company and Investors will become Members of the Company. After that, all further money raised through the Reg D offering will be released to the Company as it is invested, and all further money raised through the Reg CF offering will be released when the offering target date is reached. 

In both offerings, the minimum investment is $1,000, and investments above $1,000 may be made in $500 increments (e.g., $1,500 or $2,000, but not $1,136). Investors can cancel their commitment up until 11:59 pm (EST) on January 14, 2019. After that any funds raised will be released to the developer and investors will become shareholders of the Company. The developer may decide to change the offering deadline but will provide at least five days’ notice of such a change to all investors. And investors will also be notified and asked to reconfirm their commitment if any other material changes are made to this offering. 

If successful, each investor will receive an annual preferred return of 10% on their investment quarterly. In addition, investors will receive a pro-rata share of 50% of any profit on the project. This 50% is assigned to the total equity goal of $500,000 If, for example, an investor was to invest $1,000, they would receive a 1/500th (or approximately .20%) pro-rata share of 50% of profits available for the projects. See “About Investor Return” for further detail on anticipated returns.

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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Key Deal Points
  • Targeted investment. Concentrated rebuilding efforts in one neighborhood.
  • Sturdy housing stock. Unbroken blocks of solid brick and concrete townhouses.
  • Local support. Relationships with government and affordable housing organizations.
  • Local jobs. Contracts with businesses who hire from within the community.
  • Turnkey. CRF will manage all aspects of purchase, renovation and sale.
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About the Finances

The funds raised through this offering will be used to acquire, renovate and sell distressed housing in Baltimore. Once the minimum offering goal of $100,000 has been reached, the Company will conduct its first closing, as described in “About the Offering,” and will begin to look for properties to buy. We anticipate that the average cost to acquire and renovate each property will be approximately $45,000 to prepare it for resale.

Homes in this market sell from $10,000 to as high as $110,000. We anticipate purchasing homes in the range of $10,000 to $40,000 and reselling them for $30,000 to $80,000. According to Redfin, as of May 25, 2018, there were 12 homes listed for sale on the Multiple Listing Services (MLS), ranging from $39,500 to $125,000. If we exclude the one uniquely high listing of $125,000 and the two homes listed for under $40,000, the average listing price is $78,700. We believe this is a good indication of value for renovated homes.

The homes that we plan to purchase are normally not listed in the MLS system, and therefore will not be listed on Redfin. We expect to purchase homes from banks, at auctions or in private transactions with a property owner. These homes have been largely repossessed or have loans that are in default meaning that the lender can facilitate the property sale to us. 

In the period from February 25 to May 25, 2018, 14 homes sold in the neighborhood, ranging from $12,000 to $45,000, with one outlier sold at $195,000. According to Redfin, the home with a reported sale at $195,000 is worth $24,832. Ignoring that transaction, the 13 remaining homes sold for an average of $25,100. You can see a list of comparable sales here.

Before incorporating the Company, Cleon Mitchell and Jeffrey Villwock acquired two of the 14 homes mentioned above -- one for $14,500 and the other for $25,000. Note that these two homes are not included in this offering. They are merely used as an example of anticipated activity. The table below details the actual price paid, closing and renovation costs. The estimated sales price is listed, net of expected closing costs. As of May 25, 2018, the Sponsor has a buyer for 3239 Elmora Avenue and the sale is pending. 

 Address

 Purchase price 

 Closing costs   Renovation cost   Sales price*   Profit 

 Status 

 3145 Ravenwood Ave

 $2,684   $14,500   $3,000   $35,000   $14,816 

 closed 

 3239 Elmora Ave

 $2,706   $25,000   $39,823   $105,000   $37,471 

 closing pending

•Sales price estimated net of closing costs

Caution: This table is merely an illustration based on past activities 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. Many things could go wrong with this offering, including those listed in the Risk Factors section below. For example, there is no guarantee that the developer will be able to acquire or sell the properties for the amounts shown or in the time period shown.

During the holding period the developer expects cash flow from operations to increase from approximately $226,500 in year one to approximately $429,500 in year three. For additional detail see this downloadable operational budget
 

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Investor Return

Under the LLC Agreement, distributions will be made quarterly as follows:

•    First, we will distribute available cash to the owners of the Investor Shares until they have received a cumulative, non-compounding return of 10% per annum on their investment through the date of the distribution; and
•    Second, any remaining cash available will be distributed in the proportion of 50% to the owners of the Investor Shares (pro rata relative to their invested capital), and 50% to the owner of the Sponsor Shares as a “promoted interest.”

The table below illustrates our estimate of how much both the full investment of $500,000 and an individual investment of $1,000 is anticipated to return on an annual basis. The table below assumes that all properties are purchased, renovated and sold, rather than leased, and that all properties are sold as partially, not fully renovated properties. The Company plans to continue operations for at least five years if not longer. If the company stays in business for five years, a $1,000 investment is anticipated to return approximately $2,197 over that period of time.

 

  Year 1  Year 2  Year 3  Year 4  Year 5 
 Profit from operations / home sales $226,500  $429,500  $429,500  $429,500 

$429,500 

 Less 10% preferred return to all investors ($50,000)  ($50,000)  ($50,000)  ($50,000) 

($50,000) 

 Return of investment to investors $0  $0  $0  $0 

$0 

 Remaining profit $176,500  $379,500  $379,500  $379,500 

$379,500 

 50% of profit distribution for all investors $88,250  $189,750  $189,750  $189,750 

$189,750 

           
 Return on a $1,000 investment          
Preferred return $100  $100  $100  $100 

$100 

 Profit distributions $177  $380  $380  $380 

$380 

Toal annual return $277  $480  $480  $480 

$480 

Caution: This table is 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 Risk Factors section below. For example, there is no guarantee that the developer will be able to sell the property for the amounts shown or in the time period shown.

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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. Properties shown in these images are not included in this offering and Investors will not receive an interest in any of them.

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