Sharswood

An Opportunity Zone project set to transform a community.

Investor Guide
Sharswood Commons is an Opportunity Zone project. Investor funds will be held for ten years. Investment returns are planned to include a 7% annual priority return, 100% of remaining cash flow to repay equity invested, and once equity is repaid, 70% of cash flow.  If all goes well, investing $1,500 will return approximately $8,700 over ten years, including the initial investment. Only accredited investors will be able to employ the tax benefits provided through the Opportunity Zone Fund. 

 

The funds raised through this offering will be used to develop Sharswood Commons in Philadelphia, which will serve as an anchor on the Ridge Avenue commercial corridor. This is the first phase of a large and focused redevelopment effort in Sharswood with the long term goal of eliminating severe blight. Located at 2077 Ridge Avenue, this 230,000 square foot mixed-use project will include much-needed affordable housing, neighborhood serving retail, commercial and green space.

For more detail, read on.

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About the Project
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About the Project

This Offering is to raise $2,200,000 in equity for the Project, which will serve as an anchor on the Ridge Avenue commercial corridor and is the first phase of the redevelopment effort in Sharswood. Located at 2077 Ridge Avenue in Philadelphia’s 19121 zip code, this 230,000 square foot mixed-use project is planned as four condominium commercial units which will include 101 residential units, ranging in size and affordability.

It is hoped that the Project will contribute to significant reduction of blight, as part of a comprehensive neighborhood plan, along with the revitalization of an important commercial corridor. While many projects are already under construction or completed, additional planned community development initiatives include new high quality affordable housing, local job creation, neighborhood-serving retail and commercial services and public green space. To date, the area’s high school has been reopened, 83 affordable homes have been built, Habitat for Humanity is currently constructing an additional 20 homes and PHA is converting a building to create 94 senior housing units

Job creation ranks high on Mosaic’s and Shift’s community impact list. The co-sponsor, Mosaic Development Partners, is a certified Minority Business Enterprise (MBE) and is committed to meeting the needs of the community. Mosaic has a strong track record for hiring MBE/WBE firms to consult on and construct its development projects. They plan to work with the general contractor to ensure certain hiring goals are met and they expect over 200 construction jobs and over 200 permanent jobs to be generated through the Project. Seventy percent of the permanent jobs created by the Project are expected to be made available to local community residents. To achieve this goal, we expect to engage with local community development entities, PHA and small businesses in the area will post job openings at their offices. We also plan to host job fairs in churches and community centers in the community to inform residents of job opportunities.

Sharswood 1, LLC (the “Project Entity”), an affiliate of the Company expects to borrow funds to complete the Project and enter into a ground lease with PHA. Ground leases generally represent the ownership of land underlying commercial real estate properties, which are leased on a long term basis (often 30 to 99 years) by the land owner acting as the landlord to a tenant that will own the improvements and buildings on top of the land. In this case PHA will be the landlord and the Project Entity will be the tenant. The ground lease will have a term of 99 years and an annual payment of $1.00. The ground lease is not final; however, we expect that the Project Entity will be responsible for taxes, maintenance and insurance as well as all operating costs and capital expenditures. The ground lease is also expected to include a sharing of cash flow and sales profits with PHA once certain internal rates of returns are achieved. Ground leases typically provide that at the end of the lease term or upon a tenant default, the land, building and all improvements revert back to the landlord. Therefore, neither the Project Entity nor any of its affiliates will ever own the Property. PHA will retain ownership of the real estate indefinitely. The ground lease will grant the Project Entity the right to construct and control the activities on the land, subject to compliance with the terms of the ground lease. The Project Entity anticipates having a leasehold interest in the land, which will be used as collateral for a leasehold mortgage. As outlined in the Development Agreement between PHA and Sharswood Developers, LLC, PHA will have an option to acquire the Project based on to be determined terms.

The Project is planned to incorporate multiple commercial condominium units that will be subject to the terms of a declaration of condominium. A declaration of condominium is recorded and outlines the legal description of the condominium property, describes the commercial condominium units and the common areas that will be jointly owned, the percentage interest and voting rights of the commercial condominium units. Each unit will pay its pro rata share of maintenance, repairs and expenses of all common areas, landscaping and other shared amenities. Each unit will have a separate deed, which will be recorded, and be subject to certain restrictive covenants. A condominium association will be formed, a board of directors and officers will be installed to manage the condominium and collect condominium fees. It is anticipated that either PHA or the Project Entity will be the declarant.

Initially, Save-A-Lot Supermarket and Everest Urgent Care are expected to rent the condominium units, with the option to purchase the units after 10 years, as outlined in their leases or following the Project Entity’s sale of its ground lease interest. The Project Entity plans to use a certain portion of its condominium to develop the residential units and to lease other portions to Santander Bank, multiple restaurants or eateries, such as Wing Stop and additional commercial retail tenants. The 101 residential units are planned as 21 studios, 54 one-bedroom and 26 two-bedroom apartments. Eighty percent of the apartments are planned to be rented at market rate (between 80 - 120% of Area Median Income (AMI, a metric calculated by the U.S. Department of Housing and Urban Development (HUD) to determine the income eligibility requirements of federal housing programs) while the remaining 20% as affordable units at Fair Market Rent using Project Based Vouchers from PHA. While PHA is a condominium owner, the costs of construction of the parking garage will not be financed by this Offering.

The Project is expected to cost approximately $38 million to build. A combination of tax credits, grants and debt will be used to support the Project’s construction and development, as a result the financing structure is complicated. See Exhibit A for detailed sources and uses and see Exhibit J for a chart of the Project’s legal structure that includes New Markets Tax Credits (NMTC) and Opportunity Zone equity. 

The Project has support from the community and Council President Darrell Clarke for the 5th District. The development team will be working this winter to finalize zoning, construction plans and the final capital stack with an intended closing in the first quarter of 2020. Construction is expected to take 18 months, with completion anticipated to be in the third quarter of 2021.

The development team includes the following specialists, attorneys and consultants:

Developer - Sharswood Partners, LLC

Architect - Wulff Architects

Landscape Architect - Roof Meadows, WBE 

Civil Engineer - Rodriguez Consulting, MBE

Geotech Engineer - GeoStructures

Structural Engineer - Larsen & Landis

Tax Credit Consultant - Robert Jacobs Consulting

Tax Credit, Opportunity Zones & Securities Counsel - Dionne Savage, Esq., Savage & Associates Law Group, P.C., WBE

General Counsel - Christopher Booth, Esq., MBE

NMTC Allocatees - Commonwealth Cornerstone Group, Philadelphia Industrial Development Corporation and Capital One, National Association

Tax Credit Investor - Capital One

Leverage Lender - Philadelphia Housing Authority

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About the developer

The developer of the Project is Sharswood Partners, LLC, a partnership between Mosaic and Shift. Mosaic and Shift are two community-focused developers based in Philadelphia that have agreed to work as co-developers to assist PHA in the redevelopment of the Ridge Avenue commercial corridor. Mosaic Development Partners is a Philadelphia based, commercial real estate development firm founded, in 2008, by Gregory Reaves and Leslie Smallwood-Lewis. Mosaic primarily focuses on the redevelopment and rehabilitation of commercial properties in underserved urban communities. Since 2012, Mosaic and its partners have secured and invested more than $70 million in Philadelphia neighborhoods, resulting in hundreds of construction and full-time jobs, eliminating blight, improving conditions in high crime areas and spurring additional investment in those communities. Mosaic brings significant creativity and analytical ability to each project. Mosaic has successfully used unique and viable finance instruments (largely in the form of local, state and federal loans and tax credits) that help stabilize and grow neighborhoods. By partnering with municipalities, established developers, not-for- profit organizations and government entities, Mosaic has leveraged its investments and revitalized struggling communities. Some recent examples of Mosaic’s projects include Golaski Labs, Eastern Lofts, Edison Square and Edison 64

Gregory Reaves, the managing member of Mosaic Development, and a Manager of Sharswood Partners, has spent more than 30 years working at all levels in corporate and private industries. He graduated from Howard University, Washington, DC, with a Bachelor of Science in Chemical Engineering. He also played Division I soccer in college. As a business professional, Gregory has acquired significant expertise in healthcare, commercial real estate development, government relations, domestic and international public and entrepreneurship. He is trained as a Fasttrac facilitator and has provided training to more than 200 entrepreneurs and business owners in New York and Delaware.

Leslie Smallwood-Lewis, co-founder and member of Mosaic Development, graduated from Brown University with a Bachelor of Science in Psychology. After graduating from Brown, Leslie attended Villanova University School of Law. She practiced law before joining the Goldenberg Group, a regional mid-sized real estate development firm, where she rose to Senior Vice-President of Development. In 2008 she co-founded Mosaic Development Partners with Gregory Reaves and has developed over $70 million of transformative projects in Philadelphia.

Shift Capital is a social impact real estate firm that deploys development strategies in underserved neighborhoods by aligning capital and long-term community success. They are a Certified B Corporation® working to minimize the negative impacts of gentrification while positively impacting communities affected by inter-generational poverty. They seek to accelerate job creation, improve health and safety, and offer quality housing through thoughtful development that helps catalyze shared prosperity.

To date, Shift Capital has invested over $60 million in the communities above Lehigh Avenue along Kensington Avenue (Harrowgate/Juniata) and at the intersection of Broad Street & Erie Avenue (Hunting Park) with plans to invest an additional $70 million over the next several years. They own 1.5+ million square feet of industrial and mixed-use properties and 110+ low-rise residential units. They have created 500+ temporary and 500+ full-time jobs focusing on hiring and supporting local, minority and women-led businesses.

A full list of projects can be found at Shift Capital’s website. Some recent examples of Shift Capital’s projects include:

MaKen Studios North & South. Two multi-tenant office buildings totaling 250,000 square feet of space, completed in 2017. The $30 million project has brought over 500+ jobs into the neighborhood of Kensington.

J-centrel. This $20 million project, with 116+ unit residential project and 30,000 square feet of commercial space is scheduled for completion in 2020. It is anticipated to be the most civically engaged project in the City of Philadelphia by providing residential tenants with rent rebates in exchange for volunteering in their local neighborhood. 

Brian Murray is co-founder of Shift Capital, an impact urban real estate group driving mission-oriented capital, collaborative resources and inclusive strategies into underserved communities. Through his work at Shift, Brian is focused on finding better solutions at the intersection of society’s most difficult urban challenges - intergenerational poverty, urban revitalization, access to opportunity, and community displacement.

Brian spent the majority of his career outside of the real estate space, starting his career at PricewaterhouseCoopers as an auditor. He moved into the technology space where he helped found two start-ups, before joining the Peace Corps and completing his MBA. While in graduate school, Brian observed the growing interest in impact investing - investing with a purpose. It was at this time he made his first real estate investment and discovered the importance of socially minded development. He hasn’t looked back since.

Brian is a graduate of The College of New Jersey and received his MBA from Yale School of Management. He is the co-founder of Arete Youth Foundation, focused on youth development in the Roma communities of Bulgaria. He has two daughters that keep him young at heart and on his toes. 

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About the change

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About the Market

Sharswood Commons (‘the Project”) is a 230,000+/- square foot mixed-use project planned at 2077 Ridge Avenue, in the North Philadelphia neighborhood of Sharswood, a low-income community with historical economic challenges, in Philadelphia.It is a part of a comprehensive neighborhood plan spearheaded by the Philadelphia Housing Authority (PHA) to stabilize and rebuild the neighborhood.

The Sharswood section of North Philadelphia is one of Philadelphia’s new and upcoming redevelopment areas, adjacent to the newly developed Brewerytown and Fairmount neighborhoods. The Project is located in census tract 4210103900 (the “Census Tract”). According to the US Census Bureau, this census tract has a poverty rate of 52.6% and is considered a severely distressed neighborhood. Median income in the census tract is $18,875 and average income is even lower at $11,586. 

In addition, the census tract is in a Qualified Opportunity Zone. Opportunity Zones, which are economically-distressed census tracts designated by the state governments where new investments, under certain conditions, may allow some investors to claim tax benefits and delay paying taxes on capital gains, depending on multiple factors and how long they hold investments in the “qualified opportunity zone property” in an area designated as a Qualified Opportunity Zone. 

PHA created the Sharswood/Blumberg Redevelopment Initiative with the support of a $500,000 Choice Neighborhoods Initiative Planning Grant from the U.S. Department of Housing and Urban Development. This initiative creates a targeted and coordinated development model that is designed to maximize the economic benefits of neighborhood revitalization.

Using PHA’s eminent domain powers, PHA reclaimed more than 1,200 mostly vacant and abandoned properties to effectively implement this plan. To date, PHA has demolished the Blumberg Towers, assembled parcels for redevelopment, spearheaded the reopening of the Vaux High School, and commenced construction of affordable housing units. Most importantly, PHA’s new office headquarters opened in December 2018 and is located at 2013 Ridge Avenue, and serves as an anchor for the redevelopment efforts of the Project. Its $45 million office complex brings more than 600 employees and visitors each day to create a catalyst for new business and housing opportunities. In addition, PHA  relocated its police department to its headquarters.

As a part of the redevelopment of the commercial corridor, PHA selected Mosaic Development Partners, LLC (“Mosaic”) through an RFP process to assist in redeveloping the Ridge Avenue commercial corridor. As the redevelopment objectives grew in scope, Mosaic selected Shift Capital (“Shift”) as a co-development partner to assist with the overall development of a strategic plan. They formed Sharswood Partners, LLC (“Sharswood Partners” or the “Sponsor”) to develop the Project. PHA is also a 16.6% owner in Sharswood 1 SPNSRS, LLC, an affiliate of Shift and Mosaic and will receive a pro rata ownership return.

The 1,203 new housing unit complex is expected to include 100,000 square feet of new office and nearly 500,000 square feet of new commercial space, and represents a total investment of approximately $529,000,000 in the Sharswood/Blumberg neighborhood. These resources, which are primarily public dollars, are being leveraged with private investments in order to have a meaningful and lasting impact that actually transforms the community from its current condition into a vibrant business corridor with new jobs and opportunities for community residents. The new community is planned to include quality mixed-income housing, outdoor community space, access to fresh food options, healthcare services, new modern school options and employment and social services that cater to the needs of the community. To accomplish all this, PHA has reformed its capital investment strategy, established a long list of public, private, and university partners, and reorganized its internal management of redevelopment projects. PHA has aligned its ideas, policy, and finances to be able to achieve its goal of transforming a targeted community.

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About the neighborhood
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About the offering

The Sponsor is engaged in two simultaneous Offerings of its securities with a goal of jointly raising a combined maximum of $2,200,000:

  • 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.”

Together we call these Offerings “the side-by-side Offering.” 

We plan to use the proceeds of the side-by-side Offering including the $150,000 Sponsor’s capital contribution, loans from PHA, New Market Tax Credit equity and various grants to complete the Project. 

Funds raised through the side-by-side Offering will be invested as follows:

  • Into Sharswood 1 CF, LLC (the Company) for all Reg CF investments;
  • Into Sharswood 1 OZ Fund, LLC, for all Reg D (506(c)) investments. 
Please email hello@smallchange.com If you are an accredited investor, have an eligible Qualified Opportunity Zone capital gain and wish to take advantage of the Opportunity Zone tax benefits.

 

The Reg CF Offering will be limited to a maximum Offering goal of $100,000. The remainder towards the combined maximum of $2,200,000 will be raised through the Reg D Offering.

In an Offering under Reg CF the issuer is required to state a “Target Amount,” meaning the minimum amount the issuer will raise in the Reg CF Offering to complete that Offering. For the reason just described, our Target Amount for the Reg CF Offering is $10,000.

The minimum investment amount in the Reg CF Offering is $500. Investments above $500 may be made in $250 increments (e.g., $750 or $1,000, but not $1,136). Investors can cancel their commitment up until 11:59 pm on March 29, 2020. 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. And, Investors will also be notified and asked to reconfirm their commitment if any other material changes are made to this Offering. 

The minimum investment amount in the Reg D Offering is $10,000. You must be an accredited investor to invest in this Offering. Investments above $10,000 may be made in $5,000 increments. Offering terms for the Reg D Offering are fully described in a separate Reg D Investor Disclosure Packet.

Investor members will receive an annual Priority Return of 7% on their investment, which will accumulate but not compound. It is anticipated that after 10+ years of operations investors will not only have received an annual Priority Return of 7%, but that they will also have received their equity investment back. At that point, distributions will continue, but with 30% going to the Sponsor and 70% to Investor Members. 

Because the Project is in a Qualified Opportunity Zone, and has Qualified Opportunity Fund investors, the Project will not be sold before 10 years, at the earliest. The Project cannot be refinanced before seven years without written approval from the NMTC lenders. 

The Project Entity plans to sell its interest in the ground lease for the Project at the end of 10+ years, which should allow Qualified Opportunity Fund investors in the Reg D offering, who have in fact held their investment for 10 years, to maximize the Qualified Opportunity Zone benefits. See “About Investor Return” for a description of the return of equity to Investors.

You can download a copy of the Reg CF investor Disclosure Packet, which includes Form C.  Or you can view it, along with progress updates, on the SEC website. You can also download the Reg D Investor Disclosure Packet.

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Key deal points
  • High impact. Local job creation and addition of quality goods and services.
  • Affordable housing.  New, high quality, affordable housing.
  • Local services. New goods and services in a severely distressed community.
  • Green. New public green space.
  • Opportunity Zone. Project located in a federally designated Opportunity Zone.
  • Supports the big picture. Part of a comprehensive neighborhood plan.
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About the finances

The total amount needed to build the Project is expected to be around $38 million. Along with the $2,200,000 raised through this Offering, it is anticipated that funds will be raised through grants, debt and equity raised through New Markets Tax Credits (“NMTC”). 

The NMTC program is administered by the Community Development Financial Institutions Fund of the U.S. Treasury (“CDFI Fund”) and provides a 39% federal tax credit to investors who make qualified equity investments into a qualified community development entity (“CDE”), that in turn makes a loan or equity investment in low-income communities. The tax credit is claimed over a seven-year credit allowance period. Capital One will serve as the sole investor in the NMTC transaction. CDEs are privately managed community development entities  certified to make certain investments based on the CDFI Fund’s regulations. Philadelphia Industrial Development Corporation (“PIDC”), Commonwealth Cornerstone Group and Capital One (the “CDEs”) will collectively contribute $25 million in tax credit allocation to the Project. NMTCs are subject to 100% recapture during the seven-year credit allowance period and restricts prepayment of principal as outlined in the Internal Revenue Code of 1986, as amended; therefore, the Project is restricted from being sold or refinanced for a minimum of seven years. 

The NMTC transaction may close before the target offering deadline of April 30, 2020.  We intend to use the proceeds from the Reg CF Offering to invest in the Project. However, if the NMTC transaction closes before the target offering deadline, the Company will borrow $100,000 from affiliates of the Sponsor (“Bridge Loan”). Then, the Company will invest the borrowed funds in the NMTC transaction just as if the funds were raised in the Reg CF Offering. Once the target offering deadline is reached and if the Reg CF Offering is successful, the Company will use the proceeds of the Reg CF Offering to repay the Bridge Loan.

In addition, PHA is planning to provide two loans expected to total $24 million. The total development cost is derived by adding together all the projected costs as outlined in the list below. Hard costs are construction costs along with a contingency set aside for unforeseen circumstances. Soft costs include any financing fees and interest, insurance, engineering, legal, architect and developer fees, and other such holding costs.

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

Expected project costs % of total Amount
   Soft costs 4% $1,520,119
   Hard costs 83% $31,516,450
   Finance costs 13% $4,807,100
Total project costs 100% $37,843,669
Expected project sources    
   Redevelopment Assistance Capital Program (RACP) 5% $2,000,000
   PIDC Loan 3% $1,000,000
   Philadelphia Housing Authority loans (PHA) 64% $24,000,000
   New Markets Tax Credit equity 21% $7,897,500
   Multi-Modal Transportation grant (MTF Grant) 1.05% $400,000
   Grant 1% $353,074
   Small Change Investors 5.04% $2,193,096
Expected total project costs 100% $37,843,669

For more detail download Exhibit A for sources and uses and Exhibit B for a 10-year operating pro-forma.

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About investor return

Under the Company’s LLC Agreement, all distributions will be made in the following order of priority to all Investor Members (both of this Company and the company conducting the Reg D Offering) and based on each Investor’s respective investment amount, after bank and other loans have been repaid.

  1. First, the Available Cash shall be distributed to the Investor Members, pro rata in accordance with their Percentage Interests until they have received their Priority Return of 7% for the current year.
  2. Second, the balance of the Available Cash, if any, shall be distributed to the Investor Members pro rata in accordance with their Percentage Interests until they have received any shortfall in the Priority Return for any prior year.
  3. Third, the balance of the Available Cash, if any, shall be distributed to the Investor Members pro rata in accordance with their Percentage Interests until they have received a full return of their Unreturned Investment.
  4. Fourth, the balance of the Available Cash, if any, shall be distributed:
    • 70% to the Investor Members; and
    • 30% to Manager.

The table below illustrates our estimate of how much the full equity investment of $2,200,000 from Small Change investors, including $150,000 from the Sponsor, is anticipated to receive in return if the Project Entity sold its interest in the ground lease after 10+ years of operations at the projected capitalization rates of 7.5%. Is it anticipated that after 10+ years of operations investors will not only have received an annual Priority Return of 7%, but that they will also have received their equity investment back. At that point, distributions may continue, but with 30% going to the Sponsor and 70% to Investor Members. 

Because the Project is in a Qualified Opportunity Zone, and has Qualified Opportunity Fund investors, the Project will not be sold before 10 years, at the earliest. In addition the Project cannot be refinanced before seven years without written approval from the NMTC lenders. 

Anticipated return on a $1000 investment 7.5% CAP rate 7% CAP rate
7% Priority Return to all Investors over 10 Years $1,139,320 $1,139,320
Return of equity, paid down through cash flow $2,200,000 $2,200,000
Anticipated net operating income, year of sale $1,829,768 $1,829,768
Capitalized value $24,396,904 $26,139,540
Less anticipated balance on loans $15,145,619 $15,145,619
After-sales cash available $9,251,285 $10,993,921
Anticipated return on $1,000 investment    
Pro-rata percentage share of total equity .0004 .0004
Pro-rata share of 7% Priority Return $456 $456
Return of equity $1,000 $1,000
Pro-rata share of profit from sale $3,700 $4,398
Total anticipated return $5,156 $5,854

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 Exhibit C - 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. 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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