Cottonwood Communities Enters Joint Venture to Develop Denver Apartment Community
November 4, 2019 | James Sprow | Blue Vault
On October 25, 2019, Cottonwood Communities, Inc., a nontraded REIT, through a wholly-owned subsidiary, entered a limited liability company agreement with respect to a preferred equity investment in an entity that has purchased and intends to develop a parcel of land commonly known as 2980 Huron Street in Denver, Colorado, (the “2980 Huron Project”).
The REIT, through a wholly-owned subsidiary, and an affiliate of CA Residential, a real estate investment and development firm, are the sole members of the joint venture that is the sole member and owner of the 2980 Huron St. property.
Pursuant to the Joint Venture Agreement Cottonwood Communities will contribute up to $20.0 million for its preferred membership interest in the 2980 Huron JV, with additional funding for the 2980 Huron Project to come from a $17.5 million common equity contribution from CA Residential and a $65.4 million secured construction loan, with total development costs estimated at $102.9 million. Cottonwood Communities’ contribution to the 2980 Huron Project will only be made following the contribution of the full $17.5 million of equity from CA Residential and then will be made as project costs are incurred.
Pursuant to the terms of the Joint Venture Agreement, the 2980 Huron Project investment has a preferred return of 12% annually, compounded monthly, and matures on the earlier of: (i) the sale of the 2980 Huron Project (ii) the maturity of the Huron secured loan; and (iii) such earlier date as may be provided in the transaction documents, all subject to a one-year extension provided certain conditions are satisfied. In addition, Cottonwood Communities will receive an underwriting fee in the amount of 1% of its preferred equity investment at origination and will receive an exit fee in the amount of 0.5% of the investment amount on repayment.
The 2980 Huron Project is a proposed 13-story, 299-unit high-rise multifamily apartment community located on 0.84 acres in the Union Station North neighborhood in downtown Denver, Colorado. Upon completion, the 2980 Huron Project is expected to feature several amenities, including a pool deck, fitness center, aqua lounge, and a co-working space and lounge. Cottonwood Communities expects construction on the 2980 Huron Project to commence in the first quarter of 2020 and to be completed in 2022.
About Cottonwood Communities
Cottonwood Communities is currently raising capital and investing in both multifamily apartment communities that are income producing, stabilized assets, and growth-oriented investments in preferred equity, mezzanine loans and equity investments in properties to be developed into multifamily communities. The REIT plans to target roughly 65% in stabilized multifamily communities and 35% in growth-oriented investments.
Cottonwood Communities is offering Class A and Class T shares with no upfront loads for investors. The sponsor terms this fee structure as “NTR 2.0” because of the way the advisor’s incentives are structured. In lieu of upfront fees, the advisor has contingent acquisition fees and financing fees that are paid only after shareholders receive a return of at least 6% on invested capital. There is a promotional interest of 15% of net income and cash distributions after shareholders receive the same 6% return. Other fees, such as property management fees (up to 3.5% of annual gross revenues) and asset management fees (1.25% of gross AUM) are typical for the industry.
Cottonwood Communities purchased a 245-unit apartment complex in West Palm Beach, Florida, in May 2019. Occupancy was 84.1% at closing, and the $67 million purchase was funded partially by a $36 million credit facility at 3.93% and interest only for 10 years.
In July 2019 the REIT invested in a $10 million 9.50% + LIBOR floor of 2.50% note that will partially finance a 366-unit apartment complex in Allen, Texas. That note matures in 2021, with interest-only payments until maturity. The developer has a senior loan of $45.5 million from JLL and will fund $17.9 in equity.
On August 15 the REIT entered a joint venture of up to $9.9 million with Milhaus, LLC to develop a 254-unit multifamily community in Ybor City, Florida.
The REIT’s stabilized apartment complex ($67 million) and two financing investments ($10 and $9.9 million) match its strategy by mixing stabilized assets with growth-oriented credits and equity investments.
Source: SEC, Blue Vault
