SMARTCAP Opportunity Zone Fund 3, LLC

Property Type:	Distribution Warehouse
Total Equity Raise:	$12,550,000
10-Yr Targeted IRR:	14%-16%
10-Yr Targeted Equity Multiple:	2.40x - 2.60x
10-Yr Targeted Average Cash Yield:	8% - 9% once stabilized
Minimum Investment:	$25,000
Investment Profile:	Development
Targeted Distribution Commencement:	Following Stabilization (expected in year 3)
Distribution Period:	Quarterly

SMARTCAP Opportunity Zone Fund 3 Update

With increased construction costs, additional funding is required for SMARTCAP Opportunity Zone Fund 3. Additional proceeds are being raised on a first come first serve basis, targeting approximately $3MM in additional proceeds. Final raise amount is subject to change based on final lender loan proceeds.

Lending

Prior to the additional funding request, SMARTCAP has been diligently working with our lending partners to increase proceeds while staying within the initial lending parameters. Both Bank of the West and Banner Bank (Lenders for Buildings A & B, respectively) have already agreed to increase proceeds with the support of a revised appraisal. SMARTCAP DC North Building B has already received an updated appraisal supporting rental rates of $0.82 PSF. on the shell and $1.85 PSF on the office, significantly higher than our original proforma!

Valuation

Several sales transactions have also supported valuations higher than our initial projections (See Sale Comps for additional detail). The last three sale comps in the North End Industrial Market have average $232 PSF and 4.03% CAP rate vs. original proforma 5.00% CAP and $190 PSF.

Offering Summary

SMARTCAP Opportunity Zone Fund 3, LLC will be the developer and owner of 308,000 SF of Class A distribution warehouse in the North Seattle Opportunity Zone located in Marysville, WA. The investment will be the fourth development, and SMARTCAP’s third designated Opportunity Zone investment, in the emerging Cascade Industrial Center of North Seattle.

This is an Opportunity Zone investment and only qualified capital gains can be invested to receive the additional tax advantages associated with the 2018 Opportunity Zone Tax Incentive. Projected returns are before additional tax advantages.

SMARTCAP, Inc is acquiring two neighboring sites totaling 23.09-acres in Marysville, WA, the Pacific Northwest’s Premier Industrial Market. SMARTCAP has entered a Joint Venture Agreement with a local high net-worth Family Trust, which is contributing $10mm of the estimated $19,550,000 total equity for the development. The remainder will come from SMARTCAP Opportunity Zone Fund 3, LLC.

The total all-in development and leasing costs are projected to be $128 per SF including land equating to a build to CAP of nearly 7%. The stabilized value of the building in today's market would fetch a 5% CAP rate and sell for a projected $192/SF, representing instant equity at stabilization of nearly $19,000,000.
Upon stabilization, the project will be refinanced utilizing SMARTCAP's preferred lending relationships, allowing for all refinance proceeds to be distributed back to investors. This allows for a return of a significant portion of investors' equity, all while ensuring the entire original investment maintains qualified Opportunity Zone status.
The ongoing Cash on Cash Return after refinance will target over 8% annually on the remaining portion of investors' capital.

Investment Overview

Investment Highlights

Preferred Site Coverage

With the low land cost basis that an emerging market like Marysville provides, SMARTCAP is utilizing a 36%-38% site coverage ratio for the master site plan.
This low coverage allows SMARTCAP to maximize both sites with an efficient building size, ideal truck & trailer maneuverability, and trailer parking.

First to Market

This will be the first completed distribution-focused project in Marysville this cycle, providing first to market advantages.
Distribution is already a proven concept in this market as recent tenants Swire / Coca-Cola, UPS, and Amazon have successfully entered the market with new developments in the last 18 months.

Development Timeline

Mobilization occurred the week of July 16th for site clearing, grubbing, and grading. Rough grading planned for 8 weeks to get the site ready for underground utilities.
Full building permit is expected by September 15, 2021, with projected delivery of both assets by May 2022.

Business Plan

SMARTCAP has master-planned two neighboring sites in Marysville, WA to accommodate a 231k SF Logistics Center (DC North A) and a smaller 68k SF light distribution building (DC North B).
DC North Building A will be just the second 36’ clear distribution building in the North End Industrial Market. The building design also offers over 90 trailer parking stalls. Combined, the clear height and trailer parking offer the ideal building for distribution focused tenants.
DC North Buildings A & B will help offset each other’s risk as they will target different tenant requirements due to their overall size and ability to break down into smaller tenant suites as needed.
A speculative development for the entire project is the desired course of action. The development site is one of the best located sites in Marysville’s “path of progress”, supported by direct access to the future on/off ramp to Interstate 5.
Marysville is development-friendly and encouraging development along 152nd St corridor. The future on/off-ramp will help accommodate the increased flow in truck traffic and provide better access for future tenants.
Several Distribution Tenants have already identified Arlington / Marysville as a desired location. In the last 18 months, Coca-Cola, UPS, Freightliner, Old Dominion, Crown Distribution, and Amazon have all opened distribution locations in this submarket.
Once both Buildings A & B are completed & stabilized, SMARTCAP will look to refinance the assets up to an estimated 60%-65% Loan to Value, returning proceeds pro-rata back to investors. The project will then be held for the remainder of the investment period (est. 10 years) as a stabilized cash-flowing investment.

The Property

Development Timeline (to Stabilization)

Financial Summary

Table shows a projected return based on SMARTCAP’s assumptions, demonstrating a $100,000 investment.
Refinance is assumed to happen in Year 3, when the buildings are stabilized. Subject to change based on market conditions.
Cashflow percentage Years 4-10 are calculated on unreturned capital.
IRR calculated from initial investment date. As IRR is based on the time value of money, newly raised proceeds will have a slightly better return.
10-year hold timeframe to start when the last investor funds are received.

NOTE REGARDING PROJECTED FINANCIAL INFORMATION: THE FINANCIAL INFORMATION SET FORTH IN THIS DOCUMENT INCLUDES UNVERIFIED THIRD PARTY VALUATIONS AND FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE PROJECTIONS OF EXPECTED VALUE AT DISPOSITION IN THE CASE OF PROPERTIES THAT HAVE NOT YET SOLD, TOTAL RETURN IF SOLD TODAY, AND SIMILAR PROJECTIONS INCLUDED IN THE PROJECTED FINANCIAL INFORMATION ABOVE AND BELOW IS BASED UPON ESTIMATES MADE BY SMARTCAP. SMARTCAP HAS COMPILED AND PROVIDED THE PROJECTED FINANCIAL INFORMATION BASED ON A METHODOLOGY OF ITS CHOOSING, WHICH IS NEITHER AUDITED NOR REVIEWED BY AN INDEPENDENT ACCOUNTING FIRM. THERE MAY BE OTHER VALUATION METHODOLOGIES THAT WOULD PRODUCE DIFFERENT RESULTS. THE PROJECTIONS OF VALUE, RETURN AND SIMILAR PROJECTIONS INCLUDED IN THE PROJECTED FINANCIAL INFORMATION HEREIN ARE BASED UPON ESTIMATES MADE BY SMARTCAP AND NOT UPON ANY ACTUAL OPERATING RESULTS OF SMARTCAP OR THE PROPERTIES. THERE IS NO ASSURANCE OR GUARANTEE THAT THE ACTUAL OPERATIONS OF SMARTCAP OR THE VALUATION OF THE PROPERTIES WILL EQUAL ANY OF THE PROJECTIONS. YOU SHOULD NOT RELY ON THE PROJECTED FINANCIAL INFORMATION CONTAINED IN THIS SUMMARY IN EVALUATING SMARTCAP’S FINANCIAL CONDITION AND PERFORMANCE.

3% of Construction Cost Development Fee

1.5% annual asset management fee charged on equity raised

The above fee table is a summary, and there may be additional fees associated with this offering. Please refer to the Company’s Operating Agreement and Private Placement Memorandum for further details.

8% IRR paid to investor.

70%/30% split thereafter with no upside CAP for investors.

Lease Comparable Map

Lease Comparable

Sale Comparable Map

Sale Comparable

SMARTCAP Team

SMARTCAP is a Washington State company who has been building in the Arlington / Marysville submarket since 2018. During this time, SMARTCAP has delivered four successful buildings: SCG 180th St. Industrial Park (98,003 SF) and SMARTCAP 188th St. Industrial Park Buildings A & B (99,555 SF) with SMARTCAP’s third development projected (Arlington Airport Industrial Park) set to be delivered in September 2021.

Long Term Goal - SMARTCAP is the leading developer in the Arlington / Marysville Industrial Market and has a long-term strategy of building / delivering Class A Industrial assets. A growing portfolio will allow SMARTCAP the ability to offer readily available space requirements to land perspective tenants, have better control over rental rates and maximize asset value with the potential of exiting the portfolio in the future to a single investor who is looking to enter the market at scale.

Offering Closed