Subject: Real Estate Investment - Shawn Gross

I wanted to inform you of an investment opportunity with Shawn Gross.
=20 =20 He planning on developing a 2.5-acre tract at the corner of Kirby &  Braesw= ood.
This location as you know is close to the medical center area  and su= rrounded quality old neighborhoods.
Two apartments in the area have  been = very successful.
The Providence across the street is getting rental  rates=  in the $1.22 per square foot and Kirby Place, an older apartment complex, =  is getting $1.13 per square foot.
=20 The preliminary plan is to develop three or four story structures with a  t= otal of approximately 110 or 150 units, respectively.
The total  project c= ost are projected to be $8.1 million or $10.9 million.
Capital  required f= or this development is between $1.6 million (for the three story  developme= nt) and $2.2 million (for the four story development).
An  additional call=  later on during development could be around $200,000 due to  increasing co= sts (i.e, increase in lumber prices).
The property would  probably be comp= leted 18 months out.
Projected IRRs are between 20% to 28%  depending on t= he sale of the property.
Return on Cash Invested starts at  approximately = 11% in 2002 and increases steadily up 20% around 2006.
Assumptions are: $= 1.22 per square foot rents; revenues & expenditures rising  3.5%; vacancy l= oss of 5%; Cap Rate of 8.5%; total project cost between $8.1  million and $= 10.9 million, depending on three or four stories.
There is an  issue with = the property being in the 100-Year Floodplain, but he is proposing to  alle= viate the problem by creating a water feature on the property and raise the=   grade of builderable area above the Floodplane.
=20 I spoke to Jenard about the project before I've been able to discuss it  fu= rther with Shawn.
I asked him about some of the assumptions, such  as the = rental rates and cap rates which I thought where a bit aggressive.
He tol= d me to the contrary, that Shawn's other project is pulling in  similar rat= es, as well as other non-Shawn projects.
With regards to the  cap rate, he=  said that he has been seeing 8%, which would call for a greater  sales pri= ce than the assumed 8.5% (I can discuss this in further detail for  anyone = who doesn't understand cap rates).
Jenard is investing 15% of  the capital=  required as a limited partner (same terms as the rest of the  partners) an= d Shawn is investing 5% (4% as a limited partner, 1% as GP).
Shawn will b= e the developer, JMG Builders will be doing the construction, and  JMG Mana= gers, Ltd. will be managing the property.
In otherwords, Dad will  have hi= s construction company and management company doing the project.
Shawn wi= ll be the developer.
While the property is under operation there  should b= e distributions (not treated as capital returned).
At the time of  sale, m= ortgage refinance, or other capital event, after all debts have been  repai= d, all of the partners will get their capital contribution back.
Then, pr= ofits are distributed.
I can go through the partnership structure  for tho= se who are interested, which includes distributions and fees.
=20 =20 I am considering investing in 1% to 2% of the deal.
A 1% percent  investme= nt amounts to either $16,000 or $22,000 invested, depending on the three  o= r four story scenario, plus the possible additonal cash call of $2,000.
T= here are several risks (i.e., softening of rental rates) which dooesn't mak= e  the returns a guarantee.
However, I feel good about the Houston  econom= y and absorption rates in the residental (and commercial) markets for  Hous= ton.
Feedback from Jenard regarding his developments in  Houston and Steve=  Keller's South Rice Apartment development have all been  extremely positiv= e.  Shawn's personal developments include:  one in  Houston completed and d= oing great;  the other Houston project never got  developed because someone=  offered him so much money on the land, he and his  partners had to take it=  (not a bad problem considering it took the risk out of  developing and ret= urned an enormous IRR to the investors).
Although he has  not developed mu= ch, his father is an investor and will have some  involvement.
Money inves= ted would be tied-up for at least two years  (unless something happens like=  his last project), but up until a sale which  could take between 2 to 5 ye= ars (or longer) there could be distributions.
That assumes that the proje= ct is doing well.
=20 Anyway, please let me know if any of you are interested.
The deal  is sche= duled to fund June 10.
Like I said, I have not heard from him  on all the = specifics.
Therefore, I don't know at this time how much is of  the deal i= s even available.
I would be glad to discuss this in greater  detail with = any of you that are interested.
=20 - Beau