Fairway America Fund VII, LP - SBRE Investment Offering - SBREfunds

Fairway America Fund VII LP

Non-Broker Vetted

Opportunity Overview

  • Asset Type:
  • Strategy Type:
  • Income Type:
    Income & Growth
  • Minimum Investment:
    $250,000
  • Capital Raised:
    $40,534,896
  • Target Return:
    9% - 15%

Investment Highlights

  • Fund VII’s unique investment strategy is to invest in other SBRE asset-based 506 Regulation D funds around the United States.
  • Fairway America, LLC, and its related entities and managers have leveraged their distinctive positioning as fund administrators of their own fund and several other SBRE funds throughout the U.S. to gain insight and access into some of the best such funds in the country.
  • The Fund’s investment strategy is engineered to take advantage of real estate cycles whether the market is moving up or down and to create a source of capital for funds and fund managers that can help them grow, shrink, or maintain their portfolio under various market conditions.
  • Fund VII has been created to exploit the performance, both good and poor, of SBRE funds around America by investing in well-run opportunities and watching for opportunities for the Fund to profit by acquiring assets, shares, or both of poorly run funds when they are in a forced sale position.
  • Because Fairway America provides ongoing administration for many SBRE funds around the U.S., Fairway America has unparalleled visibility into SBRE funds’ trends, direction, and performance.

Investment Terms

FOUR Investment Options

Note Holder Notes

  • $250,000 Minimum Investment
  • Note rates between 4% and 8%
  • Note maturities between 1 and 5 years
  • Income reported on 1099
  • Senior to all Membership Unit classes

Class C Membership Units

  • $250,000 Minimum Investment
  • 60/40 split after 8% Preferred Return
  • Income reported on K-1
  • Pari passu with Class A and Class B

Class B Membership Units

  • $2,000,000 Minimum Investment
  • 70/30 split after 8% Preferred Return
  • Income reported on K-1
  • Pari passu with Class A and Class C

Class A Membership Units

  • $5,000,000 Minimum Investment
  • 80/20 split after 8% Preferred Return
  • Income reported on K-1
  • Pari passu with Class B and Class C

Asset-Level Information

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  • How does the GP and/or Fairway get paid?

    In addition to the 1.5% Management Fee and the appropriate split of any EDC paid to the GP, Fairway will receive as income 100% of any asset level fees actually collected (e.g. loan origination fees) and 100% of any processing, underwriting, and due diligence fees charged to Sponsors when evaluating potential investments for the Fund. (Note: The majority of Fund Assets are not expected to produce any asset level fees.) If the Fund owns any Mortgage Loans, it may engage Fairway America as loan servicing agent to perform servicing and collection activities on its behalf and pay a commercially reasonable loan servicing fee on such Assets, not to exceed 1% (annualized) of the unpaid principal balance of any loan being serviced.

  • What are the differences between the two investment options?

    Note Holders: Investors lending money to the Fund will be issued Notes and shall become “Note Holders.” Note Holders will be lenders to the Fund on a pari passu basis with other Note Holders and have a blanket secured interest in the Fund Assets. This secured interest will be in a senior position except in circumstances where individual Fund Assets have been or are being pledged by the Fund to any Credit Facility, as discussed in greater detail below.

    Note Holders will be issued Notes at interest rates, which will vary from time to time, according to a Note Schedule, and initially ranging from 4% to 6%, depending on investment amount and maturity of the Note. The Fund intends to have multiple tiers of rates based on the amount of money lent by the Note Holder and duration of the maturity date. These tiers (including amounts, maturities, and rates) may change from time to time at the prevailing interest rate and terms defined on the Note Schedule for a given period.

    Notes may be purchased at any time during the calendar quarter, subject to approval by the GP, at the interest rate and terms defined for that period on the Note Schedule. The Fund may prepay the outstanding principal balance and interest to any Note Holder at any time without penalty.

    Interest to Note Holders shall be paid monthly. The interests of the Note Holders will be represented by a Note Holder Representative, who will initially be the GP. Note Holders shall be issued an IRS Form 1099 annually for any interest received.

    LPs: Investors purchasing ownership shares in the Fund will be issued Units and shall become “LPs.” There are three classes of Units available for LPs: Class A Units, Class B Units, and Class C Units.

    The Class of Units an LP owns is based on the size of investment and is tiered by dollar amount as follows: LPs with a Capital Account up to $1,000,000 will own Class C Units, LPs with a Capital Account from $1,000,001 up to $5,000,000 will own Class B Units, and LPs with a Capital Account in excess of $5,000,000 will own Class A Units. The Units are identical with the exception of the manner in which Excess Distributable Cash (“EDC”) is split between the GP and the LPs.

    Subject to performance of the Fund and after paying certain Fund Expenses, the Management Fee to the GP, and interest to Note Holders, LPs will receive a Preferred Return of 8%, paid monthly. The Preferred Return shall be Cumulative, meaning that any shortfall in a given period shall carry forward. In addition, LPs will divide with the GP any available EDC (as determined by the GP its sole discretion) prorated to their respective Ownership Interest as follows: Class C LPs will receive 60% of the EDC with the other 40% paid to the GP, Class B LPs will receive 70% of the EDC with the other 30% paid to the GP, and Class A LPs will receive 80% of the EDC with the other 20% paid to the GP, all prorated to the LP’s respective Ownership Interest and paid shortly after the end of each calendar quarter (after the GP has reconciled the financial statements for the Fund).

    Based on comprehensive financial modeling performed by the GP, the targeted overall return to LPs is estimated to be between 9% and 15%; however, these returns are not guaranteed. LPs will be issued IRS Form K-1’s annually for any distributions received and any other tax allocations by virtue of their partnership in the Fund.

  • How much total debt vs. LP equity does the Fund expect to have?

    The Fund expects to maintain a debt to equity ratio in a range between 0.75:1 and 1:1. This ratio will include both Note Holder debt and debt associated with any Credit Facility. It will undoubtedly fluctuate from time to time and may be higher or lower than this range. The actual ratio maintained by the Fund at any given point in time shall be determined in the sole discretion of the GP.

  • How much can I invest? What is the minimum?

    $250,000 per unique Investor is the minimum investment, which amount may be adjusted in the sole discretion of the GP. There is no set ceiling on the amount of investment from each Investor, which shall be in the discretion of the GP. The GP does not intend that any one LP shall own more than 20% of the outstanding shares at any given point once the Fund has reached $50,000,000 in AUM.

  • Who manages the Fund and is there a “Key Man”?

    The GP of the Fund will be Fairway America Management Group II, Inc., a Delaware limited liability company (“FAMG II”). FAMG II is owned by Fairway America; Win Win, LLC; Outside General Counsel Services, PC; Terrell Group Management; and PatRick American Fund, LLC. See Management section. Matthew Burk is considered a Key Man.

  • Does the GP (and/or its principals) have any skin in the game?

    Yes. FAMG II shall make an initial equity investment as an LP in the Fund in an expected amount of $2,500,000. The GP may also invest a portion of its EDC into Units and/or Notes of the Fund on an ongoing basis as long as the Fund is not in liquidation. The principals of Fairway and Win Win also intend to invest in the Fund. It is the principal’s goal and intent to accumulate over time a sizeable investment in Units and/or Notes of the Fund, pari passu to all other investors in whichever instrument is owned. Any investment by the GP and/or Fairway principals will be made according to the then current Unit Price and Note Schedule and otherwise be in such form and in such amount as determined by the GP it its sole discretion.

  • What happens to the Fund if the GP (or its Key Man) is not around for any reason to manage the affairs of the Fund?

    The GP recognizes that one of the main concerns of Investors in a 506 Regulation D Private Placement such as the Fund is what would happen in the event the GP or its Key Man is not available to manage the Fund for whatever reason. Therefore, we have proactively attempted to address and mitigate this concern, including the following:

    • Under the Fund’s Operating Agreement, the GP is contractually obligated to provide at least one (1) year notice to the LPs before being permitted to resign. Subject to certain limitations, LPs may elect a replacement GP by a vote of 80% of the Ownership Interest.
    • The GP has developed a written plan for an orderly liquidation (the “Orderly Liquidation Plan” or “OLP”) upon the occurrence of any event necessitating a decision to wind down the Fund’s operations. The OLP shall be available to Investors on the Investor Portal or upon request. The OLP may be modified, edited, improved, and updated over time in the sole discretion of the GP. However, the GP shall be required to maintain a written OLP at all times during the life of the Fund.
    • There is a provision in the Operating Agreement instituting an immediate moratorium on any new Fund Assets in the event of a death or permanent disability of Matthew Burk (the “Key Man”).
      • The LPs shall have the right to identify and approve a new Key Man during this one (1) year period.
      • If no new Key Man can be determined and authorized by the LPs, the Fund shall proceed with an orderly liquidation of assets according to its OLP.
    • Fairway is the beneficiary of life insurance policies on the lives of its main principals, Matthew Burk and Lance Pederson in the amount of $1,000,000 each. FAMG (the Manager of Fund VI and which is owned 90% by Fairway) is also the beneficiary of a life insurance policy on the life of Darris Cassidy, sole owner of Win Win LLC, EVP at Fairway, and Managing Director of the Fund in the amount of $1,000,000. These amounts are expected to be sufficient to provide the GP, FAMG, and/or Fairway with sufficient liquidity to be able to operate without duress while a new Key Man (or other executive) is identified and approved by the LPs or to allow the Fund to execute its OLP.
    • Fairway, as main principal of the GP, is owned in part by Lance Pederson who is Fairway’s COO and a key participant in the ongoing administration and operations of both Fairway and the Fund. The GP believes that, should something happen to the Key Man, Mr. Pederson is fully capable of leading overall Fund operations during a moratorium or an orderly liquidation. He could reasonably be expected to either facilitate the identification of a new Key Man to be approved by LPs and/or would manage the OLP.
    • Fairway’s key employees in underwriting and managing Fund Assets and handling Fund Administration are very experienced and in most cases long tenured with the company. They are thoroughly familiar with Fairway operations and procedures and in fact have played a significant part in developing them over a period of many years. They could reasonably be expected to capably facilitate and execute the Fund’s OLP.
    • TGM and PRAF are managed by Patrick Terrell, who has extensive real estate, business, and investment experience and contacts and who can reasonably be expected to provide guidance, oversight, and business acumen as necessary to assist the GP and Fairway in identifying and procuring a new Key Man or executing its OLP.
    • OCGS is also a principal of the GP and Jay Zollinger has a deep and intimate understanding of the overall operations of the Fund. In addition, Jay has been General Counsel to one of Oregon’s largest private company sales and can reasonably be expected to provide significant guidance, insight, and experience to the Fund and Fairway’s executive team while it either procured a new Key Man or executed its OLP.
  • What sort of Fund oversight and governance exists to help protect Investors? What can Investors expect in the way of transparency and communication?

    Many well-developed best practices for corporate governance have been established and promoted by leading organizations in the fund industry. One such organization is INREV, which has summarized many of the key best practices at http://www.inrev.org/guidelines/inrev-guidelines/corporate-governance-self-assessment.

    FAMG II believes in adhering to these and other industry best practices as much as possible in terms of fund governance, oversight, transparency, and communication with Investors. While the GP has the flexibility to modify its practices over time to meet the needs of the Fund, we have endeavored to incorporate whatever INREV best practices we can into the Operating Agreement, and in the way which we manage the Fund. Among others, we accomplish this objective in the following ways:

    • The Fund will be audited by outside CPAs on an annual basis once it has reached $10,000,000 in AUM or as required by any particular state or federal regulations. The audit shall be made available to Investors on the Fund’s Investor Portal and/or upon request.
    • The GP will cause the Fund to have CPA prepared year-end financial statements and tax returns each year that will be available to Investors on the Fund’s Investor Portal and/or upon request.
    • Fairway provides back office third-party Fund Administration services to other mortgage pool and real estate asset based funds as part of its suite of services, and thus has robust capabilities in this area.
    • The Fund has significant control mechanisms and management and administration procedures delineated in writing. These procedures are written in an Operational and Control Procedures document (the “OCP”) and may be updated, altered, or improved in the sole discretion of the GP. A copy of the then current OCP will be available to Investors on the Investor Portal and/or through other means throughout the life of the Fund.
    • The GP maintains a written Underwriting Manual that it uses to guide its investment decisions. This Underwriting Manual is continually reviewed, discussed, revised, and updated in the sole judgment and discretion of the GP without notice to Investors.
    • The GP may be removed by an 80% vote of the LPs, subject to reasonable compensation if it is without cause, at any time during the life of the Fund. The LPs shall have the ability to elect a replacement GP.
    • The GP will provide LPs with frequent (typically quarterly) qualitative and quantitative information about the Fund along with investment statements and any distributions and/or interest.
    • Meetings will be held a minimum of once per year to provide a forum for LPs to ask questions and be heard. LPs also have the ability (with a simple majority) to require the GP to convene a meeting (with appropriate notice) at any time.
    • Investors will have secure access to an on-line Investor Portal containing financial information, including tax returns, financial statements, and audits, the OCP, copies of any recent investor correspondence, and other information pertinent to the Fund, its operations, portfolio, and performance. The information may change from time to time but it will be the goal of the GP to make the Investor Portal as robust and informative as possible. We encourage you to measure Fairway America Fund VII, LLC, using the tool available at the link provided above and to ask the GP any questions you might have pertaining to these governance standards.
  • How does the Fund earn revenues?

    The Fund shall receive as Fund Income, 100% of any interest collected on deposited funds or receivables owned by the Fund, 100% of any income distributions from any Fund Asset, 100% of any premium upon sale of any Fund Asset, 100% of any rent collected on real property owned (if any), and 100% of any redemption fees collected.

  • Isn’t this really a fund of funds? Doesn’t that mean I am being charged double fees?

    It is expected that the majority of investments the Fund makes will be in equity (or debt) to other 506 Regulation D real estate asset based funds. To the degree that these other funds charge fees and produce returns net of those fees (which would in turn be the gross return to Fund VII), it can be said that there are “double fees”.

    Having been involved in this space for years, we know firsthand that it is very difficult to compare apples to apples when it comes to fees and that even funds that do not have the “double fee” effect can be far more fee heavy. A close inspection of overall fees (fund level and asset level fees) is paramount to get an accurate reading.

    Our strong belief is that the most important measures concerning fees are, in this order: 1) the degree of alignment of interests between the GP and LPs (to ensure correct incentives) and 2) the net return being paid to LPs from the operation of a Fund. We believe we have created a fee structure that is as aligned as much as any that we know of and this is also what we seek when investing in other 506 Regulation D funds.

    At the end of the day, LPs are getting the benefit of a professionally managed fund consisting of many other real estate asset based strategies and diversified across asset classes, managers, geography, and other characteristics. This is what the fees are being paid to achieve and it is up to individual LPs to determine their reasonableness relative to the results being produced vis-à-vis other similar funds.

  • What do I need to do to purchase Units and become a LP?

    Investors who wish to purchase Units must complete and sign the Subscription Agreement, a signature page to the Operating Agreement, an Investor Suitability Questionnaire and other such documentation as is deemed appropriate by the GP, and send them together with a check or wire for the purchase price of the Units to the GP. Upon receipt of appropriate executed documents, the Fund will immediately deposit Investor funds into its holding account (the “Subscription Account”), the date of which shall be the “Deposit Date”.

    Investors may execute the Unit Subscription documents at any time throughout a calendar quarter. However, an investment in the Units would only become effective as an equity investment upon the Company’s transfer of an Investors’ funds into its operating account (the “Operating Account”) and as of the first day of the calendar quarter (the “Effective Date”) immediately following the Deposit Date. Investor funds held in the Subscription Account shall pay no interest to the Investor.

    The Company may utilize a new Investors’ funds for its operations between the Deposit Date and the Effective Date by transferring all or a portion of such funds as determined by the GP (the date of which shall be the “Transfer Date”) from the Subscription Account to the Operating Account. Any such amounts transferred shall be treated as a loan to the Fund for which the investor shall receive interest at 8% (annualized) during the period between the Transfer Date and the Effective Date. The Fund will pay the accrued interest (running from the Transfer Date of any funds to the Effective Date) on any funds transferred from the Subscription Account to the Operating Account in the form of a check to the Investor to be prepared and mailed on or shortly after the Effective Date.

    An Investors’ obligation to purchase Units with their full deposited amount shall be irrevocable during the time between the Deposit Date and the first day of the subsequent calendar quarter. As soon after the Effective Date as is practicable (typically on or around the 15th of the first month of the quarter), the Fund shall issue the appropriate class of Units to the Investor at the prevailing Unit Price for any and all amounts transferred into the Operating Account since the Deposit Date (i.e. funds that were treated as loaned to the Fund between the Transfer Date and the Effective Date).

    On the Effective Date, the Fund shall also be obligated to transfer some or all of any remaining Investor funds from the Subscription Account into the Operating Account and issue Units at the prevailing Unit Price, and/or to notify the Investor of any amounts it intends to let remain in the Subscription Account based on the Fund’s financial position or projected yields at the time, or for other reasons in the GP’s sole discretion. Upon notice to the Investor of any such amounts it does not intend to transfer to the Operating Account and issue Units, the Investor shall have ten (10) days to decide to either leave the money with the Company in its Subscription Account, or to have the Company reimburse the remaining funds in the Subscription Account to the Investor.

    If an Investor chooses the reimbursement option, the Investor shall have no further right or obligation to use these remaining funds to purchase Units. If an Investor chooses to leave the remaining funds in the Subscription Account, the investors’ obligation to utilize such funds to purchase Units (and the Company’s right to transfer the funds to its Operating Account) shall once again be irrevocable, and the funds shall again be treated during each successive quarter as detailed in this section.

  • How is the price of a Unit (the “Unit Price”) determined?

    The initial Unit Price shall be $1,000 but will fluctuate on a quarterly basis based on the collective Stated Value of the individual Fund Assets. The price of a Unit will be calculated by dividing the total Stated Value of all of the Assets by the total number of outstanding Units. The Stated Value of each Fund Asset shall be determined by the GP in its sole discretion. The GP, however, shall establish and follow a methodology for determining the Stated Value of each Asset and may modify, alter, or improve the methodology from time to time in its sole discretion. The Stated Value of the Fund Assets shall be used to assist in the determination of the Unit Price of the Units as well as the AUM.

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