Jubilee Church Atlanta Building Financing Plan

Jubilee Church Atlanta Building Financing Plan May 29, 2012 Project Summary: The purpose of this memo is to outline an investment opportunity for persons interested in assisting Jubilee Church Atlanta (JCA) to raise funds to acquire, retrofit and furnish a 15,400 SF former medical office building into a meeting space and event center for the Church. The property JCA would like to develop is a valuable commercial location in Woodstock, GA which is properly zoned for the Church s intended use. JCA has negotiated a purchase agreement with the seller, commissioned building plans and prepared construction cost estimates. The Church has already raised approximately $240,000 in giving and other available sources, but has been unable to secure conventional mortgage financing at acceptable terms to fund the balance of acquisition and renovation costs. JCA is instead seeking to raise approximately $500,000 from individual investors. Terms of the agreement JCA is proposing to offer investors are described in the following pages. Financing Sources/Uses: Financing Requirements/Uses Purchase Price (Building Shell with partially usable MEP Systems) $ 450,000 Building Renovations $ 230,000 AV, Furnishings and Signage $ 20,000 Architectural, Legal and Closing $ 25,000 Total Uses: $ 725,000 Sources Accumulated Church Giving and Pledged Contributions $ 240,000 Minimum Financing Required for Completion $ 485,000 Total Sources: $ 725,000 *Minimum additional financing required to purchase building $ 235,000 * (Estimated balance needed to proceed to closing and acquire/hold the building.) Financing sources/uses for the project are outlined above. JCA believes that this building will not only meet the physical meeting space needs of the Church, it will also provide a significant resource to serve the community, support existing/future ministries and generate additional income. Although JCA can comfortably carry the estimated mortgage and other occupancy costs, the Church s goal is to develop and implement a business plan to make the building financially self-supporting by renting space for weddings, meetings and other functions. Interior renovations are being designed in a manner that will preserve the property s long-term suitability for conversion back to commercial or office uses. More information about the property and JCA s financial capacity to undertake the project is provided in Attachment A. 1

Proposed Investment Structure: As an alternative to conventional bank financing, JCA is seeking participation from individual investors to capitalize a building fund. JCA will make monthly repayments at a fixed rate of 5.5%, which is competitive in the commercial mortgage market. Those payments would be distributed proportionally to individual investors by a trustee. The goal of the fund is to provide a financial win-win for both JCA and investors who would receive monthly interest income that is well excess of conventional savings, money market accounts, CD s or conservatively invested retirement savings. The fund would be set up by an attorney to provide appropriate protections for participants and will be secured by the as developed value of the real estate, which should well exceed needed financing (see Attachment A). The fund will also be structured to qualify as an eligible investment vehicle for self-directed individual retirement accounts. If the model is successful in this case, it could be replicated to provide individuals with future opportunities to invest in the growth of New Frontiers and its individual Churches. The goal of the fund is to enable JCA to bridge a near term financing gap until such time that the Church is able to secure conventional financing and fully repay investors. JCA would execute agreements with individual investors whereby the Investors agree to commit funds for a maximum of five years. However, within a time window starting in month 37 JCA will monitor market conditions and will act to secure conventional permanent financing to repay the outstanding principal balance when market conditions warrant. Investors could be fully repaid at any time within a window of 37 to 60 months as determined by JCA and its ability to secure conventional financing at acceptable terms. To participate, investors would agree to deposit funds in a designated JCA investment account (ideally by no later than June 15, 2012) and JCA would agree to begin making payments to the fund by September 1, 2012. JCA will attempt to line up additional investors/reserves to cash out parties who may need to withdraw their principal before the end of the repayment period, but would only be required to make early payouts as replacement investors become available or JCA amasses excess funds in the account. Details as to how the fund would work are outlined below. This representative example is based on a total of $500,000 raised, repaid at a rate of 5.5% and with the remaining outstanding principal balance fully repaid at the end of three years. (As noted above, the fund will be set up so JCA, at its sole discretion, could proceed to cash out investors at any time within a window of 37 to 60 months.) JCA would make interest-only payments for the first 12 months and then begin repaying principal in month 13 based on a 20 year amortization schedule. Fund Notes: [1] Total investment goal: Raise $500,000 with a minimum need of $235,000 to acquire and hold the building ($450,000 sale price plus closing costs). [2] Repayment Terms: JCA will repay investors with 5.5% interest, 20 year amortization schedule, Year 1 interest only (See table) Distributions made monthly. [3] Investors make a maximum 5 year commitment; Investors commit funds to be deposited in a JCA account by June 15, first monthly payment by JCA made on Sept. 1, 2012. JCA seeks permanent financing to repay investors in full beginning in month 37. 2

[4] JCA establishes and makes monthly payments to a fund from which distributions are made to investors. JCA will work to build additional reserves in order to accommodate investors who may need early repayment of principal. [5] Example assuming $500,000 raised: JCA makes monthly mortgage payments of $2,300 ($27,500 total) over months 1-12, $3,600 ($43,100/year) from months 13-36, and distributes the remaining PRN balance of $468,000 in month 37 when permanent refinancing is secured. Investors receive a percentage of the monthly mortgage payment based on their percentage share of contributed funds. JCA or a designated Trustee will send payments to each investor. [6] JCA retains the right to pay down loan principal or fully pay off the loan at any time based on the outstanding PRN balance on that given month. [7] JCA/investors agree that early cash outs will only be accommodated as funds are available. Additional investors may be added at any time to replace persons needing to cash out early. [8] Investment income is assumed not to be tax exempt unless advised by an attorney. Investors are encouraged to set up and roll over funds to a self-directed IRA to maximize the tax benefits of their investment. [9] To limit the administrative burden on JCA a minimum investment of $5,000 is requested. Interested investors may increase their contributions in $1,000 increments with no maximum limit. [10] Investors are accepted on a first come, first served basis until all needed funds are committed. In the event that more funding is committed by interested investors than is required for the project, those not needed for the initial offering will be given the option to be placed on a list to be contacted if replacement funds are needed to accommodate other investors who may request to cash out early. [11] In the event of default by JCA the investors will be secured by the value of the real estate. [12] As illustrated in the following exhibit, a $10,000 investor would receive total repayments of $11,633 if cashed out in 37 months. Total interest earnings are also calculated at the end of 3, 4 and 5 years. Ending Balance Example Individual Investor Return: $10,000 investment with JCA making full repayment of the principal balance at the end of 3 years Summary: Total JCA Payments Received Total Month 1-12 Month13-24 Month25-36 Month 37 Payout $ 550 $ 862 $ 862 $ 9,360 $ 11,633 Total interest received if principal is fully repaid at the end of 36 months: $1,633 Total interest received if principal is fully repaid at the end of 48 months: $2,148 Total interest received if principal is fully repaid at the end of 60 months: $2,643 The exhibit on the following page calculates JCA s monthly and annual mortgage payments over years 1 through 5 of the proposed amortization schedule. The Cumulative Principal column shows the amount of principal that will be repaid to investors while JCA is making payments. The Ending Balance column shows the remaining funds that would be distributed if JCA secured permanent financing at the end of 3, four or 5 years. Investors would receive a lump sum distribution of their remaining principal balance upon JCA s obtaining permanent financing. A monthly amortization schedule will be prepared with the fund documents that will calculate the outstanding principal balance for each month during the term of the agreement. 3

Investing 401K or IRA Savings Many people tend to keep a large majority of their savings in 401K or Individual Retirement Accounts. Some of these accounts offer a self-directed option that allows funds to be invested in income producing real estate and other investments like this one. It is also possible to roll over an underperforming retirement account that does not contain a self-directed option into an IRA which does. JCA is actively researching this issue and will be able to answer questions and suggest options for people who may be interested in using a portion of their retirement savings to invest in the proposed building fund. Anyone who might consider tapping retirement savings for this purpose should thoroughly research their accounts rules, features and financial performance before making a final decision. More importantly they should be sure they know how to roll over funds properly (and avoid negative tax consequences) before making any withdrawals. Sample Financing Schedule: first 5 year amortization of a $500,000 fund including calculation of JCA payments and the outstanding principal balance distributed the end of 3, 4 or 5 years JCA Financing Model Total Mortgage: $ 500,000 JCA Monthly Year 1 ($2,292) Loan period in years 20 Amortization Schedule Payment Schedule Mortgage Year 2 ($3,590) Interest Only Period (Years) 1 Payment Year 3 ($3,590) PRN Retirement Period (Years) 19 Year 4 ($3,590) Interest Rate: Year 1-3 5.50% Year 5 ($3,590) Interest Rate: Year 4-5 (if needed) 5.50% PRN Amortization Schedule Beginning Balance Payment Principal Interest Cumulative Principal Cumulative Interest Ending Balance 1 0 $ 500,000 -$27,500 $0 -$27,500 $0 -$27,500 $500,000 2 1 $ 500,000 -$43,075 -$15,575 -$27,500 -$15,575 -$55,000 $484,425 3 2 $ 484,425 -$43,075 -$16,432 -$26,643 -$32,007 -$81,643 $467,993 4 3 $ 467,993 -$43,075 -$17,335 -$25,740 -$49,342 -$107,383 $450,658 5 4 $ 450,658 -$43,075 -$18,289 -$24,786 -$67,631 -$132,169 $432,369 Next steps At this time JCA is asking interested investors to provide a non-binding expression of interest to participate in the fund for a specified amount. If there is sufficient interest from enough potential investors to finance the building purchase, JCA would then proceed to retain an attorney to set up the accounts and draft required legal agreements. At that time investors will be given an opportunity to review the agreements and make a final decision regarding whether or not to participate. JCA has a critical need to raise approximately $235,000 by mid-june, 2012 to acquire the building. Investors with the ability to do so would be asked to deposit their investment in the established fund by that time. However, those who may be interested but need more time to transfer funds could still participate after the closing takes place and until such time that sufficient funds have been raised for building renovations. In the event the fund is established but not used, JCA will return unused investor contributions within 30 days. 4

If you are interested in learning more, please e-mail Carl Herrington and provide the following information: Yes I am interested in learning more about helping to finance Jubilee Church Atlanta s Building Project! a. Provide your name, e-mail address and/or phone number where we can reach you to follow up; b. Indicate the amount or a potential range you think you might be willing to invest; c. Provide an estimated date when you would be able to deposit funds into the designated Building Fund account should you decide to proceed. Send your response to: carl@jubileeatl.com or call him at 678-471-1930 as soon as possible. We at JCA are excited about this opportunity for ourselves and others throughout New Frontiers to invest in the growth of our Church. We also believe that if successful, this approach can be used a model for other Churches seeking to finance similar capital projects. We appreciate your prayerful consideration and look forward to the possibility of partnering with you in this effort. Thank you. More financial information about the property and JCA s capacity to repay investors is provided in Attachment A. 5

Attachment A: Project Information Property Location: 260 Parkway 575, Woodstock, GA REVIVE CONSIGNMENT Description: 15,474 single story office former medical office building, built in 1989 on a 1.4 acre site with 95 paved parking spaces. Property is located near Interstate 575 and GA Route 92 (Exit 7) near JCA s Revive Consignment Store. Site is zoned General Commercial which allows for churches, retail, office, restaurants, clubs and related uses by right. The building s proximity to Revive Consignment (also shown on the map) will make it easier for the Church to both manage the property and market the building to potential users from the surrounding community. Condition: The building received water damage in 2009 by a 500-year flood of Noonday Creek, which caused the medical practice to vacate. The building has since remained vacant and all flooring, fixtures and the bottom 4 feet of interior walls/partitions have been removed. HVAC and electrical systems 6

have been partially retained and are partially usable. JCA has performed due diligence and found no structural damage to the building. Roofing has been inspected and necessary repairs have been incorporated into the construction budget. JCA has budgeted to carry flood insurance protection on the property a cost of roughly $750/year. Sales Price: JCA has negotiated as purchase contract to acquire the building for $450,000 ($30/SF). Prior recorded sales have been as high as $2.9 million ($187/SF) in 1990. The deadline for JCA to secure financing is June 11, 2012 unless an extension is granted by the seller. Rehabilitation Strategy: JCA has developed plans to renovate and furnish approximately 9,000 SF in Phase I to accommodate a 300 seat main meeting room plus 3 classrooms, offices and a central lobby/foyer. (The proposed Phase I floor plan is shown on the following page.) The remaining 6,400 SF will be finished at a later date as funds become available. Plans for the remaining unfinished floor space could include a catering preparation area, additional conference/meeting rooms, leasable offices, workshop space, etc. With volunteer efforts, JCA anticipates that Phase I building renovations will range from $225,000 to $235,000. The total move in cost for Phase I including the building purchase, construction, furnishings, architectural and engineering plans, legal fees and permitting is projected to total $725,000. This total cost averages $46.85/SF over the entire building area or $80.50/SF for the 9,000 SF of finished space. Other older and comparably sized office properties in the immediate vicinity are currently assessed by the City of Woodstock at $80/SF, indicating that that the value of JCA s completed project will be in line with local market values and well in excess of $500,000 raised from investors. It is JCA s intent to minimize the special purpose features of this building in order to preserve its future suitability for conversion back to commercial or office use if necessary. Planned finishes will make meeting, classroom and office spaces attractive and suitable for a broad range of commercial functions including wedding receptions, banquets, parties, business meetings, performances, etc. JCA s intent is to eventually develop this property into 7-day a week community resource that will generate income to carry part or all of the facility s cost while freeing the Church s financial resources for ministry. Financing Capacity: JCA has carefully examined the added carrying costs of this building in order to ensure that the Church will be able to meet its financial obligations to investors. A 5-year forecast of revenues and expenses is provided on the last page. The forecasts show that JCA should be able to maintain its net building occupancy costs at roughly 20% of total revenues over the forecast period. This is well below the 30% ratios which are considered by most lenders to be an adequate indicator of ability to pay. 7

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Jubilee Church Atlanta: Estimated 5-year Occupancy Cost/Revenue Projections for 260 Parkway 575 Forecast Year (Beginning September 1, 2012) 2011 2012-13 2013-14 2014-15 2015-16 2016-17 Repayment Schedule Actual Year 1 Year 2 Year 3 Year 4 Year 5 Sources Current/Projected Annual Revenues [1] $ 232,000 $ 278,500 $ 292,425 $ 307,046 $ 322,399 $ 338,518 Less Net Occupancy Costs Rental Meeting Space (Kell HS & Other)[2] $ (25,000) $ - $ - $ - $ - $ - Financing Costs ($500,000 financed) [3] $ - $ (27,500) $ (43,075) $ (43,075) $ (43,075) $ (43,075) Estimated Building Occupancy Costs [4] $ (29,250) $ (30,420) $ (31,637) $ (32,902) $ (34,218) Building Rental Income [5] $ 5,000 $ 7,500 $ 11,250 $ 14,063 $ 15,469 Net Building Occupancy Costs $ (25,000) $ (51,750) $ (65,995) $ (63,462) $ (61,915) $ (61,825) Balance for staffing, ministries, etc. $ 207,000 $ 226,750 $ 226,430 $ 243,584 $ 260,484 $ 276,694 Net Building Costs as a % of Total Revenues [6]: 10.8% 18.6% 22.6% 20.7% 19.2% 18.3% NOTES: [1] 2011 actual revenues from financial statements. Forecasted revenue growth includes pledges received for future building expenses, recent growth in members/monthly giving carried forward for the next 12 months and 5% annual revenue growth thereafter. [2] JCA currently pays $1,800/month rental fee for Kell HS, plus equipment storage fees and periodic rental costs for other meetings. These expenses will no longer be incurred. [3] Assumes $500,000 financed at 5.5% with a 20 year amortization schedule and year 1 interest only. [4] Includes estimated HVAC costs, general liability and flood hazard insurance, buildings and grounds and contributions to a reserve fund. [5] Conservative forecast of building revenues from space rental. JCA will develop a formal business plan following completion of improvements. [6] Lenders will typically approved loans based on 30% of an organization's total revenues. (Based on 2011 actual revenue and no forecasted income growth, the first year ownership cost would be 33% of total revenue.) However, with growth in giving and potential building income, JCA intends to work toward keeping the net ownership cost of the project at 20% or less of annual revenues moving forward. 9