Live in style and walk in Larchmont with this ground up small-scale subdivision.
Small Change Crowd 004, LLC, a Delaware limited liability company, (Small Change), is a single purpose entity formed to loan money to 5016 Rosewood, LLC (Rosewood) a California limited liability company (developer). Small Change is offering a total of 175,000 of Membership Units at a price per Unit of $1.00 to accredited investors for a fully subscribed offering of $175,000. The minimum investment amount for each investor is $2,500. Small Change intends to lend the entire proceeds from the offering to the developer, which will use them to complete financing for the construction of a newly built 4-unit single family detached residential project located at 5016 Rosewood Avenue, in the Larchmont neighborhood of Los Angeles.
The loan will be in the form of a three-year balloon mortgage secured by the Property. The developer will make annual, interest-only payments at an interest rate of 10% per year to Small Change. The terms of the loan requires the developer to repay the loan upon sale or refinance of the Property or upon completion of the three-year term of the loan. While the loan term is three years, it is the developer’s goal to refinance the property in approximately one year, at which time investor equity will be repaid. If the loan is satisfied by Rosewood before the end of the first year, the Small Change investors will still receive a minimum return of 10%. Payments on the Loan will be the sole source of income for Small Change. The mortgage and note are included in the Investor Packet.
Rosewood may pay off the loan at any time before the balloon payment is due, in whole or in part, without premium or penalty. The Loan will be secured by a mortgage on the Property and any improvements made on the Property but will be in second position behind the original investors in the project. You can download the investor packet here.
5016 Rosewood is a new development project consisting of four, single family detached units, and located in the Larchmont neighborhood of Los Angeles. The project is unique in that each of the four units is on its own parcel of land. This is rare for new development projects in west Los Angeles. As a result, the units are expected to command price premiums of 20-30% over townhome condominiums and 40-50% over condominium flats in west Los Angeles. Because they are fee simple, homeowners can also enjoy lower insurance rates and lower homeowner association fees.
Each home is approximately 2,000 square feet, and three stories tall, with three bedrooms and three bathrooms. The ground or first floor has a two-car attached garage as well as a bedroom and bathroom which can be used either as an office or as live/work space with its own discreet entrance. The second floor has a generous master bedroom and guest bedroom, each with its own ensuite bathroom. The third floor is the living space, voluminous and light-filled with its double height ceilings, large and expansive windows. From here residents can see the world famous Hollywood sign, Griffith Observatory and Downtown Los Angeles. And there is additional space here on the mezzanine level allowing for a home office, exercise or guest space. Both the living room and its mezzanine have oversized outdoor decks which offer the perfect combination of indoor/outdoor living ideally suited for Southern California weather.
There are plenty of luxurious features, such as the kitchens with custom European cabinets, high-end Bosch appliances, designer tile and Caesarstone countertops; or bathrooms filled with designer tiles, frameless shower enclosures and European fixtures.
The project has been in construction since May 2016 and has progressed through demolition, site work, framing and waterproofing. Construction completion is anticipated in July 2017, with sales beginning at the same time. The developer does not pre-sell units, since deposits are required to be fully refunded in California, and they are priced to sell quickly. It is anticipated that all four units will be in escrow within a month with another two more months for buyers to arrange financing and close escrow.
Strong return projected. 10% projected investor return.
Net zero living. Designed to make net zero living achievable.
Access to major employment areas. Hollywood, Downtown Los Angeles and Beverly Hills/Century City
Quality design. Plenty of attention to every detail.
Desirable neighborhood. Walking distance to Larchmont.
Construction progress. Construction well under way with completion anticiapted in summer of 2017
Experienced developer. Experienced development team with similar projects that have sold out quickly.
Larchmont is one of Los Angeles’s most desirable - and smallest - neighborhoods. The .49 square mile neighborhood is home to a diverse mix of peoples, shopping, historic architecture and recreation. Its heart is the Larchmont Village shopping district, a Main Street-style thoroughfare that plays host to coffee shops, a bookstore, toy store, delis, restaurants and the Larchmont Farmers Market.
The area has one of the highest population densities in all of Los Angeles County, estimated at 17,747 per square mile, as of the 2000 census. This informs the area’s walkable nature, along with its proximity to retail and transit corridors along Beverly Boulevard to the south, Western Avenue to the west, Melrose Avenue to the north and the Larchmont Village shopping district on the east. Larchmont is close to major employment and entertainment centers like Hollywood, Downtown Los Angeles, Century City, Miracle Mile, and Beverly Hills. It’s adjacent to the historic Hancock Park neighborhood and less than five miles away from Griffith Park, one of Los Angeles’ largest parks and home to the Griffith Park Observatory.
Larchmont’s central location and urban amenities have made it an increasingly desirable neighborhood for local film productions (Paramount Pictures’ main studio is less than two miles away) as well as for young professionals and homebuyers in Los Angeles. The area’s historic housing stock is composed primarily of single-family residences built between the 1920s through 1940s, and demand for different types of housing is reflected in recent developments such as a 33-unit condo building on Rosewood Avenue, as well as a 43-unit condo building, also on Rosewood, completed in 2006. As of January 2016, there were at least ten multi-family projects under construction within a 1 mile radius of the project. A January 2016 Corelogic report found the median home price in the project’s zip code to be $865,000.
The project will bring to market desirable product for a customer base typically in the 25-49 age bracket looking for a hassle-free lifestyle attendant to urban living, with less maintenance required than that of a typical single-family home. As Los Angeles continues to grow in population and urban form, the project, a small lot subdivision, meets the need for increased density and multifamily development. See About the Financials for comparable small lot subdivison project sales.
Image 1: "Hollywoodsign (1)," from Lander777 at English Wikipedia, via Wikimedia Commons, under public domain. Image 2: "Larchmontsidewalk," from Arspickles17, via Wikimedia Commons, under CC BY-SA 3.0. Image 3: "Transit of Venus at Griffith Observatory, Los Angeles, 5 June 2012," from Transit of Venus at Griffith Observatory, Los Angeles, 5 June 2012, via Wikimedia Commons, under CC BY-SA 2.0 license.
The units are designed with energy efficiency and resource conservation in mind, starting with their layout and orientation. Each home will be pre-wired for solar panels with sufficient roof space to achieve net zero energy living. There is abundant natural daylighting through low-E dual glazed windows. The highly insulated walls and ceilings further reduce cooling and heating. All fixtures and toilets will be WaterSense certified. Xeriscape landscaping, a style of landscape design requiring little or no irrigation or other maintenance, will be implemented and rainwater will be captured and filtered into planters and a rain garden.
In addition to the abundance of operable windows and sliding glass doors, indoor air quality will be further enhanced through the use of low VOC (volatile organic compounds) paints and sealants. All of the cabinets will be formaldehyde-free and the air filters will have minimum MERV (minimum efficiency reporting value) rating of 8.
Other features include cool roofs, low flow fixtures, Energy Star appliances, space for storage and collection of recyclables and more. In other words, these homes are close to net zero.
The total cost of the project is $3,938,397 or $984,599 per unit. Roughly, these costs break down into $1M for the land, $2.15M for construction costs and the remainder in soft costs, which include permit fees, sales, design, engineering, insurance, legal, taxes and payment of interest on the Loan. Financing to date has been through a loan from Sunwest Bank, in the amount of $2,820,000, and equity totaling $926,5027, along with the anticipated use of the developer’s credit line for the remaining approximately $200,000 needed. The sale price of each home is projected to be $1,221,000, with gross revenue for the project totaling $4,884,000. After all costs are deducted gross profit is projected to be $656,983. You can download a detailed financial summary here.
Recent comparable small lot subdivisions nearby have sold for more and quickly as well. Sales prices for five of the units at 7190-7199 W Formosa Fusion Court averaged $700 per square foot. This project, built in 2016, is a few miles from Rosewood, with unit sizes that are a little smaller averaging 1,677 square fee. The project waas very successful with all units selling immediately after construction was complete. The June Collection, another small lot project just 0.7 miles from Rosewood, has also been very successful. Recently completed, all but 3 of the 10 units have sold at an average of $675 per square foot. These units are larger, ranging from 1,887 to 2,354 square feet with 3 - 4 bedrooms and 2.5 to 3.5 bathrooms. Rosewood is priced to sell at $610 per square foot.
The owners of Rosewood and their equity contributions are defined in the chart below. 4Corners Group, the developer of Rosewood is managed by, Paul Lin and Danny Cerezo who are also the managers of Rosewood. It is a wholly owned subsidiary of G Capital, LLC which is the primary investor in Rosewood, at 68% of the equity invested to date. The final 32% of the equity has been invested by several friends and family members. Disbursement to the funders of the project will be in the order shown on the chart below.
|Disbursement of Funds||House A||House B||House C||House D||Total|
|Available after sale||1,148,845||1,148,845||1,148,845||1,148,845||4,595,380|
|SC loan + interest||192,500||192,500|
|Line of credit||16,895||16,895|
There are numerous risks to consider when making an investment such as this one and financial projections are just that - projections. Returns are not guaranteed. Conditions that may affect your investment include unforeseen construction costs, changes in the market conditions, and potential disasters that are not covered by insurance.
If Rosewood has construction cost overruns, or if sales are not as strong as projected, overall returns may be lower. There may be unforeseen changes in the general economic climate and market conditions or unanticipated complications involving the development. Any of these things may impact the return to the investors.
The developer is mitigating these risks of this project in a number of ways, which include:
- The managers of Rosewood are seasoned developers with experience building and selling similar projects successfully;
- The project is under construction with completion anticipated in the summer of 2017;
- The Small Change loan will be returned before the owners of Rosewood, or the developers receive any return. This is anticipated to occur with the sale of the third house.
For more detail on risks and mitigation, please review “Risk Factors” in the Investor Packet.
The developer, The 4Corners Group, is a boutique real estate development firm focussing on dense, urban home building in Los Angeles. The 4Corners Group is a wholly owned subsidiary of G Capital, LLC which is focussed on focused on investing in urban infill projects. The 4Corners Group had designed, built, and sold eight homes in two projects in west Los Angeles, both four unit small lot subdivisions -- Beethoven Four, completed in 2011 and sold out in two weeks, and Preuss Four, completed in 2013. Both projects were sold at a price premium compared to other projects in their respective neighborhoods. The developer has also sold two projects that were fully permitted with entitlements and ready to build to other local builders to construct and market. These are the Bedford and Hayworth projects.
The key members of The 4Corners Group team are Paul Lin, responsible for finance and investor relations, and Danny Cerezo, responsible for design and construction. Paul and Danny are also the managers of Rosewood. They are proud of their outstanding rapport with their homeowners, attention to detail, excellent customer service and long term commitment to each project. You can read an interview here with one of their Beethoven Project homeowners.
Paul Lin is the Managing Member of The 4Corners Group, a real estate development company and Vice President of GLC Enterprises, a real estate development services firm. His role at The 4Corners Group is finance and investor relations. Paul has also served in various management roles in high-tech companies and management consulting firms and received his MBA from the University of California, Irvine and his B.S. in General Engineering from Harvey Mudd College in Claremont, California.
Danny Cerezo is a manager of The 4Corners Group, where his role is design and construction. He is also the principal of cs design, providing full architectural design and consulting services for small residential and commercial projects, and president of g Builders, the general contracting arm of The 4Corners Group. In this role he oversees all construction, scheduling, budgeting, invoicing, and code management for all construction projects. Danny is a designer specializing in the architect as developer methodology, with in-depth experience in all phases of design and construction including project feasibility analysis, land acquisition, code research, design development and ultimately, construction. Danny is licensed as an architect and general contractor in the State of California. Previously Danny worked for GLC Enterprises where he was a Project Manager on design-build projects and Paul Tang Architecture.
Gillette Properties is the contractor for the Rosewood project and offer specialized services in custom residential homes, restaurants, offices, and tenant improvements in the Los Angeles County. Founded in 2010, Gillette Properties is family-owned and operated. The CEO/president, Martin Gillette, has over 35 years of experience in the construction trades with a long history dating back into the 1980's as a union carpenter. Putting his lengthy superintendent career skills to work, Martin founded Gillette Properties. With keen attention to detail as well as value, Gillette Properties has flourished and carries both an A (engineering) and B (building) State of California contractor's license (CSLB #955663) and is fully insured and bonded.