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MAC Fund Announces Changes - See Updated Prospectus

TABLE OF CONTENTS
1.
PRIVATE PLACEMENT MEMORANDUM
2.
OPERATING AGREEMENT (EXHIBIT A)
3.
SUBSCRIPTION BOOKLET (EXHIBIT B)

MID-ATLANTIC CAPITAL FUND, LLC
A Real Estate Opportunity Fund
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MID-ATLANTIC CAPITAL FUND, LLC
Up to $20,000,000
($5,000,000 Minimum Offering)
2,000 Class A Units; $10,000 per Class A Unit
(Minimum Investment of 2 Class A Units)
CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM
Dated: __________, 2008
No. ______________ For the exclusive use of: _________________________________
NOTICES TO INVESTORS
NO PERSON HAS BEEN AUTHORIZED TO PROVIDE ANY INFORMATION OR MAKE ANY REPRESENTATIONS REGARDING MID-ATLANTIC CAPITAL FUND, LLC (THE “FUND”) EXCEPT AS CONTAINED IN THIS CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM (THIS “MEMORANDUM”). STATEMENTS IN THIS MEMORANDUM ARE MADE AS OF THE DATE HEREOF UNLESS STATED OTHERWISE, AND NEITHER THE DELIVERY OF THIS MEMORANDUM AT ANY TIME, NOR ANY SALE HEREUNDER, SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
THIS MEMORANDUM IS BEING FURNISHED TO SELECTED ACCREDITED INVESTORS ON A CONFIDENTIAL BASIS, AND BY ACCEPTING THE MEMORANDUM, THE RECIPIENT AGREES TO KEEP CONFIDENTIAL THE INFORMATION CONTAINED HEREIN. THE INFORMATION CONTAINED IN THIS MEMORANDUM MAY NOT BE PROVIDED TO PERSONS WHO ARE NOT DIRECTLY INVOLVED IN AN INVESTOR’S DECISION REGARDING THE INVESTMENT OFFERED HEREBY. THIS MEMORANDUM MAY NOT BE REPRODUCED OR RESDISTRIBUTED.
INVESTMENT IN THE FUND IS SUITABLE ONLY FOR SOPHISTICATED INVESTORS FOR WHOM SUCH INVESTMENT DOES NOT CONSTITUTE A SUBSTANTIAL AMOUNT OF THE INVESTOR’S NET ASSETS AND WHO FULLY UNDERSTAND AND ARE WILLING TO ASSUME THE ASSOCIATED RISKS INVOLVED IN AN INVESTMENT IN THE COMPANY. PROSPECTIVE INVESTORS SHOULD NOT CONSTRUE THE CONTENTS OF THIS MEMORANDUM OR ANY SUPPLEMENTAL LITERATURE AS LEGAL, BUSINESS OR TAX ADVICE. EACH INVESTOR SHOULD CONSULT ITS OWN ADVISORS CONCERNING ITS INVESTMENT.
THE FUND AND THE MANAGER URGE INVESTORS TO CAREFULLY CONSIDER THE RISK FACTORS RELATING TO AN INVESTMENT IN THE FUND, AS DESCRIBED IN “RISK FACTORS” AND IN OTHER SECTIONS OF THIS MEMORANDUM. IN ADDITION, INVESTORS SHOULD CAREFULLY CONSIDER THE ACTUAL AND POTENTIAL CONFLICTS OF INTEREST TO WHICH THE MANAGER AND ITS AFFILIATES WILL BE SUBJECT IN MANAGING AND MAKING INVESTMENT DECISIONS FOR THE FUND, AS DESCRIBED IN “CONFLICTS OF INTEREST” AND IN OTHER SECTIONS OF THIS MEMORANDUM.
IN CONSIDERING THE MANAGER’S SAMPLE RATES OF RETURN ON PAST PROJECTS CONTAINED HEREIN, PROPSPECTIVE INVESTORS SHOULD BEAR IN MIND THAT PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS, AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL ACHIEVE COMPARABLE RESULTS. THERE CAN BE NO ASSURANCE THAT ANY TARGETED RETURNS WILL NOT BE MATERIALLY LOWER THAN THOSE TARGETED.
THE SALE, TRANSFER OR DISPOSTION OF THE CLASS A UNITS OFFERED HEREBY WILL BE SUBJECT TO CONTRACTUAL RESTRICTIONS. IN ADDITION, A MARKET FOR THE CLASS A UNITS IS 4837-2269-1586v7
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NOT EXPECTED TO DEVELOP AT ANY TIME. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE CLASS A UNITS ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE FUND AND THE MANAGER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FUTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS IN THIS MEMORANDUM ARE ESTIMATES AND FORWARD-LOOKING STATEMENTS WITH RESPECT TO THE FUND’S ANTICIPATED FUTURE PERFORMANCE. FORWARD-LOOKING STATEMENTS INCLUDE STATEMENTS REGARDING THE FUND’S CURRENT INTENT, BELIEFS OR EXPECTATIONS, PRIMARILY WITH RESPECT TO THE FUND’S FUTURE OPERATING PERFORMANCE OR RELATED INDUSTRY DEVELOPMENTS. WHEN USED IN THIS MEMORANDUM, THE WORDS “ESTIMATE,” “INTEND,” “MAY BE,” “OBJECTIVE,” “PLAN,” “PREDICT,” “WILL BE,” AND SIMILAR EXPRESSIONS ARE GENERALLY INTENDED TO INDENTIFY FORWARD-LOOKING STATEMENTS. THE FUND CAUTIONS INVESTORS THAT SUCH FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INHERENTLY INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTANTIES AND OTHER IMPORTANT FACTORS THAT COULD CAUSE THE FUND’S ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMEMTS, OR INDUSTRY RESULTS TO DIFFER MATERIALLY FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH RISKS, UNCERTANTIES AND OTHER IMPORTANT FACTORS INCLUDE, AMONG OTHERS, GENERAL ECONOMIC AND BUSINESS CONDITIONS, INDUSTRY TRENDS, COMPETITION, CHANGES IN BUSINESS STRATEGY OR DEVELOPMENT PLANS, AVAILABILITY OF CAPITAL, AVAILABILITY OF QUALIFIED PERSONNEL, GOVERNMENTAL REGULATIONS, AND OTHER MATTERS SET FORTH IN “RISK FACTORS” BELOW. THESE FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE OF THIS CONFIDENTIAL OFFERING MEMORANDUM. THE FUND EXPRESSLY DISCLAIMS ANY OBLIGATION OR UNDERTAKING TO DISSEMINATE ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING STATEMENTS TO REFLECT ANY CHANGE IN THE FUND’S EXPECTATIONS WITH REGARD THERETO OR ANY CHANGE IN EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT IS BASED.
THESE SECURITIES ARE NOT BEING OFFERED, AND WILL NOT BE SOLD, TO ANY PENSION OR PROFIT SHARING PLAN, CHARITABLE ORGANIZATION OR OTHER TAX-EXEMPT ORGANIZATION, OR TO ANY PERSON OR ENTITY ACTING THROUGH OR ON BEHALF ANY SUCH PLAN OR ORGANIZATION.
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TABLE OF CONTENTS
1. INVESTMENT OPPORTUNITY..............................................................................................5
2. MARKET OPPORTUNITY......................................................................................................7
3. FUND INVESTMENT STRATEGY.........................................................................................8
4. EXPERIENCE OF THE MANAGER......................................................................................10
5. INVESTMENT RECORD......................................................................................................12
6. SUMMARY OF PRINCIPAL TERMS....................................................................................18
7. CONFLICTS OF INTEREST..................................................................................................22
8. RISK FACTORS....................................................................................................................23
9. TAX MATTERS....................................................................................................................27
10. SUMMARY OF OPERATING AGREEMENT........................................................................31
11. INVESTOR SUITABILITY STANDARDS.............................................................................33
11. HOW TO SUBSCRIBE...........................................................................................................34
EXHIBIT A – OPERATING AGREEMENT
EXHIBIT B – SUBSCRIPTION BOOKLET
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1. INVESTMENT OPPORTUNITY
Mid-Atlantic Capital Fund, LLC (the “Fund”), a Maryland limited liability company, has been recently organized by affiliates of Tyler-Donegan Real Estate Services, Inc. (“Tyler-Donegan”) with the intent of capitalizing on the opportunities described below and acquire and develop various types of real estate projects that have the potential of delivering superior, risk-adjusted returns to the investor. Principals of Tyler-Donegan believe that the credit crisis turmoil in the financial markets, dismal performance of the housing sector over the last several months and general decline in the broader economy has created a unique buying opportunity for the astute real estate investor. Although this opportunity exists more visibly in the residential real estate sector, the commercial real estate sector is also beginning to experience resulting difficulties as well. While commercial real estate values have already begun to moderate, many analysts project that commercial real estate will experience a significant price correction, as much as 30%, over the next 12 to 24 months.
The current real estate investment environment has been compared by many experts to the late 1980’s and early 1990’s. At that time, the Resolution Trust Corporation (RTC) was established and took over hundreds of failed Savings and Loans Institutions, resulting in the sell-off of billions of dollars of real estate assets for pennies on the dollar.
Massive bank failures similar to those that occurred in the late 1980’s are not anticipated during this current market correction. However, the current credit crisis primarily caused by the massive losses from mortgage-backed securities and sub-prime lending being recorded by the major banks and investment houses is providing an historic opportunity for experienced and sophisticated real estate investors.
The Fund is offering (the “Offering”) units of membership interest (the “Class A Units”) to certain “accredited investors,” as that term is defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933 (and as set forth in “Investor Suitability Standards” below), and to certain employees of Tyler-Donegan. Mid-Atlantic Capital Fund Management, LLC, a Maryland limited liability company (the “Manager”), ”), is controlled by the Principals of Tyler-Donegan, a full-service real estate firm based in Frederick, Maryland and established in 1987. Up to 2,000 Class A Units are being offered at a price of $10,000 per Class A Unit. The Fund is seeking up to $20 million of equity commitments (“Capital Commitments”).
The Manager will manage the Fund’s day-to-day operations and will monitor the real estate projects in which the Fund invests (the “Projects”).
The Fund intends to focus its efforts primarily in Maryland, Virginia, North Carolina, South Carolina, West Virginia, Pennsylvania, Delaware, and the Washington D.C. metropolitan area. The Manager, in its sole discretion, may elect from time to time to acquire assets outside of this primary geographic area. The Fund’s investments will be primarily on distressed and value-added residential and commercial properties that can be purchased at significant discounts compared to replacement costs or current market valuations.
In order to minimize investor risk and maximize investor profits, careful consideration will be taken to maintain a level of diversification and balance within the Fund’s investments with regard to property types, geographic locations and investment schemes.
Targeted properties for the Fund include the following:
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Raw Land – Residential and mixed-use development, with the Manager targeting specific locations it believes exhibit growth potential through expanding infrastructure, economic and demographic growth momentum, and a politically favorable development environment.
Entitled Land – Development opportunities involving entitled land (i.e. land for which governmental land use permits and approvals have been obtained) with existing development partners that require an equity infusion to deliver finished lots for homebuilders.
Commercial Opportunities – Commercial development opportunities, targeting locations where demographic profiles justify construction of improvements or acquisitions of value-added properties.
Workout Opportunities – Rapidly evolving target markets will create opportunities for “workout” situations, with a strong potential for acquiring or recapitalizing “distressed” projects emerging during the term of the Fund.
Bulk Acquisitions – Foreclosed residential properties from banks and other lending institutions which can be purchased in bulk.
Sale-Leaseback Opportunities/Build-to-Suit – Opportunities that arise as a result of downward economic pressures on corporate operating results.
30%30%20%15%5%DistressedRenovation/RehabilitationCapital ShortfallLeasing/ManagementDevelopmentInvestment Scheme
The Manager seeks to acquire assets that are projected to (1) yield a maximum return on investment of twenty percent (20%) to thirty percent (30%) per annum and (2) achieve a multiple return on equity invested of at least 2 to 1.
In choosing to participate in the Fund, each investor will be required to deposit fifteen percent (15%) of his or her total Capital Commitment when executing the Subscription Agreement attached as Exhibit B. This amount will be deposited in a non-interest bearing account to be held in escrow. The remaining balance of the Capital Commitment will be paid upon fifteen (15) days advanced written notice from the
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Manager after the Fund has received subscriptions for Capital Commitments of at least $5,000,000 (the “Minimum Commitment Amount”), which is the minimum capital requirement established to launch the Fund. The funds deposited in escrow will also be delivered to the Fund after it has received subscriptions for the Minimum Commitment Amount.
The minimum Capital Commitment that will be accepted by the Fund from any investor will be TWENTY Thousand Dollars ($20,000) (i.e. 2 Class A Units). The Manager may, in its discretion, sell Class A Units for lesser Capital Commitments. The Manager may discontinue the Offering at any time after the Manager has received subscriptions for the Minimum Commitment Amount. The Manager may not accept subscriptions for Class A Units after the date that is twelve (12) months after the Manager initially accepts subscriptions. The Manager and employees or affiliates of the Manager, including employees and affiliates of Tyler-Donegan, and their immediate families have also agreed to make a minimum Capital Commitment in an amount equal to five percent (5%) of the total Capital Commitments of all investors.
2. MARKET OPPORTUNITY
As stated above, the Manager believes that the credit crisis turmoil in the overall financial markets, dismal performance of the housing sector over the last several months and general decline in the broader economy has created a unique buying opportunity. The Manager believes that the seriousness of the troubles within the financial markets can be evidenced by unprecedented measures taken by the Federal Reserve Bank during the first quarter of 2008. These measures include substantial interest rate drops, allowing financial institutions the right to swap/trade Treasury Securities for Mortgage Backed Securities, and orchestrating the bail out of Bear Stearns, the fifth largest investment bank in the country.
Focusing on the residential sector, Bloomberg Financial Services has reported that U.S. home foreclosure filings jumped 60 percent and bank seizures more than doubled in February 2008, as rates on adjustable mortgages rose and property owners were unable to sell or refinance amid falling prices. More than 223,000 properties were in some stage of default, or one in every 557 U.S. households, Irvine, California-based RealtyTrac Inc., a seller of foreclosure data recently reported.
The Manager believes that these dynamics have created real estate investment opportunities in various different capacities, including the following:

Banks have taken back (foreclosed on) many projects which include entitled and partially developed land, condominium buildings with new units that have failed to sell, individual single family homes and some commercial projects either completed or in various stages of development.

With the commercial financing conduit market having come to a virtual standstill, there are many existing loans which are coming to maturity and these loans/projects will be faced with stricter underwriting criteria and a lack of available credit to refinance. This will require borrowers to contribute additional investment capital. To the extent borrowers do not have the additional capital, they will have to seek additional investors or look to sell projects.

Commercial real estate values are driven by several factors. The primary ones being demand for space/buildings from end users (i.e. businesses), and the availability and pricing of capital. With the overall economy slumping, businesses are being conservative in their expansion and relocation plans. This is resulting in higher vacancy rates in virtually every commercial real estate sector (office, warehouse, flex & retail). While the cost of capital has come down, the 4837-2269-1586v7
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availability of capital has been greatly reduced and lenders are more restrictive as to the amount they will lend on any given project (loan-to-value ratios and valuations have been reduced).

Boyken International, a well respected consulting and building project management company, reported that “The ups and downs of the residential real estate market foreshadow commercial real estate a year or two later. That is the pattern seen during the past 30 years.” “We have found that when the residential market moves, the commercial market moves 12 to 18 months later,” says Don Boyken, CEO of Boyken International. With the residential market moving down in the past months, Boyken sees all the warning indicators for the commercial market to start moving down during the course of this year.
Given all of the aforementioned factors, the Manager believes that now is an ideal time to consolidate capital and aggressively seek out unique buying opportunities within the market place. Additionally, the Mid-Atlantic and Southeast regions have historically recovered more quickly than many other national markets. Correspondingly, the Manager’s primary emphasis will be on locating suitable investments in this marketplace.
3. FUND INVESTMENT STRATEGY
Investment Objectives
The Fund’s investment objectives consist of the following primary components:

Identify emerging real estate market trends that correlate with sustained population and economic growth.

Investing in projects that provide opportunities to limit equity investment acquisition and development costs.

Developing strategic alliances with successful, competent real estate operating partners who share investment goals and values.

Maintaining flexibility to capitalize on market opportunities not yet identified.

Identify small to medium size investment opportunities that fall below the radar of most institutional investors but are too large for small local investors.
Projected Returns
The Manager believes it can identify market dynamics and economic conditions which create favorable buying opportunities in the residential and commercial real estate sectors where the Manager can produce superior returns with disproportionately lower risk.
The Manager seeks to acquire assets that are projected to:

Yield a minimum return on investment of twenty percent (20%) to thirty percent (30%) per annum

Achieve a multiple return on equity invested of at least two (2) to one (1).
These projected returns will be achieved through a combination of current cash flow and capital appreciation. The Fund anticipates investment holding periods for individual assets of four (4) to seven (7) years.
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Investment Platform
In order to achieve the expected returns with managed risk, the Manager shall seek employ two investment platforms, generally.
First, the majority of the Fund’s equity is projected to be invested in projects whereby the Fund will invest 100% of the equity required in a given project and acquire a 100% interest in that project.
Second, the Fund intends to deploy a percentage of its capital in joint ventures where the Fund can control a disproportionately larger ownership interest than the percentage share of equity invested in a particular project. The Manager believes there are opportunities to co-invest a portion of the Fund’s capital in certain asset classes with larger institutional investors and/or competent local operating partners. This strategy is projected to allow the Fund to invest, for example, 10% of the equity required for a given project and acquire a 20% stake in the project, while retaining significant operational influence and control.
Utilizing a combination of these two investment platforms, the Fund can greatly leverage its investments and acquire between $120 million and $185 million in assets, enhancing overall return on equity while diversifying the investment portfolio of the Fund, thereby reducing the investment risks to the investors.
Geographic Area
For more than 25 years, Tyler-Donegan has used similar strategies to identify and acquire interests in residential and commercial land development opportunities, multi-family, office properties industrial buildings, and retail centers throughout the United States. The primary focus of the Fund will be on properties located in the Mid-Atlantic and Southeast regions and certain other areas outside those regions that the Manager believes possess compelling market characteristics.
65%5%25%5%Mid-AtlanticNortheastSoutheastMidwestGeographic Regions
Property Types
The Fund intends to invest in office, industrial, retail and multi-family properties and residential lots. Focusing on value-added opportunities, distressed assets and otherwise performing properties that are
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experiencing capital shortfalls due to the current restrictive lending environment, the Manager will pursue fundamentally strong assets that are:

Underperforming and available at a disproportionate discount to “stabilized” market values

Suitable for rehabilitation, repositioning or redevelopment from Class B and Class C status to Class A and Class B+ status in markets where there is a large differential between market rents in the various classes of properties

Priced below replacement cost in markets with strong fundamentals, such as limited supply, growing demand and stable economic development engines (e.g. airports, seaports, government facilities, military installations and significant private and institutional operations)

Priced well below fair market values from motivated/forced sellers that are over-leveraged and require recapitalization

Performing assets that have significant excess development capacity that is valued “within” the transaction

Performing and non-performing loans at a discount to face value with the goal of foreclosing on the underlying real estate
15%35%35%10%5%Residential LotsOffice BuildingsIndustrial BuildingsRetail CentersCommercial LandProduct Type
4. EXPERIENCE OF THE MANAGER
The Manager is a recently organized Maryland limited liability company operating solely for the purpose of managing the affairs of the Fund. The Manager is controlled by principals of Tyler-Donegan Tyler-Donegan’s business activities include real estate sales, leasing, property management, development and real estate investment advisory services. Tyler-Donegan is one of four affiliated companies that operate together under the “Tyler Companies” name. Tyler Mechanical Contracting, Inc. is the largest business unit of the Tyler Companies and was established in 1968, has annual revenues of approximately $55 million and employs approximately 250 people.
Over the last 15 years, Tyler-Donegan has developed and invested over $385 million of debt and equity capital in more than 40 separate real estate transactions. These projects have included office, industrial, retail, multi-family, residential land and mixed-use projects ranging in size from nine residential lots to a
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2,000,000 square foot, industrial redevelopment project. While most of these projects have been located in the Mid-Atlantic region, the Manager has also completed projects in Florida, Texas, California, South Carolina, North Carolina, New Jersey, Alabama, Ohio and Missouri.
In addition to its investment activities, Tyler-Donegan has also been involved in hundreds of other brokerage, management and investment advisory transactions with third parties across the country and valued at more than $1 billion.
The Manager possesses investment, development and operating experience in all facets of real estate transactions, including:

Identifying market opportunities.

Sourcing transactions.

Working with local governments, consultants and attorneys.

Identifying and negotiating strategic joint ventures with development and financial partners.

Conducting financial analysis and securing and negotiating the terms of debt and equity investment and financing.

Existing building redevelopment, repositioning and value enhancement, implementing project design and management and land development.

Assessing proper timing to divest of its assets and developing appropriate exit strategies.
Key employees of the Manager have an average of 25 years of experience in the real estate business, including acquisition/disposition, development, leasing, sales, construction, finance, and property and asset management. Their experience ranges from the execution of real estate transactions to strategic real estate portfolio development and management. Chad Tyler and Jeff Cahall will manage the day-to-day investment activities of the Fund. The management team will be comprised of the following individuals:
Chad Tyler is the President of Tyler-Donegan. Mr. Tyler has an Undergraduate Degree in Finance from the University of Maryland and a Master’s Degree in Real Estate & Urban Development from American University. Mr. Tyler is a past President of the Gaithersburg-Germantown Chamber of Commerce, a recent graduate of the Leadership Maryland Program and is a member of the Business Development Advisory Council for the Frederick County Office of Economic Development. Throughout Tyler-Donegan’s 21 year history, Mr. Tyler has been intimately involved in all the company’s business activities. Mr. Tyler has personally overseen the development and acquisition of 15 projects on behalf of several investment partnerships. Additionally, Mr. Tyler has been involved in brokering the sale of numerous real estate projects in the Mid-Atlantic region on behalf of third parties with an aggregate value in excess of $200 million. A family limited liability company controlled by Mr. Tyler is a Class B Member of the Fund.
Jeff Cahall is the Director of Development & Investment Services for Tyler-Donegan. Prior to joining the Manager, Mr. Cahall was a partner in three (3) real estate investment entities that acquired and developed more than 3.8 million square feet of office and industrial space between 2001 and 2007 valued in excess of $175 million. These properties resulted in a return of capital invested ratio to the inventors of more than six to one. Prior to 2001, Mr. Cahall was a senior broker with Cushman & Wakefield where he established a national practice representing many of the world’s largest corporations and property owners in enhancing the value of their real estate holdings. During his tenure at Cushman & Wakefield, Mr. Cahall was involved in more than 300 real estate transactions in 37 states. Mr. Cahall is a Class B Member of the Fund.
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Joseph Donegan is the Vice President of Leasing & Sales for Tyler-Donegan. Mr. Donegan has worked in the field of real estate, construction and development for the past 26 years. His construction experience includes both hands on field work on major commercial projects, as well as serving as Project Manager for one of the largest mechanical contracting firms in the Washington D.C. metropolitan area. Over the last 17 years, as Vice President of Tyler-Donegan, Mr. Donegan’s focus has been on servicing property owners and investors in buying and selling commercial real estate. His strong construction background along with extensive experience in investment analysis and financing has advanced this focus. Mr. Donegan has extensive continuing education in the areas of Investment Analysis, Real Estate Law, Appraising and Marketing. He is a licensed real estate agent in Maryland, Virginia and the District of Columbia. Mr. Donegan is a 2002 graduate of the Leadership Maryland Program and is a member of the National Association of Industrial & Office Parks, serving on the membership committee. His combined experiences enable him to bring a diverse perspective to all the key elements involved in any real estate transaction. He has represented some of Tyler-Donegan’s larger client’s transaction needs throughout the country. Mr. Donegan received his Undergraduate Degree in Philosophy in 1981 from Moravian College in Bethlehem, Pennsylvania. Mr. Donegan is a Class B Member of the Fund.
Brian Duncan is the Director of Business Development & Marketing for Tyler-Donegan. Prior to joining Tyler-Donegan seven years ago, he worked in the field of economic development and sports marketing for eighteen years throughout Virginia and Maryland. He previously served as the Director of Economic Development for Frederick County, Maryland. In that capacity, his successful efforts were recognized quickly by his peers, whereby in only his second year, he was elected President of MIDAS (Maryland’s Economic Development Association). Part of his responsibilities as Director included assisting businesses in their search for locations/sites for expansion and relocation within the county as well as helping these companies expedite their permitting and approval processes. Working with those professionals involved in company relocations/expansions, Mr. Duncan was instrumental in bringing to Frederick County many companies that represent many different industry types (i.e. biotechnology, communications, manufacturing, etc.). His experience has afforded him unique opportunities such as serving as Co-Chair of Fundraising for NCAA Division III as well as a stint as Vice-President of the Tour DuPont and being awarded a variety of marketing awards. Mr. Duncan continues to be active in volunteering his time with different economic development associations both at the state and county levels. He also is an executive board member of the Frederick County Chamber of Commerce. Mr. Duncan has Undergraduate degrees in Science and Public Administration. Mr. Duncan is a Class B Member of the Fund.
Donna O’Bryan is the Director of Property Management for Tyler-Donegan. Ms. O’Bryan has primary responsibility for the company’s commercial property portfolio and over fifteen years experience in commercial property management. During her career, Ms. O’Bryan has also gained a broad exposure to land development, construction, sales and leasing throughout the Washington D.C. metropolitan area. Ms. O’Bryan maintains real estate licenses in Maryland, Virginia and West Virginia. Ms. O’Bryan received her Undergraduate Degree in Business Administration from the University of Maryland in 1991.
5. INVESTMENT RECORD
Tyler-Donegan has developed and invested over $385 million of debt and equity capital in more than 40 separate real estate transactions over the last fifteen (15) years. These transactions represent only those whereby the principals of Tyler-Donegan were parties to the transaction. Tyler-Donegan has also been involved in hundreds of other brokerage, management and investment advisory transactions with third parties valued at more than $1 billion. A summary of some of the Tyler-Donegan’s past projects and associated returns is described in more detail below:
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Springpointe Executive Center
Route 198, Burtonsville, Maryland
This building is a 67,000 square foot flex building that was acquired in 2002. It was approximately 70% leased. Tyler-Donegan in conjunction with Phillips Realty Capital repositioned the building through a combination of interior and exterior improvements, then leased it up to a 95% occupancy level and sold the project. The building was purchased for $6,100,000 and sold for $8,600,000. The overall return to the investors in this project over the holding period was a total of 165%, or 40% per annum.
Hanover Road Industrial Site
Cross roads of route 295 (BWI Parkway) and Hanover Road in Baltimore.
Tyler-Donegan in conjunction with investment partners purchased this 35 acre industrial site in 1997 for $175,000 out of a bankruptcy liquidation sale. The property is zoned W-1 and is within approximately 2.5 miles of the Baltimore Washington Airport. There are a number of airport supporting facilities within close proximity to this site. Tyler-Donegan purchased the site as a long-term development prospect as that area continues to mature. Despite the fact that Tyler-Donegan is not marketing the property for sale, Tyler-Donegan receives frequent unsolicited offers for the property, the most recent of which was for $14,000,000.
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Securities Building
729 15th St LLC
This building is a 27,000 square foot office building located approximately ½ block from the White House. Tyler-Donegan spearheaded an investment group to buy the building in January 2004 for $5,250,000. Minor improvements were made to the building along with securing tenants for the limited vacancy within the building. The building was sold in March 2008 for $6,550,000 and generated a total return on Tyler-Donegan’s invested capital of 44% or 11% on a per annum basis (internal rate of return).
Knowledge Farms
Urbana, Maryland
Knowledge Farms is a 35 acre office/flex park currently under development. Tyler-Donegan’s first building of 35,000 square feet was completed in January 2007 and is 95% leased. Site plan approval was secured for two additional buildings and future development is also available on the balance of the site beyond the two site planned buildings. While Tyler-Donegan’s intention was to fully build out the 35 acres, a contract was secured for Tyler-Donegan to sell 27 of the 35 acres for $8,500,000. Between the existing building and contract value on the excess land, the project is valued at $16,000,000 against Tyler-Donegan’s investment of $8,000,000.
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Old BAMC One
San Antonio, TX
In 2001, Mr. Cahall negotiated the first of its kind Enhanced Use Leasing agreement with the U.S. Army providing for the privatization of approximately 470,000 square feet of historic property at Fort Sam Houston, San Antonio, TX. After forming a joint venture with a local San Antonio development company, in 2003 the new venture executed a 17 year, non-cancelable lease with three separate units of the U.S. Army and secured $50 million in permanent financing from a major U.S. life insurance company.
As of the end of 2007, the venture has realized a return on its original capital investment of more than 10 to 1 and receives approximately $1.9 million in free cash flow each year. After completion of the building currently under development, the venture is projected to realize additional unencumbered annual cash flow exceeding $600,000 per annum.
Old BAMC Two
San Antonio, TX
Building on the success of the Old BAMC One project, the same investment group is utilizing excess land leased from the Federal government to develop a new Class A office building on Fort Sam Houston.
This 158,000 square foot, five story office building will deliver in December 2008. The U.S. Army has pre-leased 78% of the building pursuant to a long-term lease. The investment is projected to realize a return of 35% per annum, before the remaining 22% of the building is leased.
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Airport Industrial Center
Louisville, KY
In 2005, Mr. Cahall, on behalf of a joint venture with a New York based opportunity fund, acquired from the City of Louisville a 99 year leasehold interest in the Naval Ordnance Facility, a former Navy manufacturing complex developed during WWII, closed in 1995, and located immediately adjacent to the Louisville International Airport, home to UPS’ primary domestic and China HUB.
The 144-acre complex includes approximately 2,000,000 square feet of existing warehouse, manufacturing, R&D, and office space and development capacity for an additional 500,000 square feet of industrial/flex space. Since then, the venture has executed long-term leases with two of the world’s largest defense contractors, BAE Systems for 620,000 square feet and Raytheon for 330,000 square feet, and more than 800,000 square feet with several smaller companies. In late 2007, the venture secured a $21 million mortgage for approximately 1.4 million square feet of the space.
To date, the venture has provided more than a 7 to 1 return on invested capital. Additionally, the investment generates approximately $600,000 in free cash flow per annum and the venture anticipates placing an additional loan on the unsecured portion of the complex in early 2009 in an amount projected to be in excess of $6 million.
After distribution of the net proceeds of this additional debt, expected return on invested capital should exceed a 10 to 1 multiple. The partnership is about to complete a 60,000 square foot flex building and has secured leases for more than 50% of the building.
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I-12 Port
In 2004, a partnership led by Mr. Cahall secured rights to redevelop a closed, environmentally-impacted municipal land fill immediately at the
The partnership invested $1.5 million and upon securing critical preliminary environmental approvals, negotiated an agreement with the State of New Jersey and county and municipal governments to issue nearly $40 million in Tax Increment Bonds to be used to “clean” the property. Subsequently, the partnership joint ventured the prospective development of 1.3 million square feet of high-bay distribution space on the property with Panatonni Development Company, one of the largest developers in the country. The partnership has retained a 40% interest in the new building development and recouped nearly all its original capital investment. A 1.1 million square foot building and a 200,000 squa
b
Assuming lease-up at current market rates and a subsequent sale, the original partnership is proj
re
IN CONSIDERING THE PRIOR PERFORMANCE INFORMATION CONTAINED HEREIN, PROSPECTIVE INVESTORS SHOULD BEA
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6. SUMMARY OF PRINCIPAL TERMS
The following is a summary of the principal terms of the Offering of Class A Units. This summary is qualified in its entirety by information appearing elsewhere in this Memorandum and the Operating Agreement of the Fund (“Operating Agreement”), a copy of which is attached as Exhibit A to this Memorandum.
Fund Mid-Atlantic Capital Fund, LLC, a Maryland limited liability company, is being formed primarily to acquire and develop real estate projects.
Manager Mid-Atlantic Capital Fund Management, LLC will be the Manager of the Fund.
Fund Objective The Fund will acquire and develop real estate projects primarily in Maryland, Virginia, District of Columbia, West Virginia, Pennsylvania, Delaware, North Carolina, and South Carolina.
Capital Commitment The Fund is seeking investments aggregating up to $20,000,000. The capital commitment of each investor to the Fund is referred to herein as a “Capital Commitment” and the aggregate of the Capital Commitments is referred to herein as the “Total Capital Commitments.”
Minimum Capital The minimum Capital Commitment of any investor will be $100,000,
Commitment although individual Capital Commitments of lesser amounts may be accepted at the discretion of the Manager.
Eligible Investors Each purchaser of Class A Units must be an “accredited investor” as defined under Rule 501 of Regulation D under the Securities Act of 1933 and as set forth in the “Investor Suitability Standards” below.
Units The Fund is offering Two Thousand (2,000) Class A Units, with a price per Class A Unit in the amount of Ten Thousand Dollars ($10,000). The Fund shall also issue a total of One Hundred (100) Class B Units to Tyler Family, L.L.C., Jeff Cahall, Joe Donegan, and Brian Duncan. The Class A and Class B Units shall entitle the holders to rights and obligations described hereinafter in “Summary of Operating Agreement” and in the Operating Agreement of the Fund attached hereto as Exhibit A.
Manager’s Commitment The Manager and employees or affiliates of the Manager and their immediate families (collectively, the “Manager Related Investors”) will purchase Class A Units representing 5% of the Total Capital Commitment. The Fund will waive the minimum commitment applicable to Manager-Related Investors.
Initial/Final Closing In conjunction with the execution and delivery of a subscription agreement (the “Initial Closing”), an investor will be required to pay fifteen percent (15%) of his or her Capital Commitment (the “Initial Contribution”). The remaining amount of an investor’s Capital Commitment will be due, after 15 days’ advance written notice by the
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Fund, on a date within 20 days after the date the Fund receives subscription agreements for no less than $5,000,000 (“Minimum Total Capital Commitment”). The Fund may continue to accept new subscriptions only during the period of 12 months following the Initial Closing.
Escrow The Initial Contributions of investors will be deposited in a non-interest bearing account held with Branch Banking & Trust Company. If the Fund has not received subscriptions for the Minimum Total Capital Commitment on or before December 31, 2008, the Initial Contributions will be returned to the investors without interest, charge or deduction.
Post Closing Matters At the discretion of the Manager, Class A Members may be admitted to the Fund after the Initial Closing or can increase their Capital Commitment after the Initial Closing. The Fund, however, may not accept new subscriptions after the one year anniversary of the Initial Closing.
Term of Fund The term of the Fund will be seven (7) years from the date of the Initial Closing, but may be extended at the discretion of the Manager for up to three (3) consecutive one-year periods to permit orderly dissolution.
Management Fees The Fund will pay the Manager an annual management fee equal to three percent (3%) of the Total Capital Commitments, payable quarterly in advance for the term of the Fund, beginning on the date of the Initial Closing and ending on the third anniversary of the Initial Closing. Thereafter, beginning on the third anniversary of the Initial Closing and until the termination of the Fund, the Fund will pay the Manager an annual management fee equal to seventy-five hundredths percent (.75%) of the book value of the assets of the Fund. In addition, the Manager will collect customary transaction fees from the Fund not to exceed two percent (2%) of the total cost (debt and equity) of any single transaction, payable upon the closing of the transaction.
Organizational Expenses The Fund will reimburse the Manager for the Fund’s reasonable organizational expenses, including legal, accounting, filing, capital raising, printing, travel and other organizational expenses in an aggregate amount up to $200,000. Organizational expenses in excess of this amount will be borne by the Manager.
Manager Expenses The Manager will be responsible for the repayment of all ordinary administrative and overhead expenses incurred in originating, managing, and monitoring investments, including employee compensation, rent, utilities, travel, and other administrative expenses in respect of the Fund or an investment by the Fund.
Fund Expenses The Fund and its subsidiaries will pay all expenses incurred in connection with the acquisition of our real estate related investments, 4837-2269-1586v7
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including legal and accounting fees and expenses, brokerage commissions payable to unaffiliated third parties, travel expenses, costs of appraisals (including independent third party appraisals), nonrefundable option payments on property not acquired, engineering, due diligence, title insurance and other expenses related to the selection and acquisition of real estate related investments by the Fund or any of its subsidiaries, whether or not acquired.
While most of the expenses are expected to be paid to third parties, a portion of the out-of-pocket expenses, such as travel or due diligence expenses, may be reimbursed to the Manager or its affiliates. The amount of such reimbursement is not determinable at this time.
In addition, the Fund and its subsidiaries will pay all of their other operating expenses, including legal and accounting fees and expenses, costs of independent appraisals, insurance premiums, taxes, travel expenses, interest and costs of preparation and distribution of reports to the limited partners. While most of the operating expenses are expected to be paid to third parties, a portion of the out-of-pocket operating expenses may be reimbursed to the Manager or its affiliates. The amount of such reimbursement is not determinable at this time.
Reserves Prior to making any distributions, the Fund, in the sole discretion of the Manager, may establish such reserves as it deems necessary for actual or anticipated Fund expenses, liabilities or other obligations.
Distributions The Manager will cause Cash Flow to be distributed in the following order of the priority:
i) First, the Manager will endeavor, but shall not be required, to distribute annually to each Member an amount sufficient to cover each Member’s tax liability resulting from his/her ownership in the Fund.
ii) Second, to the Class A Members a preferred return of 8% per annum on the amount contributed by such Class A Member, which amount, if not paid annually, shall accumulate from year to year (the “Preferred Return”).
iii) Third, to the Class A Members in proportion to the amounts they contributed until all amounts contributed have been paid back.
iv) Fourth, 65% to all Class A Members in proportion to their respective amounts contributed, and 35% to the Class B Members.
Diversification The total investment by the Fund in any one project may not exceed 25% of the Total Capital Commitments.
Board of Advisors The Fund may establish a Board of Advisors comprised of at least three (3) but not more than five (5) members selected by the Fund, which may include, at the Fund’s discretion, Members and/or third parties. The Board of Advisors will provide such advice and counsel as may be 4837-2269-1586v7
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requested from time to time by the Manager. The Manager, however, will retain ultimate responsibility for all decisions relating to the operation and management of the Fund, including but not limited to, investment decisions.
Limitation of Liability The Manager will not be liable to the Fund or to the Members for any act performed or omission made by it except for acts of gross negligence or willful misconduct, constituting reckless disregard for the best interests of the Fund, or that are criminal. The Fund will indemnify the Manager for any loss, damage or expense arising out of any act or failure to act by the Manager if such act or failure to act is in good faith and in a manner reasonably believed by the Manager to be within the Manager’s scope of authority and is not attributable to willful misconduct, gross negligence, recklessness, or a criminal activity. Members will not be individually obligated with respect to such indemnification beyond their respective Capital Commitments.
Reports The Fund will furnish to each Member (i) audited financial statements annually (for tax purposes only), (ii) tax information necessary for the completion of such Member’s tax returns annually, (iii) unaudited financial statements, semi-annually, and (iv) descriptive information for each new investment and an update on any material information relating to previous investments on a quarterly basis.
Operating Agreement The rights of the holders of membership interest in the Fund will be governed by the Operating Agreement of the Fund. In the event that the description or terms in this Memorandum are inconsistent with or contrary to the description in or terms of the Operating Agreement (a copy of which is attached hereto as Exhibit A), the terms of the Operating Agreement shall control.
Auditor Reznick Group
Bethesda, Maryland 7700 Old Georgetown Road Suite 400 Bethesda, MD 20814 Telephone: (301) 652-9100 Fax: (301) 652-1848
Counsel Miles & Stockbridge P.C.
30 West Patrick Street
Frederick, Maryland 21701-6903
Telephone Number: (301) 662-5155
Fax Number: (301) 662-3647
7. CONFLICTS OF INTEREST
Tyler-Donegan, the sole member of the Manager, is engaged for its own account, or for the account of others, in a number of real estate endeavors, some of which may be in competition with the Fund. Neither the Fund nor any Member shall be entitled to any interest in any of these other businesses in which Tyler-Donegan is involved. The officers and key employees of the Fund are also employees of Tyler-Donegan and the Manager. These employees believe that they have sufficient resources to discharge fully their responsibilities to the Fund and other business ventures to which they have or may become responsible. Tyler-Donegan will have conflicts of interest in allocating management time, services, and functions among the Fund and its other potential business endeavors. The Manager and those employees of Tyler-Donegan who are also employees of the Manager will devote only so much of its time to the business of the Fund as in its judgment is reasonably required. Additionally, Tyler-Donegan may participate in certain transactions with the Fund, in various capacities, on behalf of the Fund or otherwise, and may be entitled to receive certain customary fees in connection therewith.
The Fund will pay the Manager an annual management fee equal to three percent (3%) of the Total Capital Commitments, payable quarterly in advance for the term of the Fund, beginning on the date of the Initial Closing through the third anniversary of the Initial Closing. Beginning on the third anniversary of the Initial Closing and until the termination of the Fund, the Fund will pay an annual management fee equal to seventy-five hundredths percent (.75%) of the book value of the assets of the Fund. In addition, the Manager will collect customary transaction fees from the Fund not to exceed two percent (2%) of the total cost (debt and equity) of any single transaction, payable upon the closing of the transaction.
The Manager will be reimbursed for direct and indirect costs it has or will incur related to the Fund, including, but not limited to, travel or due diligence expenses, legal and accounting fees and expenses, costs of independent appraisals, insurance premiums, taxes, interest and costs of preparation and distribution of reports to the limited partners. Although the Manager believes that the foregoing arrangement is reasonable and competitive with similar services provided by their businesses, they were not determined as the result of arm’s-length negotiations.
In addition, Tyler Family, L.L.C., Jeff Cahall, Joe Donegan, and Brian Duncan, the principals and/or key employees of Tyler-Donegan and the Manager, will each individually receive Class B Units in the Fund. The Fund might issue Class B Units to other investors in the sole discretion of the Manager. Holders of Class B Units will be entitled to 35% of the Fund’s Cash Flow after the distribution of the Preferred Return and the Capital Commitments to the Class A Members. As a result, the Class B Members will receive a percentage of the Fund’s profits without contributing any capital to the Fund. The Manager and affiliates of the Manager also will purchase Class A Units representing five percent (5%) of the Total Capital Commitment.
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8. RISK FACTORS
An investment in the Fund involves a significant degree of risk generally, as well as to the structure and investment objectives of the Fund in particular. In addition to the information set forth below, investors should carefully consider the risks described in the “Conflicts of Interest” section above, the “Tax Matters” section below, and elsewhere throughout this Memorandum before making an investment in the Fund. The inclusion of risk factors in this Memorandum should not be construed to imply that they are described in complete detail or that there are not other risk factors that apply to an investment in the Fund.
Newly Formed Fund
The Fund is a newly formed entity. Although the Manager has experience that is relevant to the Fund’s investment strategies, the Fund itself has no performance history. The Manager also does not have any prior experience managing a fund similar to the Fund.
Long-term Investment
An investment in the Fund requires a long-term commitment with no certainty of return. It is anticipated that there will be a significant period of time (up to four years) before the Fund has completed its investments in projects and each investment may not be liquidated for three to six years after the initial purchase. Losses on unsuccessful investments may be realized before gains on successful investments are realized. Dispositions of such investments may require a lengthy time period. While it is the intention of the Manager to achieve target returns over such period, other factors such as overall economic conditions, the competitive environment and the availability of potential acquirers may shorten or lengthen the Fund’s holding period. Therefore, it is unlikely that the Fund will realize substantial gains during its early years.
Illiquidity of Fund’s Portfolio Investments
Most of the Fund’s investments will be highly illiquid and there can be no assurance that the Fund will be able to realize any return on such investments in a timely manner, if at all. Generally, there will be no readily available market for a substantial number of the Fund’s investments, rendering many of the Fund’s investments difficult to value. Generally, Members will not able to sell their Class A Units. Moreover, pursuant to the Operating Agreement, Class A Units are not generally transferable without obtaining the Manager’s prior written consent, and voluntary withdrawal of a Class A Member’s Unit is not allowed and the Class A Units are not redeemable.
No Assurance of Investment Return
The Fund’s investment portfolio will consist primarily of investments in real estate development projects and operating results in a specified period will be difficult to predict. There is no assurance that the Fund will be able to generate returns for its investors. Even if one or more of the projects are successful, there can be no guarantee that the Members will receive distributions from the Fund in an amount equal to their investment or at all. The returns generated by investors will also be affected by the amount of capital successfully raised by the Manager.
Prior Investments No Indication of Future Performance
The past investment performance of Tyler-Donegan and certain employees of the Manager discussed above cannot be relied upon as an indication of the Fund’s future performance or success. That 4837-2269-1586v7
information is solely intended to illustrate the experience of the Manager and its affiliates and the type of transactions the Manager intends to pursue on behalf of the Fund. Those transactions are not intended to be complete or representative of all the transactions in which the Manager and its affiliates have been involved.
Risk of Limited Number of Investments
Although the Fund intends to achieve diversification of investments, the Fund could deploy its capital in a relatively small number of investments. The Fund may also be less diversified should it raise less capital than anticipated. Accordingly, unfavorable performance by a small number of investments could have a substantial adverse impact on the returns realized by investors in the Fund.
Potential Difficulty Consummating Attractive Investments
The business of identifying and structuring projects of the nature contemplated by the Fund is highly competitive. The Fund will be competing for projects with other acquirers. There can be no assurance that the Fund will be able to invest its capital on terms favorable to the Fund or in comparison to its competitors. It is possible that the Fund will never be fully invested if insufficient quality projects are available or identified. Regardless of these factors, the Class A Members will be required to pay the Management Fees based on the Total Capital Commitments during the first three years of the Fund.
Real Estate Investment-General Risks
The investments of the Fund will be subject to the risks generally incident to ownership of real property, including, but not limited to uncertainty of cash flow to meet fixed and other obligations; adverse changes in local employment conditions, interest rates and real estate tax rates; changes in fiscal policies; and uninsured losses and other risks that are beyond the control of the Fund and the Manager. There can be no assurance of profitable operations because the cost of owning real estate assets may exceed the income produced, particularly since certain expenses related to real estate and its development and ownership, such as property taxes, utility costs, maintenance costs and insurance, tend to increase over time and are largely beyond the control of the owner.
Investments in Real Estate Development Projects
A decision to invest in land or buildings for development will be made based upon certain assumptions about the cost of development, time periods for completion of various phases of development, and the market value of the developed product. While there may be past development or operating history on which to base these assumptions, many factors may change resulting in such assumptions being untrue. Such conditions may contribute to reduced demand for the finished product due to competition, economic factors or default, or changes in the capital markets such as interest rates or the availability of capital. To the extent development costs are financed, an investment will be subject to real estate financing risks. Building construction or site development entails risk related to materials and labor cost increases, work stoppages or delays, regulatory delays, failure of performance or defective materials or workmanship by contractors and suppliers, unforeseen weather and unforeseen land conditions. Such risks can be mitigated to some extent by obtaining performance bonds, construction and development guaranties, letters of credit and/or liens on assets under construction. No assurance can be given, however, that any of the foregoing will be obtained or, if obtained, will be adequate to cover any loss resulting from any such risks.
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Investments in Industrial or Commercial Assets
Investments in industrial or other commercial office properties involve certain risks in addition to those which exist for real estate properties generally (including certain environmental risks). The financial failure and resulting lease default of a tenant which occupies a material amount of space at a commercial property would cause a reduction in the cash flow to the Fund. Moreover, such reduction could have the effect of decreasing the value of the property. In the event of such a termination, there can be no assurance that the Fund would be able to find a replacement tenant to occupy the space on similar terms, and it is probable that the costs incurred to renovate and prepare the space to meet the needs of a replacement tenant would be significant. It is also possible that such reductions in cash flow could result in the Fund to default on the mortgage financing secured by the property. Industrial and commercial office properties are also subject to competition from providers of similar or alternative space. Competitors may be able to supply space of similar or superior value at prices equal to or lower than those charged by the Fund or the entity that owns the industrial or other commercial property. Such space is also subject to obsolescence as trends, styles, and technologies change, thereby requiring significant infusions of capital to remain competitive and viable in the marketplace.
Financing of Real Estate Projects
It is contemplated that the acquisition and development of assets will be financed in substantial part by utilizing debt, which increases the exposure to loss. Principal and interest payments on indebtedness (including mortgages having “balloon” payments) will have to be made regardless of the sufficiency of cash flow from the assets. Mortgages requiring “balloon” payments may involve greater risks than mortgages where the principal amount is fully amortized over the term of the loan since the ability to repay the outstanding principal amount of the “balloon” loan may be dependent upon the ability to obtain adequate replacement financing, which will, in turn, be dependent upon interest rates and lenders’ policies at the time of refinancing, economic conditions in general and the value of the underlying assets in particular. There is no assurance that replacement financing will be available to make “balloon” payments or that, if available, any replacement financing will be on favorable terms. Depending on the level of leverage and decline in value, if mortgage payments are not made when due, one or more of the assets may be lost (and the investment therein rendered valueless) as a result of foreclosure by the mortgagee. A foreclosure may also have substantial adverse economic and tax consequences for the Fund’s Members.
Rising Interest Rates and Variable Rate Debt
The Manager expects that some assets may be financed with variable rate mortgage debt, particularly in the case of development properties and those requiring extensive renovation which will be financed with construction/interim financing. Variable rate debt may be utilized in other situations as well. Increases in interest rates would increase the interest expense for those assets, which would adversely affect the cash flow of the properties and the ability to pay expected distributions to the investors. Not only may there not be adequate cash flow to make distributions, rising rates may result in an inability to satisfy financial obligations at the property level. In certain instances, the Fund may enter into interest rate protection agreements to limit this interest rate exposure, but no assurance can be given that such agreements will be entered into or what their cost will be.
Risks on Disposition of Certain Investments
In connection with the disposition of a project, the Fund may be required to make representations about the project typical of those made in connection with the sale of any business or real estate interest. The Fund may also be required to indemnify the purchasers of such investment to the extent that any such representations turn out to be inaccurate, incorrect or misleading.
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Purchases by Individual Retirement Accounts
Subject to the following discussion, the Fund might be a suitable investment for an individual retirement account (“IRA”). Before proceeding with such a purchase, the person with investment discretion on behalf of an IRA must determine (i) whether an investment in the Fund is permitted under the governing instruments of the IRA and the Code and (ii) whether an investment in the Fund is appropriate for the IRA in view of its overall investment goals and the composition and diversification of its portfolio. Among other factors, such a determination is likely to require consideration of (i) whether such investment may result in the creation of unrelated business taxable income, which is not exempt from taxation under the Code, and (ii) that there may be no market in which such person can sell or otherwise dispose of the investment.
Those considering an investment in the Fund on behalf of an IRA should be aware that such investment might give rise to a “prohibited transaction” under the Code. Section 4975 of the Code prohibits certain transactions by IRA's, including the transfer of IRA assets for the use or benefit of the owner of the IRA and certain persons related to the owner of the IRA. Also, the person with investment discretion on behalf of an IRA should consult his attorney or other tax advisor with regard to whether an investment in the Fund will give rise to “unrelated business taxable income.” See “Summary of Certain Income Tax Consequences—Unrelated Business Taxable Income and Tax-Exempt Investors.” After the considerations discussed above have been taken into account, the person considering investing in the Fund on behalf of an IRA may invest in the Fund.
Reliance of the Manager
The Fund will be dependent upon the abilities of the Manager and key employees of the Manager, particularly Mr. Tyler and Mr. Cahall, to identify and consummate suitable investments, execute project plans, and exit investments at a profit. Co
 
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