The DelCam Difference
In addition to using our own personal capital in each individual development project we raise investor funds in the form of "shares" to help us gain scale and finance the projects commercially, which provides leverage. At any given time we may have up to four or five projects underway simultaneously.
Our investors gain returns in equal proportion of the shares purchased up to the "hurdle rate" for the specific project they choose to invest in. The typical target hurdle rate for each project is 40% on an annualized basis. Hurdle rates may vary based on the duration of the project but most projects are scheduled to take one year to complete. Returns in excess of the hurdle rate are divided based on a pre-determined proportion between the managers and the investors. The managers receive a "success fee" for generating returns above the hurdle rate, the remainder is distributed back to all investors in the same proportion of the share amounts.
Typical projects have between 5-6 shares in the amounts of $40,000 to $70,000 per share but could be flexed depending on specific bank requirements and the acquisition price of the project.
As an example of this structure; a project we decide to acquire needs $300,000 in capital for down payment on the loan, buying costs, and to carry for the duration of the project. In the case of this project, we would offer 6 shares of $50,000 each, investing in at least one of these shares ourselves, and opening the remaining 5 shares to investors. Applying the 40% hurdle rate, the targeted returns for the investors would be $20,000 per share (40% of the $50,000 investment) or total returns of $120,000 (40% of the $300,000 in total capital raised). If the project achieved returns of $200,000, the success fee back to the managers (typically 60% over the 40% hurdle rate), would amount to $48,000 (60% of the amount over the 40% hurdle rate, which is $80,000 or $200,000 less hurdle profit of $120,000). At the same time, investors would receive the additional gain of $32,000 (40% of the amount over the 40% hurdle rate), providing total returns back to the investors of $152,000 or a total return on capital of 50.6%. Although a hypothetical example, returns like this are normal for the types of projects we are undertaking.
The projects we undertakes are residential construction and may consist of raze and reconstruction, remodeling of an existing footprint, or expansion of a property's footprint to optimize zoning allowances and produce value added square footage. DelCam typically focus on multi unit properties and sell the individual units as condominiums. You can view past projects or projects underway by clicking the links.
The markets we invest in are coveted locations in desirable neighborhoods due to a mixture of low crime rates, highly-ranked school systems, locations near public transit or proximity to Boston. Our expertise is focused in Newton, Massachusetts but we explore other high quality markets in and around Boston when the opportunity and acquisition price is conducive to a low risk project that will deliver superior returns.
The DelCam Process
Given the strength of our investor bench, when we finds a deal to acquire we will offer on the property immediately with aggressive terms once we have performed basic zoning research and preliminary financial modeling. Given our backgrounds in construction and the relationships we have with reputable local banks such as Needham Bank, Village Bank and East Boston Savings Bank, our offers typically are delivered with no contingencies. Once an offer is accepted, we immediately reach out to our investor base with an Investment Project Brief, which includes details about the project, such as property location, project objectives, our opinion on the deal, expected sales prices and construction costs, capital requirements, and shares offered, amongst other details. This Investment Project Brief becomes the agreement between the investor and the managers and is the agreement that connects the investor to the deal. The managers are responsible for the loan on the property to detach the investors from borrowing risk.
Shares are distributed on a first come first serve basis and typically are filled in 24-48 hours of materials distribution to our investor list. Committed funds are requested in installments, generally 50% before purchase and sale agreement and 50% prior to purchase. All funds and returns are distributed once the property officially sells and a final accounting and reconciliation is completed.
How DelCam is Compensated
We deploy a commercial real estate compensation model, whereby our team is compensated via a management fee and the success fee mentioned above. The managers also generate returns by participating in the investment with personal capital, which inspires confidence in our investors.
As with any investment there are certain unforeseen risks that may cause negative financial impact to investors. We strive to avoid speculative investments in markets we are not familiar with and use recent real estate market data and comparables to project sales values of properties as accurately as possible. As investors are aware, markets can change, and problems can arise, and as a result, there are risks in investing in a project of this nature and you may not get back the original amount invested.
No statement in any Investment Project Brief is intended as a profit forecast and no statement contained in any Investment Project Brief should be interpreted to mean that the earnings per share are guaranteed. Prospective investors should specifically consider the factors identified which could cause actual results to differ before making an investment decision.
The investors shall, to the extent legally permissible, indemnify the Managers against all liabilities and expenses, including amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and counsel fees, reasonably incurred by them in connection with any project, except with respect to any matter as to which they shall have been adjudicated in any proceeding to have acted in bad faith or with willful misconduct or reckless disregard of their fiduciary duties or not to have acted in good faith in the reasonable belief that their action was in the best interests of the project.
These investment shares have not been registered under the Securities Act of 1933, as amended (the “Act”), or under the securities laws of the Commonwealth of Massachusetts or any other state. These shares may not be offered, sold or otherwise transferred, pledged or hypothecated except as permitted under the Act and applicable state securities laws pursuant to an effective registration statement or an exemption therefrom. The issuer of these shares may require an opinion of counsel, reasonably satisfactory to the issuer, that such offer, sale or transfer, pledge or hypothecation otherwise complies with the Act and any applicable state securities laws.