nexxica
introducing Nexxica Series Three
a portfolio of 9 residentia residentiall mortgage notes
9 ASSETS
12.3% CURRENT
CASH FLOW
30% MARKET VALUE
DISCOUNT
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NOTES IN PORTFOLIO NS3 $1.22M ACQUISITION PRICE
9
cash-on-cash yield 12.3 % 16.1 % 15.5 % YEAR 1
Tis summary, which contains brief, selected information pertaining to the business and affairs of the Property, has been prepared by NEXXICA to provide general information information about the Property. Tis is not an offer to sell, or a solicitation of an off er to buy securities, as such an offer or solicitation can only come through the offering’s Operating Agreement. Agreement. Tis material cannot, and does not, replace the Operating Agreement, and the Operating Agreement supersedes this material in all respects. Tis investment involves involves various degrees of risk, including the speculative market and financing risks associated with fluctuations in the real estate market including tax status, liquidity, and fees, expenses, and other risk factors. Please refer to the “Risk Factors” section of the Operating Agreement.”
YEAR 2
YEAR 3
A $1.22M portfolio of first first-position -position mortgage notes with current cash flow, equity protection and reserves NEXXICA SERIES 3 is a portfolio of 9 first-position residential mortgage notes generating a current 12.3% cash-on-cash yield. Tese 9 notes were acquired from a money center bank as part of a larger trade, at a discount of approximately 30% to current market value. Nexxica is micromanaging the portfolio to maximize cash flow and to refinance -or liquidate- all assets for their collateral value during a three year hold. Te budget provides over $111K for reserves and servicing - set aside to protect the collateral value of the portfolio. Tere is no management fee. Te Investor receives all interest income during the hold period and the Investor will recapture 100% of equity invested before profit participation by the Manager. Tis book is dedicated to explaining how these assets are managed and liquidated by Nexxica and the company’s approach to underwriting.
12.3 % YEAR 1
16.1 %
15.5%
YEAR 2
YEAR 3
Projected cash-on-cash return for the Nexxica Series Three portfolio
DEAL SUMMARY
NEXXICA SERIES THREE PORTFOLIO
KEY INVESTMENT MERITS
YEAR ONE cash-on-cash
12.3% projected
DEAL SIZE
$1.22M
MARKET VALUE
$1.73M
DISCOUNT TO COLLATERAL VALUE
30%
UNPAID BALANCE
$2.42M
NUMBER OF ASSETS
9
HOLD PERIOD
3 YEARS
SERVICER/ESCROW
FCI/FIDELITY
The Nexxica Series Three Three portfolio in comprised of 9 assets that together are providing a current yield of 12.3% and have an approximately 30% equity upside at the time of acquisition.
Investors during the hold period, and oversee the servicer (FCI).
made monthly by FCI directly to the investment group, in accordance with the Operating Agreement, net of reserves. reserves and third party servicing costs. Tere is no management fee. nexxica
Tis summary, which contains brief, selected information pertaining to the business and affairs of the Property, has been prepared by NEXXICA to provide general information about the Property. Tis is not an offer to sell, or a solicitation of an offer to buy securities, as such an offer or solicitation can only come through the offering’s Operating Agreement. Tis material cannot, and does not, replace the Operating Agreement, and the Operating Agreement supersedes this material in all respects. Tis investment involves various degrees of risk, including the speculative market and financing risks associated with fluctuations in the real estate market including tax status, liquidity, and fees, expenses, and other risk factors. Please refer to the “Risk Factors” section of the Operating Agreement.
M A RY S U M R
1
[email protected]
THE NEXXICA PORTFOLIO MODEL OUR EAM leverages their long-standing relationships with trading desks de sks at large money center banks to gain access to off-market pools of discounted mortgage notes.
r SOURCING
WE IDENIFY individual notes that have a 10 - 15% current yield and positive borrower profiles.
r SCREEN
NEX, WE UNDERWRIE each note using both in-house and 3rd party resources.
r ACQUIRE
NEXXICA ACQUIRES selected assets at approximately 30% discount to their collateral value.
r MICROMANAGE
BY FOCUSING on small portfolios, Nexxica is able to maintain a relationship with the borrower and control the exit strategy.
NEXXICA IS A BOUIQUE INVESMEN FIRM. We acquire residential mortgage notes that we deeply understand and we micromanage those assets to achieve a 15% or greater cash-on-cash cash-on-cash yield. Our focus is on acquiring small portfolios of well underwritten assets that have current cashflow. We guide the portfolio to liquidation over 36 months, and we make our profit after the investor receives his principal in return . Each Nexxica note has been aggressively underwritten and vetted by an analyst who has purchased hundreds of similar notes. Underwriting includes physical inspection, review of borrower conversation logs, MERS tracking and 3rd party valuation. Page Page 10 provides a detailed look at our underwriting process. Nexxica’s managers have previously acquired, managed and taken to disposition mortgage notes with approximately $250M of collateral value. UNDERWRITE
ACQUIRE PORTFOLIO
MICROMANAGE
REFINANCE LIQUIDATE
EXIT
36 MONTHS (projected)
EACH NOE in the Nexxica Series 3 portfolio was acquired because it passed a specific underwriting screen: 1. We acquired the note at 27- 35% discount to market. 2. Te asset underlying the note is located in a submarket where we validated its current value. 3. Our review of the Conversation Logs and Pay Strings provide a clear understanding of the borrower’s ability to pay and refinance. nexxica
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PROFORMA PROJECTED HOLD PERIOD
CASH FLOW PROJECTIONS Year 1
For the Ye ars Endi ng Inte re st i ncome Re/liquida on i ncome Income be f ore e x pe nse s Operang Expenses: Note se rvi ci ng Trave l and si te vi si t Accounng Total e x pe nse s Income be fore re se rve s Re se rve s Ne t Cash Fl ow Avai l abl e f or Ow ne rs A nnual i ze d Cash on Cash pay rate to Investors as a % of Equity Return of Princi Principle ple during period
Year 2
11- Nov
12- Nov
165, 169 165, 169
127,722 130,776 258,498
36months
13- Nov 28,594 59,034 87,628
3,240 7,000 5,000 15,240
155,449
228,778
72,388
4,955
32,000
14,230
196,778 16.1%
58,159 15. 5%
848,696
Te proforma assumes that the Manager and the Investor Investor will benefit on a 60/40 split from the sale, refinance or liquidation (“the exit”) of an asset however all cash flow is dedicated to the return of Investor equity prior to any distribution to the Manager, as described in the Operating Agreement.
375,940
PORTFOLIO LIQUIDATION SCHEDULE
refinance liquidation
Projected Hold Period 12 quarters (3 years) NOTE ID#
689 486 498 177 686 510 641 027 015
Q1
Q2
Q3
3
Te proforma assumes no HPA (Home Price Appreciation) although it is possible the value of individual assets will appreciate during the hold period which would positively affect returns.
9,720 10,000 10,000 29,720
-
I A L LS I N A NC I S F
Te income projections assume there is a 3% cost to the sale price to exit a note by refinancing. It is also assumed that there is 12% cost to the sale price to foreclose and liquidate a note. It is generally assumed that refinancing is the preferred exit strategy for each asset.
Year 3
9,720 9,720
150,494 12.3%
All operating expenses and liquidation expenses are direct pass-through from 3rd party, unaffi liate liatedd providers. provider s. Tere is no asset management fee.
Q4
Q5
Q6
Q7
Q8
Q9
Q10
Q11
Q12
LOOKING DEEPER INTO THE NEXXICA MODEL Small portfolios of cash flowing assets - acquired at a discount Trough our long-term relationships with large portfolio buyers, Nexxica Capital has the ability to select individual assets out of their portfolio acquisitions that fit our investment criteria of having cash flow and high collateral value. In turn, Nexxica investors receive the benefits of the bulk discount that large portfolio acquisitions acquisitions achieve- along with individualized asset underwriting that reduces risk and provides steady returns. As a boutique investment firm, we are able to micromanage each portfolio portfolio to maximize cash flow and principal recovery recovery during its holding period. We are confident confident in our approach such that we defer our returns until the Investor has recaptured his equity investment. For more information on Nexxica Series 3 portfolio and to review the deal tape: 310-359-0779 or portfolio@nex
[email protected] xica.com
INSIDE THE DISTRESSED NOTE MARKET Tere’s evidence to suggest the non-performing note market will be active through 2014. As large portfolios are brought to market by money center banks, Nexxica looks to acquire and harvest the smaller packages of sub-performing notes from within those portfolios. Here’s how capital is deployed in the market, and the typical yield expectations of investors.
FOUR TYPES OF NOTES IN THE DISCOUNT MARKET
Asset Class
Typical Discount
Cash-on-Cash Characteristics Yield
PERFORMING
5%
6-7%
RE-PERFORMING
15%
8-9%
SUB-PERFORMING (OUR TARGET)
25%
10-13%
NON-PERFORMING
35%
n/a
- NEXXICA SERIES THREE A managed portolio o sub-perorming notes can ofer a 10-13% current yield while providing ng significant downside protection.
Comments
cash flow no upside
With a 1% deault rate, this high quality paper will be held on the books by money center banks such as Bank o America, Chase, JP Morgan and regionals such as City National Bank.
cash flow limited upside
Held by income unds seeking 9% returns, these type o notes are widely available, but ofer limited downside protection.
cash flow & upside
While this type o note ofers outstanding equity protection and cashow there is a limited supply in the market and it is dicult to source and acquire.
no cash flow high upside
DOWNSIDE PROTECTION
The industry’s best known product, non-perorming notes are widely available, generate large yields and ofer ast turn on capital. Ho wever, they provide no current yield, are high-touch and high-maintenance assets where the yield is taxed as ordinary income.
Tis summary, which contains brief, selected information pertaining to the business and affairs of the Property, has been prepared by NEXXICA to provide general information information about the Property. Tis is not an offer to sell, or a solicitation of an off er t o buy securities, as such an offer or solicitation can only come through the offering’s Operating Agreement. Tis material cannot, and does not, replace the Operating Agreement, and the Operating Agreement supersedes this material in all respects. Tis investment involves various degrees of risk, including the speculativ speculativee market and financing risks associated with fluctuations in the real estate market including tax status, liquidity, and fees, expenses, and other risk factors. Please refer to the “Risk Factors” section of the Operating Agreement.” nexxica
UNDERWRITING: METHOD In every portfolio we acquire or target for acquisition – we commit our own capital. It stands to reason, as principles, over time, we have identified the crucial difference between notes that offer downside protection and those that don’t.
Tere’s no more simple truth in the commodity One part of the business that is an established notes business: you don’t know the“value” of a process is cash distribution. During the holding note or asset until you know period of a note, the servicer how the underwriting was collects and distributes interest assignment title performed. Nothing is more payments and maintains the file. important to us because Once the note refinances, then comm log deed of trust as managers we have the note is paid in full, principle performed due diligence on is returned to the investor and over 5,000 notes, have acquired many hundreds proceeds are distributed. In the event of default, and we know the rigors and discipline that are the servicing company files the foreclosure and needed: first, verify the asset value through ensures legal filings are done in compliance. multiple sources, and second, make sure you Tese are mechanical processes that are easy have a clear path for the assignment of title. to manage.With our familiarity of the servicer’s strengths and weaknesses, we oversee the Te central idea of our business and certainly servicer to make sure there are no gaps in what must be the most important lesson of the service. current mortgage crises: residential mortage notes is a commodity business. Tere is a large If you talk to investors who have succeeded and efficient infrastructure infras tructure to aquire, a quire, manage, manag e, with acquiring notes, they’ll tell you, the key is service, foreclose and sell these assets. Similar to acquiring assets at significant discount to true the purchase of other commodities, the key risk market value. What truly distinguishes our assets is in pricing, or underwriting. Te other functions is the depth of our underwriting process. Here’s of the business are mechanical (for example, how we do it: in nearly 500 foreclosures performed by our recently hired operations manager, 100% were successful.)
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RI I T I D E RW R N U N G
4
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UNDERWRITING: PROCESS RI I T I D E RW R N U N G
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VERIFY ASSE VALUE with NEXXICA CAPIAL b
We don’t rely on the BPO or appraisal, or any single source to determine value. Here’s how Nexxica analyzes an asset prior to acquisition: PUBLIC SOURCES
In our first screen, we look at Zillow, Redfin, MLS, Realtor.com. Tis helps us get a baseline understanding of the market and the asset.
2
LOCAL AGENT
Next, we find a prominent Real Estate Agent in the local market that understands the nuances of that location. Several hours of conversation may take place between us and the local agent. In many markets we have pre-existing relationships.
3
SITE VISIT
1
4
TITLE NOTATION
5
MERS
6
3RD PARTY REVIEW
A member from the Nexxica team will make a physical inspection of the property and build the case file with a first-hand evaluation evaluation of the asset and the market. In many cases the site inspection will include the Real Estate Agent. Even if Archbay, Wells Fargo and Wachovia has previously owned the note (a common scenario) there can still be issues with title. Te key to finding any glitches is a full review of the conversation logs with the Owner - this is the heartbeat of every note and tells a complete story. MERS was established established as a clearinghouse clearinghouse and computer registry to track ownership changes in mortgages. Sort of a CarFax for mortgage title. If there is any issue with title transfer and history, it will show up in here. In most cases, Nexxica acquires small portfolios alongside a larger 3rd Party - who is buying a substantially larger portfolio from an institution. In essence, we cherry pick the notes with cash flow and certain credit characteristics, and we benefit from the 3rd arty collateral review of our artner.
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