Frequently Asked Questions
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What is KL Capital? Who runs it?
KL Capital is an Omaha-based private investment firm with approximately $15 million of assets under the management of a team of real estate professionals with significant experience in leasing, finance, law, and construction. Meet the KL Capital Team, who values building strong relationships with all of its stakeholders. The management team understands the important role it plays for all of the company stakeholders by managing risk and helping to create investment returns.
What does KL Capital do?
KL Capital actively syndicates stabilized, value-add, and/or income-producing commercial properties selling at or below market value in the Midwest. We generally search out properties with high quality tenants who possess strong credit and balance sheets. We do this within a target geographic area meeting our proprietary metrics without regard to the remaining lease term. Our aim is to buy properties in the $2M to $15M range that include stand-alone or multi-unit retail buildings, flex, or industrial buildings.
KL Capital’s subsidiary, KL Capital Management (“KLCM”) will handle the legal, technical, and operational aspects of the deal, including:
- Underwriting the deal to identify attractive targets
- Completing thorough due diligence on the property
- Arranging the financing through banks or private lenders
- Negotiating with the seller
- Building a business plan to submit to securities regulators
- Tax reporting
- Raising capital for the transaction
- Leasing and tenant management
- Comprehensive asset management after closing
As you can see, the General Partner (“GP”) role is to execute the business plan and deliver strong returns to the passive investors, also known as the “limited partners” (“LPs”).
How many deals have you completed?
KL Capital has approximately $15 million under management over a variety of assets, including commercial real estate, secured debt financing, and equity investments. KL Capital has also completed four “syndicated” transactions with outside investors under KL management. Collectively, KL’s team of real estate professionals has completed hundreds of real estate transactions and projects totaling nearly half a billion dollars through their respective professions.
What is syndicated real estate?
A real estate syndication is when a group of investors pool together their capital to jointly purchase a large real estate property such as one of the commercial buildings, office buildings, medical clinics, and other large real estate assets. Real estate syndications can help investors achieve the benefits of owning an investment property (cash flow, appreciation, tax breaks) without the complexity, work, or stress of being a landlord themselves.
What are the benefits of investing in syndicated real estate with KL Capital?
There are various benefits of investing with a KL Capital sponsored real estate syndication investment such as:
- Truly Passive Income: Investors can earn monthly or quarterly passive income distributions from their investments.
- Hassle-Free: Investors can invest in real estate without the hassles of managing tenants or toilets.
- Tax Benefits: By owning a piece of the real estate, tax benefits are passed down to investors through their K-1 tax filings.
- Appreciation: Like any piece of real estate, the value of the property should gradually increase over time, increasing the return on equity investment.
- Control: Unlike real estate investment trusts (REITs) or crowdfunding platforms, investors can choose which specific properties they want to invest in through electing as targets are chosen.
- Diversification: Investors can spread their capital across multiple real estate syndications.
What is the minimum I can invest? What about the maximum?
Although it depends on the deal specifics, units KL usually issues units at a face value of $25,000 each. For example, the minimum investment amount in a recent offering sponsored by KL Capital was one unit ($25,000) with a maximum of twenty units ($500,000). These limits will be explained in the private placement memorandum of each KL sponsored fund.
What type of annual returns should I expect?
While there is always risk in the real estate business, we try to buy, finance, and turn properties so that the Target investors will achieve the following metrics over the holding period:
- Target investor average cash-on-cash return: 3.0 – 7.0%
- Target investor average internal rate of return (IRR):14.0 – 21.0%
- Target investor average return on equity (ROE): 15.0 – 25.0%
How is capital returned to investors?
While there is always risk in the real estate business, KL Management strives to return capital to its investors as soon as it is practical to do so through cash distributions and property refinancing. Although management plans for a full return of capital to members in Year 5 through capital reserves or a refinancing of the properties in each fund, the timing of this liquidity event depends on the performance, cash flow, etc., of the real estate portflio.
When there is a return of capital event, how will it be returned to investors?
Management knows that investors have different goals. As such, when there are full return of capital opportunities from refinancing of the particular funds’ portfolio, KL generally provides investors three options:
- Receive original capital and leave gains in at a reduced ownership level;
- Receive entire investment (original capital and capital appreciation), buying your membership units back for a full return of capital; and
- Leave capital in the LLC, potentially increasing ownership percentages if other members reduce their respective ownership percentages.
Although Management is confident there will be a return of capital from the Target Property appreciation, debt pay down and cash flow, there is always risk in the real estate business and nothing is guaranteed.
What do I get for my taxes at the end of the year?
You will receive a Schedule K-1 showing your proportional share of company profits, losses, and deductions.
I see that tax distributions will be paid out. What is that and why do those?
You will receive a Schedule K-1 showing your proportional share of company profits, losses, and deductions. In years where KLHIII turns a profit, you could have taxable income to report on your individual tax return. The tax distribution rule is designed to give you liquidity to pay any tax liability from this income.
Are there any fees?
Yes, however you will not pay any fees directly. In an ordinary fund structure, the general partner or manager charges fees, including an ongoing acquisition fee for finding properties, construction management fees, property management fees, financing fees, and disposition fees. These fees add up and can make it hard for all but the most sophisticated investors to understand the real cost of the investment. In contrast, KL Capital invests its own money into its deals. Under our Business Model, KLCM charges the following fees:
- At closing, funds pay KL Capital Management (KLCM) LLC a one-time acquisition fee of 1-2% of the asset value for services provided to the Company including:
- Identification of target assets;
- Due diligence on target assets
- Structuring loan financing;
- Personally guaranteeing loan financing;
- Fund structuring and administration; and
- All other reasonably necessary services to close the target asset transaction or transactions.
- After closing, the fund pays KLCM an ongoing management fee of 2% of gross revenue for on-going operational, managerial, and compliance services.
- At disposition, the fund pays KLCM a one-time disposition fee of 1-2% of the asset value for services provided to the Company for negotiating and structuring a disposition sale of the fund assets
Do I personally guarantee the loan on the buildings?
No, you will not guarantee the loan or show any personal financials; sponsors and principals of KLCM prepare all of the financing, including guarantees on the loans.
Can we put money into another deal in the future?
KL Capital’s management team invests its own money for the long term but understands that some investors in real estate need liquidity. Life happens. To that end, in the event of a liquidity event, Members will have the option to have their capital a) returned to them; or b) rolled into another building at a liquidity event, which is a milestone event that must be voted on by LLC Members under the Operating Agreement (OA).
What happens to my capital contribution before we identify an asset or until closing?
Funds sit in a non-interest-bearing account until closing.
Does my capital stay in a general account until we get something to close?
Yes. Capital received from members will be put in a non-interest-bearing account until closing. In the event the fund is “blind” and a Target Investment is not identified, investment capital will sit in a general account for up to 6 months. If a Target Investment is not identified within 6 months, capital contributions will be returned to the investor.
Can my capital be used on other deals, or does it stay in the fund I invest in?
Capital invested in the fund stays in the fund unless 1) the capital is returned to investors in the event the target investment does not close; or 2) a super-majority of the investors vote to alter the strategic direction of the investment away from the target investments and towards another investment.
When do you need to receive my capital contribution?
Although each deal and offering documents are different, in general investors must contribute their capital contribution within thirty (30) days of the execution of the Subscription Agreement.
Legal & Disclosure
Who can invest in KL Capital sponsored funds?
You must be an accredited investor under 17 CFR §230.501, et. seq. unless certain exemptions apply to the deal in question. For example, a so-called 506(b) fund can have up to 35-non-accredited sophisticated investors.
What is an accredited investor?
Although the definition is complex and nuanced, at its core, it requires that you have either:
- Net worth of at least $1,000,000 (not including the value of your primary residence);
- Gross income of at least $200,000 per year as an individual ($300,000 as a family) for the last two years.
I am not an Accredited Investor as defined by the SEC, but I am sophisticated and experienced with investing. What should I do?
About your investor classification, we need something on in our records to prove that this offering is limited to Accredited Investors or a limited number of “Sophisticated Investors” (e.g., someone who isn’t in categories (i)-(iii) but is well versed in investments like yourself); this is a self-certification. This is not reported to the IRS but is kept on file in the event of an NDOBF or SEC audit.
Please contact firstname.lastname@example.org to receive the supplemental Sophisticated Investor form.
If we are married and investing as individuals (not an entity) who fills out the W-9?
Both of you would fill out W-9s for our records. Our outside tax advisors and CPAs, Dana F. Cole & Co.(https://www.danacole.com/) recommended that married couples invest based on their own social security numbers. As such, if your capital contribution is divisible by 2, we recommend that each of you make an individual investment (e.g., each spouse invests $50,000 on his/her individual SSN), and we execute a “Spousal Consent” form for joint ownership, so that in the event one spouse were to pass away, his/her LLC interest will transfer to the surviving spouse. The K-1 will be in an individual name, but with the “Spousal Consent” form, the ownership is joint under the terms of the Company Operating Agreement. The tax, however, is not.
Do I participate in management of the company or the asset?
No. In general, KLCM will handle all of the activities required to acquire, manage, and ultimately sell the Target Property on behalf of the Company. With few exceptions, you will have no management duties or rights, except during certain major events such as liquidating the assets and winding up the business.
How does ownership of the Target property work?
Ownership is equal on a pro rata basis. The management team invests alongside the other members on a pari passu and pro rata basis through KL Capital, LLC.
How long are the leases on a Target Property?
The leases in force range on the Target Properties from 3-5 years with numerous options to extend. The businesses are longtime tenants in strong commercial areas.
Where can I see the rent roll?
You can see the rent rolls with the financials provided by the seller in the Target Property diligence through KL’s Groundbreaker site.
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