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9ASSETS
12.3CASH FLOW
% 30DISCOUNT
%MARKET VALUECURRENT
nexxica
Nexxica Series Threeintroducinga portfolio of 9 residential mortgage notes
Th is summary, which contains brief, selected information pertaining to the business and aff airs of the Property, has been prepared by NEXXICAto provide general information about the Property. Th is is not an off er to sell, or a solicitation of an off er to buy securities, as such an off er or solicitationcan only come through the off ering’s Operating Agreement. Th is material cannot, and does not, replace the Operating Agreement, and the Operating Agreementsupersedes this material in all respects. Th is investment involves various degrees of risk, including the speculative market and fi nancing risks associatedwith fl uctuations 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.”
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cash-on-cash yield
12.3YEAR 1
16.1 15.5YEAR 2 YEAR 3
% % %
NOTES IN PORTFOLIO NS3$1.22M ACQUISITION PRICE 9
Th is book is dedicated to explaining how these assets are managed and liquidated by Nexxica and the company’s approach to underwriting.
A $1.22M portfolio of fi rst-position mortgage notes withcurrent cash fl ow, equity protection and reserves
NEXXICA SERIES 3 is a portfolio of 9 fi rst-position residential mortgage notes generating a current 12.3% cash-on-cash yield.
Th ese 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 fl ow and to refi nance -or liquidate- all assets for their collateral value during a three year hold.
Th e budget provides over $111K for reserves and servicing - set aside to protect the collateral value of the portfolio. Th ere is no management fee. Th e Investor receives all interest income during the hold period and the Investor will recapture 100% of equity invested before profi t participation by the Manager.
YEAR 112.3
YEAR 2 YEAR 3
% 16.1% 15.5%
Projected cash-on-cash return for the Nexxica Series Three portfolio
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DEALSUMMARY
This summary, which contains brief, selected information pertaining to the business and affairs of the Property, has been prepared by NEXXICAto provide general information about the Property. This is not an offer to sell, or a solicitation of an offer to buy securities, as such an offer or solicitationcan only come through the offering’s Operating Agreement. This material cannot, and does not, replace the Operating Agreement, and the Operating Agreementsupersedes this material in all respects. This investment involves various degrees of risk, including the speculative market and financing risks associatedwith 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
KEY INVESTMENT MERITS
YEAR ONE cash-on-cash
DEAL SIZE
MARKET VALUE
DISCOUNT TO COLLATERAL VALUE
UNPAID BALANCE
NUMBER OF ASSETS
HOLD PERIOD
SERVICER/ESCROW
12.3% projected
$1.22M
$1.73M
30%
$2.42M
9
3 YEARS
FCI/FIDELITY
The Nexxica Series 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.
1SUMMARY
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. There is no management fee.
SERIES THREE PORTFOLIO
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THE NEXXICA PORTFOLIO MODELOUR TEAM leverages their long-standing relationships with trading desks at large money center banks to gain access to off -market pools of discounted mortgage notes.
NEXXICA IS A BOUTIQUE INVESTMENT FIRM. We acquire residential mortgage notes that we deeply understand and we micromanage those assets to achieve a 15% or greater cash-on-cash yield. Our focus is on acquiring small portfolios of well underwritten assets that have current cashfl ow. We guide the portfolio to liquidation over 36 months, and we make our profi t 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 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.
WE IDENTIFY individual notes that have a 10 - 15% current yield and positive borrower profiles.
r SOURCING
r SCREEN
r ACQUIRE
r MICROMANAGE
NEXT, WE UNDERWRITE each note using both in-house and 3rd party resources.
NEXXICA ACQUIRES selected assets at approximately 30% discount to their collateral value.
BY FOCUSING on small portfolios, Nexxica is able to maintain a relationship with the borrower and control the exit strategy.
UNDERWRITE ACQUIRE PORTFOLIO MICROMANAGE REFINANCELIQUIDATE
EXIT
36 MONTHS (projected)
EACH NOTE in the Nexxica Series 3 portfolio was acquired because it passed a specifi c underwriting screen:
1. We acquired the note at 27- 35% discount to market.
2. Th e 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 refi nance.
3FINANCIALS
PROFORMA nexxica
CASH FLOW PROJECTIONS PROJECTEDHOLD PERIOD 36months
Year 1 Year 2 Year 3 For the Years Ending 11-Nov 12-Nov 13-Nov Interest income 165,169 127,722 28,594 Re /liquida on income - 130,776 59,034 Income before expenses 165,169 258,498 87,628
Opera ng Expenses:Note servicing 9,720 9,720 3,240 Travel and site visit - 10,000 7,000 Accoun ng - 10,000 5,000
Total expenses 9,720 29,720 15,240
Income before reserves 155,449 228,778 72,388
Reserves 4,955 32,000 14,230
Net Cash Flow Available for Owners 150,494 196,778 58,159 Annualized Cash on Cash pay rate 12.3% 16.1% 15.5%to Investors as a % of Equity Return of Principle during period - 848,696 375,940
All operating expenses and liquidation expenses are direct pass-through from 3rd party, unaffi liated providers. Th ere is no asset management fee.
Th e income projections assume there is a 3% cost to the sale price to exit a note by refi nancing. It is also assumed that there is 12% cost to the sale price to foreclose and liquidate a note. It is generally assumed that refi nancing is the preferred exit strategy for each asset.
Th e 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 aff ect returns.
Th e proforma assumes that the Manager and the Investor will benefi t on a 60/40 split from the sale, refi nance or liquidation (“the exit”) of an asset however all cash fl ow is dedicated to the return of Investor equity prior to any distribution to the Manager, as described in the Operating Agreement.
NOTE ID#Projected Hold Period 12 quarters (3 years)
PORTFOLIO LIQUIDATION SCHEDULEQ1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12
689486498177686510
refinance
liquidation
641027015
LOOKING DEEPER INTO THE NEXXICA MODELTh rough our long-term relationships with large portfolio buyers, Nexxica Capital has the ability to select individual assets out of their portfolio acquisitions that fi t our investment criteria of having cash fl ow and high collateral value. In turn, Nexxica investors receive the benefi ts of the bulk discount that large portfolio acquisitions achieve- along with individualized asset underwriting that reduces risk and provides steady returns.
As a boutique investment fi rm, we are able to micromanage each portfolio to maximize cash fl ow and principal recovery during its holding period. We are confi dent in our approach such that we defer our returns until the Investor has recaptured his equity investment.
Small portfolios of cash fl owing assets - acquired at a discount
For more information on Nexxica Series 3 portfolio and to review the deal tape: 310-359-0779 or [email protected]
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INSIDE THE DISTRESSED NOTE MARKET
Th is summary, which contains brief, selected information pertaining to the business and aff airs of the Property, has been prepared by NEXXICA to provide general information about the Property. Th is is not an off er to sell, or a solicitation of an off er to buy securities, as such an off er or solicitation can only come through the off ering’s Operating Agreement. Th is material cannot, and does not, replace the Operating Agreement, and the Operating Agreement supersedes this material in all respects. Th is investment involves various degrees of risk, including the speculative market and fi nancing risks associated with fl uctuations 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.”
Th ere’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
PERFORMING
RE-PERFORMING
SUB-PERFORMING(OUR TARGET)
NON-PERFORMING
5%
15%
25%
35%
TypicalDiscount
6-7%
8-9%
10-13%
n/a
Cash-on-CashYield
With a 1% default rate, this high quality paper will be held on the books by money center banks such as Bank of America, Chase, JP Morgan and regionals such as City National Bank.
Held by income funds seeking 9% returns, these type of notes are widely available, but offer limited downside protection.
While this type of note offers outstanding equity protection and cashflow there is a limited supply in the market and it is difficult to source and acquire.
The industry’s best known product, non-performing notes are widely available, generate large yields and offer fast turn on capital. However, they provide no current yield, are high-touch and high-maintenance assets where the yield is taxed as ordinary income.
CommentsAsset Class
cash flowno upside
cash flowlimited upside
cash flow &upside
no cash flowhigh upside
Characteristics
DOWNSIDE PROTECTION- NEXXICA SERIES THREE -
A managed portfolio of sub-performing notes can offer a
10-13% current yield while providing significant downside protection.
Th ere’s no more simple truth in the commodity notes business: you don’t know the“value” of a note or asset until you know how the underwriting was performed. Nothing is more important to us because as managers we have performed due diligence on over 5,000 notes, have acquired many hundreds and we know the rigors and discipline that are needed: fi rst, verify the asset value through multiple sources, and second, make sure you have a clear path for the assignment of title.
Th e central idea of our business and certainly what must be the most important lesson of the current mortgage crises: residential mortage notes is a commodity business. Th ere is a large and effi cient infrastructure to aquire, manage, service, foreclose and sell these assets. Similar to the purchase of other commodities, the key risk is in pricing, or underwriting. Th e other functions of the business are mechanical (for example, in nearly 500 foreclosures performed by our recently hired operations manager, 100% were successful.)
One part of the business that is an established process is cash distribution. During the holding
period of a note, the servicer collects and distributes interest payments and maintains the fi le. Once the note refi nances, then the note is paid in full, principle is returned to the investor and
proceeds are distributed. In the event of default, the servicing company fi les the foreclosure and ensures legal fi lings are done in compliance. Th ese are mechanical processes that are easy to manage.With our familiarity of the servicer’s strengths and weaknesses, we oversee the servicer to make sure there are no gaps in service.
If you talk to investors who have succeeded with acquiring notes, they’ll tell you, the key is acquiring assets at signifi cant discount to true market value. What truly distinguishes our assets is the depth of our underwriting process. Here’s how we do it:
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UNDERWRITING: METHODIn every portfolio we acquire or target for acquisition – we commit our own capital. It stands to reason, as principles, over time, we have identifi ed the crucial diff erence between notes that off er downside protection and those that don’t.
assignment
comm log
title
deed of trust
4UNDERWRITING
VERIFY ASSET VALUEwith NEXXICA CAPITAL
PUBLIC SOURCES1AGENTLOCAL 2SITE VISIT3TITLE NOTATION4MERS5
In our first screen, we look at Zillow, Redfin, MLS, Realtor.com. This helps us get a baseline under-standing of the market and the asset.
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.
A member from the Nexxica team will make a physical inspection of the property and build the case file with a first-hand 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. The key to finding any glitches is a full review of the conver-sation logs with the Owner - this is the heartbeat of every note and tells a complete story.
MERS was established as a 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.
3RD PARTYREVIEW6 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 party collateral review of our partner.
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:
UNDERWRITING: PROCESS
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4UNDERWRITING
OUR TEAM
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Th e Nexxica management team, along with operations personnel have worked on more than $1B of capital real estate acquisitions over the previous 5 years, including signifi cant transactions in 2009 and 2010.
Oren D. Klaff - DirectorAs Director of Capital Markets, Mr. Klaff is re-sponsible for managing the fi rm’s capital raising platform which includes both retail and wholesale distribution. Mr. Klaff oversees business develop-ment and product development and is respon-sible for the fi rms fl agship product, Velocity™. Mr. Klaff also sits on the investment committee at Geyser Holdings where he has been a principal since 2006. During its growth he was responsible for sales, marketing, branding, product develop-ment, and business development. In the previous fi ve years in the securities markets, Mr. Klaff has supervised and assisted in the placement of over $400 million of investor capital. Prior to joining Geyser Holdings, Mr. Klaff was a venture analyst and partner at several mid-sized investment funds. He is the author of the widely anticipated McGraw-Hill publication, Pitch, releasing in spring 2011.
Gabriel Salcedo- Vice President of Capital MarketsGabriel has been working in the capital markets for eight years in the areas of fi nancial analysis, client advisory, real estate investment banking and principal investments. He began his career with Blackpoint Capital, a boutique investment banking fi rm acting as a distributor for debt and equity capital. In 2007, he relocated from the United States to Asia, and has since called Hong Kong his home. Gabriel’s expertise is in simplifying complex investment models into a clear, concise and standardized proforma, underwriting and sources and uses statement. Gabriel speaks fl uent English, Chinese, Japanese and Spanish. He holds a bachelor’s degree from the University of Hawaii and an MBA from Rutgers University.
Scott Behrle - MarketingAs a registered representative Scott Behrle has raised private equity from high net worth indi-viduals for 1031 exchanges and the syndication of commercial real estate off erings. Scott has also raised institutional capital for Geyser Hold-ings a large real estate sponsor. Scott holds his series 7 and 63 FINRA registrations, as well as a real estate license. Scott’s broad background and book industry contacts enable him to make key introductions to Nexxica Capital, and he has trusted relationships with signifi cant wealth in the high net worth segment and family offi ce market segment.
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