Days To Go: 226
8% to 10%
Real Estate Equity
Class A-1 Membership Interests
Opus Squared, LLC
Reg CF via EquityDoor, LLC
Opus Squared, LLC is looking for investments of $2500 focused on the purchase, and renovation of distressed properties with a focus on hospitality. Preferred returns of 8% to 10%, with a revenue, split up to 70%.
We intend to use the net proceeds of this offering for general working capital purposes related to the investment in distressed real estate assets and/or other ventures and opportunities that may present themselves. We will locate investment opportunities utilizing Mike Cernovich’s vast personal network and lean on Mike Bolen’s extensive real estate and business background to analyze and carefully select each investment.
Opus Squared LLC (“we”, “our”, “us”, or the “Company”) is a California limited liability company formed to invest in distressed real estate assets with a focus on hospitality. We may from time to time invest in other ventures or opportunities as they present themselves. While there can be no assurance these objectives will be achieved, we intend to use our best efforts toward realizing the highest and best use of the Property.
We are a manager-managed limited liability company. Our current Managers are Gateway Marketing, Inc., a California corporation, and Danger & Play, LLC, a California limited liability company, who also collectively hold between them 100% of the Company’s voting equity membership interests. The biographical background information of such persons is set forth below. Our Managers shall hold office until or unless a successor is chosen and elected. By way of majority consent, our voting Member(s) may remove a Manager with or without cause.
Our Managers may fix the compensation of all managers and other Company officers. Pursuant to this authority, the Managers may, by resolution, provide for the payment and/or reimbursement of their expenses or that of their affiliates. No such payment shall preclude any Managers from serving our Company in any capacity and receiving compensation therefrom. We may declare incentive compensation in the form of Units of membership interest, etc., in the future for our managers, officers, and employees or other persons.
Our Managers also has the authority to appoint officers to assist in the operation and management of the Company’s business on such terms and for such compensation as the Managers shall determine. Such officers, including any other officers appointed, regardless of title, are deemed “managers” of the Company for all purposes under the California Limited Liability Company Act, as amended, and the Company’s Operating Agreement. No person is prevented from holding a position as a Manager and as a member concurrently.
The biographies of the Company’s key personnel and other consultants or advisors are set forth below.
A crowdfunding investment involves risk. You should not invest any funds in this Offering unless you can afford to lose your entire investment.
In making an investment decision, investors must rely on their own examination of the Issuer and the terms of the Offering, including the merits and risks involved. These securities have not been recommended or approved by any federal or state securities commission or regulatory authority. Furthermore, these authorities have not passed upon the accuracy or adequacy of this document.
The U.S. Securities and Exchange Commission does not pass upon the merits of any securities offered or the terms of the Offering, nor does it pass upon the accuracy or completeness of any Offering document or literature.
These securities are offered under an exemption from registration; however, the U.S. Securities and Exchange Commission has not made an independent determination that these securities are exempt from registration.
The securities described in this Offering Statement entail certain risks that investors should consider before making decision to accept the terms of this Offering. There can be no assurance that any rate of return or other investment objectives will be realized or that there will be any return of capital. You should consider the following risk factors among others risks in making a decision:
The securities being offered are speculative and involve high risk
The Units being offered via this Offering Statement should be considered speculative involving a high degree of risk. Therefore, you should thoroughly consider all of the risk factors discussed herein. You should understand that it is possible that you could lose your entire investment if the Company is ultimately not successful. You should not invest if you are unwilling to accept the risks associated with the Company and/or its affiliates.
This Offering Statement includes forward-looking statements
This Offering Statement includes many forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions, including, among other things:
The actions of our competitors;
Supply and demand of single-family residential real estate in the United States;
Successful implementation of our objectives;
Effectiveness of the legal strategies employed by us;
Economic, technological, and demographic trends affecting us; and
The skills of our key personnel and management.
We may not attempt to supplement this Offering Statement from time to time with new information with respect to our progress and we may not update or revise forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Offering Statement might not occur.
You should rely only on the information contained in this Offering Statement. We have not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, do not rely on it.
We are not making an offer in any jurisdiction where the transaction(s) contemplated hereby is not permitted. You should assume that the information appearing in this Offering Statement is accurate as of the date on the front cover. Our business or financial condition, the results from our operations and prospects may have materially changed subsequent to that date.
Do not rely upon our forward-looking statements
Although we believe that any forward-looking statements set forth herein are reasonably achievable, any such statements are not to be construed as presenting the actual financial returns which will be experienced by you or a guarantee or promise of any type that the returns will be as depicted. Rather, they merely represent our judgment, as of the date of this Offering Statement, and based on the assumptions underlying these forward-looking statements, regarding the potential future economic conditions of the Company. There will be differences between the anticipated and actual results because events and circumstances frequently do not occur as expected, and those differences may be material. Additionally, since we are a unique and novel enterprise with no operating history, it is very unlikely that our operating results for any given time period can be accurately predicted even if the overall objectives for the Company are achieved. Consequently, it is possible that you may never realize any return from your investment.
Our business is based upon a new development
We have no operating history. Therefore, our forward-looking statements as to the success or failure of the Company are speculative. It is possible that our operations will not generate sufficient rental proceeds to pay all of our acquisition and operating expenses, taxes, and debt service requirements, which would result in failure to meet our payment obligations. There is no assurance that we will generate net positive cash flows. Because of the newness of our business, we may be required to implement significant operational adjustments to respond to unanticipated contingencies. As a result, we may need to make significant changes to our planned development of the Property to address any unanticipated issues. The cost of making such changes could be significantly and materially detrimental to the Company and our ability to make a profit.
There can be no assurance that we will be successful or will achieve our objectives
There can be no assurance that we will be successful or achieve our objectives, or, if we are successful, that any particular return on investment will be realized by you.
There can be no assurance that we will be able to obtain sufficient capital and/or financing
While we may actively seek investors to obtain working capital, there can be no assurance that we will be able to do so. In such event, and if the Company or our affiliates are unable to secure additional financing, the planned development of the Property may never be completed. In addition, if additional financing is necessary there can be no assurance that it can be obtained at favorable rates.
There are risks associated with our Managers and key personnel
The future operations of the Company could be adversely affected by future changes related to our Managers and key personnel which could include, without limitation, illness, disability, or a decision to pursue other interests. While none of these events is contemplated as of the date of this Offering Statement, there can be no assurance that one or more of these events or other potential events adversely affecting the ability of the Company’s managers and key personnel to fulfill their obligations to the Company will not occur. See the section of this Offering Statement titled “Management”.
Our Managers and affiliates may have conflicts of interest
Our Managers and other duly appointed managers (referred to herein as our “Management”) may act in a similar capacity for other unaffiliated concerns. Our Managers’ capability to satisfy their obligations to the Company could be adversely affected by such other involvements. Certain services to be provided to the Company, such as legal, accounting, engineering, analysis, consulting, marketing, and technical services may be performed by affiliates or related parties of the Company’s management. For example, management and administrative services to the Company are provided by officers and/or directors of our voting members who also serve as our Managers (See “Management”) who may receive other forms of compensation. Also, our Managers have been issued, between them, a total of 700,000 voting Managing Units in the Company. There is the likelihood that if our anticipated activities are not ultimately profitable, that such affiliates or related parties may still realize profits even though you do not realize the same such profit. Conflicts of interest may arise for our Managers, consultants, affiliates, and others associated with the Company by way of contract. Such individuals, either directly or indirectly, may provide like services to other concerns. In addition, certain consultants and members of our key personnel and their affiliates are presently engaged in other companies or ventures.
Our Managers or other duly appointed managers may be engaged in other business endeavors, may commit themselves to other entities similar to those of the Company, and are not obligated to contribute any specific number of hours per week to the Company’s affairs. For example, our Management are actively engaged in other business ventures and/or enterprises. If the other business affairs of our managers require them to devote more substantial amounts of time to such affairs, it could limit their ability to devote time to the affairs of the Company, which could have a negative impact on our ability to operate efficiently.
In addition, our managers may become affiliated with other entities engaged in business activities similar to those intended to be conducted by us. Additionally, our managers may become aware of business opportunities which may be appropriate for presentation to the Company as well as the other entities with which they are or may be affiliated. Due to their existing affiliations, such persons may have fiduciary obligations to present potential business opportunities to those entities before presenting them to us, which could cause additional conflicts of interest. We cannot assure you that these conflicts will be resolved in our favor.
Also, certain managers may have personal or family relationships with each other. Such non-business relationships could give rise to issues not otherwise present.
Our Managers and any other associated managers will be indemnified by the Company and authorized to obtain D&O (directors and officers) liability insurance paid for by the Company.
All of these activities and factors may result in conflicts of interest.
There can be no assurance that the Company’s transactions with related parties reflect the most favorable terms and conditions available to the Company
As described in the section of this Offering Statement entitled “Description of Business”, we have entered into transactions with related parties. While we believe that these transactions reflect reasonable market terms and conditions, there can be no assurance that these transactions reflect the most favorable terms and conditions available to us.
There is no assurance that our strategies will be productive
There can be no assurance that our strategies will be economically viable or will yield positive financial results.
We may not be able to achieve our marketing and future growth goals
Our ability to implement our business plan in a rapidly evolving market requires planning and management. Future expansion efforts could be expensive and may strain our managerial and other resources. To manage future growth effectively, we must maintain and enhance our processes and technology, integrate existing and new personnel, and manage expanded operations. There can be no assurance that our current and planned personnel, systems, procedures, and controls will be adequate to support our future operations or that management will be able to hire, train, retain, motivate, and manage required personnel or that our Managers will be able to successfully identify, manage, and capitalize on existing and potential market opportunities. If we are unable to manage growth effectively, our business, prospects, and general financial condition would be materially adversely affected.
Identification of the Property may be uncertain
We may acquire interests in neighboring properties in lieu of and/or in addition to the Property depending upon market conditions and the progress of the overall development. In such case you will not have an opportunity to evaluate any of such property acquired by the Company and/or our affiliates or the terms of any such properties’ purchase contracts. We are not required to obtain an appraisal in connection with an acquisition of real property, although it is anticipated that if third-party financing is being provided by a commercial lender, such lender will obtain an independent appraisal. Consequently, you must depend solely upon the ability of the Company’s Management with respect to the selection of properties and the determination of the price and other terms upon which they will be made. In selecting such properties, we may have conflicts of interest. See “Conflicts of Interest”.
We expect to assume risks of real estate ownership
We expect to be subject to the risks generally incident to the ownership of real property including changes in national and local economic conditions, changes in the investment climate for real estate investments, changes in the demand for or supply of competing properties, changes in local market conditions and neighborhood characteristics, the availability and cost of mortgage funds, the obligation to meet fixed and maturing obligations (if any), unanticipated holding costs, the availability and cost of necessary utilities and services, changes in real estate tax rates and other operating expenses, changes in governmental rules and fiscal policies, changes in zoning and other land use regulations, environmental controls, acts of God (which may result in uninsured losses) and other factors beyond our control. In recent years, the presence of hazardous substances or toxic waste has adversely impacted real estate values in affected areas of the country.
We also expect to be subject to those risks inherent in the ownership of real property such as occupancy, paying customers, operating expenses and rental schedules, which in turn may be adversely affected by general and local economic conditions, the supply of and demand for properties of the type which we intend to own and operate, the financial condition of customers and/or tenants and sellers of properties, zoning laws, federal and local rent controls and real property tax rates. Certain expenditures associated with real estate equity investments are fixed (principally mortgage payments, if any, real estate taxes and maintenance costs) and are not necessarily decreased by events adversely affecting our anticipated income from such properties. Our ability to meet our obligations will depend on factors such as these and no assurance of profitable operation can be given.
We expect to assume risks associated with construction
The cost of construction of any buildings on the Property and the time it takes to do so may be affected by factors beyond our control including, but not limited to, worker strikes and other labor difficulties resulting in the interruption or slow-down of construction, energy shortages, material and labor shortages, inflation, adverse weather conditions, subcontractor defaults and delays, changes in federal, state or local laws, ordinances or regulations, acts of God (which may result in uninsured losses), and other unknown contingencies. We may be required to engage substitute or additional contractors to complete any construction in the event of delays or cost overruns. If cost overruns resulting from delays or other causes are experienced in any construction, we may have to seek additional debt and/or equity financing. Further, delays in the completion of any construction would likely cause a delay in the receipt of anticipated operating revenues from such properties and could adversely affect our ability to attain revenue projections and meet our debt service obligations or that of our affiliates. Payment of cost overruns could impair the operational profitability of certain properties. Our inability to complete any construction on terms economically feasible may result in termination of construction. Such termination may result in the Company defaulting on its obligations, losing properties through foreclosure, etc.
We expect to assume risks associated with operating our Property
Newly constructed properties have significantly greater risks than properties with mature operating histories. We will be subject to the risk that we will be unable to attract tenants or paying customers or obtain rental rates necessary to generate an adequate return on expended capital. Operating costs may be more difficult to determine and the timing of when anticipated rental levels can be achieved will impact the profitability of such Property.
We may face zoning risks
We may acquire unimproved real estate with the goal of incorporating such property into the Property development. Property may be acquired for our intended purpose despite the fact that such properties are not zoned to allow for such use at the time of acquisition. Our inability to obtain a change in the zoning of such property could materially and adversely affect us.
Our industry is highly competitive
Real estate development is highly competitive. We may be competing with other properties in close proximity to ours to attract buyers and/or tenants. Moreover, our business could be adversely affected by periodic overbuilding of competitive properties in our given market which could affect the operations of our facilities and the ultimate value of our properties and the Company. Our success, therefore, will depend in part upon our ability (i) to attract quality new buyers and/or tenants to achieve significant occupancy levels of favorable rental rates, and (ii) to provide an attractive and convenient environment for our buyers and/or tenants. Our ability to attract buyers and/or tenants will depend on factors both within and beyond our control including the size and quality of competing properties, general and local economic conditions, competing rental rates, etc. Our inability to make sales and/or maintain high levels of occupancy or usage and favorable rental rates with respect to our properties would adversely affect our income and the values of the Property. Although insurance will normally be obtained with respect to the Property to cover casualty losses and general liability, no other insurance will be available to cover losses from ongoing operations. The occurrence of a casualty resulting in damage to any properties could decrease or interrupt the payment of tenant rentals and/or buyer purchases. In the event of an adverse effect on our income, we may find it necessary to obtain additional funds through additional equity investment and/or borrowings, if available. If additional funds are not available from any source, we could be forced to dispose of all or a portion of a property on unfavorable terms.
We will lack diversification
Because our business is anticipated to involve the ownership and ultimate operation of a singular Property or development, the securities offered hereby have additional risks from economic or other problems, the effects of which could be absorbed or compensated for in an investment in a company or enterprise that owns a larger number of properties. Our profitability will be dependent upon the successful operation of a specific Property and the overall development plan of the Property itself. Conditions in the real estate market, including overbuilding of residential, commercial, and industrial real estate, have adversely affected the value of and ability to sell such real estate. In addition, financial market conditions during recent years have significantly affected the availability and cost of real estate loans, at times making real estate financing difficult or costly to obtain. The continuation of these conditions in the future may adversely affect our ability to sell a property when deemed necessary or when a sale is determined to be in the best interest of the Company, and may affect the terms of such sale. Because we cannot predict these and other conditions that may exist at the time that properties are ever sold, there can be no assurance that we will be able to sell properties in such circumstances on favorable terms.
We have limited access to capital
We are not required to maintain any minimum level of permanent working capital reserves. To the extent that expenses increase or unanticipated expenses arise and accumulated reserves are insufficient to meet such expenses, the Company would be required to obtain additional funds through raising equity capital and/or borrowing, if available. Due to our limited capitalization, there would be limited resources to tap in the event that we are unable to honor our financial commitments. Our ability repay any indebtedness incurred in connection with the acquisition of properties, or subsequent refinancing, will depend upon net revenues and/or the sale, refinancing or other disposition of the Property prior to the date such amounts become due. There can be no assurance that such net revenues, if any, or such sale or refinancing can be received or accomplished at a time or on such terms and conditions as will permit us to repay the outstanding principal amount of such indebtedness. Financial market conditions in the future may affect the availability and cost of real estate loans, making real estate financing difficult or costly to obtain. In the event we are unable to raise sufficient equity capital and/or sell or refinance our properties prior to the maturity date of any such indebtedness we would be required to obtain the necessary funds through additional borrowings, if available. In such case if additional funds are not available from any source, we would be subject to the risk of losing the Property through foreclosure. Any such foreclosure may have material adverse consequences for the Company and our investors.
Because our business is narrowly focused on a specific geographical area, our business may be adversely affected by local adverse conditions in our industry
Any adverse change in general economic conditions, significant price increases, or adverse occurrences affecting our Property could have a material adverse effect on us and the results of our operations.
The presence of hazardous or toxic substances detected on any property owned or leased by us could subject us to significant environmental liability
Under various federal, state, and local laws, ordinances, and regulations, as well as Managing law, we may be liable for the costs of removal or remediation of certain hazardous or toxic substances located on, in, or emanating from property owned or leased by us, as well as related costs of investigation and property damage at such properties. Such laws often impose liability without regard to whether we knew of, or were responsible for, the presence of the hazardous or toxic substances. The presence of such substances, or the failure to properly remediate such substances, may adversely affect our ability to generate positive financial results. Noncompliance with environmental, health, or safety requirements may require us to cease or alter operations. Further, we may be subject to Managing law claims by third parties based on damages and costs resulting from violations of environmental regulations or from contamination associated with our properties.
Regional and local economic conditions may adversely affect our business
The value of our real property investments will be influenced by the regional and local economy which may be negatively impacted by plant closings, industry slowdowns, increased unemployment, lack of availability of consumer credit, increased levels of consumer debt, poor housing market conditions, racial tensions, riots, adverse weather conditions, natural disasters and other factors. Similarly, local real estate conditions, such as an oversupply of, or a reduction in demand for, commercial space and the supply and creditworthiness of current and prospective buyers and/or tenants may affect the ability of our properties to generate revenue.
Economic conditions may have an adverse effect on our revenues and available cash
If general economic conditions worsen, this would hinder our ability to implement our business strategies and have an unfavorable effect on our operations and our ability to generate revenue.
We may be liable for certain uninsured losses
Certain types of losses, such as losses arising from acts of God, certain environmental issues, terrorism, or acts of war, generally are not insured because they are either uninsurable or not economically insurable. Should an uninsured loss or a loss in excess of insured limits occur, we could lose our any rights to the Property. At the same time, we may remain obligated to pay any other obligations related to the Property. Consequently, any such losses could have a material adverse effect on our results of operations.
The Property may be acquired, constructed, and/or operated by an affiliated subsidiary
We may acquire, construct and/or operate the Property through a separate affiliated subsidiary (typically wholly-owned) of the Company.
We may assume risks associated with joint ventures
The Property may be acquired, developed and/or operated through the form of a joint venture between us (as either a general or limited partner or as a member and/or managers of an LLC) and our affiliates, third-party developers and/or real estate investors. Our investment and involvement in such entities that may own and operate the Property may involve risks not otherwise present. These include risks associated with the possibility that our co-venturer in the Property might become bankrupt, that such co-venturer may at any time have economic or business interests or goals that are inconsistent with ours, or that such co-venturer may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives. We may relinquish control of a joint venture and may receive a disproportionate share of profits from a joint venture. Actions by a co- venturer might have the result of subjecting the Property owned by the joint venture to liabilities in excess of those contemplated by the terms of the joint venture or might have other material adverse consequences for the Company.
We have limited operating history
The Company is newly-formed and lacks an operating history in operations and in business in general for that matter. As a result, we are subject to all the risks and uncertainties which are characteristic of a new business enterprise, including the substantial problems, expenses and other difficulties typically encountered in the course of establishing a business, organizing operations and procedures, and engaging and training new personnel. The likelihood of our success must be considered in light of these potential problems, expenses, complications, and delays.
We cannot forecast or predict the outcome of our activities
There is no information at this time upon which to base an assumption that our plans will materialize or prove successful. There can be no assurance that our planned endeavors will result in any operational revenues or profits in the future. This, coupled with our lack of an operating history, makes prediction of our future operating results difficult, if not impossible. Because of these reasons, you should be aware that your entire capital contribution to the Company is at risk.
Our success is dependent on our key personnel
Our success depends upon our management’s successful implementation of our business plan. Our performance and the value of the Company and its assets also depend on our ability to retain and motivate our officers and key employees. The loss of the services of any of such persons or other key employees could have a material adverse effect on our business, prospects, financial condition, and results of operations.
Our future success depends on our ability to identify, attract, hire, train, retain, and motivate other highly skilled technical, managerial, sales, marketing, and client service personnel. Competition for such personnel is intense and there can be no assurance that we will be able to successfully attract, assimilate, and retain sufficiently qualified personnel. The failure to attract and retain the necessary technical, managerial, sales, marketing, and client service personnel could have a material adverse effect on our business, prospects, financial condition, and results of operations.
Our Managers will have broad discretion on how to use proceeds
Our Managers will have broad discretion with respect to the use of the proceeds of this Offering, including discretion to use the proceeds in ways which may not be disclosed in this Offering Statement and with which investors may disagree. You will be relying on the judgment of our Managers regarding the application of the proceeds of this Offering.
We arbitrarily determined the terms of this Offering
The terms of this Offering as outlined in this Offering Statement bear no relationship to our assets, prospects, net worth, or any recognized criteria of value and should not be considered to be an indication of the actual value of the Company. The price or terms of the securities offered via this Offering Statement has been arbitrarily determined by us. While the proceeds of this Offering are primarily intended to cover, along with debt and contributions by the members, the cost and the development of the Property to be acquired, constructed and operated, no assurance is or can be given that any security issued by the Company, if transferable, could be sold for any amount. You should make an independent evaluation of the fairness of the terms of this Offering. There can be no assurance that the price you pay for the securities described in this Offering Statement is equal to the fair market value thereof.
No audited financial statements of the Company are available
We have elected not to have an audit of the financial statements of the Company. As a result, there could be financial matters of a material nature that would have been disclosed by an audit that were not discovered or disclosed in the attached statements.
This Offering Statement contains a very limited discussion of possible tax consequences
This Offering Statement contains very limited discussion as to the possible tax consequences likely to arise from the transaction(s) contemplated. We expressly intend to not advise you as to such matters. You are urged to consult with your own tax advisors.
There may be income tax risks and ERISA risks associated with the Units
The following is a brief summary of what we believe are the most significant tax risks associated with the Units. Numerous changes in the tax law have increased the tax risk and uncertainty associated with investments in limited liability companies. An unfavorable outcome with respect to any tax risk factor may have an adverse effect on an investment in the Units. Other tax considerations that could be significant to you are discussed under the “Tax Risks” and “ERISA Aspects of the Offering” sections of this Offering Statement. You are strongly urged to review the material and to discuss with your tax advisors the potential tax consequences that may be associated with the Units.
Partnership Status. The federal income tax treatment contemplated by the Company will be available only if we are classified as a “partnership” for federal income tax purposes and not as an “association” taxable as a corporation. Counsel for the Company has specifically declined to opine on such matters. We believe we will more likely than not be classified as a “partnership” for federal income tax purposes. Of course, there is no guarantee of any tax treatment. We assume we will operate in accordance with our Operating Agreement and will not elect to be taxed as a corporation. If it were determined that we would be taxable as a corporation rather than as a partnership, the changes in the tax consequences to you would be significant and materially adverse.
Passive Activity Rules. Our losses will be treated as losses generated in a passive activity. Losses from passive activities generally may only be deducted against income from the same or other passive activities.
Tax Liabilities in Excess of Cash Distributions. Each member of the Company will be required to pay federal and state income taxes at their individual rate on their allocable share of the Company’s taxable income. No assurance can be given that cash will be available for distribution or will be distributed at any specific time. In rare cases the allocation of profits could be disproportionate to distributions to the members. Therefore, distributions, if any, may be insufficient to pay income taxes with respect to allocations in a particular fiscal year. Accordingly, there is a risk that you may incur tax liabilities resulting from owning the Units without receiving cash from the Company in an amount sufficient to pay for any part of that liability.
Reduction in Tax Basis. Cash distributions, if any, by the Company to a member will result in taxable gain to the extent those distributions exceed the member’s basis for their Unit of membership interest. Initially we expect for the basis of members holding Units will be the amount of their investment increased by the portion of any Company indebtedness for which that member may bear the burden of economic loss.
Unrelated Business Taxable Income. Organizations generally exempt from federal income taxation (including qualified pension, profit-sharing and stock-bonus plans, Keogh plans and individual retirement accounts (IRAs)) may be taxable on their allocable share of Company income to the extent such income constitutes “unrelated business taxable income” (“UBTI”). Real estate rental income and gain on the sale of real property is generally not included in UBTI. However, a portion of the rental income from real property and gain upon sale of such real property may be treated as UBTI if the property is subject to “acquisition indebtedness.” Such portion is approximately equal to the ratio of the acquisition indebtedness to the aggregate basis of the property. Tax-exempt entities, other than IRAs, may qualify for an exception that would allow them to avoid the recognition of UBTI if the Company meets certain disproportionate allocation rules; however, it is unclear whether the Company satisfies these rules, and therefore all tax-exempt entities may be required to recognize UBTI by reason of their investment in the Company. The receipt of UBTI by a charitable remainder trust results in taxation of all trust income for the taxable year, and therefore this is not a suitable investment for a charitable remainder trust.
Risk of Characterization of Property. The Internal Revenue Service (the “IRS”) could characterize a particular property owned by the Company or our affiliates to be or consist of property held primarily for sale to customers in the ordinary course of business. Under such characterization, any gain recognized by the Company on the sale of such property would be ordinary income and any loss on such sale would be ordinary loss.
Audit Risk. The IRS has announced, and for several years has implemented, a policy which attempts to locate and select for audit the information returns of partnerships having tax loss benefits. Although we do not believe that the Company is the type that would be subject to such greater IRS scrutiny, the federal income tax information return of the Company will still be subject to audit. If our information return is audited, such audit may cause corresponding adjustments to, and may increase the probability of an audit of, our members’ federal income tax returns.
Factual Determinations by the Company. The determination of the correct amount of certain deductions and their availability and timing to the Company depend on factual determinations to be made by our Managers. Counsel has specifically declined to give an opinion on such matters. Although we will exercise judgment regarding the facts when preparing the Company’s information return, the IRS may assert that our judgment of the facts is not correct, which could result in the disallowance or deferral of deductions in whole or part. Such adjustments could result in the assessment of additional tax liability to our members.
Changes in the Tax Law. Significant changes have been made in the Internal Revenue Code (the “Code”) in recent years. The U.S. Treasury Department’s position regarding many of those changes remains unclear pending publication of interpretive and legislative regulations, some of which may not be forthcoming for some time. Additionally, the Code is subject to change by Congress, and existing interpretations of the Code may be reversed, modified or otherwise affected by judicial decisions, by the U.S. Treasury Department through changes in its regulations, and by the IRS through its audit policy, announcements and published and private rulings. No assurance can be given that any changes in the tax law will be given only prospective application to the Company or our members.
ERISA Risks. The Employment Retirement Income Security Act of 1974 (“ERISA”) subjects trustees and certain other parties-in-interest with respect to Qualified Plans to special standards. The ERISA considerations of an investment in the Company that we believe are possibly significant are discussed under the “ERISA Aspects of the Offering” section of this Offering Statement. In light of ERISA, we will limit the sale of Units to benefit plan investors to less than 25% of all Units subscribed (excluding certain Units as described herein) unless the real estate operating company exception applies.
Pension or profit-sharing trusts should exercise caution
When considering an investment in the Company of a portion of the assets of a qualified profit sharing, pension, or other retirement trust, a fiduciary, taking into account the facts and circumstances of such trust, should consider among other things (i) the definition of plan assets under the Employee Retirement Income Security Act of 1974 (“ERISA”) and the status of labor regulations regarding the definition of plan assets, (ii) whether the investment satisfies the diversification requirements of Section 404(a)(1)(C) of ERISA, and (iii) whether the investment is prudent, considering the nature of an investment in the Company, and the fact that we do not expect a market to be created in which one can sell or otherwise dispose of our securities, and we have had no substantial history of operations. The prudence of a particular investment must be determined by the responsible fiduciary (usually the trustee or investment officer) with respect to each employee benefit plan taking into account all of the facts and circumstances of the investment.
We will require future capital to continue our operations
We may permit or request significant material additional capital contributions from our members on a pro rata basis, new investors on terms different from those set forth in this Offering, or from other sources. This may or may not have dilutive effect upon your respective percentage of membership interest in the Company.
We have incurred losses since our inception
We have not generated revenues. We anticipate that our operating expenses will increase substantially in the foreseeable future as we continue to acquire, construct and develop the Property. There can be no assurance that our business strategy will be successful or will generate sufficient revenues to achieve or maintain profitability in the future.
We require substantial capital requirements to finance our operations
We have substantial future capital requirements. Our ongoing capital requirements consist primarily of acquiring, rezoning, permitting, planning and developing real estate for construction of the Property and actual construction of the Property. We also have ongoing overhead, salaries, wages, and administrative costs to bear. We plan to finance our anticipated ongoing expenses and capital requirements with funds generated from the following sources:
Capital raised through future debt and equity offerings;
Funds received under lines of credit or loans;
Funds from strategic partners; and/or
Cash generated from operations, upon commencement of operations.
We currently do not have the cash available or any agreed source of funding to meet our capital requirements. If we are unable to obtain the necessary financing, we will not be able to acquire the assets necessary for our proposed business or to implement our proposed business plan. The acquisition and construction of the Property is capital intensive. If we do not have access to the necessary funding, we may be unable to initiate and complete construction and operations of the Property. Changes in the industry or the economy, over which we have no control, may adversely affect our ability to obtain the necessary capital. We may not be able to obtain the amount of additional capital needed or may be forced to pay an extremely high price for capital. If we are unable to obtain sufficient capital or are forced to pay a high price for capital, we may be unable to meet future obligations or adequately exploit existing or future opportunities, and may be forced to discontinue operations.
As of the date of this Offering Statement, we had no long-term debt or other contingent liabilities aside from one or more member advances and/or loans in the amount of approximately $30,000, more or less. See the section of this Offering Statement titled “Capitalization and Indebtedness” for additional information. There is a risk we will not be able to service any outstanding indebtedness. If we successfully raise additional funds through the issuance of more debt, we will be required to service that debt and our operational flexibility may be restricted by the terms of the financing. If we successfully raise additional funds through the issuance of equity securities, then those securities may have rights, preferences or privileges senior to the rights of the Units and you may experience dilution.
We may be found to infringe on certain patents, business or trade secrets
While we currently believe that we are not infringing upon patents or rights owned by others, there can be no assurance that such persons will not file suit against us. In any case, there is no assurance that such a suit would be settled in our favor.
We could incur securities regulatory action
We and/or our affiliates may have conducted one or more private placement offerings of securities prior to utilizing this Offering Statement. We believe these offerings were conducted in compliance with existing federal and state securities laws and exemptions from registration. However, any one or more of such offerings could be found by the SEC and/or one or more state securities regulatory agencies to have not been conducted in accordance with the requirements of available exemptions and/or constitute a single offering of securities, which finding could lead to a disallowance of exemptions from registration. Such could give rise to various legal actions against the Company brought by federal or state regulatory agencies and/or private litigants. In such event there can be no assurance that such proceedings would be settled in our favor.
This Offering is not registered under federal or state securities laws
This Offering has not been registered under the Securities Act of 1933, as amended (the “Act”), nor registered under the securities laws of any state or jurisdiction. We do not intend to register this Offering at any time in the future. Thus, you will not enjoy any benefits that may have been derived from registration and corresponding review by regulatory officials.
You must make your own decision whether to invest with the knowledge that regulatory officials have not commented on the adequacy of the disclosures contained in this Offering Statement or on the fairness of the terms of this Offering.
Members could become liable for excessive distributions
As a member of the Company (i.e., a holder of our Units) you will not be liable for the liabilities of the Company in excess of your investment. Notwithstanding this fact, you could become liable for any distributions made to you by the Company if, after such distribution, our remaining assets are not sufficient to pay our then-outstanding liabilities.
There are restrictions on transfers
Transferability of the Units is restricted so as to maintain control and consistency and to comply with federal and state securities laws. You will not have the right to withdraw your investment from the Company or to receive a return of all or any portion of your investment. The Units offered by way of this Offering Statement have not been registered with the SEC or any government’s securities authority. The Units will be restricted and therefore cannot be resold unless they are also registered or unless an exemption from registration is available. Therefore, you should be prepared to hold such securities for at least twelve (12) months and perhaps even an indefinite period of time.
There will not be an active trading market for the Units; Sales in the secondary market may result in significant losses
There will likely never be any secondary market for our Units. Our Units will not be listed or displayed on any securities exchange, the Nasdaq National Market System or any electronic communications network. Our Managers and other affiliates of the Company may engage in limited purchase and resale transactions in the Units, although they are not required to do so. If they decide to engage in such transactions, they may stop at any time. If the Units are sold to third parties before their respective maturity dates, you may have to do so at a substantial discount from the issue price. It is not anticipated that there will be any market for the resale of our securities. As a result, an investor may be unable to sell or otherwise dispose of their investment in the Company. Moreover, if an investor were able to liquidate their investment, they or she would likely receive less than the amount of their original investment. Buyers of equity on the secondary market typically expect and receive a substantial discount from the pro rata portion of the fair market value of an entity’s assets.
This Offering is being conducted on a best efforts basis
We will be offering our Units on a “best efforts” basis. However, there is no assurance that we will reach our objectives in this Offering. If the Offering does not proceed according to our plans, we may not have sufficient working capital to operate our business.
All financial forecasts are subject to limitations
If any financial forecasts are utilized by the Company in connection with this Offering, they have been prepared solely by the Company’s management and are qualified in their entirety by the risk factors set forth in this Offering Statement. Such forecasts, if any, have not been compiled or reviewed by independent accountants and, accordingly, no opinion or other form of assurance is expressed. Because such projections are based on a number of assumptions and are subject to significant material uncertainties and contingencies, many of which are beyond the control of the Company, there can be no assurance that such projections, if any, will be realized as actual results may vary significantly and materially from the results shown. Such projections, if any, should not be regarded as a representation that the projections will be achieved, nor should the projections be relied upon in subscribing for the securities offered hereby and are qualified in their entirety by the content of this Offering Statement.
We may be subject to other risks
The foregoing represents our best attempt to identify the various risks you may be exposed to by subscribing to this Offering. This Offering Statement does not purport to be complete and may not adequately cover all activities in which we may be engaged nor all the risks the Company will be subject to, either directly or indirectly, as a result of pursuing our objectives. You are encouraged and entitled to ask questions of and receive answers from our Managers as to assess the merits and risks of the securities offered hereby.