November 2024 Newsletter

November 2024 Market Insights & Investment Trends
This month, we’re covering key insights into the evolving retail landscape, the impact of rate cuts on cap rates, and the continued high demand for Class A retail spaces. With highlights on our latest projects, market updates, and trends in consumer spending, we’re excited to share how these developments are shaping Criterion’s strategic decisions and growth. Dive in to explore the dynamics driving commercial real estate and how Criterion is positioned for success.

October 2024 Newsletter

October Market Recap: Rate Cuts and Retail Shifts

This month’s Criterion Fund newsletter covers Big Lots’ Chapter 11 filing, Ace Hardware’s $1 billion expansion, and Tempur Sealy’s strategic divestment to mitigate antitrust concerns. With the recent Fed rate cut, commercial real estate markets are seeing renewed optimism and increased buyer activity. Key project highlights include new tenant updates at Smith Farms, a successful exit at Calloway’s, and strong interest in several developments. Stay tuned to learn how Criterion is leveraging these changes to maximize returns and navigate a competitive landscape.

September 2024 Newsletter

September Market Recap: Retail Trends and Rate Cuts

This month’s Criterion Fund newsletter explores Red Lobster’s latest loan, Shake Shack’s closures, and Five Below’s slowdown in new store openings. With potential rate cuts on the horizon, Criterion reviews how this could impact financing and future acquisitions. Project updates include developments in Texas, South Carolina, and Michigan. Discover how Criterion is positioning itself to capitalize on market opportunities as the economic landscape shifts.

August 2024 Newsletter

Retail Shifts and CRE Investment Trends
This month’s Criterion Fund newsletter covers major updates, including Red Lobster’s potential bankruptcy, Conn’s liquidation sales, and Darden Restaurants’ $605M acquisition of Chuy’s. We also highlight key project developments like Smith Farms, Marine Creek Starbucks, and new acquisitions in Texas. Learn how Criterion is navigating a shifting commercial real estate landscape by capitalizing on favorable cap rates and increasing deal flow as market conditions improve.

July 2024 Newsletter

July ‘24 Market Recap: Retail Insights & Strategic Expansions
This month’s Criterion Fund newsletter dives into Walgreens’ store closures, rising traffic at coffee chains, and the impact of economic conditions on consumer spending. We also share updates on projects like Smith Farms and Village at Northshore and new developments in Texas and Nevada. Learn how Criterion is leveraging low retail vacancies and strategic partnerships to drive strong returns and navigate a shifting economic landscape.

Broken Arrow Rising Small Business Relief - $5,000 Grant Program

Do you own a small business in Broken Arrow, OK that meets the below criteria? If so, you may qualify for a $5,000 grant from the City of Broken Arrow. They have just recently dedicated $100,000 of funding to the micro grant program.

1. Business must be located within Broken Arrow city limits.

2. Must be a non-home-based, for-profit business, not owned by a larger corporation. Businesses that were deemed non-essential that were required to close, or alter operations in some way, for a time, such as salons and spas, gyms, movie theaters, non-essential retail, dine-in restaurants, and entertainment, under the State of Oklahoma’s Executive Orders related to COVID-19 will receive preference in grants.

3. Employ less than 20 Full Time Employees or FTE.

4. Business has exhausted all efforts to obtain funding from SBA programs under the CARES Act, Economic Injury Disaster Loan and/or Paycheck Protection Provision.

5. Be an official Oklahoma business registered with the State of Oklahoma in some capacity.

6. Be in good standing with the City of Broken Arrow and State of Oklahoma regarding sales tax, water, etc.

7. Pledge to provide proof of paid allowed expenses within 30 days of grant award.

8. Guarantee to certify that grant funds will be utilized for allowed expenses for businesses in the city limits.

“The City Council and I absolutely support the BA Rising grant program. We must help get those businesses that were forced to close, re-open and are proud to contribute funding to this important initiative for our community,” said Mayor Craig Thurmond.

Program recipients will be selected based on eligibility criteria and available funding. Grants will be made in the form of one lump sum distribution up to $5,000 and must be used to cover the expenses outlined in the application. To learn more and apply, visit www.barising.com.

Completed applications can be emailed to barising@bachamber.com

Evaluating Real Estate Return Metrics - “CoC” (Cash-on-Cash) Vs. “IRR” (Internal Rate of Return)

Potential Investors,

One of the most asked questions we get from our prospective investors is to explain how they are getting paid when they invest with us and how they can measure their investment’s performance. We use three main metrics to measure our property’s performance for our Investors. In this article we will discuss the three main metrics we use to evaluate our investment returns, pros and cons of the three, what you should be looking for when you invest, and how Criterion structures our returns.

Cash-on-Cash (“CoC”)

Formula - [Distributions Received per Year / total Funds Remaining in investment** = Annual Cash on Cash %]

Cash-on-Cash is by far the easiest investment return metric to understand. Simply stated, CoC is the cash you receive in distributions per year as the numerator* with the total cash you have remaining in the investment acting as the denominator**. For example, if you invested $100,000 and received $12,000 in distributions in that calendar year, you received a 12% CoC return on your investment for that year.

CoC is an important metric when evaluating real estate investments because it generally assumes that the property is, or is planning to be, cash flowing (see One of the Top Five Reasons to Invest in Commercial Real Estate here) Investors like CoC because you do not have to wait years and years for the appreciation and sale of the property to see if your investment is performing well. At Criterion, we strive to pay out double digit COC (10%+ Annually) paid out quarterly. This allows our Investors to know immediately how well the property is performing.

*The numerator should only include distributions that are considered Return on Capital, or “profit”, and not Return of Capital, or the return of your investment.

**The denominator of the formula should be the total funds remaining in the investment. Using the same example above; if you invested $100,000, the property was refinanced, and you received a return via Return of Capital of half of your investment, your remaining cash in the investment would be $50,000 and the $12,000 in distributions would equate to a 24% CoC return since you only have $50,000 remaining in the investment.

Internal Rate of return (“IRR”)

formula

To define IRR might make you more confused, but I would still like for you to have the definition and then I can break it down from there.

Internal Rate of Return -

“a discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.” - Investopedia (https://www.investopedia.com/terms/i/irr.asp)

IRR starts to get a bit more complex when it comes to understanding investment metrics, but the main difference when comparing CoC vs IRR is that CoC doesn’t include the time value of money. IRR requires assumptions such as sales price and the duration of the investment (with any sort of modeling, the outputs are only as good as the assumptions you input).

The total cash flows, or numerator, should be inclusive of the initial investment, all cash flows produced while the asset is held, and the total cash distributed at the sale including your original investment (this would include the debt pay down, any appreciation in the property, and the original equity returned).

Example: You had an initial investment of $1,015,000 into a development and it wasn’t expected to produce any cash flow until you sold the building 18 months later.

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In this example you can see that the first year is negative because of the initial investment. It is important to note that the $1,467,862.72 received in month 18 also includes the original investment of $1,015,000 thus making the total profit $452,862.72. You can also see from the time the investment was made until the time the final distributions were made 18 months later your IRR is 24.85%.

In the simplest form possible, IRR is the forecasted rate of growth by isolating the effect of compounding interest if the investment term is over one year.

Although the IRR metric is widely used it has a lot of shortcomings. It requires some major assumptions on the assumed sale price of the property along with an assumed sale date. It also assumes that the cash flows are reinvested at some rate. You can now start to see the value of positive cash flow and the CoC metric. CoC requires no patience or modeling because its distributed cash from cash flow produced by the property.

Annual Return Generated

Formula - [(Annual Cash flow + Annual Debt Reduction) / Investment]

The Annual Return Generated is valuable because it not only takes into account your annual Cash-on-Cash, but also includes a reduction in debt for the year. If you had a $500,000 investment in a property that produced $100,000/year in cash flow and an additional $75,000 in principle/debt reduction then the total Annual Return Generated would be 35% as opposed to your annual CoC percentage of 20%. You can see how factoring in the annual debt reduction adds important value.

recap

Now that we have gone over the three major investment metrics that Criterion uses when offering investment opportunities we can give a brief overview of how we structure our returns based off investor feedback.

• Investors like Cash. Cash Flow is King.

I know this seems like a given but it still needs to be said. Investments that start producing immediate cash flow are typically going to be received well. At Criterion we typically offer double digit CoC returns. Our investors love it and they don’t have to wait years before they see any cash flow from their investment.

• IRR is nice, but don’t invest solely on the highest IRR.

IRR is nice, don’t get me wrong. It brings a lot of insight into the growth of the investment at a fixed cost of capital, but it desperately needs to be complimented with other return metrics to help support it, such as CoC and Annual Return Generated.

• Compound the Growth.

Commercial Real Estate has proven to be an attractive investment due to many financial advantages. Commercial Real Estate truly “throws” cash at you from all directions. You not only get cash flow, but also you are paying down the debt and the property is appreciating through rent increases and general inflation.

Where are you investing your money, in what forms does it pay you, and how often does it pay you? Are you getting paid in cash flow or are you getting sold the promise of future performance while you wait on your returns?

These are the questions I would be asking.

Best,

Braden Cheek

Co-Founder | Criterion

www.thecriterionfund.com

Top 5 Reasons to Invest in Commercial Real Estate

Potential Criterion Investors – Top 5 Reasons to Invest in Real Estate

Take a bit of time to educate yourself on the advantages of investing in real estate and you’ll discover that with some knowledge you can easily understand all the benefits and won’t have to be apprehensive about investing.

With that in mind let’s look at the top 5 reasons to invest in real estate:

1. Cash Flow – Positive monthly cash flow will occur when the monthly expenses are subtracted from the monthly lease income, thus giving you a monthly income from your real estate investment.  Today’s favorable financing with a low debt payment makes this especially attractive.

2. Appreciation – Appreciation is the increase in the property’s value, which generally occurs over time due to inflation and can be increased by investors who add value to the property through rent increases, repairs and enhancements. This is also a way to create equity in the property.

3. Depreciation – Even with an increase in the property’s value the government allows investors a tax deduction which allows you to depreciate the property’s value over time.  This deduction can be used to offset the property’s income.

4. Tax Benefits – In addition to depreciation, appreciation of the property compounds tax-deferred during the years of ownership.  You don’t pay tax on the profit until the property is sold – and even then you can roll over your gain into another investment property and avoid paying taxes using a 1031 exchange.  If an investor decides to keep the profits they are considered a long term capital gain if the property was held for more than a year.  The long term capital gains tax rate is typically lower than the investors normal income tax rate.  Also, a step-up basis happens when the property investor dies, and the property is inherited at its fair market value.  It is entirely possible after deferring capital gains and depreciation recapture for your entire life you could pass the property to your heirs and eliminate all of your tax liability and create none for them.

5. Leverage – Leverage is a powerful reason for investing in real estate. For example, if an investor used 100% cash to acquire a property worth $100,000, and the property increased in value by $5,000 in one year, then the investor made a return of 5% (assuming no other costs in this case). However, if the investor obtained 80% financing, only $20,000 cash would be required at the closing table, and a bank or other lender would loan the remaining $80,000 to acquire the property.

Assuming the same $5,000 increase in value, the investor’s cash contribution of $20,000 would yield the same increase in equity of $5,000 in one year, but due to the lower cash investment it would yield a 25% return on investment. Taking advantage of the other benefits to investing in real estate, such as cash flow, and the increase is even greater.

With all these and a number of other benefits you can see how easy it is to accumulate wealth and become a successful investor.

Best,

Brian Duck

Co-Founder | Criterion

www.thecriterionfund.com

U.S. Small Business Administration DISASTER BUSINESS LOAN APPLICATION

All Businesses Affected,

If you or your business has been affected by the recent epidemic you can apply for the nearly $1 Trillion Dollars being injected into the economy right now. Oklahoma has just been declared a disaster state and we are now eligible for Disaster Loans!

Attached is a copy of the application but you will have to apply online at https://disasterloan.sba.gov/ela/.

Best,

Braden Cheek

Co-Founder | Criterion

www.thecriterionfund.com