Target has hired Property Commerce (“PC”) to build a new urban Target location in the Heights.

PC typically capitalizes projects with an equity partner and builds the Target for construction fees but really earns the equity upside on the surrounding pad locations. In this case, PC does not have a committed equity partner as the land is being contributed to the Target development by the landowner.

Thus, Sage has been offered the right to raise equity (80%)  alongside PC (20%) to acquire pad locations adjacent to the soon-to-be-built Target.

Once the pads are acquired and as the Target is being built, PC will lease the pads to various creditworthy single NNN tenants that tend to follow Target locations. PC already has numerous creditworthy single tenants interested in the first two identified pads and could potentially have one of them leased as we are closing the equity.

PC has already closed on one pad and is set to close on the other at the end of February. Once Sage contributes their equity, PC will thereafter layer in $3.5mm in debt  (capped at 50% LTV) to allow the portfolio of surrounding pads to grow with both equity and leverage.

Once the pads are leased, Property Commerce will either sell or recapitalize each asset and distribute the proceeds to our partnership.

Irreplaceable Location/High Quality Real Estate: Located in highly sought after Houston Heights between the two most trafficked streets in the Heights. Shepherd includes a who’s who of retailers like HEB, Target (Pending), and Kroger. The Height’s demographics are amongst the strongest in Houston.

Exceptional Return Profile: Major credit tenants are currently interested. Property commerce is contributing 20% of the equity. MOIC is modeled between 1.83x-2.24x. IRR is modeled between 19% -26.7%.

Great Management Team with Track Record of Success: Property Commerce is a prolific Houston operator and developer. Property Commerce has a proven track record, performing well before, during, and post Covid. Sage has invested with PC on 3 other retail opportunities.

Highly Liquid Product Type/ Clear Exit Strategy: Heights is an extremely sought after real estate market in Houston. Many tenants are already in discussion with PC to lease these pads. Having Target developed will increase the value of these pads considerably. Very liquid readily available secondary market.

Fund Strategy: Purchase lots in the vicinity of the new HEB and proposed Target along Durham and Shepherd.

Initial Properties: Lot 1 was purchased by an affiliate of Property Commerce on July 1, 2022. Lot 2 is currently under contract to an affiliate of Property Commerce.

Contribution: Property Commerce will contribute the two first lots into a partnership with Sage at Property Commerce’s acquisition basis. There is a potential to acquire more pads within the partnership over the 12-18 months following the initial close that would allow for additional equity and debt at the same LTV shown herein.

Leasing: The lots will be marketed for ground lease with the goal of a 10% or higher return on total purchase price for each parcel.

Debt: The fund will place up to 50% loan to cost debt on each asset.

Exit: The ground leases will be marketed at a cap rate of 5.5% or lower.

TARGET CONSTRUCTION – Target has signed an LOI with PC and is in the late stages of their final lease. Target chose the Heights specifically as a neighborhood to accommodate the overflow demand from the #1, top-performing Target in the city, located at Sawyer Heights and I-10. PC, the preferred developer of Target, has identified the location, finalized the site plan, and is currently focused on obtaining the remaining entitlements from the city. Construction is slated to commence no later than January 2024, with Target’s expected completion date approximately 18 months thereafter.

HOUSTON HEIGHTS LOCATION – One of the most sought after residential and commercial areas in Houston. The Heights is a major draw due to the neighborhood’s proximity to major business centers, interconnecting hike and bike trails, and it serves as a destination for foodies, architecture buffs, and creative types. Frontage on Shepherd, just south of Loop 610 on a site immediately proximate to a future Target and down the street from one of Houston’s top performing HEB’s will be highly sought after by retailers.

KEY RETAIL CORRIDOR – Both Shepherd and Durham are the two most heavily trafficked streets in the Heights each experiencing 20,000+ cars per day. The third busiest street in the Heights has 30% less daily traffic. A $50.4 million infrastructure project is underway on both Shepherd and Durham  streets between 610 and I-10 which will further enhance traffic flow and walkability along both thoroughfares.

OUTSTANDING DEMOGRAPHICS – The Height’s demographics are amongst the strongest in Houston. The 1-mile radius around this property features both significant density (20,000+ residents) and strong average household incomes (+$156,000).

COMMITMENT FROM ANCHOR RETAILERS – Shepherd includes a who’s who of retailers that have elected to operate on the busy street. Large retailers include HEB, Target (pending), and Kroger. Shop tenants include Starbuck’s, Snooze AM, Superica, and Flower Child.

HIGHLY LIQUID PRODUCT TYPE – The Single Tenant Net Lease (“STNL”) segment experiences $16 billion of trades annually w/ roughly half of the sector being acquired by private buyers.

EXCEPTIONAL DEVELOPER – Property Commerce is a prolific Houston operator and developer who has completed 3 million square feet of development projects, dozens of single-tenant pads, and has close ties with Target.

QUICK EXIT – Opportunity to develop and exit in 3-5 years to private capital buyers.