Mark S. Goldstein, Esq.Brent M. Goldstein, Esq.
(301) 951-9323(240) 838-6170
AVANTI CAPITAL LLC
4865-A Cordell Avenue, Suite 7
Bethesda, Maryland 20814
February 28, 2003
Re: Participation Loan to Douglas and Joyce Jemal, Guaranteed by Jemal’s Phillips L.L.C.
Dear Investor:
We recently advised you by telephone that Avanti Capital LLC is participating in a $3,000,000 participation loan (the “Loan”) led by Norman G. Cohen, Inc. to Douglas and Joyce Jemal (the “Borrowers”). Avanti Capital has committed to raise $1,000,000 of the total Loan. The purpose of the Loan is to provide short term cashflow to Mr. Jemal to enable him to pursue certain real estate acquisitions. The Loan will be guaranteed by Jemal’s Phillips L.L.C. (“Guarantor), a Maryland limited liability company wholly-owned by Borrowers which owns a 114,500 square foot improved office/retail property located at 7900-7920 Norfolk Avenue in Bethesda, Maryland (the “Property”). Guarantor will secure the loan with an Indemnity Deed of Trust, Security Agreement and Assignment of Leases on the Property (the “IDOT”), however, due to prohibitions contained in Guarantor’s first trust loan documents, the IDOT will be held in escrow and not recorded.
The Property consists of a 10-story office building with ground floor retail space over two adjacent tax parcels in the heart of the Bethesda Central Business District (CBD). The improvements contain approximately 114,500 sf and have been configured with 108,339 rentable sf. The Property was originally developed in 1964 and was completely renovated upon the Guarantor’s acquisition in 1996/1997. At present, it is configured for 30 tenants and is 78% leased. Assuming a detrimental scenario where none of the 21% vacancies are filled in the next 10 months, the Property will still generate 2004 gross revenues of $2,150,000 and net operating income of $1,674,591. Applying a conservative 9% capitalization rate on this 2004 NOI, the Property would be valued today at approximately $18.6 million. At 90% occupancy, the Property, given its current location, would appraise in excess of $20 million. (Note – over the past several years, capitalization rates for sales of comparable properties in Bethesda have dropped to as low as 7%-8%. As a refresher, the capitalization rate valuation is determined by dividing Net Operating Income by the applicable capitalization rate. Accordingly, the $18.6 million valuation results from dividing projected NOI of $1,674,591 by 0.09.).
The largest tenant at the Property is the popular restaurant, Rock Bottom Brewery, which rents approximately 12,800 sf of first floor and basement space. The Bethesda Rock Bottomis one of the highest grossing restaurants in the national Rock Bottom chain with annual sales consistently approaching or exceeding $6 million. No other tenant rents more than 7,500 sf, so the risk of material additional vacancy is minimized. Moreover, in reviewing the rent roll (a copy of which is provided with this letter), there are very few leases which will mature during the term of the Loan.
The current first trust debt on the Property is a 10-year loan that matures in February, 2008. The current balance on the first trust loan is approximately $10 million. This first trust loan is a permanent facility with Amresco Capital, L.P. that cannot be prepaid or refinanced without Guarantor’s incurring substantial yield maintenance penalties. Accordingly, despite having substantial equity in the Property, Guarantor and Borrowers are unable to access that equity to pursue additional acquisition opportunities.
Douglas Jemal is arguably the most prolific real estate developer and owner in the Washington D.C. Metropolitan area. With a net worth exceeding $250 million, Mr. Jemal’s various entities own over 150 different improved properties with an aggregate value of over $900 million. A one-page bio of Douglas Jemal is attached to this letter.
As stated above, the Borrowers are seeking a $3 million loan from Norman G. Cohen, Inc. (“NGCI”) and NGCI has elected to share the loan with two equal participants, namely Mooring Financial and Avanti Capital. NGCI is a family-owned private investment company that has made loans secured by WashingtonMetropolitan area (and Florida) real estate for over 30 years. NGCI is a long-time client of the Paley, Rothman, Goldstein et al law firm. NGCI has had a 7-year relationship as a lender to Doug Jemal and his affiliated entities with 6 different loans totaling approximately $9 million to $10 million over that period. Mr. Jemal often prefers using NGCI over the more traditional banking institutions because of NGCI’s ability to commit and provide capital quickly without being delayed by onerous approval processes common with most financial institutions. NGCI’s President, Jeffrey Cohen, provided assurances of an outstanding payment history on all previously-made Jemal loans and described an excellent business relationship with Mr. Jemal and his organization. Mooring Capital (and/or its affiliates)has participated in several transactions with NGCI and Mr. Jemal (including a recent loan on Mr. Jemal’s 7979 Old Georgetown Road office building during the summer of 2003).
Avanti Capital will be providing $1,000,000 of the Loan through a group of private investors (the “Note Participants”) who will be bound by a Note Participation Agreement appointing Avanti Capital to act as Trustee on their behalf. The Note Participants may participate in units of $25,000, $50,000 or $100,000 (or an aggregation of those amounts). The loan will be for a term of 3 years, will be evidenced by a Promissory Note from Borrowers payable to Avanti Capital as Trustee (a copy of the Note is provided with this letter), will bear annual interest at the greater of (i) 6% over the monthly Wall Street Journal Prime Rate, or (ii) 10%, and will be payable interest-only to NGC on the first of every calendar month. Within 10 days of receipt of the interest check from Borrower, NGCI will disburse interest checks pro rata to the Note Participants.
The Loan will be secured by a pledge of Borrowers’ 100% membership interests in Guarantor and by Guarantor’s execution of a Guaranty and an Indemnity Deed of Trust, Security Agreement and Assignment of Rents (“IDOT”) secured by the Property. Due to prohibitions under Guarantors first trust loan documents, the IDOT (as well as the UCC filings for the membership interests) will be held in escrow by Alan S. Mark, Esq., a partner with Paley, Rothman, Goldstein, but will not be recorded except upon loan default. Interest payments on the Loan will be subordinate to the Guarantor’s first trust, but will be superior to any distributions to the Guarantor’s members (i.e., the Borrowers).
TheBorrowers may not prepay the loan at any time during the first 18 months of the loan term except in conjunction with a sale of the Property. During the second 18 months, the Borrowers may prepay the loan without penalty.
Fees to Avanti. Avanti will be paid a $60,000 fee for performing due diligence relating to the loan and for organizing and structuring of the loan. This fee will be paid by the Borrowers, with $30,000 payable at Closing, $20,000 payable on the first anniversary of the Closing and $10,000 payable on the 2nd anniversary of the Closing. Neither Avanti, nor its affiliates, will receive any ownership interests in the Guarantor or any affiliate.
Closing. This transaction is scheduled to close on or before Friday, March 5, 2004. To date, Avanti has received pre-commitments for the entire $1,000,000. If you elect NOT to participate in this transaction, please call Brent Goldstein immediately at 240-838-6170 so that we have time to replace the amount set aside for you (as listed at the top of page 1). If you intend to proceed, please execute the signature pages to BOTH the attached Subscription Agreement AND Note Participation Agreement and make sure you mail them to Brent for delivery by Wednesday, March 3, 2004with a check payable to AVANTI CAPITAL LLC in the amout of your investment. In the event you will be unable to deliver a check in the amount of your investment by Wednesday, March 3, 2004, then please arrange to wire your funds in accordance with the attached wiring instructions.
Sincerely yours,
Mark S. Goldstein
Brent M. Goldstein
Each prospective investor should fully familiarize himself or herself with the entire transaction prior to making a substantial investment required for a Loan interest. The investment is not free of risk and should only be made by individuals who have ample income and substantial net worth, so as to be in a position to hold an illiquid investment. Because the Loan interests in this transaction will be offered to certain select persons known to Avanti Capital LLC and not to Maryland residents in general, Avanti Capital LLC does not intend to have a detailed Prospectus of the transaction prepared beyond the initial information contained in this letter and the attachments. Of course, each prospective investor is welcome to meet with Avanti Capital LLC or legal counsel to seek any additional or relevant information to this transaction. Since a detailed Prospectus is not being prepared for this investment, each investor will be asked to sign a Subscription Agreement which contains a statement that he or she has substantial income, can afford to lose his entire investment, recognizes the allocations of the investment, and has been afforded the opportunity to ask questions and obtain information about the investment. In the case of a trust fund or retirement fund, the Trustee will be asked to sign a statement that this investment is prudent under all circumstances. This letter is intended to be a general outline of the rights, duties and obligations of the parties involved in this transaction. All documentation will be consistent with this summary.
THE UNITS OFFERED HEREUNDER ARE OFFERED PURSUANT TO PRIVATE AND/OR LIMITED OFFERING EXEMPTIONS FROM SECURITIES REGISTRATION UNDER FEDERAL AND STATE SECURITIES LAWS. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS NOT BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION OR WITH ANY STATE SECURITIES DEPARTMENT, NEITHER THE COMMISSION NOR ANY STATE SECURITIES DEPARTMENT HAS PASSED UPON THE VALUE OF THESE SECURITIES, MADE ANY RECOMMENDATIONS AS TO THEIR PURCHASE, APPROVED OR DISAPPROVED THE OFFERING, OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.