Our core strategy provides a higher yield than investments such as bonds, stocks, CDs or US Treasuries, while simultaneously avoiding the volatility of stocks. We provide a so called “super bond” where investors in Alternative Capital earn an 8% unlevered return secured by 1st position mortgages.
Let’s take a moment to consider recent US Treasuries performance. From 2012-2017, they bounced between 1.5%-2.5%. Treasuries are losing value to inflation every year. Additionally, Treasury Note values are inversely related to interest rates. As interest rates go up, the cash value of fixed rate bonds, such as Treasuries, falls. With the declared goal of the Federal Reserve to increase interest rates, Treasuries will likely lose value.
In addition to providing an attractive yield, Alternative Capital’s principals, Chris Mercer and David Lowrey, aim to diversify the portfolio across a number of assets classes and sub-markets of Florida. We’ve consistently invested our capital and managed a large number of single family homes, condos, multifamily, and commercial properties. In fact, the principals own a property management company that has made the Inc 500 List of fastest growing privately held companies in the US.
A key principle of Alternative Capital is the borrowers are Chris Mercer and David Lowrey’s related companies. Therefore, the properties purchased are personally vetted by them, and will either be kept as long term investments or developed and sold to the retail market. The identifying, underwriting, development or repositioning, and management of these assets are all done by Mr. Mercer, Mr., Lowrey and their staff in other companies.
You might be asking yourself why we would be borrowing money at 8% when banks are offering lower rates. The answer is the ability to acquire an investment property at an attractive price by closing in a matter of hours or days. Traditional banks simply cannot move fast enough and excellent real estate opportunities rarely last for very long on the open market.
Alternative Capital was formed for two reasons: Bridge Financing and Development Niche
- Bridge Financing: Investor money is used to acquire an excellent investment found through auctions, tax deed, foreclosure sales, and other off market methods. These types of sales require immediate cash closings. Typically after 12 to 18 months, the loan is repaid to AC by a new bank loan. About ½ of our loans through Alternative Capital will be for this type of bridge financing.
- Development Niche: Our second strategy is providing mortgages to acquire properties or land that will be redeveloped and sold in the retail market. The principals own a construction company based in Tampa Florida. We operate in a sub market of development that is notoriously underserved by the banking industry. The project scope would range between $100,000 to $250,000. Since banks typically need greater scale to make profitable loans in the commercial market, there is tremendous opportunity to find deals at significant discounts. By acquring these type of deals in volume, the profits are still significant.
90/10 Rule of this Fund
The principals of Alternative Capital invest their own money into the fund equal to 10% of the fund value. All disbursement of funds goes to the investors first and then to the 10% owned by the principals of Alternative Capital. This structure aligns the interest of the principals of Alternative Capital with our investors, and clearly demonstrates we have “skin in the game.” One of our core beliefs is by taking care of our investors by going above and beyond the norm, we will grow and strengthen our relationships.
Our ultimate goal at Alternative Capital is developing long term relationships with our investors. This will allow us to grow and contract our investment pool as the real estate market changes. The best time to expand is during real estate recessions. This is when we deploy the most capital as people who are not prepared are stampeding for the exits. During those times, we often will expand our existing lending relationships with our investors and provide higher returns.