Multifamily Indexed Equity (MFIQ)  Learn More >
Residential Indexed Equity (ResIQ)  Learn More >

Multifamily Indexed Equity (MFIQ) is a fund that invests in multifamily property partnerships by employing a unique and patented structure. MFIQ’s preferred equity purchase/partnering structure replaces property debt and leaves the current management in place with incentives to create additional wealth. MFIQ receives cash flows that are indexed to the property’s local rent inflation, with owners receiving proceeds to pay off debt and unlock equity. MFIQ delivers inflation-protected returns to its investors, and protects owners from destruction of equity resulting from default by providing permanent capital with guaranteed exit provisions. MFIQ also provides this same structure as a life event planning tool to insulate the different interests of active and passive members of real estate owning families, enabling intergenerational wealth preservation and succession planning, providing stewardship and a resource for multifamily property owners.

The MFIQ fund provides a permanent capital alternative to mortgage loans for multifamily properties. Under this arrangement we provide funding of up to approximately 80% of the property value in return for a cash flow per year that starts at up to approximately 75% of the property's net operating income (NOI). Each year the amount paid to MFIQ is indexed to, and adjusted by, the change in rental prices in the property's metro area as reported by the US Bureau of Labor Statistics. Because this is not a loan, no principal ever needs to be repaid. Instead, we form a partnership with the property owner leaving day-to-day operating control of the property with the owner. If the property outperforms the rental market this extra amount belongs to the property owner. In the event that market rental prices decline, the amount to be paid to MFIQ would decline as well.

MFIQ‘s investment objective when deploying capital is inflation protected cash on cash returns with low risk, at a modest premium to US Treasury TIPS. This is particularly appealing to high net worth families, endowments, and foundations that require inflation indexed income. In the future, this instrument may be offered to a wider range of individual investors.

MFIQ Financing Approach

• Property owner contributes property into a joint venture
• MFIQ buys up to 80% preferred equity interest in the JV with a 1.20 minimum coverage
• Sale proceeds are used to pay off all or majority of existing debt
• If all debt is paid off, payments to MFIQ begin at an amount equal to 75% of NOI (~82% of the initial cash flow after CapEx and maintenance), and adjust annually with changes in a property’s rental market as reported by the US Bureau of Labor Statistics, rather than with the property’s NOI
• The initial property value and NOI are negotiated

Benefits for Property Owners

• Owner enjoys an immediate equity infusion, increased cash on cash return and continued cash flow
• Owner retains day-to-day operating control of property
• Payments by owner to MFIQ are indexed – they rise and fall with changes in market rents – to protect owner in down cycles
• Under applicable accounting rules (FIN 46R, EITF 04-5), because owner is subordinate to MFIQ‘s claim to NOI, and because owner acts as the managing partner controlling day-to-day operating decisions, the property owner may consolidate the JV on its balance sheet
• Owner retains a portion of inflation return, and retains growth in value of entire property relative to the market
• MFIQ is value enhancing for property owner as long as the building cap rate is lower than owner’s cost of capital of an equity raise (common or preferred)

Benefits for Investors
MFIQ‘s investment objective is inflation protected cash on cash returns with low risk, at a modest premium to US Treasury TIPS. This is particularly appealing to high net worth families, endowments, and foundations which requires inflation indexed income. In the future, this instrument may be offered to a wider range of individual investors. Equity holders enjoy a substantial market yield and payments that grow with market rent inflation.

• High quality revenue: priority claim on property NOI with high percentage of embedded “AAA” revenue
• Steady returns: Returns adjusts with rent indexes from the U.S. Bureau of Labor Statistics (BLS)
• Properties managed by existing successful owner-managers with incentives to improve long term performance
• Property costs (operating expenses, capital expenditures) paid by owner-manager

MFIQ’s Chairman, Allan Weiss, a former founding partner and CEO of Case Shiller Weiss, (the creators of the Case-Shiller single-family home price index) has been working on the issue of risk mitigation and diversification in real estate for over two decades. Mr. Weiss's firm, Market Shield Capital, has licensed to MFIQ the unique, patented investment structure which underlies its business approach.

www.MFIQ.com

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Residential Indexed Equity (ResIQ) is MSC’s residential investment fund. We provide equity capital that bridges gaps between home buyers, home sellers and lenders.

ResIQ Method
ResIQ equity capital is used by a homebuyer or homeowner to reduce the home’s purchase price, mortgage balance or both.

In a purchase, ResIQ equity is used to reduce the purchase price for the buyer. In a sale ResIQ equity is used to increase the prospects for sale. Our equity can also be used to pay down an existing mortgage or as additional equity for a new mortgage.

In return for its investment, ResIQ retains a deeded equity interest in the home and is compatible with a home mortgage. The ResIQ interest requires no payments from the homeowner until the home is sold or the mortgage is repaid or until after 20 years. The homeowner may also terminate the ResIQ interest at any time without penalty.

The amount of repayment to ResIQ is a portion of the initial price reduction or mortgage reduction plus a share of the market appreciation of the property as measured by a local home price index. Homeowners retain any amount of value above the indexed price. The indexed price is also capped annually by 1% over CPI.

Distribution
ResIQ distributes its products through its network of market-leading developers, real estate brokers, mortgage servicers and banks.

ResIQ Funds
ResIQ manages private funds that hold the ResIQ equity interests. We monitor the properties and service the equity interests for the funds.

ResIQ Applications
ResIQ can be used to facilitate various residential sale transactions, including:

• Providing servicers and mortgage portfolio owners solutions for re-capitalizing LTV-challenged mortgage portfolios;
• Assisting homeowners to sell their homes with minimum bargaining and maximum pricing; and
• Helping developers sell new residential construction at prices that preserve profit
  

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