Non-Traded REIT JVs on $51.3M Oxford Square Multifamily Project in Hanover, MD

Woodfield’s Hidden Creek Apartments in Gaithersburg

A joint venture that includes non-traded REIT CNL Growth Properties has acquired a fee simple interest in the 9 acre parcel of land in Hanover, MD known as Oxford Square for $9.9 million, including closing costs.

The seller was Kellogg-CCP, LLC, an affiliate of Preston Scheffenacker Properties, Inc., according to the contract.

As part of the acquisition, the Oxford Square joint venture borrowed $4.96 million from Wells Fargo Bank, N.A. The balance of the purchase price for the Oxford Square Property was funded with the preliminary capital contributions of the JV Partners to the Oxford Square Joint Venture, in the approximate amounts of $3.15 million by the CNL Growth Properties affiliate CGP JV Partner, and $2.1 million by the Woodfield JV Partner.

The Woodfield JV Partner is an affiliate of Woodfield Investments, LLC, a Virginia limited liability company.

The Oxford Square Joint Venture will develop, construct and operate the Oxford Square Property as a 248-unit multifamily residential community, which will be known as Oxford Square. The Oxford Square Project will consist of 4 residential apartment buildings having a total net rentable area of approximately 247,330 square feet, and an average gross unit size of approximately 997 square feet.

Among its amenities, the Oxford Square Project will feature a clubhouse, fitness studio, and approximately 391 parking spaces. The Oxford Square Project will be CNL Growth Properties’ first multifamily development project in the State of Maryland.

The total project budget for the Oxford Square Project is $51.3 million, including land and construction costs. Although no binding agreements have been entered into with respect to the financing of the development, the Oxford Square Joint Venture anticipates entering into and closing on, by June 30, 2014, a construction loan in the amount of $35.6 million, to fund the development, construction and other costs associated with the Oxford Square Project.

Woodfield, or another entity acceptable to the CGP JV Partner, will provide all guaranties required in connection with the Construction Loan, including completion and cost guaranties, as required by the CGP JV Partner or the lender for the Construction Loan.

Woodfield Development Company, an affiliate of Woodfield, will serve as the developer of the Oxford Square Project under the terms of a development agreement dated March 7, 2014.

Woodfield has agreed to develop, construct and deliver the Oxford Square Project at a guaranteed maximum price of $51.3 million, which includes a development fee equal to 3.25% of the final construction budget. Pursuant to the Oxford Square Development Agreement, Woodfield has provided the Oxford Square Joint Venture with an absolute, unconditional and irrevocable guaranty of any construction cost overruns.

Woodfield is a privately-held real estate development company based in Virginia specializing in multi-family developments and its principals have developed apartment communities principally in the southeastern states.

In May of 2011, CNL partnered with Woodfield in the acquisition, development and management of the Long Point Property, a 258 unit Class A garden-style apartment community located on the approximately 32 acres in a suburb of Charleston, South Carolina.

In February of 2012, the Company partnered with Woodfield in the acquisition, development and management of a 298 unit Class A garden-style apartment community located on approximately 13 acres in southwest Charlotte, South Carolina.

In connection with a closing of the Construction Loan on this property, the Oxford Square Joint Venture will enter into a construction agreement for the Oxford Square Project, which will provide for a construction fee at market rates. Construction will begin following the closing of the Construction Loan; and the general contractor will be required to achieve substantial completion within 24 months of obtaining permits, but not later than April of 2016, subject to certain excusable delays.

Once completed, it is currently expected that the leasing and management of the Oxford Square Project will be provided by an experienced independent third party property management firm specializing in the on-site management of multifamily properties.

As of the closing of the purchase of the Oxford Square Property on March 7, 2014, the initial interests of the JV Partners in the Oxford Square Joint Venture are 60% for the CGP JV Partner and 40% for the Woodfield JV Partner.

However, pursuant to the terms of the Oxford Square JV Agreement, in the event that the Construction Loan is consummated, the interest of the CGP JV Partner will increase to 95% and the interest of the Woodfield JV Partner will decrease to 5%, and accordingly, the CGP JV Partner will fund initial capital contributions of up to a maximum of $14.9 million for its 95% interest in the Oxford Square Joint Venture, and the Woodfield JV Partner’s maximum initial capital contribution will decrease to $785,728 for its 5% interest in the Oxford Square Joint Venture.

Generally, in the event that the Oxford Square Joint Venture does not enter into and close on an acceptable Construction Loan by June 30, 2014, or if the Oxford Square Joint Venture is not able to obtain certain final site approvals by July 31, 2014, the CGP JV Partner will have the right, but not the obligation, to sell its entire interest in the Oxford Square Joint Venture to the Woodfield JV Partner for a purchase price equal to the amount of the CGP JV Partner’s total capital contributions to the Oxford Square Joint Venture.

Woodfield has guaranteed the purchase obligation of the Woodfield JV Partner under the Put Option. In addition, the Woodfield JV Partner’s obligation under the Put Option is secured by certain distributions from a major capital event that are payable to an affiliate of Woodfield pursuant to the joint venture agreement governing an existing joint venture between the Company and Woodfield affiliates relating to the Company’s Long Point Property located in Mount Pleasant, South Carolina.

Further, the CGP JV Partner also has the right, in the event that the Oxford Square Joint Venture does not enter into and close on an acceptable Construction Loan by June 30, 2014, or if the Oxford Square Joint Venture is not able to obtain certain final site approvals July 31, 2014, to cause the sale of the Oxford Square Property, in which event, distributions from such sale will be payable first to the CGP JV Partner until its total capital contribution has been returned, then to the Woodfield JV Partner until its capital contributions have been returned, and then thereafter pro rata to the JV Partners.

Generally, at any time 24 months after completion of the Oxford Square Project, the CGP JV Partner may cause the direct or indirect sale or other transfer by the Oxford Square Joint Venture of the Oxford Square Project. In addition, at any time 24 months after completion of the Oxford Square Project, the CGP JV Partner may make an all cash offer to (i) purchase the interests of the Woodfield JV Partner in the Oxford Square Joint Venture, or (ii) sell its entire interest in the Oxford Square Joint Venture to the Woodfield JV Partner.

The Woodfield JV Partner shall have a similar right to make an all cash offer to (a) purchase the entire interest of the CGP JV Partner’s in the Oxford Square Joint Venture, or (b) sell its entire interest in the Oxford Square Joint Venture to the CGP JV Partner. In the event of any such proposal by a JV Partner, the responding JV Partner shall be obligated to either (x) accept the proposal, or (y) to elect to purchase the interests of the proposing JV Partner, at a formula price based on the value of the Oxford Square Project, less debts, liabilities and expenses, as set forth in the Oxford Square Joint Venture Agreement.