RockStep HomeTown America Fund I
Our mission is to help you generate cash flow and build generational wealth through commercial real estate investing.
Instead of swinging for the fences with every investment, we focus on acquiring properties that will produce steady cash flow through the hold period and have ample opportunities to generate significant upside.
Our Investment Philosophy
Generating real wealth in commercial real estate doesn’t happen overnight by taking outsized risks to produce lofty returns. It grows over time through conservative underwriting, thorough due diligence, buying right, and efficient management. These are the guiding principles for our team. This philosophy helps us build generational wealth for you and your family.
The Investment Strategy
WE SEEK TO ACQUIRE AND MANAGE UNDER-UTILIZED SHOPPING MALLS, POWER CENTERS, AND NEIGHBORHOOD SHOPPING CENTERS LOCATED IN HOMETOWNS ACROSS THE UNITED STATES.
We’re targeting cash-flowing shopping centers at well below replacement cost using conservative leverage with flexible rates and terms provided by local banks and lenders. Particularly for the development of enclosed mall properties, we target developing relationships with influential local investors who invest alongside the Fund to create alignment with the communities with whom we invest and partner.
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The Opportunity
Over the next three to four years, an estimated $50 billion of insolvent debt will become due in the enclosed shopping mall space. This presents an unprecedented opportunity to acquire properties well below replacement cost, and sometimes at or below the value of the underlying land, with in-place annual cash flows of 15% or more. We will leverage our expertise in this sector to take advantage of these deals as they become available.
Income and Growth
As we execute our business plan by reducing unnecessary expenses, increasing rents, and filling vacant spaces with more profitable tenants, the free cash flow available for distribution increases along with the property's value. This provides you with the income and growth to turbo-charge your investment portfolio.
Diversification
Because real estate investments tend to behave differently than typical stock and bond investments, adding them to a portfolio may provide broader diversification, enhance returns, and increase income levels. The Fund intends to diversify across assets, geographic regions, and asset classes.
Tax Efficient
The tax code favors real estate investors. Commercial real estate is remarkably tax-efficient since a significant portion of the purchase price can often be depreciated in the first years. Investing passively allows you to get the cash flow and tax benefits of owning real estate, without the headaches of being a landlord.
The Fund by the Numbers
Minimum Investment
Preferred Return Range
Manager Promote
Targeted Yearly Cash Distribution
Targeted Internal Rate of Return
Targeted Equity Multiple
Fund Highlights
Low Minimum Investment
Investors can participate in the Fund by investing as little as $100,000 and get exposure to five to eight shopping centers.
Low Leverage
Most enclosed malls will be acquired with approximately 50% leverage and power and neighborhood centers at approximately 60% leverage.
Transparency
Third-party fund admin, quarterly reporting, access to property-level financials, annual background checks on the key principals.
Alignment of Interests
Sizable co-investment by the key principal, preferred return to investors, a full return of capital before promote.
Composite State Tax Returns
Where available, we will file composite state tax returns on behalf of investors to avoid multiple state tax returns.
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Investment Options
Interested investors have three options to choose from based on how much capital they commit to investing in the Fund.
The first $5M in capital committed will receive a “bump” in Member Class (e.g., $100k commitment will receive Class B instead of Class A, $1M will receive Class C instead of Class B).
Class A
$100k to <$1M
Investment Amount
Class B
$1M to <$5M
Investment Amount
Class C
$5M+
Investment Amount
What Makes Us Different?
When deciding whom to partner with as a passive investor, you have many options. At RockStep, three things distinguish us from those executing a similar strategy and ultimately dictate the results we achieve.
Our Track Record of Success
Years
Owned and operated retail properties
Square Feet
Built or acquired of retail since inception
Properties
Currently managed in 11 states
AUM
Market value of current portfolio
IRR
Net to investors
(14 sold / 23 current)
Equity Multiple
Net to investors
(14 sold / 23 current)
Case Studies
To get a better feel for the types of properties we acquire, how we add value to those properties and mitigate the risks, take a look at a few of our success stories:
Meet Our Team
We've assembled a team of experts across all disciplines with vast experience in the retail sector. Many of the members of our company have worked for some of the largest shopping center owners and operators in the country, such as ShopCorp, a division of Blackstone, CBL, and Brookfield.
Andy Weiner
Founder & President
Tommy Stewart
Chief Operating Officer
Karen Brohn
Controller
Dmitry Lyamichev
Managing Director of Acquisitions
John Vornholt
Director of Asset Services
Renee Williams
Director of Mall Management
Kaci Summey
Director of Leasing
Racine Leahy
Director of Leasing
Generational Wealth Starts Here
Once you have read about The RockStep Way, the next step is to set up the call that could begin your journey to generational wealth.
Schedule Discovery Call
The first step is determining whether we’re a good fit for you and vice versa. Schedule a time to meet with one of our Passive Investing Specialists.
Invest with Confidence
We aim to help you achieve financial and time freedom so you can spend your time doing what you love with the people you love.
Leave Your Legacy
Not only secure your family’s long-term financial health, but directly influence and give back to HomeTown America.
What's in it for you?
RockStep Capital helps our investors build generational wealth by investing in the retail shopping center sector.
This will let you generate consistent cash flow and long-term appreciation while allowing you to do the things you love.
By acquiring distressed shopping centers in "hometowns" across the US with two or more market drivers, such as a university or medical center, RockStep Capital is able to recruit desirable tenants, adjust rents to market rates and maximize every dollar you invest.
FAQs
Below is a handful of frequently asked questions our investors have about our investment strategy and track record.
How do you source your deals?
Most of the shopping mall deals in our pipeline are being offered for sale by lenders who have foreclosed on a property due to the previous owner's default. The most common situation that led to the foreclosure was that the current net operating income generated by the property wasn't sufficient to pay the principal and interest payments due to the lender.
When lenders go to sell the properties after they've foreclosed on them, they use a bid process that typically lasts between three to four weeks. They usually choose the highest bid from a group with the highest certainty of closing quickly (e.g., cash buyers).
Historically, we have syndicated the equity needed to acquire a property, as sellers were willing to give us ample time to raise the equity needed to close. Due to the fact that now the best deals available in the market are being offered by lenders we have had to shift from syndicating equity on a deal-by-deal basis to raising equity into a committed capital fund structure to compete with the larger, deeper pocket buyers.
What kind of properties do you plan on acquiring in the Fund?
Given that owning and operating enclosed shopping malls in secondary and tertiary markets is our specialty and currently represents the most significant opportunity in the retail sector, we plan on acquiring the three to five best shopping mall deals we find during the Fund's investment period.
We also see ample opportunities to acquire open-air power centers, which are properties that primarily contain large big-box retailers (anchors) such as T.J. Maxx, Hobby Lobby, and Ross Dress for Less. These properties are lower on the risk spectrum than an enclosed shopping mall but still tend to generate levered cash flows in the low double digits. We plan to acquire anywhere from one to three of these types of properties in the Fund.
We may also acquire one or two neighborhood shopping centers. These may or may not be grocery-anchored.
Where will the properties be located?
We plan to acquire properties in fly-over states or what many would consider "red" states. We might buy properties in "red" counties in "blue" or "purple" states.
When buying shopping malls, we want to target markets with one or more of the following:
- Large University
- Military/Government Presence
- Major Hospital Network
- Tourism
- Fortune 1000 company
The other criteria for being considered a HomeTown market are as follows:
- 100k to 1M population
- Exhibits community pride
- Engaged city leadership
- High quality of life
- Highly rated school system
- Low crime rates
- Growing population
- Low cost of living
Power centers or neighborhood shopping centers may be located in either a "HomeTown" market or a larger metropolitan market.
Are there currently any properties in the Fund?
As of July 20th, 2024, we have yet to acquire any properties in the Fund. We began fundraising at the end of June 2024 and plan to complete our first acquisition in Fall 2024.
How do you determine whether a deal is good or not?
There are three primary things we look at when a new deal crosses our desk.
- Can we acquire it for well below replacement cost?
- Are the existing tenants profitable at their current lease rates?
- Is the property currently generating free cash flow?
If it meets these criteria, it tells us that the property more than likely isn't distressed even though the current ownership structure may be (e.g., too much debt, not enough cash flow).
From there, we will determine whether or not the property is capable of generating a levered annualized internal rate of return of at least 15% in the case of a shopping mall or a 10% return in the case of a power center or neighborhood center with little to no changes in occupancy and expenses.
We consider ourselves true "conservative underwriters." We identify all of the potential opportunities to generate outsized returns, but we underwrite the deal as if NONE of them will actually come to fruition. If the deal still meets our criteria, we will proceed with a full underwriting of the opportunity.
Aren't shopping malls dying? Why is now the right time to buy them?
There are approximately 1,150 shopping malls currently in operation across the United States.
The short answer is that a good number of them would be better off being repurposed for a higher and better use. The ones that fit that criteria are usually located in larger metropolitan areas, where they face stiff competition with other shopping malls that are better located and preferred by consumers.
To be successful, most shopping malls today require a reimagining of the space. To fit the current environment, they need to shrink a large amount of the pure "retail" space to alternative uses.
Due to high construction costs, very little new retail development is taking place. The exterior facing space of a shopping mall is still very valuable real estate for the fastest-growing and best-capitalized retailers such as T.J. Maxx, Five Below, Ross Dress for Less, Burlington, Ulta, Sephora, and many others.
The Amazon Effect ended up putting many brick-and-mortar retailers out of business. In the process, they also drove up the cost of acquiring new customers online. Many of the retailers that were operating strictly online (aka Pure Play Retailers), have shifted to what we call an omni-channel strategy where they operate both online and through physical locations. They've found that the cost of acquiring new customers through their physical locations is more cost-effective and are therefore looking to expand, but space is challenging to come by due to the dearth of new development.
This is why we are bullish on acquiring shopping malls in HomeTown markets. There is less competition, communities desperately want their malls to thrive once again, and fast-growing retailers want to expand.
The primary impediment to that happening is existing owners, with an overinflated basis, having to lose their properties to foreclosure so that a new owner can come in, with a right-sized basis, and reposition the property to meet the current dynamics of the retailing environment.
Real estate, in general, is a cyclical business. Like most neighborhoods gentrify over time, the same thing occurs in retail. Sometimes, it makes sense to bulldoze an entire neighborhood of homes to make way for a new entertainment district, but most of the time, renovating the existing homes for a new generation of homeowners makes more sense. It isn't a binary decision; it depends upon the context of the situation.
How do you add value to the properties after you acquire them?
We "add value" to the properties we acquire in a handful of ways. Each property we own and operate has its own unique set of circumstances.
- De-Mall: This is when we repurpose much of the square footage for alternative uses. The mall's exterior will be transformed, with tenants having their own external entrances. The interior space may be used as office space or other mixed uses.
- Sum of the parts is greater than the whole: We sub-divide the various parts of the property and sell them off. For example, out-parcels may be sold to Chick-fil-a or Starbucks. A department store may be sold to a hotel or multifamily developer. You're left with a smaller retail footprint which is typically now better sized to meet the current market demand.
- Re-tenant: Sometimes, it makes more sense to replace a department store tenant with multiple tenants who are willing to pay a higher price per foot. Other times you can recruit new tenants that will drive greater foot traffic which allows you to steadily increase rents to new tenants.
- Mark to Market Rents: Tenants may be paying lease rates below market rates. Increasing their rent at renewal can increase the property's overall NOI.
- Expense Reduction: The former owners may have been spending more on operating expenses than they should have been. Reducing or rightsizing those expenses all hits the bottom line.
- Negotiating Tax Incentives: Given that many local communities want to see their properties revitalized, they are open to assessing an additional sales tax on sales coming from the property that is then passed along to the property owner to encourage them to continue to invest in the property.
- Receiving Consents from Large Tenants: Most anchor tenants of a retail property have negotiated rights in their lease to approve or disapprove any change in the overall property's use. Getting them to agree to your plans is both art and science and something we've mastered over the years, primarily through building strong relationships with the powers that be. Once those consents are received, a property owner can unlock the latent value of a property.
These are just a handful of ways that we add value. The key is fostering and maintaining excellent relationships with community leaders and the large national tenants since most value creation occurs by getting buy-in from these key stakeholders.
Who will buy the properties from you once you stabilize them?
For power and neighborhood centers, there is a large group of private and institutional investors who seek these assets in all types of markets.
For enclosed malls, the buying pool is smaller and depends upon RockStep's ability to maintain stable, if not increasing, cash flow. If we are able to achieve our objectives, the buying pool will increase because the targeted exit cap rate will be dramatically higher than a buyer could achieve with other stabilized commercial real estate assets.
How are you able to buy these properties at such great prices?
Since commercial real estate values are a function of how much net operating income a property generates (rent minus operating expenses), many existing owners have seen significant net operating income declines over the last few years, driven primarily by the Amazon Effect and the global pandemic.
These existing owners purchased the properties at a time when they had much higher net operating income and, therefore, paid a much higher price for them. They also borrowed many from banks to acquire those properties at those higher prices. Many are forced to either sell those properties for far less than they paid or lose them to foreclosure.
It's like hitting the reset button. We have the opportunity to buy the in-place cash flows at historically high cap rates. The price we pay represents a significant discount to what it would cost to rebuild the property, and often, it's at or below the value of the land.
The short answer is that it is a function of the consequence of market disruption and a confluence of events that have caused a "perfect storm" (e.g., Amazon Effect > COVID > high construction costs > increase in interest rates > increased demand from surviving retailers > limited availability of retail space).
Our founder and President, Andy Weiner, has been in retail since 1984 and has owned and operated shopping centers for over 27 years. If you stick with something long enough, you'll eventually be presented with an opportunity to participate in something like this at least once in your lifetime.
Two reasons: 1) We have a fund with committed capital, and most sellers of distressed malls require committed capital to win the deal. 2) RockStep has a well-tuned skillset for managing one of the most challenging assets in commercial real estate: enclosed malls. Very few operators have that skill set. As a result, RockStep competes with a limited number of buyers for these distressed assets.
What is the value of sourcing local investors and local lenders?
The primary benefit of having local community leaders invest alongside the Fund is that it mitigates many of the deal's latent risks.
- Influential Personal Networks: Our local investors hold positions on influential local boards, such as those of economic development, universities, and local hospitals. They actively participate in Rotary and maintain connections with community and business leaders.
- Commitment to Community Success: They desire to witness the growth and success of their community, with personal and financial investments at stake. This fosters a strong alignment of interests.
- Bring New Opportunities: They are mindful of individuals interested in leasing space and those considering selling their properties. They effectively serve as deputized leasing agents.
- Assist with Governmental Issues: Their assistance includes securing government incentives, connecting us with the relevant individuals for property tax matters, relationships with city government and police departments, and aiding in rezoning and entitlement concerns.
- Provide Valuable Feedback: They offer valuable feedback from their fellow citizens, both positive and negative, that we wouldn't access without their participation.
The benefits of sourcing the debt needed to acquire a property from a local or regional lender are similar to sourcing some of the equity from local investors. They want to see their local community grow and thrive, and because of that, they are willing to offer us more flexible terms at better interest rates than many of the larger, more national lenders.
Isn't it more risky to acquire properties in secondary and tertiary markets?
In many cases, it can be. This is why we have strict criteria for what constitutes a "HomeTown" market. We own and operate properties in growing and thriving communities. Essential drivers are in place, such as tourism, a military/ government presence, a large university, a major hospital network, or one or more Fortune 1000 companies.
When we acquire a shopping mall, we also insist on having local investors and a local lender participate in the deal. It aligns us with the community. We all want the same thing. If we are viewed as outsiders and have an adversarial relationship with the community, we will be unable to unlock the majority of the potential value of the investment since many of those value drivers require cooperation with local and county government (e.g., permitting, zoning, taxation, signage rights, etc.).
From a financial perspective, acquiring properties in secondary and tertiary markets offers the same cash flow and national tenant credit quality at a lower price.
Have you ever had a capital call after the initial funding?
No. This is extremely rare in the industry.
Here are three reasons we've been able to avoid having to make a capital call.
- We use low leverage.
- We have strong leasing capabilities and excellent expense control.
- We have regional and local lenders that can provide additional capital needs when we have signed leases from quality tenants.
Have you ever lost a property to foreclosure?
No. Most of the ~1,100 shopping malls in the United States are owned by a handful of large institutional investors. Most of them have lost properties to foreclosure at one time or another.
That is a large part of what is driving the current opportunity in the market. Many of these properties were acquired during Amazon's rise to prominence over the past ten years at prices much higher than their present values. Their loans are now maturing, and their owners are unwilling to infuse any additional capital into the properties to save them. Their lenders are then forced to attempt to recoup as much of their investment as possible, but in most cases, they will have to take a significant loss themselves.
What is your track record of success owning and operating shopping centers?
Since 2000, we've acquired 37 retail properties with outside investors. We have gone full-cycle on 14 properties and currently own 23 properties in 11 states.
Our combined net returns (realized and unrealized) to investors across all 37 properties are over 30%+IRR and 2.01x+ equity multiple.
Important Information and Disclaimers
The information contained herein is provided for informational and discussion purposes only and is not, and may not, be relied on in any manner as legal, business, financial, tax or investment advice or as an offer to sell or a solicitation of an offer to buy an interest in the investment described herein (the “Investment”), or to participate in any trading strategy. A private offering of interests in the Investment will only be made pursuant to the Investment’s offering materials, including the Investment’s subscription documents (the “Offering Package”), which will be furnished to qualified investors on a confidential basis at their request for their consideration in connection with such offering. The information contained herein will be superseded by, and is qualified in its entirety by reference to, the Offering Package. To the extent that there is any inconsistency between this document and the Offering Package, the provisions of the Offering Package shall prevail. No person has been authorized to make any statement concerning the Investment other than as set forth in the Offering Package and any such statements, if made, may not be relied upon. The information contained herein must be kept strictly confidential and may not be reproduced or redistributed in any format without the approval of RockStep Capital, LLC, a Texas limited liability company and the Sponsor of the Investment (the “Sponsor”).
By accepting this document, the recipient agrees that it will, and it will cause its shareholders, partners, members, directors, officers, employees and representatives, to use the information only to evaluate its potential interest in the securities described herein and for no other purpose and will not divulge any such information to any other party except for its advisors under duties of confidentiality.
By accepting this document, each recipient agrees to return it promptly upon request. The Sponsor is the sole sponsor of the offering of interests in the Investment. The interests in the Investment are subject to restrictions on transferability contained in the Offering Package. Neither the Sponsor nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the information contained herein and nothing contained herein shall be relied upon as a promise or representation whether as to the past or future performance. No representations are made as to the accuracy of any targets, estimates, approximates or projections or that such targets, estimates, approximates or projections will be realized. Forward-looking statements are based upon certain assumptions and information available on the date hereof. Actual events are difficult to predict and may be beyond the Sponsor’s control. The information contained herein does not purport to contain all of the information that may be required to evaluate an investment in the Investment and any recipient of this document is encouraged to read the Offering Package and should conduct its own independent analysis of the data referred to herein prior to making an investment in the Investment.
Prior to the sale of interests in the Investment, the Sponsor will give investors the opportunity to ask questions and receive answers concerning the terms and conditions of an investment in the Investment and other relevant matters and to obtain any additional information (to the extent that the Sponsor possesses such information or can obtain it without unreasonable effort or expense) necessary to verify the accuracy of the information in this document. Each prospective investor should consult its own attorney, business adviser and tax adviser as to legal, business, tax and related matters concerning the information contained herein including the merits and risks involved with an investment in the Investment. The Investment involves a high degree of risk.
Participation in the is suitable only for sophisticated investors and requires the financial ability and willingness to accept the high risks and lack of liquidity inherent in an investment in the Investment. Investors in the Investment must be prepared to bear such risks for an indefinite period of time. No assurance can be given that the Investment’s objectives will be achieved or that investors will receive a return of their capital. There will be no public market for interests in the Investment, and interests in the Investment will be subject to strict limitations on transfer. Investors should regard their interests as illiquid, and investors should not invest in the Investment unless they are prepared to lose all or a substantial portion of their investment.
All track record and prior investment performance is subject to and qualified by the following:
- As used herein, the term “RockStep Capital,” or “RockStep” refers to the umbrella brand of real estate investments sponsored by the Sponsor and/or its affiliates. Accepted investors will be investing in RockStep HomeTown America Fund I LLC, a Delaware limited liability company (the “Fund”), and the assets of the Fund will vary from those of RockStep.
- All references, if any, to net investment returns reflect returns on an investment-by-investment basis. There can be no assurance that unrealized investments will be realized at the valuations used to calculate the net investment returns contained herein and transaction costs connected with such realizations remain unknown and, therefore, are not factored into the calculations.
- Unless otherwise stated, all financial information provided herein is unaudited.
- Any reference to a targeted or projected NOI, cash flow, annual return, IRR, or multiple of invested capital contained in is merely an estimated “target” and inherently subject to a variety of risks and uncertainties that could cause actual results to differ materially from those predicted or anticipated. While the targeted performance is based on assumptions that the general partner believes are reasonable, the actual returns will depend on a very broad range of factors applicable to individual investments. There are risk factors that could cause certain assumptions to prove to be incorrect, which may include, without limitation: (i) changes in government policies and government activities in the debt markets; (ii) changes in interest rates; and (iii) economic and market conditions. No assurance, representation or warranty is made by any person that any targeted returns will be achieved, and no recipient of this document should rely on such targets.
- The summaries of various investments are intended to be a brief summary of certain key terms and does not contain all material information regarding these investments. Additional information regarding these potential investments is available upon request.
- There can be no assurance that any potential transaction will be consummated or, if consummated, the terms on which such transaction will be consummated, until the final execution of the investment documents.
- Past performance of investments made by persons affiliated with the Fund is not indicative of future results and there can be no assurance that the Fund will achieve results that are comparable to any prior investment described herein.