Six Peak IC Weekly Meeting

• The meeting focused on Reseda’s financing, ownership structure, documentation, and economic viability, alongside broader project exposures and SixPeak’s growth outlook.
• The team also reviewed Rocks submissions and related internal planning, but the substantive discussion centered on project capital needs, risk allocation, and future development opportunities.
• Reseda’s required MRK contribution was estimated at approximately $2 million to $3 million, with final requirements dependent on R4 and financing terms.
• No MOU with MRK has been signed.
• The team agreed that an updated MOU, informed by the DeHaro experience, is necessary before a JV is finalized.
• Signed terms from MRK, R4, Citibank, or the eventual lender are also needed.
• A potential March 1 construction start would require closing clarity and preparation by December 1.
• The ground-lease structure was considered effectively unfundable.
• Reseda’s equity requirement could be approximately $3.5 million or potentially zero, depending on interest rates, the 10-year Treasury-based rate, and the final discount.
• SixPeak’s actual pre-development costs must be included because the $175,000 Francis fee does not adequately compensate for the work required to reach a GMP.
• Reseda could generate approximately $5.5 million in construction revenue, but concerns remain about MRK’s ability to perform required development responsibilities.
• Alternatives include treating the development fee as SixPeak’s equity or replacing SixPeak’s 50% development role with another developer, although no replacement partner has been selected.
• The team evaluated renegotiating Reseda’s approximately $5.75 million land purchase price.
• Approximately $900,000 in hard cash has already been released, and the seller may have limited flexibility because of outstanding debt estimated at $3.4 million and possible financial distress.
• A negotiation position should be based on residual land value under alternative uses, including multifamily, rather than an arbitrary reduction.
• The effect of any reduction on equity and debt proceeds remains unresolved, although at least 80% of the savings may flow through under certain structures.
• The MF1 contract was reviewed with an emphasis on maximizing commercial protection while limiting representations, warranties, and tail risk to basic verifiable facts.
• For the LA3 properties, the team expects to market assets with Walker & Dunlop before debt maturity.
• Outcomes range from repayment of debt with surplus proceeds to a shortfall, with the WhatsApp property’s sale price being a major determinant.
• The potential shortfall will not be disclosed to MF1 prematurely.
• Deharo may require approximately $2 million of additional funding, including roughly $750,000 in soft-cost overruns and a $150,000 payment to the neighboring condominium association.
• Utility and legal costs were major drivers, but the confirmed net requirement remains unresolved.
• Costs must be separated between construction and deal-related items because MRK’s guarantee allocation may determine responsibility.
• Potential offsets include remaining contingencies, a transfer-tax reserve, retail tenant changes, and furnishings reductions.
• Approximately half or slightly more of the $3 million owner hard-cost contingency has been used, while deep-soil-mixing uncertainty has diminished as construction reached approximately the seventh or eighth floor of eleven.
• Francis received a city exemption from the applicable transfer tax, expected to extend to Reseda with half captured under the contract.
• The 5.5% ULA tax remains the larger exposure, but the team expects to avoid it.
• Francis is progressing on site, although completing the first draw remains challenging.
• Most HVAM transactions are closed, while one has been delayed by a TEFRA bond issue and may close in November.
• The resulting $1 million to $1.2 million cash return could support additional equity sales, but Bob Kennedy favored retaining proceeds to strengthen bonding capacity and reduce recurring funding constraints.
• SixPeak’s construction business is profitable, but losses in the LV business and insufficient future project volume could require layoffs.
• Near-term construction activity is adequate, with Reseda important to the pipeline, but development growth must accelerate in 2027 and 2028.
• HVN awards, Ramsgate and Seattle developer fees, and potential Uplifters fundraising provide support, but the company cannot rely on HVN as its sole third-party client.
• The current outlook remains viable through 2028 but does not produce substantial EBITDA without additional development or revenue.
• The team also considered expanding beyond construction-only engagements by assisting financially distressed owners in exchange for fees and upside participation, and by pursuing acquisition-and-rehabilitation opportunities in Los Angeles, California, and other markets.
• These alternatives are intended to broaden the business model and will inform the annual review in Windsor.

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  Bob Kennedy Bob Kennedy will review and polish the submitted Rocks.
  → To-Dos
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  Bob Kennedy Bob Kennedy will follow up with participants whose Rocks require more substantial clarification or rewriting.
  → To-Dos
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  Bob Kennedy Bob Kennedy will obtain Andreessen’s approval of Robert Correga’s Rocks.
  → To-Dos
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  Bob Kennedy Bob Kennedy will review the finalized Rocks with Chris ILO before uploading them to the L10 portal.
  → To-Dos
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  Bob Kennedy Bob Kennedy will update the MRK MOU using lessons from DeHaro and send it to MRK for signature.
  → To-Dos
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  Unassigned The team will obtain signed term sheets from R4, Citibank, or the eventual lender before proceeding with Reseda.
  → To-Dos
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  Conference room participant Conference room participant will calculate the land residual value under alternative development scenarios, including market-rate residential uses
  → To-Dos
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  Conference room participant Conference room participant will review the project debt and equity terms to determine how a land-price reduction would affect required equity
  → To-Dos
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  Conference room participant Conference room participant will confirm the outstanding mortgage amount using the title report
  → To-Dos
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  Conference room participant Conference room participant will review the MF1 contract and provide market feedback on its terms
  → To-Dos
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  Patrick Patrick will conduct the planned call with MF1 regarding the LA3 properties
  → To-Dos
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  Patrick Patrick will engage Walker & Dunlop to market the LA3 properties for sale before debt maturity
  → To-Dos
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  Kathy Kathy will discuss with R4 whether the transfer-tax reserve can be used to fund Deharo project overruns.
  → To-Dos
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  Bob Kennedy Bob Kennedy will provide a schedule of potential project costs, the balance of the transfer-tax reserve, and the opening, used, and remaining construction and development contingency balances.
  → To-Dos
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  Meeting participants Meeting participants will evaluate whether to propose selling additional equity before the HVAM closing proceeds are returned.
  → To-Dos
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  Meeting participants Meeting participants will assess whether proceeds should be retained in the business to support future bonding.
  → To-Dos
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  Meeting participants Meeting participants will evaluate distressed-asset opportunities where the company could provide solutions in exchange for fees and a share of upside.
  → To-Dos
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  Meeting participants Meeting participants will assess acquisition-and-rehabilitation opportunities in Los Angeles, California, and other markets.
  → To-Dos
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  Meeting participants Meeting participants will consider these broader strategic opportunities in preparation for the Windsor annual review session in October.
  → To-Dos

None.