CORONAVIRUS (COVID-19): THE CORONAVIRUS (COVID-19) (“CV”) SITUATION HAS CREATED PANIC IN THE TRAVEL, HOSPITALITY, HEALTH AND MOST RECENTLY, THE FINANCIAL MARKETS. AT THIS POINT, IT IS TOO EARLY TO DETERMINE HOW LONG AND HOW DEEP THE IMPACTS TO THE ECONOMY AND SPECIFICALLY THE REAL ESTATE INDUSTRY WILL BE. IN THE REAL ESTATE INDUSTRY, IT COULD MEAN THAT TENANTS MAY BE UNABLE TO PAY RENT AND HIGHER VACANCY RATES MUCH LIKE WHAT HAPPENED IN THE 2008 RECESSION. ADDITIONALLY POSSIBLE NEW EVICTION RESTRICTIONS, AND RENT FREEZES COULD ADVERSELY IMPACT THE SUCCESS OF THIS PROPOSED BUSINESS PLAN. ON MARCH 19, 2020 GOVERNOR ERIC HOLCOMB HAS ISSUED A MORATORIUM BANNING EVICTIONS AND STARTING COURT PROCEEDINGS THAT WOULD REMOVE DELINQUENT TENANTS. THIS MORATORIUM ON EVICTIONS HAS BEEN EXTENDED TO JUNE. WHILE THESE RESTRICTIONS APPEAR TO BE TEMPORARY, THE STATE OF INDIANA COULD EXTEND THEM AND/OR IMPLEMENT ADDITIONAL RESTRICTIONS THAT ADVERSELY IMPACT THE PROJECT. THE SPONSOR INTENDS TO COMMUNICATE WITH ITS TENANTS AND CLOSELY MONITOR RENTS AND SUITABLE TENANTS FOR THE PROJECT TO MITIGATE LOSSES.
ECONOMIC RISKS: THE ECONOMIC SUCCESS OF AN INVESTMENT IN THE PROJECT WILL DEPEND UPON THE RESULTS OF OPERATIONS, WHICH WILL BE SUBJECT TO THOSE RISKS TYPICALLY ASSOCIATED WITH INVESTMENTS IN REAL ESTATE. FLUCTUATIONS IN VACANCY RATES, RENT SCHEDULES, MARKET RENTAL RATES AND OPERATING EXPENSES CAN ADVERSELY AFFECT OPERATING RESULTS OR RENDER THE SALE OR REFINANCING OF THE PROJECT DIFFICULT OR UNATTRACTIVE. NO ASSURANCE CAN BE GIVEN THAT CERTAIN ASSUMPTIONS AS TO THE FUTURE LEVELS OF OCCUPANCY OF THE PROJECT, COST OF CAPITAL IMPROVEMENTS OR FUTURE COSTS OF OPERATING THE PROJECT WILL BE ACCURATE SINCE SUCH MATTERS WILL DEPEND ON EVENTS AND FACTORS BEYOND THE CONTROL OF THE SPONSOR. SUCH FACTORS INCLUDE CONTINUED VALIDITY AND ENFORCEABILITY OF THE LEASES, VACANCY RATES FOR PROPERTIES SIMILAR TO THE PROJECT, FINANCIAL RESOURCES OF TENANTS AND RENT LEVELS NEAR THE PROJECT, ADVERSE CHANGES IN LOCAL POPULATION TRENDS, MARKET CONDITIONS, NEIGHBORHOOD VALUES, LOCAL ECONOMIC AND SOCIAL CONDITIONS, SUPPLY AND DEMAND FOR PROPERTY SUCH AS THE PROJECT, COMPETITION FROM SIMILAR PROPERTIES, INTEREST RATES, REAL ESTATE TAX RATES, GOVERNMENTAL RULES, REGULATIONS AND FISCAL POLICIES, THE ENACTMENT OF UNFAVORABLE REAL ESTATE, RENT CONTROL, ENVIRONMENTAL, ZONING OR HAZARDOUS MATERIAL LAWS, UNINSURED LOSSES, EFFECTS OF INFLATION, AND OTHER RISKS
THE OPERATING PROJECTIONS PROVIDED TO INVESTORS HAVE BEEN REVISED TO FACTOR IN THE ADDED ECONOMIC RISK FACTORS THAT HAVE BEEN INTRODUCED BY THE COVID-19 SHUTDOWNS. THE SPONSOR HAS INCREASED YEAR 1 VACANCY LOSS TO 7.5% AND ADJUSTED THE YEARS AFTERWARDS TO REFLECT AN ANNUAL AVERAGE VACANCY LOSS OF 10.9%. FURTHERMORE, THE SPONSOR INCREASED BAD DEBT TO 6.9% IN YEAR 1 (4% ANNUALLY OVER THE INVESTMENT HORIZON)
