General Partner Fund
Targeting industrial & manufacturing properties in the heartland of America
The following is only a brief summary description of certain aspects of the Fund. No investment decisions should be made based on this summary alone. To more fully understand the structure of the Fund, as well as the potential risks and benefits of investing in the Fund, please review the PPM and other offering documents available below.
- The Fund typically expects to provide 10% of the total equity capital raised for the assets in which the Fund invests. The remaining equity capital needed for each deal will typically be raised as a single-asset offering for accredited investors.
- Unlike limited partner (LP) investors, investors in the Fund are not subject to a profitå split with the manager, waterfall, or any IRR hurdles at the Fund level. Investors retain 100% of the cash flow generated by the Fund’s GP investments, net of fund-level fees.
- The Fund will also receive 10% of any promote or carried interest otherwise payable to the co-managers generated from the LP equity in each individual deal. Each asset within the fund has a separate financial model, and instead of the sponsor(s) receiving all of the promoted interest, 10% of the promote that would ordinarily be allocated 100% to the sponsor(s) will be paid to the Fund, and will become part of the net income distributed to Fund investors.
Middle Market Assets at Discounted Prices
We believe there are many desirable assets the Fund can purchase with little competition from large institutional investors, as these assets would be deemed small and inefficient investments by those investors due to their sizes and purchase prices. The Co-Managers believe that we are well-positioned to find assets that fit the Fund strategy to purchase at prices below their replacement value.
The Fund’s size enables the Co-Managers to target “mom and pop” owners (generally investors who own 10 or fewer properties) who own assets that can be purchased for well below $50 million. This type of owner tends to be inexperienced, resulting in discounted pricing for their assets as well as a large potential pool of desirable deals for the fund to target and ultimately acquire.
Historically, institutional investors have been drawn to industrial assets for the potential income returns and stable distributable cash flow the assets’ long-term tenants are expected to provide. The Fund offers individual investors the opportunity to benefit from similar potential returns and cash flow. The Fund is intended to give investors additional benefits typically associated with owning middle market assets that are priced below institutional properties that have replacement costs above acquisition prices.
When aggregated together, we believe these middle market industrial properties can be an attractive portfolio acquisition for future institutional buyers.
Anticipated Asset-Level Hold Period
Total Capital Raise
100% of Net Income:
Fund investors earn 100% of net income. There is no profit participation by the Co-Managers at the Fund level.1
10% of Carried Interest or Promote:
The Fund will receive 10% of any carried interest or promote otherwise payable to the Co-Managers by the single-purpose entities (SPE)2 that will acquire the assets.
2 An SPE is a legal entity that acquires an asset. We expect that the Fund will most often act as the manager of an SPE and make a 10% GP investment, and that Fairway will syndicate the other 90% of SPE equity interests to LP investors. The amount and terms of each investment in an SPE that the Fund makes, however, will be determined through negotiations with the LP investors in that SPE.
What does investing in industrial and manufacturing properties look like?
These spaces are often in high demand, particularly in locations that are convenient for shipping and e-commerce operations. And building new facilities can be prohibitively expensive, given the regulations surrounding their construction. 1
As technological advances allow manufacturers to rely less on human labor, many companies that had previously sought a less expensive workforce overseas are now looking to bring their operations back to the U.S. and closer to the consumer. These industrial buildings are essential to doing so, and as a result, are highly sought after in the current market. 2
Due to the logistical difficulties of moving warehouse stock or heavy machinery, these types of properties tend to be occupied by long-term tenants whose leases can potentially produce stable cash flow for investors. These tenants tend to require less operational support than residential tenants you might find in an apartment building. Most industrial owners offer triple- and absolute-net leases to their tenants that put the responsibility for most or all maintenance on the tenant instead of the building owner.
Long-Term Tenants & Stable Cash Flow
- • The Fund invests in SPEs that own single- and multi-tenant assets in a variety of industries where the Fund’s Co-Managers believe tenants are unlikely to vacate prior to sale due to their product or equipment storage needs, supporting the potential for consistent cash flow to investors during the hold period.
- • The transactions are often structured as sale leasebacks, in which the tenant and seller are the same party. Selling the ownership rights and simultaneously leasing the real estate allows the tenant to retain possession of the space and reinvest the cash proceeds back into its company.
Absolute & Triple Net Leases
- • The Fund seeks to invest in assets with in-place triple net leases requiring tenants pay nearly all property expenses in addition to rent and utilities, including real estate taxes, building insurance, and maintenance.
- • The Fund may also invest in assets occupied by tenants who have signed an absolute net lease, meaning they are also responsible for the cost of repairing any roof or structural issues. We believe this form of lease, along with the tenant owning and operating its multimillion-dollar machinery in the space, offers additional investor security for this type of asset.
Logistics Constraints & High Demand
- • The Fund intends to invest in areas where the cost of development is expensive especially for these smaller industrial properties and also industrial space is in high demand. The Fund has invested in and continues to seek assets that are highly sought-after, and where the purchase price is well below the replacement value.
- • As supply chain problems continue globally, manufacturers are seeking suitable facilities in U.S. markets for heavy manufacturing equipment, and restrictions on new construction make these opportunities scarce in today’s market.3
3 https://www.globest.com/2021/12/01/look-who-stands-to-benefit-from-supply-chain-disruptions/, https://www.millionacres.com/real-estate-market/articles/is-more-real-estate-the-solution-to-current-supply-chain-problems/, https://www.wealthmanagement.com/industrial/supply-chain-issues-pushing-industrial-rents-records, https://www.bizjournals.com/portland/news/2021/12/01/supply-chain-industrial-real-estate-warehouses.html
LLC Agreement for Fairway Bamboo GP Fund – Click to Download
Fairway Bamboo GP Fund LLC Private Placement Memorandum – Click to Download
Subscription Agreement for Fairway Bamboo GP Fund – Click to Download
2022 Fairway Disclosure Brochure – Click to Download
Fairway Proxy Voting-Class Action Policy Notice – Click to Download
2022 Fairway master Disclosure Letter – Click to Download
An investment in Fairway Bamboo GP Fund LLC (the “Company” or the “Fund”) involves significant risks. It is only appropriate for qualified, sophisticated investors that are able to bear the economic risk of a complete loss of their investment in the Fund. In addition to the general risks of participating in a pooled investment fund, which include illiquidity, lack of diversification, complete loss of capital, default risk, and the risk that the Fund may not achieve its objectives, some of the more significant risks associated with this investment include the below. Defined terms are defined in the Fund’s Private Placement Memorandum, unless otherwise noted. This description of risks is not intended to be comprehensive. Please consider the more extensive description of risks outlined in the Fund’s formal offering documents, including the Private Placement Memorandum, before investing.
Unproven Investment Strategy
The investment strategy described in this Memorandum is unproven and speculative. The Co-Managers have not previously operated or attempted to operate a fund that invests solely in properties that meet the Fund’s investment criteria. The financial projections and related assumptions upon which the Co-Managers’ target returns for this Fund are based are just that: assumptions. Moreover, while the Co-Managers believe that certain market dynamics make this asset class attractive, there can be no guarantee that the Co-Managers’ assessment of current market dynamics is accurate.
Pursuit Costs May Not be Recovered
Members in the Fund bear the risk that certain Pursuit Costs may not be recovered for a variety of reasons, which may result in a loss of capital or reduced financial performance of the Fund. The Fund has the ability to call down Members’ Capital Commitments to pay Pursuit Costs, including before the time Co-Managers have either formed or fully funded an SPE, any LP Investor has been admitted to the SPE, or before the SPE has acquired an Asset. Those Pursuit Costs, which include legal fees, third-party due diligence fees and expenses (such as environmental, property condition, and appraisal reports), closing costs, accounting and administration fees, earnest money deposits, the costs of obtaining third-party architectural drawings and similar plans, costs relating to obtaining permits and zoning approvals, and similar pre-asset acquisition costs reasonably necessary to the pursuit and acquisition of Assets, may be material.
Although Co-Managers anticipate that the Fund will be able to recover most Pursuit Costs from SPEs, Pursuit Costs relating to Assets that are not acquired will not be recovered, and the Co-Managers may agree with an SPE’s LP Investors not to recover certain Pursuit Costs from an SPE, regardless of whether one is formed. Pursuit Costs that are not recovered for any reason will represent a Fund Expense with no return. While the Co-Managers believe that the economic benefits of making investments in a large number of diverse SPEs without being subject to any carried interests or promotes, and with the ability to share in 10% of any promote payments received by the Fund, will provide financial benefits that outweigh the risks associated with incurring Pursuit Costs that may not be recoverable, any Pursuit Costs that are not reimbursed will have an adverse effect on the Fund’s financial performance and Member returns, and could result in a loss of invested capital.
Risks in the Industrial, Flex, Office and Retail Markets Generally
The industrial, flex, office, and retail markets have recently been severely adversely affected by the COVID-19 pandemic and other market dynamics. The Co-Managers expect that these adverse effects may continue for some time as the impacts of the pandemic play out over time. The Assets the Fund intends to acquire through its Investments in SPEs, therefore, can be considered distressed, and in some cases, severely distressed. Although Co-Managers believe that this distress, and the acquisition opportunities it may create, are part of what makes the Fund’s investment strategy and objective attractive, the Assets may lose value and be difficult to dispose of.
Lack of Diversification
Nearly all of the Fund’s capital will be concentrated in a limited asset class (middle market industrial, flex, office, and select retail properties). The Co-Managers can give no assurances with respect to any degree of diversification in the Fund’s Investments by geographic region, property class, or other characteristics. If the Fund makes an Investment in an SPE with the intent that the SPE will refinance or sell a portion of the Asset, there is a risk that the SPE will be unable to successfully complete such a financing or sale. This could lead to increased risk as a result of the Fund having an unintended long-term investment and reduced diversification. A lack of diversity, poor performance of the middle market industrial property asset type as a whole, or poor performance of a particular market or individual Asset where an SPE in which the Fund has an investment could significantly affect the total returns achieved by the Fund.
Illiquid and Long-Term Investments
Any investment in the Fund requires a long-term commitment with no certainty of return. There can be no assurance that the Fund will be able to realize returns on Assets in a timely manner. The Co-Managers anticipate each SPE holding an Asset between two and three years, but it may also take longer than expected for the SPEs to dispose of the Assets they hold. Moreover, while the Fund will act as the general partner or manager of each SPE, it is possible that the Co-Managers will not be able to successfully negotiate with the LP Investors other than the Fairway Funds to obtain any control rights for the Fund with respect to the sale or refinance of Assets. Dispositions of Assets also may be subject to contractual limitations on transfer or other restrictions that would interfere with subsequent sales of such Assets or adversely affect the terms that could be obtained upon any disposition thereof. The market prices, if any, for such Assets may be volatile, and an SPE may not be able to sell the Asset it owns when it desires to do so or to realize what the Co-Managers perceive to be their fair value in the event of a sale. The sale of illiquid Assets often requires more time and results in relatively higher selling expenses. In addition, less marketable or illiquid Assets may be more difficult to value due to the unavailability of reliable market data.
The Terms of Each SPE Are Uncertain
Any discussion in this Memorandum of the terms of any SPE or the relative rights or obligations of the Fund, the Co-Managers, and the other LP Investors in each SPE with respect to an Asset is based on the Co-Managers’ assumptions about the Fund’s investment strategy. However, these aspects will be negotiated on an SPE-by-SPE basis with the LP Investors in each SPE and their advisers and representatives. There can be no guarantee that the Fund, or the Co-Managers acting on behalf of the Fund, will be able to obtain any particular terms with respect to an SPE, and the Co-Managers may determine to either proceed with the investment in an SPE and that SPE’s investment in an Asset even though the terms are different than those summarized herein or not as favorable to the Fund as the Co-Managers would otherwise like, or not proceed with the investment in the SPE even though the Asset to be acquired by the SPE would otherwise be an attractive investment opportunity for it and, through its interest in the SPE, the Fund.
SPE Borrowing and Use of Leverage
Each Asset may have significant leverage. Each Asset is expected to be financed with a range of 65-75% debt and 25-35% equity, but the Co-Managers cannot guaranty or make any representation regarding the limitations on use of indebtedness it will successfully negotiate at the SPE level with the LP investors of each SPE. There is no limitation or cap on the amount of indebtedness that any SPE may incur with respect to a specific Asset. Thus, any Asset acquired by an SPE may be heavily leveraged. Although the use of leverage may enhance returns, it also may substantially increase the risk of loss of principal. Such borrowing will increase the exposure of the Fund’s and each SPE’s investments to adverse economic factors such as rising interest rates, severe economic downturns or deteriorations in the condition of the real estate investment or its market. First-position lenders or other holders of senior positions will be entitled to a preferred cash flow before the Fund receives a return on leveraged investments. Leveraged investments are inherently more sensitive to declines in revenues and to increases in expenses. If an Asset cannot generate adequate cash flow to meet the principal and interest payments on its indebtedness, the Fund may suffer a partial or total loss of capital invested in an SPE. In light of these considerations, the Co-Managers will seek to negotiate agreements with the LP Investors of each SPE other than the Fairway Funds limiting the total amount of debt on each Asset, but LP Investors may not agree to these debt limitations and, even if they agree to them, the limitations may not be sufficient to protect the Fund’s Investments in SPEs that hold leveraged Assets.
Fund Borrowing and Use of Leverage
In addition to debt incurred by an SPE in connection with the acquisition or redevelopment of a specific Asset, which typically will be secured by a first-position security interest in that Asset, the Fund may incur indebtedness to finance its Investments and Fund Expenses and may utilize one or more Warehouse Lines that may be secured by an assignment of the Members’ unfunded Capital Commitments. Any borrowing pursuant to a Warehouse Line will be outstanding for no more than 180 days and will be used to enable the Fund to close transactions, pay Fund Expenses, or provide for interim acquisition financing or refinancing prior to the formation or full funding of an SPE in advance or in lieu of Capital Calls. The Fund may, in exchange for an appropriate, market-based guarantee fee, guarantee certain debt obligations of an SPE, including any recourse, bad-boy or similar non-recourse carve outs, environmental indemnities and any personal guarantees required by the lender in connection with a Loan to an SPE when the Co-Managers determine that doing so is in the best interests of the Fund and its Members. The Members may be required to acknowledge to the Fund’s lenders their obligation to pay their share of such indebtedness up to the amount of their unfunded Capital Commitments.
There can be no guarantee that the Fund will be able to obtain a Warehouse Line when needed or on favorable terms for the Fund. Any difficulties in obtaining a Warehouse Line, or the Fund’s inability to repay the Warehouse Line when due, could require the Fund to make a Capital Call to its Members before it would otherwise, or could adversely affect the Fund’s ability to pay its Fund Expenses when due or close the Fund’s Investments in SPEs as intended.
Members may not use their Interests in the Fund as collateral for other indebtedness or otherwise transfer their Interests without the prior consent of the Co-Managers.
Inability to Backfill Investments
The Co-Managers may, from time to time, elect to have the Fund acquire an Asset before an SPE is formed and LP investors for that SPE have been identified. For certain sellers of Assets that meet the Fund’s investment criteria, an ability to close the acquisition of that Asset very quickly can be an important factor in selecting a buyer, and may enable the Fund to acquire Assets for less than it could otherwise. When and if the Fund does this, however, there is no guarantee that the Fund will then be able to backfill its investment in an Asset with capital from new LP Investors. If the Fund is unable to do so, its ability to pursue additional investments may be limited due to a larger than expected proportion of its available capital being tied up in a single Asset.
Investment in Distressed Assets
The Fund may elect to invest in SPEs to facilitate the purchase of distressed properties. By their nature, these investments will involve a high degree of financial risk, and there can be no assurance that the Fund’s and any SPE’s return objectives will be realized or that there will be any returns of capital. Furthermore, investments in properties operating in workout modes or under applicable bankruptcy laws may in certain circumstances be subject to certain additional potential liabilities that may exceed the value of the applicable SPE’s original investment. In addition, under certain circumstances, payments to an SPE and distributions by an SPE to the Fund or by the Fund to its Members may be reclaimed if such payments or distributions are later determined to have been fraudulent conveyances or preferential payments.
Risks Associated With Having More Than One Manager
As described in this Memorandum and provided for in the LLC Agreement, the Fund will be Managed by two Co-Managers, whose rights and obligations with respect to managing the Fund are memorialized in a Co-Management Agreement, which is summarized above and available to prospective investors in the Fund upon request. The Co-Managers also have the ability to assign their rights and obligations with respect to the Fund to one or more entities owned or controlled by them, and those entities may have other owners or managers who have some ability to control or direct the activities of the Fund. If one Co-Manager disagrees with the actions taken by the other Co-Manager with respect to areas of responsibility delegated exclusively to the other Co-Manager, the dissenting Co-Manager will not have the ability to change or control that decision. Major Decisions, or any other decisions not specifically addressed in the Co-Management Agreement, will require the approval of both Co-Managers. The Co-Managers may be unable to agree on any decisions requiring their unanimous consent. As a result, the Fund’s ability to operate efficiently and to make decisions in the best interest of the Members may be compromised by having two Co-Managers. Although Fairway and Bamboo have worked together on some similar projects before, they have not previously worked with each other as Co-Managers of a similar fund, and their ability to do so effectively is unproven.
Risks Associated with Using WACC Percentage to Calculate Allocations and Distributions
While Co-Managers believe that using a Weighted Average Capital Contribution, or WACC, calculations to determine each Member’s appropriate allocation of income, depreciation, and losses, and share of distributed cash is a fair way to compensate Members for the risks associated with the fact that they will be making Capital Contributions to the Fund at different points in time, the Co-Managers have only limited experience using the WACC methodology to calculate allocations and distributions. It is also not a methodology commonly used by other closed-ended funds, and there may be issues with using WACC calculations that Co-Managers do not currently foresee. Those issues and others may result in WACC calculations not being the fairest way to make allocations and distributions, and some WACC calculations may not accurately reflect the relative risks to each Member of contributing capital to the Fund at different times.
In order to effectively use WACC calculations to apportion allocations and distributions among Members, different Members may be required to contribute different percentages of their total Capital Commitments. While Co-Managers intend to attempt to equalize the percentage of each Member’s Capital Commitments that each Member contributes to the Fund by the end of the Investment Period, it is likely that some Members will contribute a greater or lower percentage of their respective Capital Commitments over time than other Members. Similarly, using WACC calculations instead of Ownership Interests to calculate each Member’s relative allocations of income, depreciation, and losses, and share of distributions of available cash, will likely result in some Members realizing different rates of returns over time, depending on when they make their respective Capital Contributions.
Industrial Real Estate Risks
Industrial real estate properties, and the businesses that are tenants on these properties, face heightened risks relating to environmental issues and pauses or cessations of operations due to labor shortages or other labor related issues, pandemics, regulatory compliance matters, and economic factors. The Fund’s investment strategy may be more adversely impacted by issues on these types of properties, or issues with these types of tenants, than if the Fund invested in a portfolio of properties that did not include industrial real estate properties.
Difficulty of Locating Suitable Assets
The Fund may be unable to find a sufficient number of attractive opportunities to meet its investment objectives or achieve the intended investment returns. The success of the Fund will depend on the ability of the Co-Managers to identify suitable Investments, to negotiate favorable terms with sellers and arrange closings by SPEs of appropriate transactions, and to arrange the timely disposition of a sufficient number of suitable Assets. There can be no guarantee that a sufficient number of such Assets will be available and that the Fund will therefore be able to invest all funds committed for investment by the Members.
Coronavirus and other Pandemic Related Issues
As of the date hereof, there is an outbreak of a novel and highly contagious form of coronavirus (“COVID-19”), which the World Health Organization has declared to constitute a “Public Health Emergency of International Concern.” The outbreak of COVID-19 has resulted in numerous deaths, adversely impacted global commercial activity and contributed to significant volatility in certain equity, debt, derivatives and commodities markets. The global impact of the outbreak has evolved rapidly, and many countries have reacted by instituting (or strongly encouraging) quarantines, prohibitions on travel, the closure of offices, businesses, schools, retail stores, restaurants, hotels, courts and other public venues, and other restrictive measures designed to help slow the spread of COVID-19. Businesses are also implementing similar precautionary measures. Governments are also implementing moratoriums or other restrictions on tenant evictions due to the economic fallout from COVID-19. While such measures appear to be starting to be reduced, they and similar measures that may take place in the future, as well as the general uncertainty surrounding the dangers and impact of COVID-19, have created significant disruption in supply chains and economic activity. For these reasons and others, the potential impacts of COVID-19, including global, regional or other economic recessions, are uncertain and difficult to assess.
Any public health emergency, including any outbreak of COVID-19, SARS, H1N1/09 flu, avian flu, other coronavirus, Ebola or other existing or new epidemic diseases, or the threat thereof, could have a significant adverse impact on the Fund, its investments in SPEs, and on the Assets held by SPEs. The extent of the impact of any public health emergency on the Fund, the SPEs, and the Assets will depend on many factors, including the duration and scope of such public health emergency, the extent of any related travel advisories and restrictions implemented, the impact of such public health emergency on overall supply and demand, goods and services, investor liquidity, consumer confidence and spending levels, and levels of economic activity, the length, frequency, or magnitude of any moratoriums or other restrictions on tenant evictions applicable to any Asset, the ability of SPEs to obtain zoning and construction approvals relating to the Assets, and the extent of its disruption to important global, regional and local supply chains and economic markets, all of which are highly uncertain and cannot be predicted. The effects of a public health emergency may materially and adversely impact the development of Assets and their performance, which could result in significant losses to the SPEs and to the Fund. In addition, the operations of the Co-Managers (or others involved with the Fund’s Assets) may be significantly impacted, or even temporarily or permanently halted, as a result of government quarantine measures, voluntary and precautionary restrictions on travel or meetings and other factors related to any public health emergency, including its potential adverse impact on the health of their key service providers or other personnel.
Conflicts of Interest Generally
Conflicts of interest exist in the structure and operation of the Fund’s business. None of the agreements and arrangements between the Company and the Co-Managers or their affiliates, including those related to compensation, are the result of arm’s-length negotiations. In addition, no assurances can be made that other conflicts of interest do not currently exist or will not arise in the future. Some of the potential conflicts are described in the Memorandum.
Capital Commitments Are Irrevocable
An investor’s Capital Commitment becomes irrevocable once submitted to the Co-Managers (although the investor does not become a Member until the commitment is accepted by the Co-Managers), and a Member may only transfer an Interest in the Fund or withdraw from the Fund upon approval of the Co-Managers, in the Co-Managers’ sole discretion. This means any potential investor must have sufficient liquidity in other investments or accounts (other than an investment in the Fund) to meet the investor’s capital needs. Members may be required to guarantee or pledge their obligations to fund their Capital Commitments to lenders to the Fund.
Past Performance Is Not a Predictor of Future Results of the Fund
Co-Managers’ and their affiliates’ prior real estate investment return performance does not imply or predict (directly or indirectly) any level of future performance of the Fund. The Fund’s performance is dependent on future events and is therefore inherently uncertain. Past performance by Fairway, Bamboo, and their respective affiliates cannot be relied on to predict future events due to a variety of factors, including, without limitation, varying degrees of business strategies, different local and economic circumstances, different supply and demand characteristics, varying degrees of capital, availability of bank loans or other borrowing facilities, and varying circumstances pertaining to the real estate market.
No Assurance of Profit or Distributions
There is no assurance that the Fund’s Investments in SPEs or the SPEs’ investments in Assets will be profitable or that any distributions will be made to the Members. Any return on investment to the Members will depend on successful investments being made by the Fund and the SPEs. The marketability and value of any such investment will depend on many factors beyond the control of the Fund and the Co-Managers. The Fund may not have sufficient cash available to make Tax Distributions to the Members. The expenses of the Fund may exceed its income and the Members could lose the entire amount of their capital contributed to the Fund.
Failure to Make Capital Contributions
Any Member who fails to fund a required Capital Contribution pursuant to the terms of the LLC Agreement (a “Default”) may be deemed a “Defaulting Member” by the Co-Managers. With respect to any amount that is in Default (the “Defaulted Amount”), the Co-Managers may increase the Capital Contributions of the non-Defaulting Members (but not in excess of their remaining unfunded Capital Commitments), or admit a substitute Member to assume all or a portion of the balance of the Defaulting Member’s Capital Commitment. The Co-Managers may also take any of the actions described in the LLC Agreement. See “THE OFFERING AND FUND DETAILS – Failure to Make Capital Contributions” in the Memorandum for a description of other remedies available to Co-Managers against a Defaulting Member.