Northstar Group real estate development projects. Using the Serenity Villages model as a

reference, this structure allocates a 15% ownership stake to parties who provide crucial

early-stage funding for project initiation and development activities.

Investment Parameters

Capital Requirements

● Initial Working Budget: Approximately $100,000 per project

● Total Capital Exposure: Variable, with potential temporary exposure up to $2,000,000

during the approval process

● Risk Profile: Capital is at risk if project approvals (HUD or alternative funding sources) are

not secured

○ Typical consultant rates may range from $20-40/hour (target of $30/hour)

○ Creates opportunity for consultants to be compensated for approximately 10 hours

○ Makes consultants more likely to engage in early-stage work

○ Drafting memorandums of understanding

○ Limited legal review of final documentation

○ Leveraging AI tools and technology to enhance efficiency

Consultant Compensation Structure

● Funding is not required to be allocated to consultants, but provides the option to fairly

compensate team members

● Upon securing pre-development funds, consultants may be contracted at agreed hourly

rates

● This creates a more sustainable model for consultant engagement across multiple project

opportunities

● Recognizes the opportunity cost of pursuing multiple proposals simultaneously

Return Structure

● Timing: Typically 12-24 months from initial investment

● Operational Involvement: Option for passive or active involvement based on investor

preference

Projected Cash Flows (Serenity Villages Example)

● Year 1: Approximately $22,000 (15% of $146,482)

● Year 5: Approximately $37,500 (15% of $250,000 estimated)

● Year 10: Approximately $51,750 (15% of $345,000)

● Total Cash Flow (10 Years): Approximately $350,000

● Exit Proceeds: Approximately $383,370

● Total Return: Approximately $733,370 (not including return of principal)

● Simple ROI: 733% over 10 years

● IRR: Exceptionally high due to early return of principal combined with ongoing equity

benefits

Model Advantages

Unique Value Proposition

● This model differs from conventional affordable housing approaches

● Recommended by industry experts like Novogradac for public housing authorities

● Each proposal may cost approximately $4,000-$10,000 in human capital at market rates

Competitive Advantage

● Bridges the financing gap that exists between conception and formal funding approval

● Traditional financing only activates after approvals, leaving early work unfunded

● Creates mechanism to compensate for "opportunity shots" even when not all proposals

● Improves proposal quality through proper resource allocation

Alternative Funding Approaches

The investment structure can accommodate various government and private funding

mechanisms beyond standard HUD financing:

HUD Funding Path

● Standard approach outlined in Serenity Villages model

● PHA retains significant ownership (30-45%)

● Development fees typically range from 8-12%

Section 202/811 Funding

● Focused on senior housing and housing for persons with disabilities

● Different ownership and fee structures may apply

● Automatically available with qualified tax-exempt bond financing

● Requires selling the property to tax credit investors

● Minimal retained ownership (1% typical) for original developers

Risk Factors

Approval Risk

● Pre-development funds at risk if project approvals not secured

● Mitigated through experienced team and multiple funding path options

Timeline Risk

● Extended approval processes may delay capital recovery

● Typical exposure period: 12-24 months

Market Risk

● Changes in market conditions during development period

● Mitigated through conservative underwriting and contingency planning

Governance Provisions

● Certain fundamental decisions (sale, refinance, etc.) may require higher thresholds

Conclusion

The pre-development funding partner structure creates an attractive investment opportunity with

multiple return components including return of principal, ongoing cash flow, and significant exit

proceeds. The structure allows for flexible adaptation to various funding mechanisms and aligns

the interests of funding partners with overall project success. While carrying inherent risks, the

potential returns justify the investment for qualified partners seeking participation in affordable

housing development.