Long Beach, with over 500,000 residents, is now a major destination for conferences (6th in the U.S.), tourism, and cruise ships, attracting over 6 million visitors annually.
Built in 1926, the Breakers Hotel was a celebrity escape for the likes of Elizabeth Taylor, John Wayne, and Cary Grant.
Pacific6 has spent $246 million to restore the Breakers as a Fairmont 5-Star Hotel, featuring 185 rooms, 5 restaurants, a two-story spa, a jazz lounge, a rooftop bar & terrace, and more.
The Project, re-opening September 2024, was recently ranked 10th on the Forbes’ global list of “30 Most Anticipated Hotel Openings of 2024.”
THE SECURITIES DESCRIBED IN THIS DOCUMENT (THE “OFFERING PACKAGE”) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (“SECURITIES ACT”), OR REGISTERED UNDER ANY STATE’S SECURITIES LAWS. NEITHER THE SECURITIES AND EXCHANGE COMMISSION (“SEC”) NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS OFFERING PACKAGE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
High barrier to entry
Downtown Long Beach has very limited opportunities for additional hotels to come to market. Any potential hotel development would take 10 to 20 years to come to fruition.
Irreplaceability of the asset
Fairmont Breakers Long Beach is the only historic hotel in Long Beach. The hotel is listed in the national register of historic buildings and its illustrious past is treasured by the local residents and historical societies nationwide. With its beloved history, art deco architecture espoused with brand new MEP system and modern amenities, this truly unique asset can never be replaced.
Renovation Complete of the Mobil 5-Star & AAA 4-Diamond Historical Hotel
Fairmont Breakers has undergone a multi-year renovation- costing $246 million, to restore the historic hotel and position it to be the dominant luxury option in the market. With over 96% of the renovations already complete, the hotel is expected to open September 2024.
Luxury positioning
The Fairmont Breakers Long Beach is the only luxury hotel in Long Beach. The Fairmont Breakers Long Beach is the answer to the demand for a luxury hotel in Long Beach. The nearest luxury competitor is over 15 miles away.
The opening of the Fairmont Breakers continues to receive significant worldwide exposure as evidenced by it being named one of Forbes’ “30 Most Anticipated Hotel Openings of 2024”.
World-Class Hotel Brand and Management Company
The Fairmont Brand consists of more than 80 extraordinary hotels. Its portfolio includes destination hotels such as The Plaza in New York City, The Savoy in London, Fairmont San Francisco, Fairmont Banff Springs in Canada, Fairmont Peace Hotel in Shanghai, and Fairmont The Palm in Dubai.
Accor Hotels acquired Fairmont in 2016. Accor has over 40 hotel brands, managing 5,300 hotels and 10,000+ restaurant & bars in 110 countries, with 230,000+ team members. Accor is a remarkably strong management company, exceptionally dedicated to the well-being of its employees.
The Fairmont Breakers Long Beach is the only Fairmont Hotel to be opened by Accor in the next 12 months.
Strength of the product and its revenue generating components
The renovation of the hotel was designed to create several additional unique revenue generating outlets, to ensure that the hotel would become an experiential travel destination. The guests will actively and meaningfully engage with the hotel and the city’s history, people, culture, food and entertainment. The same experience is also a welcome addition for Long Beach residents who we expect to be fully engaged with everything the hotel has to offer.
Unwavering city support
From the moment the hotel was acquired, city officials and local citizens have provided unwavering support to the Fairmont Breakers hotel development.
To underline their support, the city granted the hotel $13M in Transient Occupancy Taxes rebates for the first 9 years of operations, further securing the successful opening of the hotel.
Exceptional relations with Long Beach outstanding Convention and Visitor Bureau and Convention Center
The bureau and center have once again been honored as the “Best in the West” in Northstar Meetings’ Stella Awards, a nationwide recognition of excellence in the event industry. This marks the seventh consecutive year Long Beach has won the award—more than any other bureau or center.
Convention business is already at pre-covid level and booking for 2024 and beyond are at record-breaking levels.
Long Beach CVB has been the strongest supporter for the hotel. Two of 6Founders’ members have served on its board of directors for several years. The hotel has already secured over 12 contracts in future convention business and has been designated a headquarter hotel for the LA28 Olympic and Paralympic games.
The city’s strong economic outlook
Long Beach is growing. The city will need 25,000+ additional residential units before 2030 and its population is expected to exceed 500,000 people. The favorable economic outlook is underlined by over $6 Bn in current development and has attracted high end industries and employers to the city.
The Fairmont Breakers Long Beach, a luxury Mobil 5-Star, AAA 4-Diamond Historical Hotel and Spa located in Long Beach, California (the “Breakers”), is in the final stages of a complete renovation with a projected construction completion in July 2024 and opening in September 2024.
The hotel’s cost of $246M has been fully capitalized by 6Founders (“6Founders”, a local sponsor) with $120.51M of cash equity investment, lenders ($122.20M), and “Key Money” from Fairmont Hotels ($3.70M).
Long Beach 5 Star, LLC (“5 Star”) is a single purpose company created to enable up to $50,000,000 of 14% convertible preferred equity investment (the “5 Star Preferred”) in 6Founders, which currently owns 94% of the Fairmont Breakers Long Beach.
Proceeds from this offering are to be used to return a portion of previously invested 6Founders cash equity capital ($ for $, with no promote). 6Founders will retain at least $50,000,000 cash investment and no less than 50% equity holding in the project which sits junior to the preferred.
Upon a sale or refinancing of the project (a “Future Liquidity Event”), each 5 Star Preferred investor may elect to either (i) receive a 14% cumulative preferred return and all their invested capital (the “Preferences”), or (ii) to convert to a pro-rata common equity position and participate in distributions to common equity holders.
If a Future Liquidity Event has not happened by October 31, 2028, each 5 Star Preferred investor must choose between either (i) converting to a “Super Preferred” class of equity which continues to accrue a 14% preferred return and is entitled to all distributions until all their Preferences are returned, but doesn’t participate in any distributions thereafter, or (ii) converting to common equity and participating in all common equity distributions for so long as such common equity is outstanding.
Network/Ecosystem:
Accor Hotels stands as a formidable presence in the global hospitality landscape, offering a vast network comprising 5,600 hotels spanning 110+ countries. This expansive network includes a staggering 822,000 rooms across a diverse array of 40+ hotel brands. Moreover, Accor's influence extends beyond accommodation, with over 10,000 restaurants and bars, 18,500+ meeting rooms, 600+ hotel spas, and 1,000 hotels featuring fitness facilities, ensuring a comprehensive experience for guests worldwide. Accor is currently the largest hotel and resort operator in Europe and continues to expand its presence globally.
People/Key Personnel:
At the heart of Accor's success lies its dedicated team of over 330,000 professionals, encompassing a spectrum of 300+ job roles. Led by a dynamic leadership team, including Group Chairman & CEO Sebastien Bazin and Group Deputy CEO Jean-Jacques Morin, Accor boasts seasoned executives such as Chief Talent and Culture Officer Steven Daines, Chief Strategy Officer Fabrice Carre, Chief Digital Factory Officer Alix Boulnois, and Chief Technology Officer Floor Bleeker. Together, they steer the company towards continued growth and innovation.
History:
Accor's journey traces back to the visionary endeavors of Paul Dubrule and Gérard Pélisson, who founded the precursor to Accor, Société d'investissement et d'exploitation hôteliers (SIEH), in 1967. Their pioneering spirit led to the establishment of the first Novotel outside Lille, France, marking the inception of a hospitality revolution. Over the years, strategic acquisitions and expansions ensued, with milestones including the launch of Ibis in 1974, Sofitel in 1980, and the merger with Jacques Borel International in 1983, which birthed the Accor Group.
Accor's commitment to innovation and diversification propelled its growth, evident in the acquisition of brands like Motel 6, Etap Hotel, and the Compagnie Internationale des Wagons-Lits in subsequent years. These strategic moves not only expanded Accor's portfolio but also cemented its position as a global hospitality powerhouse. Today, Accor continues to honor its founders' legacy by pioneering new frontiers in hospitality, epitomizing its ethos of excellence and guest-centricity.
Accor Hotels remains at the forefront of hospitality innovation, driven by a rich legacy of entrepreneurship and a relentless pursuit of excellence. With an unparalleled global footprint, diverse portfolio of brands, and a talented workforce, Accor is poised to shape the future of hospitality and redefine the guest experience worldwide.
Located on Ocean Boulevard in the Downtown’s Waterfront District, the Fairmont Breakers Long Beach is close to all Long Beach’s seaside attractions. The Convention Center, Performing Arts Center, and Pine Avenue are steps away, and Shoreline Village, Pike Outlets, Rainbow Harbor, Aquarium of the Pacific, and Catalina Cruises are all within easy strolling distance. The Queen Mary is a five-minute Uber ride, and the 710 Freeway is within a half-mile, providing convenient access to all of L.A. and Orange County's attractions.
Long Beach boasts a vibrant economy and a rich cultural history. As one of the nation's busiest ports, Long Beach serves as a vital hub for international trade and commerce. Its diverse economy is supported by thriving industries including aerospace, healthcare, tourism, and technology. Long Beach offers unparalleled opportunities for both business and leisure. Its strategic location, robust infrastructure, and dynamic workforce make it an ideal destination for investment and growth in the global marketplace.
The Fairmont Breakers Long Beach is situated within the heart of downtown Long Beach, the burgeoning economic hub of the city. The 150 square blocks of Long Beach’s Downtown urban waterfront are benefiting from immense growth. Long Beach’s business-friendly policies, comprehensive development plan, and support of entrepreneurs is driving new businesses to flock to the city, including an emerging creative office.
DTLB has $3.5 billion worth of development underway: * $30M CSULB - College of Continuing & Professional Education * $53M Aquarium of the Pacific expansion * $900M Long Beach Civic Center * $40M Long Beach Convention Center Expansion * 1,600 Total Businesses, 220 of which are New Businesses opened in 2022
The target market for the Fairmont Breakers includes Long Beach residents (profiled in the chart on page 15), tourists, cruise line passengers, and convention attendees. Long Beach has a population of 466,565 according to the latest census data. It is the seventh-most populous city in California, and the second-most populous city in Los Angeles County.
The city is an upcoming tourism hub, as a result of its proximity to downtown Los Angeles and its attractive seaside amenities. The city expects to see upwards of 6 million tourists throughout 2024.
From the iconic Queen Mary, a historic ocean liner turned floating hotel and museum, to the vibrant waterfront packed with shops, restaurants, and entertainment venues, Long Beach offers endless opportunities for exploration and adventure. Nature enthusiasts can explore the scenic beauty of the city's beaches, parks, and gardens, while culture seekers can immerse themselves in the diverse arts and cultural scene, including museums, galleries, and live performances. With its year-round sunshine, diverse culinary scene, and proximity to major attractions like Disneyland and Hollywood, Long Beach is the perfect destination for an unforgettable vacation experience.
Renovation is nearing completion to transform the Fairmont Breakers Long Beach into an upscale, boutique hotel & spa, returning the historical landmark to its former purpose and glory. Pacific6 is infusing elegant, classic styling with contemporary, modern amenities to attract visitors seeking something extraordinary.
Pacific6 is elevating the standard of Long Beach hospitality by providing guests with exceptional experiences and a quality of service that will make the Fairmont Breakers Long Beach a uniquely desirable destination.
Designed to exceed the standards of AAA Four-Diamond Rating
185 oversized and well-appointed staterooms, including 24 suites
A luxurious, two-story, 8 treatment room Spa, Wellness and Fitness Center
12,000 SF of modern meeting rooms (including two ballrooms) and an additional 7,500 SF of outdoor event spaces
140-seat all day lobby restaurant, offering contemporary Italian cuisine
Long Beach’s coolest 90-seat Live Music/Jazz Club and Whiskey Bar
The historic Sky Room, a premier 180-seat, fine-dining restaurant with stunning ocean and city views
A brand new, open-air Rooftop Bar and Terrace, also with stunning 360-degree ocean and city views
Outdoor Pool Deck overlooking the Performing Arts Center Fountains
Renovation Overview:
When Pacific6 purchased the building in November 2017, the building was for the most part empty and not in use, except for Sky Room restaurant on the 13th floor.
For decades prior to the purchase, the Breakers was used as a senior living facility, except for the Sky Room. Over the previous decades, several changes have been made to the building, mostly cosmetic. The building had old stairwells, only three old elevators, and 245 small rooms, while the ground floor and the arcade floor were not in use.
Analysis showed that the only way for the building to be profitable, was to redesign the entire hotel as a luxury hotel, and to create as many revenue generating outlets as possible, while providing the back of the house support that was needed to operate a high-volume operation.
To do that, Pacific6 needed to take several drastic approaches- completely redesign the interiors and find new ways to take advantage of the exterior spaces. This included:
Removal of obstructive walls to enhance natural light and reclaim 55 windows.
Comprehensive interior redesign, rejuvenating all rooms and corridors.
Seismic retrofitting with Fiber Reinforced Polymers for enhanced structural integrity.
Upgrades to stairwells to ensure structural reinforcement and fire safety compliance.
Elevator enhancements to reach the rooftop, including the installation of new elevators.
Installation of energy-efficient electrical, mechanical, and plumbing systems throughout.
Addition of a third-floor swimming pool and bar, maximizing outdoor space utilization.
Complete overhaul of the Sky Room restaurant and kitchen for enhanced dining experiences.
Creation of a rooftop bar/dance club on the 14th floor to expand entertainment offerings.
Establishment of a second full-service all-day restaurant in the main lobby, accompanied by a large kitchen to support various dining outlets.
Introduction of a live music lounge venue on the ground floor, enriching guest experiences.
Addition of a luxurious 8-treatment rooms spa and gym facilities on a newly created mezzanine level.
Transformation of the arcade level into a spacious 12,000 SF banquets and meeting space area, complemented by a new kitchen.
Redesign of the basement level to accommodate utilities, mechanicals, and essential operational support functions such as housekeeping, accounting, engineering, and human resources.
Enhancement of front landscape and driveway to elevate the property's curb appeal and accessibility.
These comprehensive enhancements have positioned the Breakers as a premier luxury destination, offering a diverse array of revenue-generating outlets and ensuring a seamless and memorable guest experience.
As of April 16, construction is 96% complete, and over $246m has been spent. Minor electrical and paving, carpet installation, and lighting installation is under way. MEP commissioning is scheduled for the end of May. FFE installation will commence in June and Accor staff will move in on August 5. Training will start and opening is scheduled for early to mid-September.
November 2017: Pacific6 acquires the Breakers hotel.
February 2018: Pacific6 signs the general contractor (GC) contract with Arco.
June 2018: Plans are submitted, and mobilization for construction begins.
October 2018: Permits are issued for the project.
November 2018: Full-scale construction commences.
November 2019: Pacific6 secures a Transient Occupancy Tax incentive agreement, with $13M in TOT rebates allocated post-opening.
February 2020: Construction financing efforts are hindered due to the onset of the COVID-19 pandemic.
March 2020: Construction slows down significantly due to pandemic-related challenges.
September 2021: Pacific6 obtains $94M in construction financing, comprising a senior loan and Pace financing.
November 2021: Arco submits rebids to complete construction.
February 2021: Construction resumes after receiving all necessary bids, with a $22.5M increase in construction costs.
March 2022: Pacific6 receives a verbal commitment from Accor for the hotel to become the Fairmont Breakers Long Beach.
June 2022: Pacific6 signs a Hotel Management Agreement (HMA) with Accor to operate under the Fairmont brand.
December 2022: Accor's design and finishing standards result in an additional $10M in construction costs.
August 2023: Hurricane Hillary causes water damage to the building, leading to project delays.
September 2023: Pacific6 obtains approval for $30M in Historical Tax Credits.
January 2024: Pacific6 completes construction refinancing, securing additional financing through various means.
February 2024: Revised construction schedule projects completion on July 28, 2024, with a tentative opening scheduled for mid-September 2024.
The Hotel, through its partnership with Accor, has in place proven Revenue Management strategies within each revenue generating area of the hotel, including Rooms, F&B, Banquets, and Spa.
Revenue is optimized through a proprietary IDeaS G3 Revenue Management System. The system works in a cyclical format:
Forecast – The property management system forecasts and continuously updates the total unconstrained demand by market segment. The data is then verified by market specific supply and trend analysis and forecast validation process to ensure that demand is accurate and can then subsequently be optimized.
Optimize – Continuously optimized on the demand mix that will generate the highest revenue for the hotel. The Performance Management team supports the process by disseminating analytics to the property level to assist in accurate interpretation of the data to capture all growth opportunities and to recognize and adapt to changing market conditions.
Control – Multi-night, length-of-stay pricing, enhanced group evaluation and channel management capabilities all contribute to recommending the right rate and overbooking controls what will maximize RevPAR.
Monitor – Regional Performance teams support hotels with month-end reviews of STR Analysis, transient sales mix, room pricing strategies, demand and channel analysis and re-forecasting.
The Fairmont Breakers Long Beach has a total of 185 Guestrooms available. These are broken down into King, Double Queen, Junior Suite, and Suite, as shown in the chart above. The pricing and management of the individual rooms is handled by Accor.
The 5-star hotel rooms offer an exquisite blend of elegance and comfort, providing guests with a truly memorable stay. Experience unparalleled views of the Pacific Ocean or the vibrant city skyline from spacious and meticulously decorated accommodations. Pamper yourself with plush bedding, opulent furnishings, and state-of-the-art amenities, ensuring a restful and rejuvenating retreat. Whether traveling for business or leisure, the Hotel’s unparalleled hospitality and attention to detail promise an unforgettable stay at the pinnacle of luxury in Long Beach.
The Sky Room stands as the foremost dining destination in Long Beach, enjoying widespread acclaim from travelers, convention attendees, and locals alike. Despite lacking the convenience of on-site hotel guests, the restaurant has maintained its status as the city's premier dining establishment for decades. This achievement is remarkable given its challenging accessibility, dated furnishings, and inefficient layout.
In a competitive landscape, the Sky Room’s main rivals, 555 Steakhouse and Ruth's Chris, vie for diners' attention. 555 Steakhouse, although further from the convention center and lacking dedicated parking, remains a bustling hub of activity. Similarly, Ruth's Chris, situated discreetly in the rear corner of an adjacent office building, faces visibility challenges from the street and shares the absence of dedicated parking. Both establishments offer valet parking services for a fee of $9, underscoring the importance of convenience in diners' decision-making process. Despite these challenges, the Sky Room continues to outshine its competitors, showcasing its enduring appeal and culinary excellence.
The Sky Room, situated on the 13th floor (designated SR) of the hotel, embodies the essence of fine dining with its rich history and breathtaking views:
Originally opened by Conrad Hilton in 1937, the Sky Room pays homage to the illustrious history of the Breakers hotel.
Despite its prior substandard condition, limited access, and outdated design, the restaurant garnered widespread popularity, drawing patrons from both near and far.
Renowned as the go-to dining destination for locals, visitors, and conventioneers, the Sky Room consistently attracts business throughout the week and year.
Its expansive bar and lounge serve as the centerpiece of "The Breakers Experience," exuding classic elegance and vibrant energy.
Offering high-end seafood and steakhouse cuisine, complemented by table-side preparations and exceptional desserts, the menu delivers a culinary journey reminiscent of yesteryears.
With a seating capacity of 180 (bar and restaurant combined), the Sky Room operates nightly for dinner, with holiday brunches and weekend high tea also on offer.
The Italian Restaurant in the hotel's grand main lobby is designed to fulfill several strategic objectives:
Offering a more affordable dining option compared to the upscale experience of the Sky Room, ensuring accessibility for a broader range of guests.
Establishing a clear distinction from the Sky Room, both in ambiance and cuisine, to cater to different dining preferences within our hotel.
Positioning the restaurant as a top-tier destination within its category, leveraging the popularity of Italian cuisine while avoiding direct competition with the Sky Room.
Prioritizing high-profit margins through carefully curated menus and efficient operations.
Capitalizing on the widespread appeal of Italian cuisine, targeting both hotel guests and local clientele, as well as visitors from neighboring hotels.
Addressing the lack of quality Italian dining options in the city, offering an authentic and exceptional culinary experience unmatched by competitors like "L'Opera," known for its crowded atmosphere and substandard, Americanized Italian fare.
By adhering to these strategic considerations, Netunno aims to emerge as the premier choice for discerning diners seeking an exquisite culinary journey infused with genuine Italian flavors and hospitality.
The Rooftop Bar and Open-Air Terrace at the hotel offer unparalleled experiences and opportunities:
Standing as the sole rooftop open-air dance club in the greater Los Angeles area, it promises a unique and vibrant nightlife destination.
Renowned as the premier location for wedding ceremonies in the city, boasting panoramic 360-degree views that create an unforgettable backdrop for special occasions.
The versatility of the space allows for a myriad of uses, from lively dance parties to elegant receptions, ensuring its appeal to a diverse range of guests and events.
Featuring a fully climate-controlled bar nestled within the arched cupola, complemented by a rooftop terrace adorned with a secondary bar and restroom facilities, it offers both comfort and convenience.
With no direct competitors, the rooftop bar stands as the unrivaled choice for those seeking elevated entertainment and unparalleled vistas in the heart of the city.
The Live Music Lounge at The Fairmont distinguishes itself as the premier destination for live entertainment in Long Beach:
As the sole hotel offering a dedicated live music lounge, the Fairmont brings a unique and highly anticipated experience to guests and locals alike.
Featuring weekly live jazz performances, the lounge taps into the city's rich musical heritage, creating an atmosphere of excitement and nostalgia.
Positioned strategically within walking distance of the Convention Center, convention hotels, and tourist attractions, the lounge caters to both visitors and locals seeking exceptional entertainment options.
Unlike existing live music venues in Long Beach, the lounge stands out for its unmatched location, stunning decor, and elegant ambiance, setting a new standard for live music experiences in the area.
The Fairmont Spa stands as a beacon of luxury and wellness in Long Beach, offering an unparalleled spa experience:
As the city's sole hotel spa and the only luxury spa in Long Beach, it fills a significant gap in the market for upscale spa services.
At 8 rooms and 7,200 Square Feet, the Fairmont Breakers Spa offers a full suite of upscale treatment options.
Long Beach residents and visitors alike eagerly anticipate the arrival of a high-end spa, as evidenced by the overwhelmingly positive feedback received upon the spa's announcement.
The absence of competition in the city positions the Fairmont Spa as the premier destination for luxury spa experiences, eliminating the need for residents to travel to neighboring cities for such services.
The chart above shows the potential exit value of the Fairmont Breakers Hotel given various potential capitalization rates (5.00%-7.00%) and room rates post-stabilization ($400-$550)
The best-case scenario exit value is $614,203,677 based on a cap rate of 5.00% and a stabilized room rate of $550
In the worst case scenario, at a cap rate of 7.00% and a $400 per-night room rate, the exit value is projected at $322,571,912
The difference between the exit values of each scenario less the total capitalization of the project still leaves $76,152,619 in the worst case scenario
Long Beach 5 Star, LLC (“5 Star”), a single purpose North Carolina limited liability company created to acquire up to $50,000,000 of 14% preferred equity investment in 6Founders, LLC (“6Founders”) which currently owns, through project companies, 94% of the common equity of the Fairmont Breakers Long Beach, a luxury AAA 4-Diamond Historical Hotel and Spa located in Long Beach, California (the “Breakers”).
14% redeemable convertible preferred units of 5 Star (the "Securities" or “5 Star Preferred”), the senior equity of 5 Star. The 5 Star Preferred is senior in liquidation preference to all other equity interest in 5 Star and entitled, upon a sale or refinancing of the Fairmont Breakers Long Beach to either (i) a 14% cumulative annualized distribution and a return of invested capital, (together the “Preferences”) or (ii) the distributions such 5 Star Preferred investors would receive on an as-converted basis. The 5 Star Preferred is also accompanied by a redemption option.
To generate both current income and capital gains for the 5 Star Preferred investors through the ownership of the Underlying Equity.
Up to $50,000,000 of 5 Star Preferred issued on a continuous basis with a $25,000 minimum investment (the “Offering”). Investments equal to or greater than $500,000 will invest directly in 6Founders, LLC.
Proceeds from this Offering shall acquire 14% Convertible Preferred Equity of 6Founders (the “Underlying Equity”). 6Founders will, in turn, use funds it receives to return a portion of previously invested cash equity capital ($ for $, with no promote) to its investors. Upon completion of this Offering, 6Founders will retain $50,000,000 or more cash investment and greater than 50% beneficial equity holding in the project .
Operating distributions from the Fairmont Breakers Long Beach will me made to all equity owners of 6Founders (including 5 Star) pro-rata to their membership interest and on a pari passu basis, with any distributions received by 5 Star members reducing the amount of accrued Preferences.
Upon a sale or refinancing of the hotel (a “Future Liquidity Event”), each 5 Star Preferred investor may elect to either (i) receive their Preferences, or (ii) to convert to 5 Star common equity and receive a proportionate share of 6Founders distributions to its common equity holders. 5 Star Preferred investors electing to receive their full Preferences will not receive common equity of 5 Star Preferred.
Between November 1st, 2028 and December 1st, 2028 (the “Redemption Notice Period”) each holder of 5 Star Preferred shall choose between either (i) having their 5 Star Preferred, and in turn their proportionate share of the Underlying Equity, redeemed by 6Founders on or before January 31, 2029, provided that funds are legally available, or (ii) having their 5 Star Preferred, and in turn, their proportionate share of the Underlying Equity, converted into common equity of 5 Star Preferred and 6Founders, respectively.
In the event an 5 Star Preferred holder chooses to have their preferred equity redeemed but 6Founders does not have funds legally available, such preferred equity shall be converted into a new class of preferred equity (the “Super Preferred”) which (i) continues to entitle the holder to cumulative preferred return accruing, but not compounding, at 14% per annum, and (ii) requires that all Preferences of the Super Preferred are reduced to zero before any distributions may be made to common equity holders of 5 Star Preferred, and in turn, 6Founders. Investors converting to the Super Preferred shall have no participation rights following the return of their Preferences.
Holders of the 5 Star Preferred shall be entitled to the following information prepared by the Board of Managers of 6Founders:
Within 120 days of the end of the Company’s fiscal year, a reviewed annual balance sheet, income statement, and statement of cash flows.
Within 30 days of the end of each of the Company’s fiscal quarters, an unaudited balance sheet, income statement, and statement of cash flows.
An annual budget and a report comparing the prior annual budget to the financial statements for the prior fiscal year.
6Founders will pay Carolina Financial Securities, LLC a cash placement fee equal to 5% of the gross proceeds raised from this Offering. Carolina Financial Group, LLC shall act as the Manager of 5 Star Preferred and receive (i) a yearly “Management Fee” equal to 1% of the funds received by 6Founders as part of the Offering, payable solely by 6Founders, and (ii) 10% the distributions following the satisfaction of all Preferences in the form of a “Management Carry”. Sunstone Advisors, LLC shall act as the Investment Adviser to 5 Star Preferred and receive (i) an “Advisory Fee” equal to 1% of funds received by 6Founders as part of the Offering, payable solely by 6Founders, and (ii) 10% of the distributions following the satisfaction of all Preferences in the form of an “Adviser Carry”.
In the event 5 Star Preferred members convert their 5 Star Preferred to common equity, The Management and Adviser Carry shall be payable after such common equity holders receive aggregate distributions which would have satisfied the outstanding Preferences at the time of conversion.
THE INVESTMENT IN THE SECURITIES OFFERED HEREBY IS HIGHLY SPECULATIVE, INVOLVES A HIGH DEGREE OF RISK, AND SHOULD NOT BE MADE BY PERSONS WHO CANNOT AFFORD TO LOSE THEIR ENTIRE INVESTMENT. EACH PROSPECTIVE INVESTOR IS URGED TO CONSIDER CAREFULLY THE BUSINESS, LEGAL, TAX, AND OTHER RISKS SUMMARIZED BELOW, AND EACH PROSPECTIVE INVESTOR MUST CONSULT WITH THEIR OWN LEGAL, TAX, AND FINANCIAL ADVISORS WITH RESPECT THERETO. PROSPECTIVE INVESTORS SHOULD BE AWARE OF THE RISK FACTOES DISCUSHSED BELOW AND ARE URGED TO CAREFULLY REVIEW THE INFORMATION CONTAINED ELSEWHERE IN THIS MEMORANDUM.
For purposes of these Risk Factors, when both Long Beach 5 Star and 6Founders are similarly subject to a risk, they shall be referred to collectively as the “Companies”.
Absence of Review under Applicable Securities Laws. The Securities offered through this Offering will not be registered or qualified under federal and state securities laws or the securities laws of any foreign jurisdiction. The Issuer anticipates that no regulatory authority or other disinterred entity will review or pass upon the fairness of the disclosure of risks and tax consequences inherent in the investment in the Securities or the other terms of this Offering. Prospective investors should be aware that they do not have all of the protection afforded by applicable federal and state securities laws to investors in registered or qualified offerings. Accordingly, all investors must evaluate for themselves, or with the assistance of their advisors, attorneys, and accountants, the adequacy of the disclosures and the fairness of the other terms of this Offering without the benefit of prior review by any regulatory authority or other disinterested entity.
General Tax Risks. There may be tax consequences associated with an investment in the Securities. No tax advice is being given herein with respect to the income tax consequences of an investment in the Securities and prospective investors are urged to consult, and must rely on, their own qualified tax advisors concerning the tax consequences of an investment in the Securities.
Pass-Through Vehicle Risk. While the Manager intends to resolve every future dispute in favour of treating every investor in 5 Star as a direct investor in 6Founders, it may be impossible to do so in certain circumstances.
An Investment in the Securities involves a high degree of risk, including the risk that the entire amount invested may be lost. Risk is inherent in all investing. The value of your investment in the Securities, as well as the amount of return you receive on your investment, if any, may fluctuate significantly from day to day and over time, with no active market to gauge such values. You may lose part or all your investment in the Securities or your investment may not perform as well as other similar investments. You should not invest in the Securities if you are not financially able to lose the entire investment.
Illiquid Investment. The investment in the Securities is intended for long-term investors who can accept the risks associated with investing in an illiquid investment. No liquid market may exist for the Securities and the Securities are accompanied by restrictions of transfer.
The Companies are subject to various risks which are common to the hotel industry on a national, regional, and local market basis that are beyond their control and could adversely affect their business. The success of the Project depends largely on the hotel operators’ ability to adapt to dominant trends and risks in the hotel industry, both nationally and in individual local markets. These risks could adversely affect hotel occupancy and the rates that can be charged for hotel rooms as well as hotel operating expenses. The following is a summary of risks that may affect the hotel industry in general and as a result may affect the Companies:
Over-building of hotels in Long Beach and the adjacent markets, resulting in an increase in supply of hotel rooms that exceeds increases in demand;
Competition from other hotels and lodging alternatives in Long Beach and the adjacent market;
A downturn in the hospitality industry;
Dependence on business and leisure travel;
Increases in energy costs and other travel expenses, which may affect travel patterns and reduce business and leisure travel;
Reduced business and leisure travel due to geo-political uncertainty, including terrorism, travel=-related health concerns, including COVID-19 or other widespread outbreaks of infections or contagious diseases in the U.S., inclement weather conditions, including natural disasters such as hurricanes, earthquakes, and wildfires, and government shutdowns, airline strikes or other disruptions;
Reduced travel due to adverse national, regional, or local economic and market conditions;
asonality of the hotel industry may cause quarterly fluctuation in operating results;
anges in marketing and distribution for the hospitality industry including the cost and the ability of third-party internet and other travel intermediaries to attract and retain customers;
Changes in hotel room demand generators in a local market;
Brand expansion;
The performance of the Project’s managers
Increases in operating costs, including renovation projects, property and casualty insurance, utilities and real estate and personal property taxes, due to inflation, climate change, and other factors that may not be offset by increased room rates;
Inflation due to the possibility of future increases in interest rates which could adversely affect consumer confidence thereby reducing consumer purchasing power an demand for lodging;
Labor shortages and other increases in the cost of labor due to low unemployment rates or to government regulations surrounding work rules, government-issued vaccination requirements or prohibitions, wage rates, health care coverage and other benefits;
Supply chain disruptions and broader inflationary pressures throughout the overall economy and global tensions driving shortages and cost increases for materials and supplies such as food and equipment;
Changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance with applicable laws and regulations;
Claims, litigation, and threatened litigation from guests, visitors, contractors, sub-contractors, and others;
Business interruptions due to cyber-attacks and other technological events;
Requirements for periodic capital reinvestment to repair and upgrade the Fairmont Breakers Long Beach;
Limited alternative uses for hotel buildings; and
Condemnation or uninsured losses.
Any of these factors, among others, may reduce the Companies’ operating results, the values of the Project, and the availability of capital to the Companies.
Economic conditions in the U.S. and individual markets may adversely affect the Companies’ business operations and financial performance. The performance of the lodging industry has historically been highly cyclical and closely linked to the performance of the general economy both nationally and within local markets in the U.S. The lodging industry is also sensitive to government, business and personal discretionary spending levels. Declines in government and corporate budgets and consumer demand due to adverse general economic conditions, risks affecting or reducing travel patterns, lower consumer confidence or adverse political conditions may lower the revenue and profitability of the Project and therefore the net operating profits of the Companies. An economic downturn or prolonged economic recession, including lower GDP growth, corporate earnings, consumer confidence, employment rates, income levels and personal wealth, may lead to a significant decline in demand for products and services provided by the lodging industry, lower occupancy levels, and significantly reduced room rates. The Issuer cannot predict the pace or duration of an economic recession or cycle or the cycles of the lodging industry. In the event conditions in the industry deteriorate or do not continue to see sustained improvement, or there is an extended period of economic weakness, the Project’s revenue and profitability could be adversely affected. Furthermore, even if the economy in the U.S. improves, the Issuer cannot provide any assurances that demand for hotels will increase from current levels, nationally or more specifically, in Long Beach, California. In addition, many of the expenses associated with the Project, including certain personnel costs, interest expense, ground leases, property taxes, insurance and utilities, are relatively fixed. These hotel operating expenses may not decrease when hotel revenues decrease, and some expenses, such as wages and insurance, may also increase due to factors unrelated to hotel operating performance, such as rising inflation rates. During a period of overall economic weakness, if the Project is unable to meaningfully decrease these costs as demand for its hotels decreases, or increase room rates to account for higher than expected costs, the Project’s business operations and financial performance may be adversely affected.
The Project operates under the Fairmont brand. Therefore, the Project is subject to risks associated with the operating under such brand family. The Project will operate under the Fairmont brand. As a result, the Project’s success is dependent in part on the continued success of the Fairmont brand. The Issuer believes that building brand value is critical to increase demand and strengthen customer loyalty. Consequently, if market recognition or the positive perception of the Fairmont brand is reduced or compromised, the goodwill associated with the Project may be adversely affected. Also, if Fairmont alters certain policies, including its guest loyalty programs, this could reduce the Project’s future revenues. Furthermore, if 6Founders’ relationship with Fairmont were to deteriorate or terminate as a result of disputes regarding the Project or for other reasons, the franchisors could, under certain circumstances, terminate the Project’s current franchise license with them. If any of the foregoing were to occur, it could have a material adverse effect on the Companies.
Labor shortages and increased labor costs could cause significant increases to the Project’s operating costs and decreases to the Project’s operating revenues. The Project’s hotel managers are responsible for hiring and maintaining the labor force at the Fairmont Breakers Long Beach. Although the Companies do not directly employ or manage employees in the Project, the Companies are still subject to many of the costs and risks generally associated with the hotel labor force. Labor costs can increase due to many factors, including but not limited to, a shortage of hospitality workers, increased dependence on contract workers, increased wages and employee benefit costs, increased labor turnover and increases in a unionized labor force. Significant labor shortages could prohibit the Project from operating at full capacity which could result in a decrease in operating revenues. An increased exposure to a unionized labor force could lead to labor disputes, causing higher labor costs, either by increases in wages or benefits or by changes in local labor regulations that raise hotel operating costs.
The Project may not be disposed of when and as anticipated. The Companies will continually monitor the profitability, market conditions, and capital requirements of the Project and will attempt to maximize value by timely disposing of the Project. Real estate investments are, in general, relatively difficult to sell due to, among other factors, the size of the required investment and the volatility in availability of adequate financing for a potential buyer. This illiquidity will tend to limit the Companies’ abilities to sell the Project in response to changes in economic or other conditions. Additionally, factors specific to an individual property, such as its specific market and operating performance, restrictions in franchise and management agreements, debt secured by the property, a ground lease, or capital expenditure needs may further increase the difficulty in selling a property. Therefore, the Companies cannot predict whether it will be able to sell the Project on acceptable terms, or at all.
Compliance with financial and other covenants in the Project’s existing or future debt agreements may reduce operational flexibility and create default risk. The Project’s existing indebtedness, whether secured by mortgages on certain properties or unsecured, contains, and indebtedness that the Project may enter into in the future likely will contain, customary covenants that may restrict the Project’s operations and limit its ability to enter into future indebtedness. In addition, the Project’s ability to borrow under its unsecured credit facilities is subject to compliance with its financial and other covenants, including, among others, a minimum tangible net worth, maximum debt limits, minimum interest and fixed charge coverage ratios, and restrictions on certain investments. The Project’s failure to comply with the covenants in its existing or future indebtedness, or its inability to make required principal and interest payments, could cause a default under the applicable debt agreement, which could result in the acceleration of the debt, requiring the Project to repay such debt with capital obtained from other sources, which may not be available to the Project or may only be available on unfavorable terms. If the Project defaults on its secured debt, lenders may take possession of the property or properties securing such debt.
The Project may incur significant costs complying with various regulatory requirements, which could materially and adversely affect the Project. The Project is subject to various U.S. federal, state and local regulatory requirements. These requirements are wide-ranging and include among others, state and local fire and life safety requirements, federal laws such as the Americans with Disabilities Act of 1990 and the Accessibility Guidelines promulgated thereunder (“ADA”). Liabilities and costs associated with complying with these requirements are and could be material. If the Project fails to comply with these various requirements, it could incur governmental fines or private damage awards. In addition, existing requirements could change, and future requirements might require the Project to make significant unanticipated expenditures, which could have material and adverse effects on the Project.
In addition, as a result of these significant regulations, the Project could become subject to regulatory investigations and lawsuits. Regulatory investigations and lawsuits could result in significant costs to respond and costs of fines or settlements, or changes in the Project’s business practices, any of which could have a material adverse effect on the financial condition, results of operations, liquidity and capital resources, and cash flows of the Project. The ability of the Project to access capital markets, including commercial debt markets, could also be negatively impacted by unfavorable, or the possibility of unfavorable, outcomes from adverse regulatory actions or lawsuits.
The Company may change its distribution policy or may not have funds available to make distributions to shareholders. There can be no assurance that 6Founders, and in turn, 5 Star, will make distributions at any particular time or rate, or at all. Further, there is no assurance that a distribution rate achieved for a particular period will be maintained in the future. For example, distributions may be suspended or distributions may be adjusted from time to time to a level determined to be prudent in relation to the Project’s other cash requirements.
Future renovations and capital improvements may reduce the Project’s profitability. The Project will have ongoing needs for hotel renovations and capital improvements, including maintenance requirements and updates to brand standards under its hotel franchise and management agreements and certain loan agreements. In addition, from time to time the Project will need to make renovations and capital improvements to comply with applicable laws and regulations, to remain competitive with other hotels and to maintain the economic value of the Project. As properties increase in age, the frequency and cost of renovations needed to maintain appealing facilities for hotel guests may increase. Construction delays and cost overruns, including increases in the cost of labor, goods and materials and delays and cost increases caused by supply chain disruptions, have increased and may continue to increase renovation or development costs for the Project and have delayed and may in the future delay the opening of the Project or the length of time that rooms are out of service. Occupancy and ADR are often affected during periods of renovations and capital improvements at a hotel, especially if the Project encounters delays, or if the improvements require significant disruption at the hotel. The costs of renovations and capital improvements the Project needs or chooses to make could reduce the funds available for other purposes and may reduce the Project’s profitability.
Other Unforeseen Risks. The foregoing risks, as well as other risks described in this Memorandum are not an all-inclusive listing of the business and other risks facing the Companies in its plan to develop and operate the Project. As with any business entity, the Companies cannot predict with certainty all the possible challenges which may confront the Companies’ business in future years. It is possible that events or conditions not foreseeable at present and which may not be subject to control by the Companies may occur in the future and have an adverse impact on the ability of the Companies to carry out their business objectives in a profitable manner.
FOR ALL OF THE AFORESAID REASONS, AND OTHERS SET FORTH HEREIN, THE SECURITIES OFFERED HEREUNDER INVOLVE A HIGH DEGREE OF RISK. ANY PERSON CONSIDERING AN INVESTMENT IN THE SECURITIES OFFERED HEREBY SHOULD BE AWARE OF THE SUBSTANTIAL RISKS SET FORTH IN THIS MEMORANDUM. THESE SECURITIES SHOULD ONLY BE PURCHASED BY PERSONS WHO CAN AFFORD TO ABSORB A TOTAL LOSS OF THEIR INVESTMENT IN THE COMPANY.
Disclosures
These securities have not been registered with the Securities and Exchange Commission (the “SEC” or the “Commission”), or with any state securities commission or any other regulatory authority. The securities are being offered in reliance upon an exemption from the registration requirement of federal and state securities laws and cannot be resold unless the securities are subsequently registered under such laws or unless an exemption from registration is available. Neither the SEC nor any other agency has passed on, recommended or endorsed the merits of this offering (this “Offering”) or the accuracy or adequacy of these confidential offering documents (the “Offering Package”). Any representation to the contrary is unlawful.
These securities are offered through Carofin, LLC, Member of FINRA/SIPC. Carolina Financial Securities is an affiliate of Carofin and both Broker-Dealers are affiliates of Carolina Financial Group, LLC. Documents have been prepared by Carolina Financial Securities and have been reviewed and approved by the management of the Company. The information contained herein has not been independently verified and is dependent on information provided by the Company to Carolina Financial Securities, LLC.
Our firms seek to present vital capital with meaningful investment opportunities through the fundamental analysis of the businesses we seek to finance. Such analysis is usually conducted through a First Principles approach.
When we provide you with a recommendation, we have to act in your best interest and not put our interest ahead of yours. At the same time, the way we make money creates some conflicts with your interests. You should understand and ask U.S. about these conflicts because they can affect the recommendations we provide you. Here are some examples to help you understand what this means:
Proprietary Products: Our firms will often present investments that are only available through them, which may result in a higher placement fee. The Firms will receive the placement fee regardless of your investment performing as expected.
Our firms offer brokerage services to accredited investors, exclusively through the sale of private placements. the offerings we bring to market are carefully selected, and any recommendation you may receive from U.S. will be limited to these offerings. Therefore, we may be unable to adequately compare the risks and benefits of the offerings we bring to offerings presented by other financial professionals. While our firms will often present new investments and discuss such investment’s risks and benefits with you, the ultimate authority to make such investment rests solely with you.
Our firms do not hold any investor cash or securities, and securities offered by U.S. often have no easily assessable market value, so our firms will not monitor the market value of your investment on an ongoing basis. The investments we present often require a minimum investment of $5,000 for equity offerings and $10,000 for debt offerings.
When we provide you with a recommendation, we have to act in your best interest and not put our interest ahead of yours. At the same time, the way we make money creates some conflicts with your interests. You should understand and ask us about these conflicts because they can affect the recommendations we provide you. Here are some examples to help you understand what this means:
Proprietary Products: Our firms will often present investments that are only available through them, which may result in a higher placement fee. The Firms will receive the placement fee regardless of your investment performing as expected.
Fees and costs may reduce any amount of money you make on your investments over time. Our firms are mostly compensated through placement fees, which are payable by the issuer, meaning that the firms will be compensated by receiving a percentage of the funds raised in an offering, regardless of the investment performing as expected. Such placement fee is usually between 3% and 7% (please find the specific Placement Fee for this offering in the “Placement Agent Fees” section of the “Security Terms”. Given that different investments have different placement fees, we may often have a conflict of interest when presenting these investments to you. The Firms’ bankers are often compensated by receiving a percentage of the placement fee, and may have their own conflict of interest when presenting you with offerings they structure.
The information contained herein is for informational purposes only and is not intended for further distribution. The information does not constitute a complete description of any investment or investment performance. This document is in no way a solicitation nor is it an offer to sell securities nor is it advice or recommendation regarding any investment. The information is not directed to any person who is not believed to qualify under the definition of an Accredited Investor under the rules of Regulation D of the 1933 Securities and Exchange Act. No security listed in this document or otherwise offered through Carolina Financial Securities, LLC or Carofin, LLC may be purchased without prior receipt of a complete Private Placement Memorandum or other official offer to sell.
Due diligence materials related to this Company and the Offering are available to you through Carolina Financial Securities’ affiliated marketplace, Carofin. If you have not received your login information to access Carofin.com, please contact your company representative to have access granted.
The Company will not offer, sell or issue any Securities in any jurisdiction where it is unlawful to do so or where laws, rules, regulations or orders would require the Company, in its sole discretion, to incur costs, obligations or time delays disproportionate to the net proceeds the Company will realize from such offers, sales or issuances. Neither this Offering Package nor any subscription agreement shall constitute an offer to sell or a solicitation of an offer to purchase any Securities in any jurisdiction in which such transactions would be unlawful.
Private placements are high risk and illiquid investments. As with other investments, you can lose some or all of your investment. Nothing in this document should be interpreted to state or imply that past results indicate future performance, nor should it be interpreted that FINRA, the SEC or any other securities regulator approves of any of these securities. Additionally, there are no warranties expressed or implied as to accuracy, completeness, or results obtained from any information provided in this document. Investing in private securities transactions bears risk, in part due to the following factors: there is no secondary market for the securities; there is credit risk; where there is collateral as security for the investment, its value may be imped if it is sold. Please see the Private Placement Memorandum (PPM), and the complete list of contents of this Offering Package for a more detailed explanation of the securities Summary of Terms, Investor Suitability Standards, Confidentiality, Securities Matters and Risk Factors.
Caution Regarding Forward-Looking Statements
Certain statements in this Summary Offering Material may be “Forward-looking” in that they do not discuss historical facts but instead note future expectations, projections, intentions, or other items relating to the future. We caution you to be aware of the speculative nature of forward-looking statements as these statements are not guarantees of performance or results.
Forward-looking statements, which are generally prefaced by the words “may,” “anticipate,” “estimate,” “could,” “should,” “would,” “expect,” “believe,” “will,” “plan,” “project,” “intend,” and similar terms, are subject to known and unknown risks, uncertainties and other facts that may cause our actual results or performance to differ materially from those contemplated by the forward-looking statements.
Although these forward-looking statements reflect our good faith belief based on current expectations, estimates and projections about, among other things, the industry and the markets in which we operate, they are not guarantees of future performance. Whether actual results will conform to our expectations and predictions is subject to several known and unknown risks and uncertainties, including risks and uncertainties discussed in this Summary Offering Material.
Consequently, all the forward-looking statements made in this Summary Offering Material are qualified by these cautionary statements and there can be no assurance that the actual results anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us or our business or operations. Risks, uncertainties, and factors that could cause actual results to differ materially from those projected are discussed in the “Risk Factors” section of this Summary Offering Material. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Considering these risks, uncertainties, and assumptions, the forward-looking events discussed in the Summary Offering Material might not occur.
What is Carofin?
Carofin is a FINRA broker dealer, an investment bank headquartered in Brevard, North Carolina, that specializes in financing smaller businesses. Carofin’s parent company Carolina Financial Group, LLC, was established in 1995 and its affiliates have privately placed over $1 billion of debt and equity securities.
Is this security registered with the Securities Exchange Commission (S.E.C.)
No. It is being privately placed under Rule 506c of Regulation D of the S.E.C.
Must Investors be an Accredited Investors?
Yes. They must have household income of $300,000 (for married couples) OR a net worth of $1,000,000, excluding the value of their primary residence, OR qualify for an institutional category of investor.
What rights do I have as an Investor?
Investor rights can be found in the term sheet (page __).
Will Investors Continue to Receive Information About the Security After Issuance?
Given its role as the administrative agent, CFG Financial Services is able to keep Investors informed about any unexpected changes in the Issuer's business and general operational updates.
What if I have questions in the future about the Business’s performance?
Carofin will distribute updates to investors at least quarterly, including account statements. You should feel free to also email Carofin at investorrelations@carofin.com or telephone us at 828.393.0088
A Carofin representative will be in touch soon.
Carolina Financial Securities, LLC and Carofin, LLC (“CFS” and “Carofin”, respectively) are affiliated broker-dealers registered with the Securities and Exchange Commission and members of FINRA and SIPC. The fees and services broker-dealers offer differ across the industry and it is important for you to understand such differences.
Free and simple tools to research firms and financial professionals are available at Investor.gov/CRS, which also provides educational materials about broker-dealers, investment advisers, and investing.
You will find certain pertinent questions you may ask us when first establishing a relationship listed as “conversation starters” below. We invite you to visit our Knowledge Base for educational materials on private investments.
Our firms offer brokerage services to accredited investors, exclusively through the sale of private placements. A private placement is an offering of securities that is exempt from registration with the Securities and Exchange Commission and carries significant risks, which may result in the loss of some or all of your investment. Such risks include, but are not limited to, the inability to sell your investment for cash, the lack of publicly available information on the company issuing the security, and no guarantees of returns or periodic payments.
Our firms carefully select the offerings they bring to market, and any recommendation you may receive from us will be limited to these offerings. Therefore, we may be unable to adequately compare the risks and benefits of the offerings we bring to offerings presented by other financial professionals. While our firms will often present new investments and discuss such investment’s risks and benefits with you, the ultimate authority to make such investment rests solely with you.
Our firms do not hold any investor cash or securities, and securities offered by us often have no easily assessable market value, so our firms will not monitor the market value of your investment on an ongoing basis. An affiliate of CFS and Carofin, CFG Financial Services, does, however, act as administrative agent for many offerings we bring to market. In this role, CFG Financial Services will monitor an issuer’s compliance with its obligations, make distributions of periodic payments, and, when necessary, intervene in the event that things are not going to plan. When this happens, CFG Financial Services is often compensated by part of the proceeds recovered in settlement or bankruptcy proceedings, which may reduce the return on your investment.
The investments we present often require a minimum investment of $5,000 for equity offerings and $10,000 for debt offerings.
Conversation Starters:You will pay fees and costs whether you make or lose money on your investments. Fees and costs may reduce any amount of money you make on your investments over time. Please make sure you understand what fees and costs you are paying.
Our firms are mostly compensated through placement fees, which are payable by the issuer, meaning that the firms will be compensated by receiving a percentage of the funds raised in an offering, regardless of the investment performing as expected. Such placement fee is usually between 3% and 7%. Given that different investments have different placement fees, we may often have a conflict of interest when presenting these investments to you.
Given that our placement fees are payable by the issuer, the full amount of your investment will be used to purchase debt or equity securities, even though a certain amount of the proceeds may be immediately redirected by the issuer to CFS and Carofin as placement fees.
Conversation Starters:When we provide you with a recommendation, we have to act in your best interest and not put our interest ahead of yours. At the same time, the way we make money creates some conflicts with your interests. You should understand and ask us about these conflicts because they can affect the recommendations we provide you. Here are some examples to help you understand what this means:
Proprietary Products: Our firms will often present investments that are only available though them, which may result in a higher placement fee.
Management Fees: Our firms will often present investments in which Carolina Financial Group, LLC an affiliate of CFS and Carofin, acts a manager of the company. CFG will often be compensated for such services.
Warrant Position: Our firms will often receive a warrant (an option to purchase an equity security in the future, for a defined price) for certain securities. Given that our firms, or other equity holders in the company, may have an investment time horizon that differs from yours, this may create a conflict of interest.
Equity Trust Company Relationship: Carofin and Equity Trust Company (“ETC”) have entered into an agreement by which Carofin exclusively promotes ETC’s services as IRA custodian, in exchange for the sharing of certain Carofin content by ETC. You can learn more about the services ETC offers, along with the fees associated with such services, at trustetc.com.
Conversation Starters:Our firms have different compensation structures.
CFS financial professionals, which are often the individuals working with the company to structure an appropriate security, receive a percentage of the placement fee received by CFS in the investments they structure. Therefore, these professionals have an interest in presenting you with the investments they have structured.
Carofin financial professionals, on the other hand, are the individuals responsible for understanding and presenting these investments to you. While Carofin professionals are compensated through discretionary bonuses, they may have an interest in presenting you with investments which may result in a higher placement fee to the firm overall.
Yes. You have access to a free and simple tool to research our firms and financial professionals at Investor.gov/CRS.
Conversation Starters:You may learn more about our brokerage services and request a copy of this relationship summary at Carofin.com. You may also contact us directly at 828.393.0088 or compliance@carofin.com to request up-to-date information and a copy of this relationship summary. We also encourage you to visit our Knowledge Base for additional educational information on private investments.
Conversation Starters:Form CRS – October 12th, 2020, Ver. 2.0
PRIVATE PLACEMENTS ARE HIGH RISK AND ILLIQUID INVESTMENTS. AS WITH OTHER INVESTMENTS, YOU CAN LOSE SOME OR ALL OF YOUR INVESTMENT.
Securities offered through Carofin, LLC. Carofin, LLC and Carolina Financial Securities, LLC are affiliated Broker-Dealers, Members of FINRA/SIPC, and subsidiaries of Carolina Financial Group, LLC. For more information on the services we offer and details associated with such services, please see our Customer Relationship Summary.
This site is published for residents of the United States only. Representatives may only conduct business with residents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed until appropriate registration is obtained or exemption from registration is determined. Not all services referenced on this site are available in every state and through every advisor listed. For additional information, please contact Craig Gilmore at 828.393.0088 x 520 and/or cgilmore@carofin.com
The information contained herein is for informational purposes only and is not intended for further distribution. The information does not constitute a complete description of any investment or investment performance. This webpage is in no way a solicitation nor is it an offer to sell securities nor is it advice or recommendation regarding any investment. The information is not directed to any person who is not believed to qualify under the definition of an Accredited Investor under the rules of Regulation D of the 1933 Securities and Exchange Act. No security listed on this webpage or otherwise offered through Carofin, LLC may be purchased without prior receipt of a complete Private Placement Memorandum or other official offers of sale.
Carolina Financial Securities and Carofin only offer one type of alternative investment, those sold as private placements. Nothing on this website should be interpreted to state or imply that past results are an indication of future performance nor should it be interpreted that FINRA, the SEC or any other securities regulator approves of any of these securities. Additionally, there are no warranties expressed or implied as to accuracy, completeness, or results obtained from any information provided on this website. Investing in private securities transactions bears risk, in part due to the following factors: there is no secondary market for the securities; there is credit risk; where there is collateral as security for the investment, its value may be impaired if it is sold.
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