Dweller. The affordable, no hassle accessory dwelling unit (ADU).
Dweller builds and installs prefab accessory dwelling units ("ADUs") in a low cost, efficient manner to allow as many homeowners as possible to benefit from this source of extra income and desperately needed housing.
Dweller plans to develop their next four ADUs in Portland, Oregon over a 12-month period. “The number of households adding ADUs to residential properties has quickly grown during the pandemic” according to Planetizen. And Dweller plans to address that surge. ADUs are legal housing units, typically in the backyards of existing single-family properties and either attached to or detached from the primary residence. The advantages of ADUs include:
- No land acquisition cost
- No additional infrastructure
- Dispersion of new housing units in existing neighborhoods
- Minimal environmental footprint
Because of these advantages, states and cities throughout the United States have updated zoning and building codes to encourage the development of ADUs. While fee and permitting hassles remain, nearly all property owners on the West Coast have the legal right to develop an ADU on their residentially zoned properties.
Dweller’s approach to developing ADUs offers an opportunity to invest in affordable housing built at a cost-effective price. Dweller’s units will be constructed at an average cost of $115,000 compared to the average cost of a new affordable rental unit in Portland, OR of $225,000. This lower development cost creates a financially sustainable model for building affordable housing.
In addition, Dweller’s model will assist homeowners currently unable to afford the purchase of an income earning ADU. Home equity financing is the primary means for homeowners to finance the purchase of an ADU, leaving homeowners without significant equity on the sidelines. Connecting homeowners without equity to this income earning opportunity is particularly important in helping ADUs achieve their potential for assisting low- and moderate-income homeowners.
By investing the value of its existing ADU portfolio into this transaction, Dweller is providing predictable cash flow at the beginning of this investment while the four new units are being developed and rented. This early cash flow allows for the payment of an immediate preferred return to investors.
Dweller has previously, successfully developed privately-owned residential properties under a ground lease structure in the Portland market.
By entering into a ground lease with the homeowner, Dweller obtains the right to build and own an ADU on a portion of their property and operate that ADU as a long-term rental. In exchange, Dweller shares 25% of the monthly rent with the homeowner. In addition, the homeowner is required to purchase the ADU within ten years at a fixed price, although they also have the option to purchase the ADU at any time.
While Dweller is an owner of the ADU and all associated improvements, Dweller does not obtain an interest in the land subject to the ground lease. Dweller is responsible for all maintenance and repairs on the leased premises and all property tax associated with the improvements.
For this portfolio, Dweller has formed Dweller Affordable ADU Portfolio, LLC (the “Company”), to build the planned four ADU’s and raise the necessary equity through this Offering.
The majority of these ADUs will be built and installed by Wolf Industries, Inc., an experienced ADU builder in Southwest Washington. Wolf’s team of local contractors will handle all site preparation and installation. Dweller’s contractors will complete final finishing of the units and landscaping. Because the units have a standard footprint and layout, the process of preparing a backyard and installing the ADU is typically predictable and efficient. As a result, Dweller can usually deliver an installed ADU in rent ready condition within 200 days of executing a lease or purchase agreement with a homeowner.
The ADUs are planned to be one-bedroom units ranging from 390-450 square feet depending on the configuration of the backyard. Each unit will have a separate bedroom and bathroom and a shared kitchen/living space. In addition, each ADU hopes to enjoy 500-1000 square feet of outdoor space dedicated for the renter’s use.
The Company plans to cap rents on installed ADUs at a rent affordable to households earning 80% of average monthly income assuming 30% of income is spent on housing, which is $1320 in Portland. In addition, subject to demand, the Company expects to develop ADUs on owner-occupied residential properties only. Investor-owners of single family properties have expressed significant interest in Dweller’s ground lease transactions but Dweller will only work with those owners to the extent that it is unable to identify enough interest from owner-occupied properties.
The Company plans to develop the four ADUs in residential neighborhoods within Portland, Oregon. Portland is one of the fastest growing metro regions in the U.S. and one of the most housing constrained. The region currently has a rental vacancy rate of 4.4%, compared to a national average of 6.6%, and needs to add an average of 13,000 new housing units annually over the next decade to meet anticipated demand. In June 2020, the median monthly rent for a 1-bedroom apartment was $1425.
For this portfolio, the Company will seek out properties that are particularly well-suited for a prefab ADU to shorten installation times and ensure limited variability in project costs. To achieve this outcome, a deep pipeline will be developed to allow for the Company to select the properties most suited for this type of development.
In terms of competition, there are no similar companies in Portland offering a similar ground lease opportunity. Property owners without financing have few options to develop an ADU on their properties.
Dweller was founded in 2017 to revolutionize how accessory dwelling units (ADUs) are developed and financed, and has developed more ADUs under residential ground leases than any other company in the U.S.
Dweller’s innovative model for broadening access to ADUs has been recognized nationally, and as a result, Dweller was selected in 2019 by the Terner Center at UC Berkeley to participate in the first cohort of Housing Lab, the Center’s housing innovation accelerator. Dweller is managed by the team of Patrick Quinton and Brian Lynott, two seasoned executives with a unique combination of complementary skills. Dweller CEO Patrick Quinton served for over five years as the Executive Director of the Portland Development Commission (PDC), the economic development and urban renewal agency for Portland OR. In this role, Patrick managed a staff of over 100 employees and an annual budget of $150 million. Prior to his tenure at PDC, Patrick served in leadership roles in both the commercial finance and community banking industries.
Patrick earned a Master of Arts in Public Policy from the University of Chicago and a Bachelor of Arts in Government from Dartmouth College.
Brian Lynott, an experienced entrepreneur with backgrounds in the real estate, construction, and technology industries, serves as Dweller’s VP of Development. He is the founder of Better World Homes, Inc., Always Faithful Construction and HomePro Management, a diversified family of companies in the residential property development industry. Lynott is also the Founder and Chairman of TeleSmart and ATL Communications, both successful telecom software businesses.
Brian is a retired Infantry Officer in the U.S. Army and earned a Bachelor of Arts degree in planning, public policy, and management from the University of Oregon.
In addition to Dweller’s in-house staff, Dweller works with a team of contractors experienced in site preparation and installation of prefab ADUs. Dweller’s primary contractor is Always Faithful Construction, a company-owned by Brian Lynott, one of Dweller’s co-founders. Always Faithful is separately licensed and staffed and operates independent of Dweller management and ownership.
Dweller works with third party property managers to manage the marketing and maintenance of our units. In Portland, Dweller has worked exclusively with Living Room Property Management, which is an affiliate of Living Room Realty, a well-established real estate firm in the Portland metro region.
The Company plans to develop all four ADUs in residential neighborhoods within the City of Portland, Oregon.
Portland is one of the fastest growing metro regions in the U.S. and one of the most housing constrained. The region currently has a rental vacancy rate of 4.4%, compared to a national average of 6.6%, and needs to add an average of 13,000 new housing units annually over the next decade to meet anticipated demand. In June 2020, the median monthly rent for a one-bedroom apartment was $1425.
Extensive data analysis has been performed on the potential for ADU development in Portland. Analysis by the City of Portland and Portland State University indicates that at least 70,000 single family properties with the City of Portland are suited for new ADU development.
The Company will rely on its existing pipeline of interested property owners and organic marketing to generate deal flow. Dweller currently has a waitlist in Portland exceeding 25 property owners who are interested in the ground lease transaction. Dweller will use social media and its existing referral networks in Portland to reintroduce the ground lease in those markets to fill out the pipeline.
- Scalability. Dweller ADUs have the potential to scale quickly.
- Affordable. A Dweller ADU costs approximately 50% of a new affordable housing unit in Portland.
- Use by right. Easy to implement. Each Dweller ADU is designed to fit existing ADU codes.
- Important. ADUs have the potential to help fill the housing gap.
- Financing solution. Dweller ADUs provide financing to homeowners who want to add an ADU.
- Livable. In the backyards of homes in stable neighborhoods with plenty of amenities.
- Immediate distributions. Portfolio includes nine occupied and cash flowing ADUs.
The Company is engaged in a Regulation Crowdfunding (Reg CF) offering (the “Offering”) to raise money to build and place four affordable accessory dwelling units (ADUs) on ground leases negotiated with homeowners located in Portland, Oregon over a twelve-month period.
We are trying to raise up to $207,000 in the Offering but we will move forward with the Project and use investor funds if we are able to raise at least $103,500 (the “Target Amount”). If we have not raised at least the Target Amount by July 31, 2021, EST (the “Target Date”), we will terminate the Offering and return 100% of their money to anyone who has subscribed.
The minimum you can invest in the Offering is $1,000. Investments above $1,000 may be made in $500 increments (e.g., $1,500 or $2,000, but not $1,136). An investor may cancel his or her commitment up until 11:59 pm on July 29, 2021 (i.e., two days before the Target Date).
Once the minimum offering goal of $103,500 has been met, as long as the offering has been open for a minimum of 21 days, the Company may decide to conduct the first closing. Investors will be notified and given the right to cancel before their funds are invested.
On June 11, 2021, the Company made adjustments to this Offering in order to create a more capital efficient structure that will increase the number of ADUs built for each dollar of equity raised. The changes include adding a loan to the financing of the portfolio in order to reduce the dependence on equity to finance each ADU. The Company has been in discussions with a bank regarding such a loan for several months now. In addition, the minimum target and maximum goal amounts have been lowered in order to allow the Project to proceed with a smaller equity raise.
The specific changes made are:
- The closing date on the offering was extended to July 31, 2021.
- The maximum goal of the offering was reduced from $874,000 to $207,000
- The minimum target amount was also reduced from $115,000 to $103,500
- The plan now proposes to build four ADUs instead of eight with a final portfolio size of 13 ADUs instead of 14.
- The minimum target amount of $103,500 is now sufficient to build two ADUs instead of one.
- While previously 100% of the construction was to be financed through this Offering, a loan will be assumed to finance 50% of the construction costs along with the existing $350,000 in debt, removing the current balloon payment due in 2023.
- Interest rate of the loan is expected to be 7%.
- The loan is planned to be repaid through excess cash flow and sales.
An investor who invests $5,000 can now expect to receive $11,359 in ten years, versus $9,759 under the original plan.
Commited investor funds will be invested with each $115,000 raised in a series of rolling closes. Since the portfolio includes nine occupied and cash flowing ADUs, and as long as there is cash available as estimated, distributions to investors will begin immediately.
Under the LLC Agreement, all distributions will be made in the following order of priority, after bank loans have been repaid:
- First, the Available Cash shall be distributed to the Investor Members until they have received their Preferred Return of 5% for the current year.
- Second, the balance of the Available Cash, if any, shall be distributed to the Investor Members until they have received any shortfall in the Preferred Return for any prior year.
- Third, the balance of the Available Cash shall be set aside to pay down any outstanding principal on the bank debt.
- Fourth, the balance of the Available Cash, if any, shall be distributed to the Investor Members, including Sponsor in their role as Investor Member, until they have received a full return of their Unreturned Investment.
- Fifth, the balance of the Available Cash, if any, shall be distributed:
- 80 % to the Investor Members, including Sponsor in their role as Investor Member; and
- 20 % to Sponsor as a promoted interest.
The Company has estimated that bank principal will be repaid by Year 5 and invested equity should be returned by Year 7, at which time any available cash from cash flow and buyouts will be split as profit, as described above.
Dweller is financing this portfolio of ADUs with a combination of debt and equity. At this time, banks are unwilling to provide sufficient debt to finance the full cost of new ADUs and therefore Dweller is seeking to raise equity equal to 50% of the total cost of each unit.
The total value of the Company’s portfolio is expected to be $942,000. Nine existing and cash flowing ADU units will be contributed to the portfolio by the Sponsor, at an existing value after principal already paid of $432,000. In addition, Wolf industries is contributing 5% of the cost of each newly constructed ADU, at a total anticipated value of $23,000. Dweller will obtain a debt facility providing at least $580,000 to refinance existing debt of $350,000 and debt on four new units of $230,000. The remaining $207,000 in cash will be raised through this Offering This is expected to be sufficient to build an additional four ADUs, bringing the total portfolio size to 13 ADUs.
The Company plans to require buyouts of the four new ADUs by homeowners no later than year ten of operations. Buyouts are anticipated to stretch through year nine for the nine existing ADUs. Cash flow from operations will be used to pay interest on debt and a preferred return payout of 5% to Investor Members which will begin when funds are invested. Any excess cash from operations will pay down outstanding principal on the debt. Cash from ADU buyouts will pay down debt principal until all principal is repaid. After the bank principal and interest requirements are met, and after the preferred return is paid, all cash flow and profits from buyouts will be used to first pay back equity invested and then shared first 20% to the Company as a Sponsor promote, and the remaining 80% on a pro-rata basis to all investor members, including the Sponsor, in their role as an investor member.
For more detail review Exhibits A and B and the section on Investor Return below.
A crowdfunding investment involves risk. You should not invest any funds in this offering unless you can afford to lose your entire investment.
In making an investment decision, Investors must rely on their own examination of the issuer and the terms of the offering, including the merits and risks involved. These securities have not been recommended or approved by any federal or state securities commission or regulatory authority. Furthermore, these authorities have not passed upon the accuracy or adequacy of this document.
The U.S. Securities and Exchange Commission does not pass upon the merits of any securities offered or the terms of the offering, nor does it pass upon the accuracy or completeness of any offering document or literature.
These securities are offered under an exemption from registration; however, the U.S. Securities and Exchange Commission has not made an independent determination that these securities are exempt from registration.
There are numerous risks to consider when making an investment such as this one and financial projections are just that - projections. Returns are not guaranteed. Conditions that may affect your investment include unforeseen construction costs, changes in market conditions, and potential disasters that are not covered by insurance. You should review these additional Risks of Investing for a more expansive list of potential risks associated with an investment in this Company.
Unless otherwise noted, the images on the offering page are used to convey the personality of the neighborhood in which the project is planned. Properties shown in these images are not included in the offering and Investors will not receive an interest in any of them.
With unemployment reaching levels not seen since the Great Depression, by some estimates already 20% and rising, we have already experienced a number of negative effects from the COVID-19 pandemic and anticipate being impacted even further. Among current and possible outcomes:
- Eviction moratoriums and rent freezes instituted in Portland and Oregon could result in deferrals of rent by existing tenants and prevent any increases in rent on lease renewals for much of 2021. To date, only one tenant deferred rent payments and all past due rent has been repaid.
- Occupancy levels might decrease, although they have not decreased yet as compared to the same periods in 2019.
- Once the moratorium on rent increases is lifted, we may not be able to raise rents as projected in our forecasts. Depending on circumstances we could be forced to decrease rents.
- We expect that economic uncertainty will cause some families to postpone buying a house and rent instead, increasing the pool of potential tenants.
- The pandemic may make mortgage and home equity financing more difficult to obtain and could delay the buyout decisions by our property owners.
- If occupancy rates and rents decrease while delinquencies increase, we could be unable to meet our obligations as they become due. A reduction in cash flows and/or asset values could also cause us to be in default under the loan covenants under our senior debt. Either scenario could lead to foreclosure and the loss of one or more properties.
We do not know how long the pandemic will last or how its effects will ripple through the American economy. In a best-case scenario we would experience a short-term drop in cash flow and a dip in asset values as the economy adjusts to a new reality. In a worst-case scenario, where occupancy and rent levels drop significantly over an extended period of time, we would be unable to make mortgage payments and possibly lose assets, risking or even forfeiting investor equity if asset values drop far enough. Based on the information currently available to us we expect an outcome closer to the former scenario than to the latter and are marshalling all our experience and assets toward that end.