The Advisor The Evergreen Advantage Management, Inc., a California corporation (“TEAM”), was
established in June 2009. TEAM registered as an investment adviser with the State of
California in 2013. Subsequently, in 2017, TEAM transferred its registration to the SEC. In
2019, TEAM elected to reregister with the State of California. TEAM is owned equally by
four shareholders: Dan Zuckerman, Jesse Brunner, Maurice Singer and Steve Adler. Messrs.
Zuckerman, Brunner, Singer and Adler manage TEAM’s day-to-day operations and are its
only employees, officers and directors. In addition, they are the only individuals engaged in
TEAM’s investment advisory and management services.
Investment Services TEAM is the manager of, and provides investment advisory and management services
exclusively for, The Evergreen Advantage, LLC, a California limited liability company
(“TEA”), which is qualified to be taxed as a real estate investment trust. TEA invests in
loans to private parties that are secured by deeds of trust or mortgages on real estate
throughout the United States but principally in California. As such, TEAM focuses its
services on those types of loans and trust deeds which meet the specific investment
requirements of The Evergreen Advantage, LLC, as set forth in its operating agreement and
private placement memorandum. TEAM does not participate in wrap fee programs.
Assets under Management As of March 23, 2020, TEAM manages $220,277,559 in assets for TEA on a discretionary
basis, which represents all the assets of TEA. See the Private Placement Memorandum of
TEA for important information regarding its offering of shares.
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TEAM receives fees and compensation for its advisory and management services from
several sources. As described below, these fees and compensation can be categorized into
two classes: a) compensation paid by TEA, and b) compensation paid by third parties.
Lower fees for comparable services may be available from other sources. These fees and
other forms of compensation will reduce the returns which might otherwise be available to
investors in TEA.
A. Compensation paid by TEA
Asset Management Fee. As provided in the TEA operating agreement, TEAM may earn an
asset management fee paid by TEA. This fee, which is not negotiable, is payable monthly in
arrears, is deducted directly from TEA assets and can be up to two percent (2.0%) of the
Fund’s assets on an annual basis. As the manager of TEA, TEAM may, in its sole discretion,
modify, waive or defer (with interest) all or any portion of the asset management fee for
any period.
Loan Servicing Fee. As provided in the TEA operating agreement, TEAM may earn a loan
servicing fee paid by TEA. The loan servicing fee, which is not negotiable, is payable
monthly in arrears, is deducted directly from TEA assets and can be up to one and one-half
percent (1.5%) annually of the principal amount of each loan, determined on a loan by loan
basis.
Loans to TEA. In the event TEAM or an affiliate makes a loan to TEA for funding a loan or
for other purposes, TEAM or such affiliate will earn interest on such loan but not in excess
of the then current yield of TEA’s loan portfolio.
Recovery of Deferred Compensation. If TEAM defers payment of any of fees or
compensation owed to it by TEA, it will be entitled to recover the same at a later time. In
such event, TEAM will be entitled to interest on any deferred compensation at the rate of
six percent (6%) per annum. Such deferred compensation will be treated as a loan to TEA
and shown on TEA’s financial statements. TEAM has no obligation to defer any portion of
its compensation at any time. Since the date in 2009 when TEAM commenced providing
advisory services to TEA, no compensation earned by it has been deferred.
B. Compensation Paid by Third Parties
Origination Fees. TEAM earns loan origination or discount fees, also known as “points”,
which are paid upon the closing of a loan. These loan origination fees are paid directly by
borrowers or other parties in a loan transaction such as the licensed real estate broker of
record. Such fees received by TEAM typically range from one percent (1.0%) up to three
percent (3.0%) of the loan amount, but could be higher or lower depending on market
conditions.
Extension, Modification and Forbearance Fees. TEAM may earn fees in connection with
the extension or modification of a loan, or an agreement by TEA to forbear from taking
certain action against a borrower, such as filing a notice of default to initiate foreclosure.
These fees are paid to TEAM by borrowers. Such fees are typically between one percent
(1.0%) and two percent (2.0%) of the loan amount but could be higher or lower depending
on market rates and conditions.
Processing, Documentation and Other Similar Fees. TEAM may earn loan processing,
loan documentation and other similar fees for each loan transaction. These fees are paid by
the borrower upon the closing of a loan based upon prevailing industry rates and typically
range from $2,500 to $5,000 per transaction.
Foreclosure Fees. In the event TEA acquires real estate through foreclosure, TEAM is
entitled to earn a fee upon the sale of that real estate of up to fifty percent (50%) of the net
profits from such sale, if any. In addition, TEAM or its affiliates may earn a real estate
commissions to list and sell any such real estate of up to six percent (6%) of the sale price.
Other Loan Fees. Other fees paid by borrowers which may be earned by TEAM are late
charges and prepayment penalties. TEAM may share some or all of these fees with a third
party loan servicing company.
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TEAM provides investment advisory and management services on a discretionary basis
exclusively for TEA and has no other clients of any nature. TEA invests in loans to private
parties that are secured by deeds of trust or mortgages on real estate throughout the United States
but principally in California.
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The following is a summary of the investment strategies and methods of analysis used by
TEAM on behalf of TEA. A more detailed description of such strategies and methods are
included in TEA’s private placement memorandum and operating agreement. There can be
no assurance that the investment objectives will be achieved.
Method of Analysis
TEAM utilizes several methods of analysis and investment strategies in formulating
investment advice and managing assets.
Loan-to-value Ratio. TEA’s charter documents define the type of loans that it is authorized
make. The primary criterion relates to the loan-to-value (“LTV”) ratio, which is the
proposed loan amount, combined with all other outstanding debt secured by any senior
deed of trust or mortgage, expressed as a percentage of the value of the real property
securing the loan. Specifically, TEA is authorized to make a loan provided the LTV ratio of
that particular loan does not exceed sixty-five percent (65%) and provided the overall
loan-to-value ratio of the entire loan portfolio does not exceed sixty percent (60%),
calculated on a weighted average basis. Accordingly, in formulating its investment advice,
TEAM carefully analyzes the value of real estate proposed as security for a loan to
determine the LTV ratio.
TEAM employs various tools in such analysis including: appraisals performed by licensed
appraisers, written opinions of value prepared by licensed real estate professionals, review
of tax returns or financial statements including cash flow and income statements, analysis
of any senior debt, site inspections, consideration of key metrics including capitalization
rate, gross rent multiplier and debt service coverage ratio, and other real estate valuation
methods for determining the true or actual LTV ratio.
There is risk involved in such LTV analysis. Real estate valuation is an inexact science and
is never an absolute predictor of actual value, which can only be determined by willing and
able parties to a specific purchase transaction. No assurance can be given that such
appraisals will, in any or all cases, be accurate. Moreover, since an appraisal is based upon
the value of real property at a given point in time, subsequent events could adversely affect
the value of real property used to secure a loan. Such subsequent events may include
deflation, general or local economic conditions, neighborhood values, vacancy rates,
interest rates and new construction.
Priority of Lien. TEAM also considers lien priority or position securing each loan when
evaluating investment opportunities for TEA. The lien securing each loan will generally be
a first position trust deed or mortgage which will be recorded in the public records against
the real property serving as collateral for the loan. However, depending on the LTV, the lien
securing one or more loans could be in a junior position, such as a 2nd or 3rd trust deed or
mortgage. TEAM relies on title reports and title insurance for determining the lien priority
of any proposed loan. These reports and insurance tend to be highly reliable and there is
little or no risk associated with this analysis.
Credit Evaluation. In addition to LTV and lien position as described above, TEAM may
consider the income level and general creditworthiness of a borrower to determine his or
her ability to repay a loan. Loans may be made to borrowers who are in default under other
obligations or who are in bankruptcy or who do not have sources of income that would be
sufficient to qualify for loans from other lenders such as banks or savings and loan
associations. A person’s credit score is obtained from third party scoring agencies. A
person’s credit score, however, does not provide any certainty about a borrower’s ability to
repay a loan, and so there is substantial risk in relying upon credit scores to the exclusion
of LTV analysis.
Risk of Loss
The following is a general summary of the risk factors associated with investing in trust
deeds. Additional information on investment risks are described in the private placement
memorandum.
No Assurance of Investment Returns. TEAM cannot give any assurance that investments
will generate returns or that returns will be commensurate with the risks of investing in
the type of transactions that fall within TEA’s investment objectives.
Lack of Liquidity of Investments. TEA’s investments will consist of short-term debt
instruments secured by trust deeds or mortgages on real estate. These types of loans are
not traded on organized exchange markets and the only possible market for trading such
loans would be to other private investors. The liquidity of TEA’s portfolio investments will
therefore depend on private investors. Trading in loans is subject to delays as transfers
may require extensive and customized documentation, and the payment of certain title and
recording fees. The resulting illiquidity of TEA’s debt instruments may make it difficult or
impossible to sell them if the need arises. If TEA needs to sell all or a portion of its portfolio
over a short period of time, it may realize significantly less value than the value at which it
had previously recorded those investments. There can be no assurance that TEA will be
able to generate returns for its investors or that the returns will be commensurate with the
risks of investing in the types of instruments described herein. As noted above, there is a
possibility of partial or total loss of capital as a result of such constraints.
General Risks Associated with Investment in Private Real Estate Debt. The basic risk
of lending and direct ownership of commercial real estate mortgages is borrower default
on the loan and declines in the value of the real estate collateral. Defaults can be
complicated by borrower bankruptcy and other litigation including the costs and expenses
associated with foreclosure which can decrease an investor’s return. Declines in real estate
value can result from changes in rental or occupancy rates, tenant defaults, extended
periods of vacancy, increases in property taxes and operational expenses, adverse general
and local economic conditions, overbuilding, deterioration in the physical condition of the
asset, environmental issues at the mortgaged property, casualty, condemnation, changes in
zoning laws, taxation and other governmental rules. Capital markets volatility can also
impact the liquidity and valuation of both mortgages and the underlying properties and
may include such items as changes in interest rates, availability and pricing of mortgage
capital, and the return requirements used in the valuation of real estate by prospective
purchasers. Increases in interest rates can also directly reduce the market value of a fixed
rate loan. Commercial mortgage investments are also very dependent on the financial
health, operational expertise, and management skills of the borrower.
Leverage. TEA may, in certain instances, borrow and may utilize various other forms of
leverage. Although leverage presents opportunities for increasing TEA’s total return, it has
the effect of potentially increasing losses as well. If income on investments made with
borrowed funds are less than the cost of the leverage, the total return of the leveraging
fund will decrease. Accordingly, any event which adversely affects the value of a portfolio
investment would be magnified to the extent a fund is leveraged. The cumulative effect of
the use of leverage in a market that moves adversely to the TEA’s investments or in the
event investments experience credit quality deterioration could result in a substantial loss
that could be substantially greater than if TEA were not leveraged. In addition, contractual
demands by a lender to reduce its leverage may force TEA to sell investments on an
emergency basis at prices less than those obtainable in a more orderly liquidation. To the
extent that a creditor has a claim on TEA, such claim would be senior to the rights of an
investor in TEA. As a result, if TEA’s losses were to exceed the amount of capital invested,
an investor could lose its entire investment.
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Registered investment advisers are required to disclose all material facts regarding any
legal or disciplinary events that would be material to your evaluation of TEAM or the
integrity of TEAM’s management.
There are no such facts or events for TEAM to disclose pursuant to this Item.
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Neither TEAM nor any of its management persons has an application pending to register as
a broker-dealer, or as a registered representative of a broker-dealer.
Neither TEAM nor any of its management persons has an application pending to register as
a futures commission merchant, commodity pool operator, commodity trading advisor or
an associated person of any of those foregoing entities.
Neither TEAM nor any of its management persons has any relationship or arrangement
that is material to TEAM’s advisory business or to TEAM’s client with any person listed
below:
1. broker-dealer, municipal securities dealer, or government securities dealer or
broker.
2. investment company or other pooled investment vehicle (including a mutual fund,
closed-end investment company, unit investment trust, private investment company or
“hedge fund,” and offshore fund)
3. other investment adviser or financial planner
4. futures commission merchant, commodity pool operator, or commodity trading
advisor
5. banking or thrift institution
6. accountant or accounting firm
7. lawyer or law firm
8. insurance company or agency
9. pension consultant
10. real estate broker or dealer
11. sponsor or syndicator of limited partnerships
TEAM does not recommend or select other investment advisors for its client nor does it
have relationships with other investment advisers that are material to its advisory business
or clients.
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Trading Code of Ethics TEAM has adopted a Code of Ethics (“Code”). The Code establishes the fundamental
principle that all TEAM personnel have a fiduciary duty to place TEAM’s clients’ interests
ahead of their own. The Code sets forth standards of business conduct expected of TEAM
personnel and establishes policies to address conflicts that may arise.
TEAM will provide a copy of its Code to any client or prospective client upon request.
Participation or Interest in Client Transactions Loan Origination Fees. TEAM receives loan origination fees from borrowers in connection
with TEA’s investment, as described in Item 5 – Fees and Compensation. Any increase in
such charges may have a direct, adverse effect upon the interest rates that borrowers will
be willing to pay TEA, thus reducing the overall rate of return. Conversely, if TEAM reduces
the loan fees charged, a higher rate of return might be obtained for TEA. This conflict of
interest will exist in connection with every loan TEA makes.
Loan Servicing Fee. As set forth above under Item 5 – Fees and Compensation, TEAM will
receive compensation for servicing TEA’s loan portfolio. TEAM has reserved the right to
retain other firms in addition to, or in lieu of, TEAM acting as servicer to perform loan
servicing in connection with the TEA's loan portfolio, as further described in TEA’s private
placement memorandum. Such other firms may or may not be affiliated with TEAM. Loan
servicing firms not affiliated with TEAM may provide comparable services on terms more
favorable to TEA. TEAM has engaged FCI Lender Services, Inc., a professional loan servicing
company, to provide loan servicing for TEA’s loan portfolio. TEAM is unaffiliated with FCI
Lender Services, Inc.
Purchase, Sale and/or Hypothecation of Loans. TEAM and its affiliates may sell, buy or
hypothecate loans (use loans as collateral for another loan) to TEA, provided such loans
meet the underwriting criteria set forth in TEA’s private placement memorandum. TEA
may pay a price greater or less than the remaining balance on such loans. The price at
which existing loans are bought and sold is normally a function of prevailing interest rates
and the term of the loan. Therefore, TEAM or its affiliates may make a profit on the sale of
an existing loan from TEAM to TEA. There will be no independent review of the value of
such loans or of compliance with the conditions set forth above.
Sale of Real Estate to Affiliates. In the event TEA becomes the owner of any real property
by reason of foreclosure on a loan, TEAM’s first priority will be to arrange for the sale of the
property for a price that will permit TEA to recover the full amount of its invested capital
plus accrued but unpaid interest and other charges, or so much thereof as can reasonably
be obtained in light of current market conditions. In order to facilitate such a sale, TEAM
may, but is not required to, arrange a sale to persons or entities controlled by it. TEAM will
be subject to conflicts of interest in arranging such sales since it will represent both parties
to the transaction. TEA may sell a foreclosed property to TEAM or an affiliate at a price
which is fair and reasonable for all parties, but no assurance can be given that TEA could
not obtain a better price from an independent third party.
Co-Lending with TEAM or Affiliates. In certain circumstances, TEAM may advise TEA to
participate in co-lending, where co-lenders may include TEAM or affiliates of TEAM. In such
situations, the loan by TEAM or its affiliates will be subordinated to the TEA loan.
Personal Trading The Code requires that TEAM personnel’s personal investment activities comply with all
applicable laws and regulations.
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TEAM does not select or recommend any broker-dealers for any client transactions.
Neither does TEAM aggregate the purchase or sale of securities for client accounts because
the purchase or sale of securities is not a part of TEAM’s advisory services.
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TEAM reviews the accounts of TEA not less frequently than every month. This review is
conducted by all of the officers of TEAM.
TEAM delivers monthly reports to TEA and its investors on a monthly basis. The reports
summarize TEA’s portfolio performance and investors’ capital account balances.
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TEAM does not engage anyone to provide investment advice or other advisory services to
TEAM’s client. Neither TEAM nor any related person directly or indirectly compensates any
person for client referrals.
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As the manager of TEA, a pooled investment vehicle, TEAM is deemed to have custody of
TEA’s funds and securities, even though those assets are held by an independent qualified
custodian. Quarterly, or more frequent, account statements are sent directly to the
members of TEA from the qualified custodian. TEAM intends to employ the safeguarding
procedures described in California Code of Regulations Section 260.237(b)(4), which
exempts TEAM from certain obligations so long as TEAM, among other things, (i) engages
an independent accounting firm registered with the Public Company Accounting Oversight
Board to conduct an audit of TEA and (ii) distribute the audited financial statements
prepared in accordance with generally accepted accounting principles to all member of
TEA within 120 days after TEA’s fiscal year end.
For withdrawals of its advisory fees directly from a client’s account, TEAM intends to
comply with California Code of Regulations Section 260.237.2. TEA has provided written
authorization to its custodian permitting the fees to be withdrawn directly from its
custodial account. An invoice will be sent to the custodian at the same time a copy is sent to
TEA. The custodian will send statements no less than quarterly showing all disbursements
in the custodial account, including any fees withdrawn.
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TEAM exercises discretionary authority to manage the notes and trust deeds in TEA’s
account. TEAM exercises its investment discretion consistent with the investment strategy
and subject to the restrictions specified in TEA’s operating agreement and private
placement memorandum.
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TEAM has no financial conditions that are reasonably likely to impair its ability to meet its
contractual commitments to its client. TEAM has not been the subject of a bankruptcy
proceeding. TEAM does not require, solicit or collect fees from TEA in advance.
Item 19 – Requirements for State-Registered Advisers A. Educational and Background Experience TEAM has four principals. Their education and business background can be found
on the Supplemental Form ADV Part 2B.
B. Other Business Activities TEAM is not actively engaged in any business other than giving investment advice.
C. Performance Based Fees TEAM does not charge any performance-based fees.
D. Legal and Disciplinary Disclosures No management person at TEAM has ever been involved in an arbitration claim of
any kind or been found liable in a civil, self-regulatory organization, or administrative
proceeding.
E. Arrangements with Issuers of Securities Other than TEA, neither TEAM nor its management persons has any relationship or
arrangement with issuers of securities.
F. Material Conflicts of Interest TEAM has disclosed all material conflicts of interest as required by California Code
of Regulations Section 260.238(k) regarding itself, its representatives, and any of its
employees, which could reasonably be expected to impair the rendering of unbiased and
objective advice.
G. Business Continuity Plan TEAM maintains a written Business Continuity Plan identifying procedures relating
to an emergency or significant business disruption, including dissolution of TEAM or death
or incapacitation of its principals.
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