Urbanfabrix Q+A Webinar

The Home renovation market has seen increasing activity since the pandemic – this investment strategy is increasingly becoming institutionalized with rigorous, programmatic processes and we have a unique opportunity for accredited investors to participate in the Urbanfabrix Repositioning Fund I as they seek to capitalize on the lack of new supply in urban residential neighborhoods.

Today we’ve invited Paul Popovici, Co-Founder and Partner of Urbanfabrix Repositioning Fund I LP, to tell us a little more about this unique opportunity and give us the inside scoop on why the investment strategy focused on urban residential renovations is compelling.”

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What is an Accredited Investor in Canada?

Before we define accredited investors, it is important for you to understand what the exempt market is. The exempt market is where securities are sold (under prospectus exemptions) without the protections that come with a prospectus. A prospectus is a document that outlines info about a security and the company or issuer that is offering it. 

There are a number of prospectus exemptions and each one has its own rules as to who can sell and buy securities under these exemptions. One of these exemptions is the Accredited Investor Exemption. As an accredited investor, one gains access to a wide network of private investment opportunities with significant upside potential. So how do you determine if you are an Accredited Investor or eligible to invest in the exempt market under the other exemptions? 

The Ontario Securities Commissions or the National Instrument or NI 45 106 set the descriptions of an accredited investor in Ontario and other provincial securities commissions throughout Canada. These rules created advantages to investing in large-scale investments which are the driving forces of Canada’s future economic growth. To help you, we’ve outlined the qualifications for the individual Accredited Investor below. You may qualify as an accredited investor in Canada if you meet at least ONE of the criteria below:

Income

  • Your net income before taxes exceeded $200,000 in both of the last two years and you expect to maintain at least the same level of income this year; OR
  • Your net income before taxes, combined with that of a spouse, exceeded $300,000 in both of the last two years and you expect to maintain at least the same level  income this year;

Financial Assets

  • You alone or together with a spouse, own financial assets worth more than $1 million before taxes but net of related liabilities.

Cash, or certain investments such as public equity or bonds, would be considered liquid/financial assets.

Net Assets

  • You, who alone or together with a spouse, have net assets of at least $5,000,000;

This criteria requires that an individual have net assets that count for at least $5 million, with liabilities subtracted. This means that an investor with $4.5 million in real estate and $500,000 in cash may be considered an accredited investor.

Investment Opportunities for Accredited and Non-Accredited Investors

Exempt market securities offer investors more choice of products to help them achieve their financial goals, but they should be aware that there are many risks associated with investing in the exempt market. 

Real Estate Investment Corporations 

A real estate investment trust (REIT) is a company that owns, and in most cases operates, income-producing real estate. REITs own many types of commercial real estate, including office and apartment buildings, warehouses, hospitals, shopping centers, hotels and commercial forests. Some REITs engage in financing real estate.To learn more about Private REITs click here. 

Mortgage Investment Corporations

Mortgage investment corporations or MICs allow investors to pool their money and provide loans to individuals and companies that were turned down by conventional institutions including banks, credit unions, and big lending companies usually at a slightly higher rate with varying loan periods. At least 50% of its assets should be in physical real estate, most of which include high-yield, residential mortgages.

One of the most appealing elements of participating in a MIC includes the typically stable and robust dividend rate that they provide to their shareholders while providing participating shareholders with mitigated risk through diversification. To learn more about MICs click here. 

Investing with Fundscraper

As Canada’s leading private real estate investment marketplace, Fundscraper has customized investments to potentially match your desired income and investment targets

Our goal is to help everyday investors access a world of new wealth that has historically been available to only a small portion of the population. Our easy-to-access online platform allows you to start investing in real estate backed securities with as little as $5000. 

Our team has helped process more than $475M (as of June 30, 2022) in investor capital into high value real estate-secured investments. Join today. It’s time to get your money working for you to produce real results and enjoy the benefits of investing in real estate.  

4 Benefits of a Private REIT

What is a Private REIT?

A Private Real Estate Investment Trust or REIT is a tax-efficient vehicle that gives people exposure to a diversified portfolio of income producing properties. Essentially, that means a REIT is a type of investment that allows almost anyone to invest in real estate and indirectly own or finance properties. 

Unlike a public REIT, private REITs are sold to investors through specialized dealers in the exempt market like Fundscraper. Private REITs are not traded on a public stock exchange and not required to file a prospectus with the Securities Exchange Commission. 

Additionally, there are transfer, redemption, and resale restrictions on those units. Thus, private REITs are not as liquid or transparent as publicly traded REITs on stock exchanges.

REITs are companies that own real estate assets like apartment buildings, office buildings, and shopping centres. When you invest in a REIT, you pool your money with other investors (known as ‘unitholders’) to become a part owner of the trust vehicle. 

As a unit holder, you are entitled to the cash distributions derived from cash flow generated from the trust’s holdings of real estate.

The Difference Between REIT and Real Estate Private Equity

A private REIT offers Real Estate Private Equity and Land Development Limited Partnerships. These are both securities that are offered in the exempt market and distributed primarily by way of an offering memorandum (OM). 

They may only be purchased by certain investors who qualify for exemption (e.g. accredited investor exemption, eligible investor under the offering memorandum exemption, etc.). 

For example, to qualify as an accredited investor, one of the conditions is that your income must be more than $200,000 per year, or a joint salary of $300,000, in each of the past two years and expected to reasonably keep the same level of income. 

Under these exemptions, individuals can invest in asset classes traditionally dominated by institutional investors like hedge funds and the ultra-wealthy. 

A land development limited partnership (LP) is a security offered to investors to provide them with the opportunity to invest in land development projects versus how a Private REIT enables investors to access a portfolio of income producing properties. Thus, how it works and the risks involved are very different. 

To see if you are eligible to invest in private REITs, sign up for a free account today and fill out our quick questionnaire to determine your investor eligibility. 

The Private REIT Structure

Let’s break down how the private REIT structure in Canada works. The REIT’s assets can be directly owned by the REIT or through a “special purpose vehicle” (SPV) or through a holding company (holdco) that, in turn, holds such SPVs.

SPV

A SPV is a company in which either a REIT or holdco, holds or proposes to hold, an equity stake or interest of at least 50%. The SPV holds at least 80% of its assets, directly in properties, and is not allowed to invest in any other SPVs nor engage in any activity, other than holding and developing a property and any incidental activity relating to such holding or development.

Holdco

A holdco is a company or or an limited liability partnership in which the REIT holds or proposes to hold an equity stake or interest of at least 50% and which, in turn, has made investments in other SPV(s), which ultimately hold the real estate property or properties.

The holdco does not engage in any other activity other than holding of the underlying SPV(s), holding of real estate or properties and any other activities pertaining to and incidental to such holdings.

4 Benefits of a Private REIT in Canada

Every real estate investment has its own set of risks. While reviewing private REIT offers, here are some of the important pros and cons to consider.

Pros
Stable and Tax Efficient Income
Private REITs can potentially offer target total returns ranging from 10-13% and cash yields from Most private REIT investments are relatively well diversified depending on their portfolio size and aim to provide reliable distributions:

One of the many government tax regulations requires REITs to pay out 90% of income to unitholders. In return, they’re generally exempt from paying corporate taxes on their earnings.

This helps distributions ‘flow through’ to investors and are only taxed once at the individual level instead of twice in typical corporate investment structures.

This flow through makes investing in private REITs tax efficient and beneficial for investors.
Diversification
If your investment portfolio consists of only stocks and bonds, you’re missing out on critical diversification from real estate investments.

Private REITs in particular have low correlation to the stock market and can be a hedge against inflation.
No Property Management
We often consider real estate a passive form of investing. However, if you buy a property and rent it out to a negligent tenant, it can be a huge time suck managing delinquent tenants.

Private REITs help you avoid being a property manager altogether with professional asset and property management.
Cons
Illiquidity
You can exit your holdings of a public REIT at any time (so long as the market is open), but it’s not that simple to liquidate your holdings of a private REIT.

Many private REITs are ‘closed funds,’ meaning you can’t sell or redeem units without penalty until a specific amount of time has passed – often a few years in the future or you have no ability to redeem units at all.

If you view real estate as a long term investment and don’t need your initial funds back in the short term, this might not be an issue. But if you foresee needing access to your funds, private REITs may not be the right choice for you at this time.
Lack of Control
Some investors prefer to have more control over their investments. Unlike when you buy a home and rent it out, as a unitholder of a REIT, you will have no say in what properties the REIT invests in and where they’re located.

While you don’t get to scope out the property first, you rely on the trustees and professional management will steer the course adequately.

Related to the above liquidity restrictions, you may not be able to control when you are able to redeem or sell your units.
Property and Asset Class Specific Risks
REITs tend to specialize in a specific type of property or asset class, such as an office building REIT will focus primarily on owning and acquiring office assets.

Each type of property has risks associated with it and is susceptible to different economic conditions, so it helps when your management team can focus on the same type of asset class across the whole portfolio.

If you’re interested in reviewing a private REIT list, download our Private REIT comparison chart here, which outlines all the available private REITs in our marketplace. 

How to Start a Private REIT in Canada

Are you looking at how to start a private REIT in Canada? Starting a private REIT is no walk in the park. Companies owning or financing real estate must meet a number of organizational, operational, distribution and compliance requirements to qualify as a real estate investment trust (REIT). 

These rules govern issues such as dividend distributions and the composition of a company’s assets. Starting a REIT is not simple but professional help is always available. 

Fundscraper is your trusted capital, compliance and technology dealer. 

As an Exempt Market Dealer (EMD), we help investors, issuers, private lenders, mortgage brokers, and mortgage syndicators navigate the complex legal landscape, and remain compliant with Canadian Securities Laws.

If you need any assistance with REITs in Canada, check out our Investment Marketplace or contact us today for more information.

What is a REIT in Canada?

If you’re considering real estate investment strategies such as direct property ownership and buying residential or commercial real estate properties, or you’re an experienced investor looking for further portfolio diversification, it’s a great time to consider alternatives such as  investing in Real Estate Investment Trusts, or REITs. 

REITs are an alternative way to invest into a portfolio of income producing real estate managed by real estate professionals. Investing in REITs can provide investors with regular cash flow in the form of distributions and potential for the underlying real estate owned by the REIT to appreciate in value. 

With the relatively recent popularization of REITs, it’s now possible to invest in a large portfolio of real estate assets that give you similar benefits as direct investing and property ownership.

If you’re a Canadian investor or looking into how to invest in a REIT in Canada, this article will answer important questions such as “What is a REIT?” and “How does a REIT work in Canada?”

What is a REIT and How Does it Work?

So what is a REIT and how does it work in Canada? A REIT is a tax-efficient vehicle that gives people exposure to a diversified portfolio of income producing properties. 

Essentially, that means a REIT is a type of investment that allows almost anyone to tap into the real estate market and indirectly own or finance properties.

REITs are companies that own real estate properties like apartment buildings, office buildings, and shopping centres. 

When you invest in a REIT, you pool your money with other investors (known as ‘unitholders’) to become a part owner of the trust vehicle. As a unitholder, you’re entitled to the cash distributions derived from cash flow generated from the trust’s holdings of real estate.

Every month, you’ll receive passive income via distributions made by the trust, generated from the income such as rental income earned from the properties. You don’t have to be anyone’s landlord or make any property visits; just leave it to the professional management teams that manage the trust. The REIT portfolio is managed professionally, with the managers appointed by the trustees of the trust.

Investing in a REIT can allow you to invest with less capital upfront than purchasing a property outright, thus broadening the access for individuals to own larger assets that are more geographically diverse.

How to Buy a REIT

Buying REITs is different from buying and selling stocks. There are different types of REITs, such as Equity REITs where the majority of income is derived from collecting rent or property sales or Mortgage REITs where income comes from loan interest payments. 

There are also publicly traded and private REITs. Public REIT units can be bought pretty much like shares of any other stock listed in the stock market. They can be bought as REIT mutual funds or exchange-traded funds (ETFs) through a broker.

Private REITs are sold to investors through specialized dealers in the exempt market like Fundscraper. Private REITs are not traded on a stock exchange, so there are transfer, redemption, and resale restrictions on those units. Thus, private investments are not as liquid as publicly traded investments.

Everyone’s investment preferences are different, but one of the main reasons investors prefer private REITs to public REITs is how their value is determined and the perceived stability of unit prices given typical lower correlation with the public capital markets. 

The value of a private REIT is generally based on the intrinsic and appraised value of the properties they hold, whereas the value of a public REIT unit may be severely impacted by the volatility of the public stock market. It will go up and down based on market events and may not be driven by the underlying value of the properties the REIT holds in its portfolio.

There also may be a liquidity premium for being traded on a public exchange, or vice versa, a liquidity discount for units of a non-traded REIT. 

Private REIT investments historically have a less volatile unit price, in part because units are not publicly traded. Most private REITs calculate and update their unit prices monthly or quarterly, whereas public REIT units values are real time based upon the unit price movement on the stock market.

Private REITs are a smart decision for some investors, but they’re not for everyone. Ultimately, it’s up to you to decide what investments are suited to your needs. 

Fundscraper can help you evaluate private REIT opportunities posted on its platform and make suitability suggestions based on your income, goals, and risk appetite. Empowering investors to grow their wealth in real estate is our passion. We offer an experienced management team, rigorous due diligence process, and first-class service.

Investing in a REIT in Canada

REITs overall are relatively new. The first publicly traded REITs in Canada were formed in the early 1990’s.

Nobody expects you to have developed an expertise in how to value a REIT. That’s what we’re here to assist you with! Fundscraper is licensed as an exempt market dealer with the Ontario Securities Commission and various other provincial regulators across the country. We have certain duties to you, and we take our jobs very seriously.

It’s our duty to assess whether an investment through our platform is suitable for you. We arm you with knowledge, help highlight what key considerations can impact your decision, and empower you to make decisions that meet your own personal investor profile given various key risk factors.

If you are looking to evaluate a REIT, a great place to start is by looking for a firm that has a track record and is licensed by a regulatory body, like a securities commission. You should ask to review all the relevant documents, any offering memorandum, financial statements, and always always seek professional advice from your accountants, lawyers, or other financial advisors.

Here are a few basic things to start looking at when evaluating a private REIT

  • Acquisitions and Dispositions: Is the REIT growing their portfolio? Are they shrinking? Neither one of these is inherently good or bad, but it’s important to make note of and understand why they took those actions and how the REIT is executing on its growth strategy.
  • Operating Margins: How are the operating margins performing compared against the peer group? Is management operating the portfolio efficiently relative to the competition? Operating margins is generally calculated as the Net Operating Income divided by the Gross Revenues.  
  • Distribution Yields (distribution per unit $ / price per unit): What they are paying out as distributions as a percent of the unit price is important to review over the course of time to be able to benchmark the comparative performance against other investment opportunities.

    This metric is very tricky since a lower distribution yield might mean units are fairly priced and a high distribution yield might indicate a discounted unit price.  It is important to see a consistent distribution on a total dollar basis (the numerator) and to understand why the unit price (denominator) is fairly valued or perceived to be riskier and thus discounted. 
  • Growth Strategy and Management Track Record: Has the management team executed well on prior strategic plans and does the management team adequately assess and address the risks of such strategic plans or objectives?

    Growth strategies don’t always have to be related to external acquisitions. Many private REITs implement value-add strategies to consistently upgrade assets, find new sources of ancillary income thus driving up rental income or make operations more efficient to reduce expenses.  

 

Download our Beginner’s Guide to Private REITs

A real estate investment trust, or REIT, is a company that makes investments in income-producing real estate. Investors who want to access real estate can, in turn, buy units of a REIT and through that share ownership effectively add the real estate owned by the REIT to their investment portfolios.

How to Start a REIT: Getting the Help You Need

Are you interested in learning how to start a REIT in Canada? Companies owning or financing real estate must meet a number of organizational, operational, distribution and compliance requirements to qualify as a real estate investment trust (REIT). These rules govern issues such as dividend income distributions and the composition of a company’s assets. Setting up a REIT is not simple but professional help is always available. 

Fundscraper is your trusted capital, compliance and technology dealer. As an Exempt Market Dealer (EMD), we help investors, issuers, private lenders, mortgage brokers, and mortgage syndicators navigate the complex legal landscape, and remain compliant with Canadian Securities Laws.

Need any assistance with REITs in Canada? Talk to us today.

Impact of Rising Interest Rates on Private Lending Webinar

Given the current economic climate, with the Canadian government attempting to curb inflation, many investors are wondering what the impact of rising interest rates will be on private lending. In this webinar, we spoke with subject matter expert, Roger Allison, CEO and founder of Nest Capital to discuss a variety of topics related to the current lending environment. These include:

0:00 Introduction
1:12 What type of opportunities are there right now?
2:52 How does the current lendinenvironment affect Nest Capital’s mortgage lending activities?  
5:21 Will private mortgage interest rates increase at renewal?8:25 How is the current lending environment affecting credit quality, underwriting criteria and investor yield targets?

* Fundscraper Capital Inc. and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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The Harbour Club Investment Webinar

In this webinar, Fundscraper CEO Luan Ha joins Valour Capital’s Carmen Campagnaro to discuss Valour Capital’s latest opportunity, The Harbour Club. The Valour Capital team has a solid track record of successfully acquiring, developing, managing and creating value in real estate. The Harbour Club is a one of a kind opportunity in historic Port Dalhousie, a waterfront community on the south shore of Lake Ontario. This limited collection of only 120 impressive Lofts & Estate Residences with high ceilings, fabulous water views, custom layouts and bespoke finishes will provide the rarest of opportunities for a fortunate few.

0:00 Introduction

4:52 Investment Overview (Structure, Risks,

Returns)

9:17 What is the security of the investment?

10:57 What is a quantity surveyor and what do

they do?

16:36 What drives the end purchaser units to

this project?

20:38 Value Engineering

22:33 Update on construction and

development

26:26 Preferred shares and taxes

32:38 Construction timeline

36:28 What is the minimum investment?

38:40 How does an investor get in contact with

Fundscraper or Valour? 

* Fundscraper Capital Inc. and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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