Frequently Asked Questions
If you don’t find the answer to your question, please call or e-mail us and we’ll be sure to get you the information you need.
Who is Prestigious Properties and what do we do?
Prestigious Properties specializes in acquiring, adding value to, and managing multi-family apartment buildings in growth markets with tightening vacancies. We target acquisitions of “C” class buildings in “B” locations where rent and value growth can be achieved. By purchasing with medium to high leverage, combined with ongoing cash-flow from renters, we target a rate of return of 10% per year for our investors in six to seven years. Prestigious Properties offers a proven track record, proven results, and proven management experience based on real assets with regular cash flow and significant equity growth potential. As of Spring 2013 well over 500 investors have invested over $43,000,000, with total asset values transacted exceeding $165,000,000 and over $90,000,000 of assets under management.
What is the Kings Castle Limited Partnership?
The Kings Castle Limited Partnership is our latest investment opportunity at Prestigious Properties. With the help of EMDs we raise capital for a period of time and then close each Limited Partnership (LP) to new members. Each LP makes its own investments. The Kings Castle Limited Partnership is our sixth LP offering.
What does the Kings Castle Limited Partnership investment entail?
The investment is in Limited Partnership (LP) Units in an Alberta based Limited Partnership formed to acquire, improve, re-finance and hold multi-family apartment buildings in growth markets in North America, but primarily Western Canada, specifically Alberta or Saskatchewan.
Am I investing in a single apartment building?
No, the LP will acquire multiple apartment buildings in the partnership, and sometimes land, creating a small diverse portfolio of revenue-producing real estate.
With oil sands development in high gear, Alberta has been Canada’s economic darling for the last decade. Some wonder how long can it go? Is it still a great place to invest? Absolutely.
The price of a barrel of oil may be a barometer of world politics and economics, fluctuating up and down on the latest news of the day, however the fundamentals that drove the price of oil past the threshold that make oil sands production profitable are here to stay. As well, Albertans have done a stellar job in the last decade of ensuring that their future depends on a lot more than the oil. After many years of strong economic growth the government books are in great shape, and with the lowest taxes in the country people will always want to move here.
For your review, we’ve gathered a selection of key resources about Alberta. They give you an idea of why Prestigious Properties is currently targeting this province in our never-ending search for great real estate investment opportunities. More here on Alberta and real estate related factoids on our facebook site.
How does a Limited Partnership (LP) work?
An LP is a preferred and commonly used way to structure a relationship between willing parties for a defined business venture. It is used to reduce risk, delineate responsibilities and share profits in a predetermined way. It is a well thought out, provincially regulated legal vehicle to raise capital for a venture without the expensive overhead of a public company. Each LP has one general partner (GP) and one or more limited partners.
An LP is like a marriage of multiple parties. Like a real marriage, responsibilities are divided up and it takes a very strong sense of structure when 30 or 50 people marry. One party has the expertise for a certain business venture, in our case, multi-family residential real estate in North America. This is the GP. The other parties have a desire to invest some of their capital for significant returns, limited risks and potential tax savings. The GP usually executes all activities of the business venture, reports regularly to the investor partners and shares the profits with the partners in a predetermined fashion.
In essence, the GP-LP relationship is like a trustee trust relationship: the trust (LP) holds all the assets, but the trustee (GP) on behalf of the trust (LP) manages the assets of the trust (LP). The GP in our latest syndication is called Prestigious Properties Kings Castle GP Inc. The benefits to the investors / limited partners are:
a) Limited risk – to the amount invested, even in case of a major disaster or law suit.
b) Clear delineation of responsibility – one party is the general partner which does all the work with a clearly defined fee structure and compensation – usually a combination of (hopefully very small) fixed fees and variable, profit oriented share of profits (40% in our case, up to doubling your money, after you have received all of your original investment).
c) Allocation of 100% of losses for potential tax savings (usually in early years due to startup costs).
d) Clearly defined time line (up to 5 to 7 years in our case) with early exit options.
e) Possibility to sell units to later partners at annually set prices (usually higher).
f) Existing and well tested legal framework, with oversight by provincially appointed regulators.
g) Annual reporting.
h) Regular optional distributions, usually quarterly.
The GP is owned by Thomas Beyer, Scotty Grubb and Mike Hammerlindl. They direct the day-to-day operations of this LP and manage the activities a) to h) as listed above.
How do I know if I am eligible to invest? What is an Eligible Investor?
Depending on your province of residence, the provincial securities commission requires that all investors must qualify as an Eligible or Accredited Investor, or invest a minimum amount, or is known well by the GP’s executives.
An Eligible Investor is someone who has assets worth over $400,000 or has made over $75,000 in income (or over $150,000 with their spouse) per year over the previous two years.
An Accredited Investor is someone who has over $1,000,000 in financial assets (excluding your personal residence) or has made over $200,000 in income (or over $300,000 with their spouse) per year over the previous two years or has at least $5,000,000 in net assets.
Other exemptions to invest are: a minimum investment over $150,000, or being a friend, family member or close business associate of the executives of the GP.
Is there any difference in the cash versus RRSP investment?
No, there is no material difference. Both invest in the same real estate based partnership units and the returns will be similar. The only difference is that the RRSP or TFSA investment will be 0.5% lower annually as Target Capital Inc, a publicly traded corporation receives 0.5% annually for its supervisory and bond administration services. The RRSP Corporation issues bonds and shares, and the money invested in this firm is 100% invested into the Kings Castle LP that holds the underlying real estate. We needed to create this level of indirection to make the investment RRSP eligible, with the help of lawyers, trust firms and accountants. Several other firms, most in fact, use this bond/share structure as well.
What are my liabilities as an investor?
As an investor in the limited partnership, our limited partners are only liable for the amount of their investment. The General Partner, or principals of Prestigious Properties sign all personal guarantees for mortgages and take on all additional liabilities.
What kind of returns can I expect as an investor?
Prestigious Properties aims to deliver double-digit average annual ROI over a 5 to 7 year investment horizon with optional 5% annual cash distribution or 6% DRIP (Distribution Reinvestment Plan). While we have been able to consistently achieve or even vastly exceed these results in the past through prudent acquisitions, renovations and asset dispositions, there is no guarantee that we will be able to exceed these returns as in the past. Although a look at our track record will give a some indication of the abilities of the General Partner leading the company into the future.
Is there monthly, quarterly or annual cash flow?
Typically, in the first 18-24 months after the acquisition of an underperforming multi-family property, there is very little positive cash flow as we aim to re-inject the majority of the cash flow back into the properties to improve the assets and to increase the value of our assets over the long term.
We do offer an optional annual 5% distribution, paid quarterly, to all cash investors.
What is the DRIP program?
DRIP is an acronym for Distribution ReInvestment Program. The program allows our investor’s portion of positive cash flow to be reinvested into additional LP units to increase their equity share in the partnership, with the idea being that the investors return on investment will be higher at the end of five years if they chose the DRIP program versus quarterly cash distributions.
What are the tax implications of a LP Investment?
The LP agreement that you sign provides that income, and net taxable capital gains or losses for purposes of the Tax Act will be allocated to LP Unit holders in the same proportion as distributions received by Unit holders.
Distributions may consist of the following for income tax purposes for which T5013 partnership income statements are issued, usually in the latter half of March for the previous tax year.
a) Distributions that are currently taxable. This portion of distributions for income tax purposes will be treated as regular taxable income (and not treated as dividends or capital gains) to each Unit holder.
b) Distributions that are treated as a dividend received from a Canadian or US subsidiary corporation. As such, it will be subject to a preferential tax treatment that all dividends from Canadian corporations receive (subject to the dividend tax credit).
c) Distributions that represent your portion of capital gains allocated to you relating to gain on the sale of a property in the year, if any. Please note that of the portion reported as capital gains on your tax return, only 50% of this is included in the calculation of your taxable income. The nontaxable portion of the capital gain is not deducted from the adjusted cost base of your Units.
d) Distributions that are not currently taxable and will be treated for income tax purposes as a return of capital. Accordingly, this currently non-taxable portion will reduce the adjusted cost base of the Units owned by each LP Unit holder. If, after deducting the return of capital portion, your adjusted cost base of your Units is a positive amount, no portion of the return of capital will be taxable. If, however, after deducting the return of capital, your adjusted cost base of your Units is a negative amount, you will realize a capital gain equal to the negative amount and your resultant adjusted cost base of your Units will be nil.
Prestigious Properties does not give financial not tax advice (although we do have opinions on those matters). LP Unit holders should consult their tax or financial advisors with respect to any questions they may have concerning tax matters.
What communication can I expect to receive from Prestigious Properties after I invest?
We typically issue quarterly written updates on the progress of the limited partnership along with the financials of the partnership. We pride ourselves in our transparency and encourage all investors to contact us with any additional questions they have regarding the details of the partnership. All documents such as mortgage statements, property appraisals, engineering reports, offers-to-purchase or invoices are available for inspection online in a password-protected area or via our administrative headquarters in Canmore, AB.
Simple questions are always an e-mail or phone call away. Unlike a large REIT or PubCo we answer investor questions directly, and promptly.
What is the time horizon for my investment?
The investment is for five to seven years. It takes time to change poor management, to upgrade and renovate existing apartment buildings and to improve revenues and decrease expenses. Therefore, in order to deliver our typically above average returns, we need at least five years with the investment for it to materialize into above average returns for our investors.
When can I take my money out of the partnership?
The investment is a five to seven year investment, however there are liquidity clauses in the Limited Partnership Agreement outlining options for our investors if they need their money back before then. These fees are used as a disincentive to take money out before then and the fees decreases linearly over the first five years. For more details, please see the Offering Memorandum.
How does Prestigious Properties make its money?
In addition to very small, below industry-standard acquisitions fees and asset management fees as outlined in the Offering Memorandum, Prestigious Properties, acting as the General Partner of the partnership, shares in the equity appreciation of the assets only after our investors receive 100% of their initial investment back.
What is an EMD ? What are “Exempt Securities” ? What is “private equity” ?
In Canada securities commissions regulate the flow of investments. Each province has a security commission, although various national instruments ( NIs) exist to create some overall harmony between the provinces and territories in Canada. Specifically, NI 45-106 regulates how securities can be issued using an exemption.
The exemption NI 45-106 is referring to is the exemption from issuing a prospectus.
A prospectus is a detailed disclosure form used for taking companies public and it has to be approved by the security commission. An offering memorandum (OM) has to just be filed with the security commission; although both state the nature of the business, the principals of the firm, the fees, the risks and both have two years of audited IFRS-compliant financial statements. Our OM is over 200 pages and is available on request by us or usually from EMDs that sell our product. Before you invest in ANY exempt market security you should read this OM and understand its main points. if you don’t understand it, please ask us, or the EMD.
Securities that are issued under this exemption are referred to as “Exempt Securities” or “Private Equity” as they are not publicly traded like stocks. The benefit is that they are not as volatile as publicly traded stocks, but they are not as liquid. Liquidity costs money, namely a large regulatory overhead, and it allows easier manipulation by insiders, short-sellers or high frequency traders, thus creating possible large volatility based on news, rumours or market sentiment. Prestigious Properties securities have liquidity restrictions as outlined in our OM and as such, you should not consider an investment in Prestigious Properties if liquidity prior to the 5-7 year recommended minimum hold period is required.
NI 45-106 allows a number of exemptions, such as
- Friends, family or close business associates
- Accredited Investors (those with financial assets over $1,000,000 or an annual income over $200,000 per year or over $300,000 as a couple)
- Investment over $150,000
- Offering Memorandum
Prestigious Properties relies primarily on the fourth exemption, and to this effect has issued OMs since 2005.
Another National Instrument, namely NI 31-103 stipulates that firms that are in the business of issuing securities must be registered.
Although Prestigious Properties ultimately issues the securities – LP units, bonds or shares – to you, Prestigious Properties is not in the business of issuing securities, nor in the financial or investment advisory business.
We are in the real estate operating business.
Of course, we do have opinions on the world at large, on investment choices and the role of real estate within it, and share these opinions freely on blogs, newspaper articles, occasional seminars or websites. We do not however offer individual investment or financial advise that is specific to each individual. That is done by EMDs through a KYC (Know Your Client) form and an in-depth discussion about your needs and financial situation.
Prestigious Properties is an Exempt Market Product Issuer based on real estate. We are in the real estate business, i.e. finding buildings or more recently, land parcels, analyzing them, buying them, upgrading them, managing them, improving them and eventually disposing of them.
Firms that are in the business of issuing securities or provide individual investment or financial advice must be registered. These firms are referred to as Exempt Market Dealers (EMDs), and financial advisors that sell securities are referred to as Exempt Market Representatives (EMRs).
Currently Prestigious Properties products are distributed by four EMDs that provide financial and/or suitability advice, namely Sloane Capital, Pangea, Wealthterra or Triview Capital.
If you wish to invest with us, we will refer you to one of these EMDs to assess suitability before securities are issued to you, or you can contact them directly.
How do I liquidate my investment?
At the end of five years, and every year thereafter, there will be an Annual General Meeting of the partners. The partners will be given details on the current position of the Limited Partnership and have the opportunity to request that their investment be liquidated based on the Net Asset Value (NAV) of their proportionate share of the Limited Partnership assets. If they choose to remain partners, the General Partners may make recommendations to hold properties for longer than five years and the Limited Partners will have the option to remain partners going beyond the initial five year investment.
You may exit earlier but there is an early withdrawal penalty, used as a disincentive to take money out before then and the fees decreases linearly over the first five years. For more details, please see the Offering Memorandum.This investment is not designed to perform in the short term like some stocks might. It is based on real world real estate where real people pay real rent every month. The real estate (usually apartment buildings) carry usually a five year mortgage which makes it difficult, and expensive, to sell an asset prior to the 5 year minimum suggested investment time horizon.
Please refer to the latest Offering Memorandum for all details. This is not an investment offering. This is not a guaranteed investment.
Investment is sold via an Offering Memorandum (OM) only to Eligible and Accredited Investors, or to friends and family or close business associates of the GP, or if you invest over $150,000 without an OM.