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Sep 1, 2015

Manufactured Real Estate Returns

by Bob Carter

Bob CarterHas the appeal of real estate investing lost its lustre in the face of continued negative press predicting an impending burst bubble? For many long term investors, the answer is no. The question has evolved beyond, “How can I make money in real estate?” to “How do I choose the right vehicle on which to build my real estate empire?”

Investors must first decide whether they want to be active investors or passive. Will they buy and sell to make quick profits, or choose to buy and hold for the long haul? There is, however, a real estate investment strategy focused on an intermediate term with a specific exit strategy that brings a completely unique perspective to the asset class.

Real estate investors look at properties in terms of positive cash flow, mortgage pay-down and market appreciation. Real estate developers look at housing as products to be designed, manufactured and sold at a handsome profit. Real estate investors have never been invited to sit at the table as partners of the developer, until now.

Greybrook Realty Partners (a division of Greybrook Capital) has grown to become one of the leading financial partners to some of Canada’s most recognized property developers including Castlepoint, Cityzen, Fernbrook Homes, Empire Communities, Stafford Homes, Andrin Homes and Tribute Communities, to name a few. Through Greybrook Securities (a Greybrook Capital sister company which is an OSC-registered Exempt Market Dealer), accredited investors (those who meet certain income or net worth criteria) can invest alongside these leading property developers and share in the project’s profitability as partners.

Greybrook Securities has completed over 50 projects representing some of the best-known communities and buildings in the Greater Toronto Area including Liberty Village, Garrison Point and the Yorkville area, among others. The deals range in duration from between two and ten years, depending on the size and complexity of the project. Typically Greybrook Realty targets returns of over 20% net to investors on an annualized basis and to protect downside risk. A fundamental tenet of their strategy is to acquire their development land on a private sale basis, at conservative market valuations and with use of very little or no leverage at all.

Investors are indirect, beneficial owners of the property being developed through investment in either a limited partnership or mutual fund trust. It’s important to distinguish that Greybrook Securities’ investments are equity investments and not loans or syndicated mortgages, which make up a different asset class (more on these options in future articles). Investors do not receive regular interest payments, but rather as owners of the project’s equity, they realize their return upon successful completion of the development. Depending on whether there are single or multiple phases, investors can expect to receive a return of their initial capital and their profit distributions as homeowners take possession of their new homes and units over the course of the development.

Greybrook investments can be held as non-registered or in fully registered accounts such as RRSPs, RRIFs and inside TFSAs. A minimum investment of $25,000 is required for qualified investors. Projects are often over-subscribed and investors must be prepared to move quickly and have their allotments scaled back, similar to initial public stock offerings for the most popular new issues.

While past performance is certainly no guarantee of future results, Greybrook Securities’ past performance has been outstanding, thanks to a disciplined approach to underwriting and risk management. Thinking of real estate as a product to be manufactured and sold is a new way of considering your investment options and what have been to date, strong “manufactured” returns.

Bob Carter, BA, GBA, CIM bob@canadianaccreditedinvestor.ca

PersonalNote: Many very long-term Canadian MoneySaver readers and contributing editors will remember my having written for the magazine through the 1990s and early 2000s. I left the investment industry to run my own company (perhaps a story for another day) and found my way back into the world of financial services just over four years ago. Inow represent one of the country’s leading health and dental benefits providers working with advisors and consultants across Canada.

At the same time, I have returned to my investing roots and will be sharing some my own insights and experiences into non-traditional and market exempt strategies, including real estate, non-accredited and accredited investment products. I promise to share everything!

The opinions expressed are those of the author and not necessarily those of Canadian MoneySaver. The author may hold positions in the securities mentioned. Investment returns are never guaranteed and investors should review security offering memoranda before investing.