Post: #1

At the moment I'm considering investing in a project by a reputable company that has done many prior projects. It seems as though the fee structure works out to 8% per year plus potentially a 4% bonus at the end of the term. (3 years)

Number wise it seems great for a tfsa investment. (Tfsa in Canada is after tax money which you can invest a prescribed amount each year and you never pay any tax on any investment returns)

Anyone have experience with these? Are they riskier than it seems because on paper it looks great.

Any advice or knowledge would be great.

I should probably clarify that the projects im looking at investing in are in the 50M+ category. (Not my investment but the total project. I'd be investing 7 or 8% of my net worth in this if I were to do it)

Post: #2

What's the structure of the deal? It's very hard for us to comment if you can't/aren't able to give details.

Post: #3

quarterly monthly interest payments totaling 8% of principle per year.

year 1: 8%

year 2: 8%

year 3: 8% + 4% bonus + principal repayment.

It's a condo development project. I'm getting more info from my friend in the coming weeks. My understanding is this will be the 2nd round of funding.

Essentially I will be lending roughly $50,000 (my max tfsa space) and I get 8% per year interest with 8% + a 4% bonus of my principal at the end of 3 years. I haven't found out the LTV ratio yet. I'd assume it would be under 85% as I believe that is the max allowed per my cursory understanding of it.

My understanding from my research on it is the loan to value ration can't exceed the value of the property.

I'm not familiar with this investment vehicle aside from what my friend who is in the industry has told me. Right now my assets consist of about 75% equities, 15% reits and 10% cash. I was in the market for a multi residential property but my investment partner due to a seperation isn't going to be in the financial position to purchase one with me until probably 2018 as I'm trying to diversify a bit more as I'm pretty heavy on equities at the moment. I have a low personal income due to being self-employed so obtaining the mortage on a multi unit residential of the size I'm interested in simply isn't realistic.

Post: #4

Here's the TL;DR version of how it works: 1)builder has condo it wants to build but banks won't lend against nothing. In order to get the bank to finance the condo project, it needs something to go to the bank with something like pre sales.

2)To get to the point where pre sales can be generated, the developer needs funding. Here's where the syndicated mortgage comes in.

3)Developer uses proceeds of syndicated mortgage to pay the costs of the PRE SALE. Buying the land, hiring sales staff, building pre sale center. Not the actual project. Syndicated mortgage holders are 1st position against the land.

4)When developer sells enough units, it goes to a major bank and obtains financing to actually build the project. Key point here, syndicated mortgage holders now get pushed out of 1st position and are subordinate to the bank and then the trades.

Red flags with your particular deal: 2nd round of funding - where did the money from the 1st round go? And why? At what stage is the project?(Have they broken ground)

Other questions to ask: - is the housing market overextended?
- who is the developer and what's it's track record?
- where is the project? Does it make sense? (Building a project in Thunder Bay vs Vancouver)

You will have likely 0 liquidity, so no secondary market if you wish to get out halfway through. This is different from a MIC, which at least has annual redemptions.

IMO just increase your REIT exposure. I would love a multi family as well, but my experience has been in holding paper and TBH it's usually a lot easier than actually managing physical.

Post: #5

You might also want to ask Aaron Clarey over at Asshole Consulting for an analysis. I follow his work and it is interesting.

Post: #6

So.....is this a REIT? Is the investment securitized?

If you have any public investor materials or a prospectus(which they should for this kind of deal) send it over to me via PM and I will have a look at it.


Quite frankly I have no idea what you are getting into yet. I have done some work analyzing real estate finance before but it is an area that is often extremely difficult even for experienced (non-real estate) finance professionals to follow. The reason why is that many of the financial products have extremely complex debt waterfalls, default conditions, backing, etc. You almost need a lawyer's help to interpret some of these.

Unless we know the exact nature of the financial product involved we can not help you much. Is it securitized? Debt or equity? If debt what is it secured by? If equity what type of equity? Or is it a standard mortgabe backed product? If so is it a CMBS or a RMBS?

Also if you do not immediately understand every term I used without looking it up then you probably should not invest in this without getting some professional help on the matter. We do have a number of people here on the forum with real world capital markets and investing experience.

Post: #7

(08-15-2016 05:36 AM)Easy_C Wrote:  So.....is this a REIT? Is the investment securitized?

If you have any public investor materials or a prospectus(which they should for this kind of deal) send it over to me via PM and I will have a look at it.


Quite frankly I have no idea what you are getting into yet. I have done some work analyzing real estate finance before but it is an area that is often extremely difficult even for experienced (non-real estate) finance professionals to follow. The reason why is that many of the financial products have extremely complex debt waterfalls, default conditions, backing, etc. You almost need a lawyer's help to interpret some of these.

Unless we know the exact nature of the financial product involved we can not help you much. Is it securitized? Debt or equity? If debt what is it secured by? If equity what type of equity? Or is it a standard mortgabe backed product? If so is it a CMBS or a RMBS?

Also if you do not immediately understand every term I used without looking it up then you probably should not invest in this without getting some professional help on the matter. We do have a number of people here on the forum with real world capital markets and investing experience.

I am a self-employed lawyer. Granted I don't practice in Real Estate/ My dad has been involved in development including developing subdivisions etc. and has substantial legal experience. Interpreting the contractual provisions isn't the issue. When I see that, between my dad and I we will know quickly if there are unacceptable terms.

My impression was that it's a pretty common financial product. It peaked my interest. I wasn't aware there were large variations within this specific area. When I read the contract I'll have no issue understanding the terms. I obviously wouldn't touch it if the LTV ratio meant little to no equity or if there were any other unacceptable provisions.

Heres an article that seems to be depicting the type of product my friend is describing.

http://www.remonline.com/syndicated-mort...e-caution/

jj90 has explained what it is in his above post. He explained it essentially the same as my friend explained it to me.

I was moreso looking for general experience with these products as opposed to the particular deal I may invest in. I was assuming someone on the forums would have invested in multiple of this specific product via Fortress and other companies.

This is not a real estate investment trust. When I see the paper work I'll know more about it.

I now realize my question was overly vague based on the information I had. I had falsely assumed this was a common product offering with small (although potentially substantial) differences between companies that offer this product.

It would be a minor part of my investment portfolio where if I lost all of my capital I'd be back to where I was within 6 months.

The developer has a spotless track record.

Post: #8

Fortress has had some issues: google them and see what I mean. Do your DD.

I've not had the opportunity/luck/misfortune to run into these products, I have been involved with MICs, actually used to work at 1 and have been pitched on others.

Which begs another question: How/Why have you/I not heard of them? And I've been to my fair share of MIC pitches in this Canadian housing market.

IMO if you are looking for yield, REITS do pretty well, as would a MIC(private REIT). My REIT portfolio is yielding ~10% and the MIC I used to work at threw off no less than 8% over a 30 year history. Syn Mort's are essentially the penny stocks of the mortgage world. They are akin to angel investing in the startup world. But hey it's your money. Let us know how it goes. Good luck.

Post: #9

I'm aware of Fortress is issues. (That's not the company I was looking at doing it through).

I've been reinvesting constantly my HR.UN for several years. That is admittedly the only REIT I own. I'll consider adding more REITs as well to use the cap space.

I am not familiar with investing in private REITs. I'm now going to look into MICs as I'm really looking for high yield assets as opposed to growth assets than i can just keep reinvesting in.

Thank you.

Post: #10

"The eligibility rules to buy a private REIT vary by province.

In Ontario and Quebec, you need to be an accredited investor (with $1-million in financial assets, or have an annual income of $200,000 as an individual or $300,000 with a spouse) or invest a minimum of $150,000."

I don't qualify for any of those. I would never show a $200,000 income being self-employed, I don't have $1 million and I wouldn't be willing to invest $150,000 at the moment. Hopefully in the future I'll have an opportunity to consider investing in MICs

Post: #11

So you're dealing with an entity that functions similarly to a limited liabiltiy partnership.

The best way I can interpret this kind of thing in layman's terms is that you should evaluate this kind of investment the way that the people on shark tank look at investments.