Frequently Asked Questions

DID YOU KNOW?

Our investment partners receive quarterly financial reports.

  1. What is an "Accredited Investor"?
  2. What are the returns?
  3. When are the returns paid?
  4. What is a “preferred return”?
  5. What are the minimum investment amounts?
  6. When do I get my money back?
  7. Can I sell my investment units? (This is the question most frequently asked)
  8. What is the “payback period”?
  9. Many types of investments don’t tie up my money. Why would I want to invest in your investments when I could invest elsewhere and have more flexibility?
  10. Can you show me how the various types of returns (preferred returns, tax savings, excess returns, returns of capital on refinancing or sale) all add up?
  11. What types of properties are available?
  12. Where are the properties usually located?
  13. This sounds like a REIT. Is this a REIT?
  14. Does each investment consist of a single property, a portfolio of properties, a fund or a pool?
  15. Are these existing, fully-built properties, or are they new development sites with buildings that have yet to be constructed?
  16. Do I have to be a wealthy investor (or a “sophisticated investor”)?
  17. Are these investments RRSP eligible?
  18. What are the tax savings all about? Is this a tax shelter?
  19. Who guarantees the mortgage debt? Will I be required to personally guarantee the mortgage debt?
  20. Are there any commissions?
  21. How does the general partner get paid?
  22. What are my rights as an investor?
  23. Are the financial statements audited?
  24. What are the risks?
  25. When do I get my money back?
  26. How many deals have been completed?
  27. Have any deals ever failed to work out?
  28. Can I talk to the people who will be managing the property?
  29. Is My Investment Locked In? How Long Will It Be Before I Receive My Investment Back?


  1. [ top ]

    What is an "Accredited Investor"?


    "Accredited Investor" means, in the case of an individual, either: (a) someone whose net income in each of the last two calendar years exceeded $200,000 (or, if combined with that of a spouse, $300,000) in each of the last two years, and who reasonably expects to exceed that amount in the current calendar year, or (b) someone who, either alone or with a spouse, owns financial assets having an aggregate realizable value that, before taxes, but net of any related liabilities, exceeds $1,000,000.

  2. [ top ]

    What are the returns?


    The rates of return will vary with the particular investment. Also, these are not fixed-income investments, so there will be variation from year to year. The Investors First™ Preferred Returns are typically set at 10% per year (some are 8% or 9%). Cash on cash returns typically begin at the preferred rate and tend to grow over the first five years to anywhere from 13% to as much as 18%. Overall returns are approximately 20% per year, averaged over the life of the investment. Income deals tend to have lower overall returns than the development deals (see the FAQ “Are these existing… constructed?”). In all cases, please refer to the financial projections contained in the Executive Summary.

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    When are the returns paid?


    Cash returns are paid quarterly. In the case of new developments, there is usually a construction period and an initial occupancy or lease-up period during which cash distributions are accrued and paid later. We call these “development” deals. Existing buildings will typically already have stable cash flows at the time of acquisition, enabling cash distributions to begin immediately. We call these “income” deals.

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    What is a “preferred return”?


    Our Investors First™ Preferred Return refers to the distribution formula used on most of our income investments and development investments. Investors are entitled to receive a return on their money before any portion of the returns is shared with the general partner or developer/operator. The preferred return rate is between 8 and 12 percent per year, and is established for each investment opportunity individually. This rate of return on investment is distributed to investors as a priority payment out of cash flow from operations, surplus proceeds of refinancing and proceeds of sale of the property. These preferred distributions are included in the projected overall return on investment. For example, the Pacrim North York LP indicates a 12% per annum Investors First™ Preferred Return. After allowing for the payment of the preferred return, investors are entitled to a 50% allocation of the excess profits and of the proceeds of sale of the hotel. The preferred return plus the projected 50% allocation together make up the 27% projected overall annual return on investment for this investment.

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    What are the minimum investment amounts?


    The minimum investment amounts are $25,000, in most cases. For those purchasing in excess of the minimum, units are $1,000. Occasionally, the minimum investment is set at a lower amount, typically $5,000, or higher amount, like $50,000.

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    When do I get my money back?


    While these investments do earn significant returns during their terms, the limited partners’ capital is not returned until there are proceeds of a sale or other disposition of the assets of the limited partnership. This generally occurs due to a sale of the property to a new buyer. In many cases, however, prior to the complete sale of the property, substantial returns of capital result from a refinancing of mortgage loans, or from sales of portions of the property. Often, more than half of the original investment amount is returned to the investors in this way, long before the property is sold. For a more complete explanation, see the Briefing Note “Is the Investment Locked In?”

  7. [ top ]

    Can I sell my investment units? (This is the question most frequently asked)


    These investments are not liquid. While from time to time, an investor has been known to transfer his investment to another investor (one who is typically already in the same deal), no one should ever count on that happening, as there is no secondary market. Investors should go into these investments with a view to holding them long term (at least five years).

  8. [ top ]

    What is the “payback period”?


    The payback period of an investment is the period of time it takes for the investor to receive payments totaling the amount of the original investment. For example, if a $100,000 investment earns returns of $18,000 per year, the payback period would be $100,000/$18,000 = 5.56 years. Most of the investments we offer have payback periods of five years or less - the development properties tend to have payback periods of three to four years. These paybacks consist of the cash returns plus repayments of capital.

  9. [ top ]

    Many types of investments don’t tie up my money. Why would I want to invest in your investments when I could invest elsewhere and have more flexibility?


    The returns on a non-liquid investment need to be higher to make up for the lack of liquidity. If you compare the returns on limited partnership investments like these to returns on similar, but liquid, real estate investments, like a REIT trading on a stock exchange, you will likely find that the returns are generally going to be significantly higher on the non-liquid investments. Another way of looking at it is to compare to a purchase of an apartment building or a commercial property, for example. In such a case, you would generally be expecting to invest for the long term anyway in order to realize the return on investment that you are seeking.

  10. [ top ]

    Can you show me how the various types of returns (preferred returns, tax savings, excess returns, returns of capital on refinancing or sale) all add up?


    There are five types of returns in these investments. Our overall returns are typically around 20% per annum, simple interest over the long term, and they consist of Investors First™ Preferred Returns (typically, 10% p.a.), excess returns (the investors’ share of the split on excess cash flow), tax savings or tax sheltering (varies with the type of investment), return of capital upon refinancing of the property (without selling the property), and a capital gain on the ultimate sale of the property. For an in depth exposition of these returns, please read the Briefing Note “How Do the Returns Add Up?”

  11. [ top ]

    What types of properties are available?


    The types of properties include retirement residences, apartment buildings, residential developments, industrial, shopping plazas, and branded hotels. There tend to be two or three different types of properties available for investment at any given point in time.

  12. [ top ]

    Where are the properties usually located?


    So far, the properties have tended to be in strategic locations in small to medium-sized towns in Ontario, Alberta, Quebec and the Maritimes.

  13. [ top ]

    This sounds like a REIT. Is this a REIT?


    No. These are limited partnerships, although there are similarities to REITs. A REIT (Real Estate Investment Trust) is a trust owning real estate on behalf of investors who are beneficiaries of the trust. REITs typically distribute cash flow directly to investors, just as these limited partnerships do, but REITS are known for not distributing all of the cash surplus available. Instead, they withhold certain amounts for the acquisition of more properties. By contrast, our limited partnerships distribute all of the cash flow, prudently withholding only small reserves for specific expenses. We are not acquiring further properties for the same limited partnership. Most REITs trade on a stock exchange, and while some limited partnerships do, the ones that we offer do not trade on any stock exchange. REITs tend to buy properties on an ongoing basis, so that at any given time, an investor may not even have a clear idea of what properties the REIT owns. From the outset, each of our limited partnerships owns either a single property or, in some cases, a small number of like properties, and the investors have voting control over the sale of each property.

  14. [ top ]

    Does each investment consist of a single property, a portfolio of properties, a fund or a pool?


    Most of these investments contain a single property, while some consist of a fixed portfolio of like properties (e.g. three hotels at different locations, all operated by the same operator). These are not investment funds or pools. When you make your investment, you know precisely which property is in it, and the limited partnership won’t be purchasing more properties later. Investors decide by majority vote on when to sell the property, and the general partner does not have a vote on this.

  15. [ top ]

    Are these existing, fully-built properties, or are they new development sites with buildings that have yet to be constructed?


    Some involve acquisitions of properties with occupied buildings providing immediate, stable cash flow. Others are about development and construction of a new building on a site, followed by an initial period of lease-up and occupancy, leading to stabilized cash flow.

  16. [ top ]

    Do I have to be a wealthy investor (or a “sophisticated investor”)?


    No, you do not. In the past, prior to changes made to securities regulations in 2002, private equity investors in BC often needed to make investments of at least $97,000 in order for the investment to qualify for exemptions from prospectus and registration requirements. Now, there are other exemptions available. We rely primarily upon the “Offering Memorandum” exemption, not the $97,000 exemption. Our minimum investment amount is typically only $25,000.

  17. [ top ]

    Are these investments RRSP eligible?


    A limited partnership does not normally qualify as an RRSP eligible investment, but there are ways to structure investments like these so that they do qualify. For example, while you cannot own your own home in your RRSP, you can hold a mortgage on your own home in your own RRSP. The Walden Village LP is structured so that of each $25,000 investment unit, $15,000 is a unit of a mortgage on the retirement residence and $10,000 is an ordinary limited partnership unit. The $15,000 mortgage component is completely RRSP eligible. London Pier Properties is currently exploring ways in which people may be able to use RRSP funds for these investments, and we will report on our findings later this year.

  18. [ top ]

    What are the tax savings all about? Is this a tax shelter?


    These investments stand on their investment merits, not as tax shelters, although they are structured to be very tax efficient. Using conventional tax write-offs, some investments are structured to provide tax sheltering, while others simply provide very low tax payable on the returns. Tax sheltering means that by the use of certain non-cash expenses and capital expenses as tax write-offs to reduce partnership income for tax purposes, the investor’s own income for tax purposes from all sources is reduced. The two main tax write-offs are amortization of the building and equipment and writing off the capital-raising expenses over five years. Occasionally, we will offer specific investments that give greater emphasis to tax sheltering.

  19. [ top ]

    Who guarantees the mortgage debt? Will I be required to personally guarantee the mortgage debt?


    No, you will not. The lenders take a charge on the property as security and they are satisfied that they will be repaid from cash flow. They also receive covenants to pay from the general partner or the developer. The reputations of the general partners and developers in the eyes of the lenders help to secure mortgages on favourable terms, without the need for personal guarantees from each investor.

  20. [ top ]

    Are there any commissions?


    Yes. Commissions are paid by the limited partnership (but never by the investor) to the agent appointed by the general partner to distribute the limited partnership units to investors. This covers all expenses of marketing and sales of the units. Out of those commissions (typically, 10%), the agent may pay commissions to subagents, investment advisors or financial planners who assist the agent to distribute the investment units. London Pier Properties receives a commission as a sub-agent. The investor never pays a fee or commission in excess of the investment purchase price.

  21. [ top ]

    How does the general partner get paid?


    Often, certain of the promoters will be entitled to specific front-end fixed fees for certain defined services, or they may earn ongoing property management fees that are set at prevailing market rates, but these amounts are not their main form of remuneration. Rather, the general partners’ remuneration consists predominantly of a back-end split of excess cash flows and proceeds of any future sale or refinancing of the property. For example, in the Walden Village LP, after payment to the limited partners of the 10% Investors First™ Preferred Return, the general partner is entitled to receive 30% of the excess cash flow, while 70% goes to the limited partners. In this way, the general partner’s incentive is in line with the interests of the investors. They get paid when the property does well and after the investors have received the preferred returns. Remuneration to the general partner and the promoters is always fully disclosed in the Offering Memorandum.

  22. [ top ]

    What are my rights as an investor?


    Actually, no one asks this question, but we think we should be asking it for you. Securities laws vary among the different provinces. The answer to this question relates only to investors resident in British Columbia and Alberta (although most provinces provide similar rights). These investments are offered to residents of British Columbia and Alberta under the “Offering Memorandum exemption”, which requires that the limited partnership, before completing a sale of the investment, must deliver an Offering Memorandum in a prescribed form to the investor and must obtain from the investor a signed Risk Acknowledgment, also in a standard prescribed form. Investors have a statutory right to sue for cancellation or for damages if there is a misrepresentation in the Offering Memorandum and the investor did not know that it was a misrepresentation, provided they sue within strict statutory time limits. An investor may elect to cancel the investment transaction immediately by giving notice of cancellation no later than midnight on the second day after purchasing the investment. Investors’ statutory rights are explained more fully in the Offering Memorandum.

  23. [ top ]

    Are the financial statements audited?


    All the projections provided with each Offering Memorandum are audited by an independent auditor. These are available from London Pier Properties. Financial statements are provided to limited partners to report financial results, but these are not audited unless the limited partners decide by vote to require that they be audited. This has occurred in only two or three cases.

  24. [ top ]

    What are the risks?


    As with any type of investment, there are risks associated with real estate investing, and the Offering Memorandum for each investment will always contain an exhaustive descriptive list of these. The Offering Memorandum for each deal is available as a PDF or can be sent to you on request. For an in-depth look, we suggest reading the Briefing Note “Risks of Real Estate Investments”.

  25. [ top ]

    When do I get my money back?


    While these investments do earn significant returns during their terms, the limited partners’ capital is not returned until there are proceeds of a sale or other disposition of the assets of the limited partnership. This generally occurs due to a sale of the property to a new buyer. In some cases, prior to the complete sale of the property, partial return of capital results from a refinancing of mortgage loans, or from sales of portions of the property.

  26. [ top ]

    How many deals have been completed?


    Since 1987, ASG Financial Corp has completed approximately 70 investments involving $725M.

  27. [ top ]

    Have any deals ever failed to work out?


    Only in the sense that in a small number of cases, there have been periods of time during with the cash distributions on an investment property have been suspended due to lower occupancies than forecast, but in all such cases, the occupancy rates subsequently improved and the accrued Investors First™Preferred Returns were paid up to date.

  28. [ top ]

    Can I talk to the people who will be managing the property?


    Yes, you can. If London Pier Properties cannot provide you with all the answers you are looking for concerning a particular investment and you require further information, or if you simply need a higher level of comfort, we will put you in touch with the people in charge of the investment properties.

  29. [ top ]

    Is My Investment Locked In? How Long Will It Be Before I Receive My Investment Back?


    1. Investors receive very good cash flow returns for the term of the investment, but an individual investor cannot call for a return of his initial investment. When the limited partnership sells the property, the limited partners receive a return of their capital, plus the majority (up to 75%, depending on the structure of the particular investment) of the excess proceeds of the sale price. A sale of the property does not typically take place earlier than five years.

    Why is the average lifespan of beef cattle in Canada so much shorter than for dairy cattle? Both beef cattle and dairy cattle must be fed daily, but beef cattle must be sold on the market in order for the rancher to receive a return on investment. The rancher must sell at the market price. A dairy farmer receives a regular return on investment by milking the cow every day, and is quite happy to wait until the price of beef is optimal before considering selling the cattle for its beef.

    Nice metaphor. Still, when do we sell?

    2. While there is no set timetable for the sale of the property to a third-party purchaser, the limited partners may vote on the question of whether to put the property up for sale or to continue to hold on to it. The general partner does not have a vote, and is obliged to follow the results of the vote of the partnership. Still, investors do not have to wait until the property has finally been sold to receive a return of their original investment.

    3. There is a wonderful way for investors to receive the return of their capital, while continuing on as limited partners. Every five years, a new mortgage must be arranged for the property. A new appraisal is obtained to support the new mortgage amount on the basis of the current property value. In accordance with the predetermined share (up to 75%, depending on the structure of the investment), the excess proceeds of this refinancing is distributed to the limited partners as a return of capital. I call this “harvesting the equity”.

     

    Typically, due to the increase in value, investors have been seeing approximately 50% of their original investment amount returned to them at the first mortgage refinancing. One very nice part of this approach is that the partners receive the benefit of the growth of the value of the property without the property being sold, so capital gains tax is not triggered. Most importantly, the limited partners continue to own their investments as before, continue to receive cash flow returns based on the original amount invested, and continue to share in the future growth in the value of the property.

    So it is easy to see why investors are happy to stay in these investments long term, especially once they have received back a substantial portion of their original capital and are continuing to receive the regular cash returns on the basis of the original amount invested.