| 1. | What does Platinum Equities do? We purchase commercial real estate and then syndicate a portion of that property to investors through a limited partnership. Our investments allow people who would not normally have $6 to $15 million dollars to buy their own commercial building to take advantage of this very lucrative investment vehicle.
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| 2. | Why invest in commercial real estate? Commercial real estate is a key component of wealth. Calgary has shown solid steady growth over a number of years. In fact demand for commercial real estate in Calgary is about 15% higher than the average North American city. Businesses are moving here and growing here and this creates a demand for commercial space which in turn creates investment opportunities for people who want secure investments that also have tremendous upside.
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| 3. | What is the minimum investment amount and why is it that high? The minimum investment is $25,000. Our investments are meant for accredited and eligible investors as defined by the Alberta Securities Commission. We do not offer these investments to the general public. It is our obligation to make sure that the investor knows exactly what they are doing and they have to acknowledge that, in writing when completing our subscription agreement. In fact, in the past, we have not taken money from investors who we did not believe were eligible.
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| 4. | When you say you syndicate a portion of the building, what does that mean? This question can easily be answered with this example: Platinum Equities paid $8,750,000 for one of its previous buildings. We financed the purchase by obtaining a first mortgage of $4,900,000 and selling 77 limited partnership units at $50,000. The sale of the limited partnership units is referred to as syndication.
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| 5. | You refer to a limited partnership. What does that mean to the investor? The limited partnership defines the liabilities and responsibilities of both the general and limited partners as well as how each of them is compensated. The general partner assumes full responsibility for the day to day operation of the building. In other words a limited partner will never be called if there is a leaky pipe or if there is a problem with an elevator or janitorial service. The general partner also assumes 100% responsibility for the mortgage. The Limited Partnership agreement also outlines how profits are distributed to the Limited Partners as well as the General Partner.
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| 6. | What security does an investor have when he invests with you? The partnership owns the property and the investor owns units in the partnership. The investor can drive over to the property anytime.
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| 7. | What do you mean by equity takeout? When we arrange a mortgage on a property we normally will only finance between 55 to 65% of the value of the building. At the expiration of the mortgage the equity position will have increased by the mortgage pay-down and the increase in market value. At that point in time we will approach the limited partners for their approval to re-mortgage the property taking the mortgage amount back to 55 to 65% of the new value. The money taken out would be distributed to the partnership and the process would repeat itself until the building is sold.
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| 8. | Are there any advantages to taking equity out? Why not continue to pay-down the mortgage until the building is owned free and clear? Money taken out through re-mortgaging is tax deferred. This money will not be taxed until the building is sold and then it will be taxed as capital gains rather than income which of course is at a lower rate than income tax.. The longer you hold the building the longer you have tax deferred dollars that can be put back to work for you. Owning the building free and clear is nice but equity doesn’t make you money.
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| 9. | You have talked about appreciation. How do you determine what the appreciation will be? That is part of our due diligence process. There are three ways to determine the value of a commercial building. The first is a function of income generated and market conditions at a specific point in time. We use numerous sources for information. For example we have been using a combination of written reports from the Alberta Government, Colliers, a large reputable commercial real estate company, Real-net. A company based in Toronto who constantly review the marketplaces across Canada , the Calgary Real Estate Board and a number of other sources. Based on this information we normally would go to the lower end of the scale and use a conservative appreciation rate. The second way to determine value would be to determine what it would cost to build the same building today at today’s costs for material and trades. The third way would be to compare comparable sales of similar buildings in the past 90 days. The most relied upon method is the income approach as it produces the most accurate results.
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| 10. | Are there any other tax advantages? Yes. Limited partners are allowed to reduce their taxable income by flow through costs and by CCA (depreciation of the building). Flow through costs are the costs that the general partner incurs in syndicating the Partnership and acquiring the building. These costs are reviewed by an independent accounting firm and amortized over the anticipated length of the project. At the end of each calendar year a T-5013, Statement of Partnership Income, will be mailed to the investor advising them what amounts need to be reported on their personal tax return. We recommend that our clients consult with their accountants regarding their specific tax situation.
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| 11. | How liquid is my investment? As is the situation with most real estate; your units are not as liquid as stocks or other investments where there is a ready market available. However, you do have the ability to sell your unit provided a buyer can be found. The details of the transaction are in the Limited Partnership Agreement. Should you decide to sell you will retain any cash distributions you have received to date.
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| 12. | What is the minimum investment? Limited Partner units are $25,000 each.
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| 13. | Are your investments RRSP eligible? In most cases yes they are RRSP eligible. Investors have the ability to transfer their existing RRSP’s into one of our investment projects, to accomplish this we use Olympia Trust Co. as a trustee.
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| 14. | What if something happens to Platinum Equities and they can no longer act as the General Partner? How am I protected? In the event that the General Partner is unable to continue, the trustee (Bennett Jones LLP) will appoint a new General Partner, subject to the approval of the Limited Partners.
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| 15. | What if there is a big repair bill for the building?
Triple net leases specify that the tenants are responsible for all maintenance costs associated with the building, including property taxes, management fees and building insurance. This is in addition to the tenant’s base rent. Large Capital expenses however are the responsibility of the landlord but are often paid using rental income.
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| 16. | Will Platinum keep me informed how things are going with the building? Yes we periodically (usually quarterly) will send letters to investors of a particular property advising of the status of that property. We also send a quarterly newsletter to all our investors which includes anything especially noteworthy with one of our properties.
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| 17. | Do you deduct tax on the money I receive every quarter? No. The funds are distributed to you without deductions of any kind. With the only exception being RRSP investments which do have some fees included which are necessary to make the investment RRSP eligible.
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| 18. | If the building is re-financed and the proceeds distributed to the unit holders, when does tax have to be paid on this income? The taxes (in the form of capital gains) are payable when the building sells.
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| 19. | Who looks after management of the building? The General Partner hires an experienced Property Management Firm to handle the day to day management of the property. Arcturus Realty Corporation is responsible for the property management of the majority of our properties. Arcturus has a wealth of experience in the industry as they manage more than 33 million square feet of commercial real estate across Canada.
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| 20. | Am I liable for mortgage payments on the building? No, The General partner acts as the guarantor for the mortgage.
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