Surrey-based Isle of Mann (IOM) Property Group launched a unique new real estate investment trust on Jan. 12, 2022.
Within 48 hours its PROPetual Real Estate Investment Trust (PROPREIT) had raised $750,000 linked to a 10-acre residential and retail development in South Surrey that will deliver 406 housing units and 30,000 square feet of commercial space.
Ravi Mann, president of PROPREIT, expects the entire offering to be quickly subscribed in a new investment format that, he says, has turned the REIT concept on its head.
“Historically, developers would present these opportunities exclusively to institutional or high-net-worth investors, with minimum investment in the hundreds of thousands of dollars, namely due to the high capital requirement and long-term nature of developing real estate projects,” Mann explained.
Instead, PROPREIT has established a low minimum investment starting at $5,000 in property developments that are already in process, most at final reading at city councils.
“We saw a gap in the market that required some innovation,” Mann said.
As an executive with the family-owned IOM Property Group, which began in 1994 and has developed dozens of residential and commercial projects across the Lower Mainland, Mann said a barrier for investors is the length of time it takes to get a project started and built.
“Ten years ago, a year was considered a long process. These days you are lucky, very lucky, to get a big project through the pipeline in three years,” he said.
“We realized we had to relook at the whole model of how people invest in real estate.”
As a result, PROPREIT was established to provide investors with access to IOM’s steady pipeline of qualified, high-profile real estate development projects, which Mann said removed barriers to entry for retail and accredited investors alike.
“With the scarcity and difficulty of land development opportunities in Metro Vancouver, our vision was to provide an investment vehicle that afforded the same opportunities to anyone who is ready, willing, and able to invest in real estate,” Ravi said. “By leveraging the IOM pipeline of qualified land development, we believe PROPetual REIT will achieve this vision.”
The PROPREIT is eligible for registered savings programs, he added, such as RRSPs.
IOM has been buying raw land across Metro Vancouver for decades. It currently owns 19 development sites covering 560 acres, primarily in Surrey and Langley. According to Mann, who is also IOM’s director of finance and investment, the land is valued at $364.5 million.
IOM Property also owns 3,500 acres in Alberta’s Calgary region, but the original emphasis for PROPREIT is Metro Vancouver, Mann said.
Beyond the local land link, PROPREIT is different from most real estate investment trusts. It is private offering, not a public REIT listed on any stock exchange. And, unlike most REITs that rely on long-term lease income, PROPREIT acts more like a real estate limited liability partnership (LLP), with a share of profits and an exit strategy.
“The sole intention of this REIT is to sell everything it constructs,” Mann said. “This REIT is not retaining any income-producing properties,” he said, adding that IOM is planning an income REIT for the future.
Mann said the initial project, the 10-acre Sunnyside mixed-use development along busy 24th Street in South Surrey, is an example of how the REIT could pay off for investors.
The development involves 100 townhomes, 200 condominium apartments, more than 100 market rentals and 30,000 square feet of office and retail space.
Mann expects to get third reading and final approval on the project from Surrey Council in the first quarter of 2021. Last year, Surrey became the first B.C. municipality to guarantee timelines for development.
Mann estimates the the phased project will take five years to total build out. He said the strata townhomes and condos would be sold, while the residential rental buildings and commercial buildings would be packaged and sold as separate parcels, perhaps to an income-REIT.
Investors will receive a preferred 8 per cent per annum return based on how long they have participated and are paid before PROPREIT collects any management fees. PROPREIT then charges a sliding scale of fees based on the total returns, starting at 25 per cent for annual returns of 12 per cent. “If we knock it out of the park and each investor makes more than a 20 per cent annual profit, we’d collect 55 per cent.”
In typical real estate LLP offerings, investors are offered a preferred annual return of 8 per cent plus a 50-50 split on any profits above that.
“Whether you are investing $5,000 or $500,000, we treat everyone the same. We want the average citizen to become part of real estate opportunities, rather than just a passive observer,” Mann said.
