Commercial real estate investing is historically inaccessible to the average Canadian. This is due to the price tag, which often isn’t lower than $3 million and frequently trends over $50 and even $100 million.
addy, however, seeks to break barriers of investing in such properties by crowdfunding investments across multiple parties, essentially lowering the price of admission into the market.
As more people consider commercial real estate investing as a way to diversify their portfolio and make some passive income – including newfound addy fan Brandon Beavis– it’s helpful to know some keywords and phrases. Here are notable terms that pop up when you invest with addy.
Commercial real estate terms to know
Institutional grade commercial real estate
Let’s start simple! addy focuses on investment opportunities in institutional grade commercial real estate, which are large properties with high price tags. These properties comprise apartment complexes, hotels, industrial areas, office parks and mixed-use buildings.
You can take a deeper dive into commercial real estate with our guide here.
An accredited investor is a person or couple that has a fairly substantial amount of money with some amount of investment experience or interest. addy seeks to eliminate barriers to investing for the average Canadians – but we can’t do it without our accredited investors. They help top up an issuance and make the deal more lucrative for all involved.
General Partner and Limited Partner
A General Partner is an entity that has majority control over an investment and unlimited liability. GPs lead addy investments, like David Atwell of Honey Tree Grow or Brian Roche of Rendition Developments.
A limited partner is an entity (or entities) who take part in a deal but don’t have responsibility or liability beyond their monetary investment. A limited partner does not deal with any management or maintenance issues. addy is a limited partner in investment deals; so too are addy members who invest. Members simply invest money into a property – anywhere from $1 to $1,500 – and they’re a limited partner.
The money you receive from an investment is known as a distribution. Distributions happen when money comes in from an investment in various forms – rent, for example – or when a property sells.
We refer to the time when members receive distributions as an Owners’ Day! Two of our properties – The Park at Willowglen and Starbucks in Chilliwack – have had four Owners’ Days each to their credit.
This legal document outlines the objectives, risk and other important terms of an investment involved with private placement. This lengthy and comprehensive write-up typically features business operations, management biographies, financial statements and other notable information concerning the GP and the property.
addy includes an Offering Memorandum with every investment opportunity so that members have all the important information available to them before deciding whether to invest. With Quebec recently unlocked, addy now offers an OM in French for every property as well.
Purpose-built rentals, affectionately known as PBRs, are those developments built with the intention of renting out units instead of selling them. PBRs were wildly popular before the 1960s and ‘70s, but their productions dropped considerably in the ‘80s.
However, as the housing crisis across Canada accelerates, more companies are focusing on PBRs to increase supply. Purpose-built rentals are typically tall buildings with plenty of attractive amenities as well as a convenient concierge and maybe even some green space outside. Our addy in Mission, BC is a purpose-built rental.
Return on Investment and Internal Rate of Return
We’re cheating here lumping these together, but these two key terms – abbreviated to ROI and IRR – are important financial metrics that speak to just how much money you might earn through investing.
ROI is likely more common to most people, even those not particularly investment savvy. Return on investment is expressed as a ratio or percentage, detailing how much money you are expected to get back on a particular investment. This simple metric can quickly sum up an investment opportunity or compare different opportunities. For example, if you invest $100, and the ROI is 150%, you will have earned $150 on your initial investment. Note that an ROI of 100% means you are doubling your investment.
IRR is slightly more complicated but similarly estimates financial profitability. The simplest way of thinking of it is as annual growth. Whereas ROI describes total return of an investment from the beginning to the end, IRR denotes annual growth.
With every property, addy presents the ROI and IRR so members can make informed decisions and set expectations.