SKYIRE real estate bond suite combines return with capital security
Investors searching for avenues to diversify their portfolios have often turned to the security of real estate. However, some vehicles offering real estate exposure, including syndicated mortgages and limited partnerships, have fallen short of the mark in providing investors with a sense of security. Enter North America Home Finance (NAHF) and SKYIRE, a new brand of unique real estate bonds that aim to bridge the gap between return and capital protection through the safety of a secured investment.
“Many investors are looking at real estate development,” says George Lawton, chief executive officer of NAHF. “Typically, they look at syndicated mortgages and limited partnerships that are offered to investors to cover the soft costs of development —consultant fees, zoning permits, hiring architects and marketing and sales expenses — until the project is advanced enough to attract traditional bank financing. The downside? If you’re funding the early development of the project, there’s no building against which to secure the investment, so you have very limited security until the project is completed.”
Once construction financing is secured, syndicated mortgage holders and limited partners may find themselves holding the shorter end of the security stick. They’re shielded from project liability, but if the project falters, they rank behind construction financing, trade payables or creditor debt to recover their investment. The value of the property alone may not cover it.
“The SKYIRE suite of bonds is different,” says Lawton. “We examined what sorts of experiences investors were looking for and developed a unique family of bonds using conventional building blocks. SKYIRE’s next-generation real estate bonds are developed for growth and stability by prioritizing capital protection, management alignment and return predictability, as well as attractive, consistent annualized returns.”. Lawton emphasizes protection, “Security is key, for example, our HomeBuild Bonds are financially guaranteed by a surety company during the construction phase. Even if a building project never reaches completion, the capital invested is protected along with an interest reserve that provides a level of return.”
SKYIRE bonds come in three flavours, HomeBuild Bonds, RealProperty Bonds, and RealIncome Bonds, all defined by having direct mortgage security protecting the bond holders. Each of the three options produce strong returns higher than conventional corporate bonds all while helping to promote home ownership.
HomeBuild Bonds are currently being offered by NAHF. They offer short-term gains and bonding protection for a secured investment. Investors earn profits when the home is sold. The bonds help fund two different home financing plans, HomePlan and HomeIndex Mortgage, that provide prospective home buyers with a secured interest on title and equitable rights which put homeownership within their sights.
RealIncome Bonds offer taxefficiency and quarterly cash flow in a mid-term investment secured directly against completed single-family homes via a collateral mortgage. Profit participation is in the form of income from rental properties, and the capital appreciation of those properties once sold. These bonds fund residential rental properties and a home purchase program that give prospective homeowners a stake in a property while still renting.
RealProperty Bonds offer maximum long-term growth and optimum tax efficiency. Bondholders are secured directly against the property via a collateral mortgage. Profit participation is based on growth in underlying real estate development. They support projects where all legal approvals have been arranged and financing is secured. Investors choose either a 50 per cent return over five years, or a 100 per cent return over 7.5 years.
Tax efficiency is an important consideration. When properties are sold, the appreciation earned under RealIncome Bonds is treated as a capital gain. For RealProperty Bonds, over three-quarters of the return is considered capital gain. Significant tax advantages.
The typical investor in SKYIRE real estate bonds tend to be more self-reliant and take the time to become educated before making the right investment decision. These are investors who look for investments beyond the vanilla funds offered in bank branches.
“They’re a bit more savvy and know what we’re offering,” says Lawton. “They’re looking for portfolio diversification in property and tend to have investment portfolios in the $250,000 plus range. They find these bonds a good bridge for balancing real estate investing with the cardinal rule of capital preservation. “
He notes that investors also appreciate that they don’t have to watch the investment like they would equities, where emotional decisions can often follow market fluctuations.
“Security means different things to different people at different stages of their lives,” says Lawton. “Each bond in the SKYIRE suite preserves capital and has the capacity to deliver on security, regardless of how investors define it.”
The SKYIRE suite of bonds are offered to Canadian investors exclusively through Waverley Corporate Financial Services Limited. “We believe strongly in trying to offer our clients above market returns with investments that are backed by real assets and cash flow,” says Waverly president and founder Don McDonald. “Real estate is a popular investment class to achieve this. The Tiger 21 Group, a peer-to-peer investment network of over 500 members with an average net worth of US$100 million, is arguably composed of North America’s most astute and successful investors. At the end of Q2 2017, the group had a record 33 per cent portfolio allocation to real estate, a record since they started measuring asset allocations in 2007. The SKYIRE bonds allow Canadian retail investors the opportunity to invest in real estate with smaller capital allocations, while eliminating some of the typical risks inherent in this type of investing.”
SKYIRE offers investors security and growth oriented investments for their real estate portfolios. For a complete Real Estate Bond package including a free copy of the book Residential Investing featuring HomePlan and HomeBuild Bonds, visit info. skyire.com/np. As a bonus, SKYIRE will also include the discussion paper “Evolution in Real Estate Bonds,” as well as a certified registered investment certificate in the amount of $250 to be used towards any SKYIRE Real Estate Bond investment.