Startup offers $1 shares on property
A Vancouver tech startup hopes to ride the crowdfunding trend into real estate by allowing anyone over the age of 19 to own a slice of B.C. real estate for as little as $1 — for a limited time.
But experts caution it’s important to know all the details before investing in any venture.
Addyinvest.com is offering 520,000 shares priced between $1 and $1,500 to raise part of the equity for a building at Yale and Airport roads in Chilliwack.
“This enables everybody who would normally be locked out of the asset class to be able to invest in real estate,” co-founder Stephen Jagger said.
He said manual paperwork for many small investors would be cost prohibitive, but the online registration and purchases eliminate those costs.
The building, which was built last year, has one tenant, a Starbucks with a drive-thru that has signed a multi-year lease.
Investors can make a return on their investment through the net revenue earned on the property at the expected but not promised rate of return of 4.31 per cent, or $43 a year for every $1,000 invested.
After five years, Addy plans to sell the building and pay back the investors at what the building was worth then, which could be more or less than what it was bought for.
Jagger, an entrepreneur who builds and sells technology platforms, said the investors are charged no management or other fees and the investment is secure because Starbucks has contracted to pay its lease expenses.
Prof. Tsur Somerville, of UBC’s Sauder School of Business, said he wasn’t familiar with Addy but said he had “a whole bunch of questions” about such an investment, including who would be responsible for expenses if a business closed and “you’ve got this building with no tenant.”
Also, are investors full equity partners or not? Would they have a say on the sale or leasing of the property? What’s the exit strategy? “What if the building doesn’t sell (in five years)?”
But he said a turnkey business with a long-term tenant would be less risky than other commercial investments.
Addy’s first offering was a residence on Trout Lake that attracted 305 investors who each put up $1 to $95,000 (with an average of $4,500 each). The house was going to be torn down to build a duplex and laneway, a less straightforward investment than the Chilliwack building.
Addy has posted all due diligence documents online and Somerville said even investors who buy a small number of shares should know all legal details since “just because it’s a small amount, doesn’t mean it’s not a loss” if something goes wrong.
Prof. Jack Favilukis of the Sauder School, commenting generally on crowdfunding and not specifically on the Addy offer, said the risks are similar to risks in B.C. real estate as a whole. He said real estate has had lower average yearly returns than the stock market, with “some notable exceptions, such as Vancouver over the past 20 years.”
Risks include poor real estate prices, noting Vancouver prices crashed in the 1980s and the 1990s, or unforeseen expenses: “Suppose they find asbestos in the building and need to spend $50,000 cleaning it up.” But he said advantages include the ability to invest small amounts in different offerings and diversify risk.
“It opens up the market to a new class of investors,” he said. “It’s certainly a way for a not-wealthy investor to expose herself to B.C.’s commercial real-estate market.”
Such offerings must comply with securities laws, enforced by the B.C. Securities Commission, the commission said in a statement.