Why invest in commercial real estate?
Most people are familiar with the ups and downs of residential real estate. Commercial real estate is a more stable market. Values depend primarily on income from leases that are typically three, five or ten years in length, so commercial property retains its value through short-term economic downturns and fluctuations in the stock markets.
Why invest in Western Canada?
Western Canada offers substantial opportunities for economic growth. The oil sands in Alberta and Saskatchewan are the world’s largest politically stable source of oil, and technological developments are making its extraction increasingly more cost effective and environmentally sustainable. As well, world demand for our commodities (energy, potash, uranium, and agricultural products) will continue to grow.
What is a limited partnership?
A limited partnership is a business entity that combines the benefits of partnerships and corporations. There is a general partner, frequently a limited company, that is responsible for the operations and management of the business. Limited partners are similar to corporate shareholders. They share in the profits generated by the business, but their liability is limited to the amount of their investment only.
What are the advantages of investment in a real estate limited partnership?
Participating in a limited partnership allows a group of people to invest collectively, enabling them to raise sufficient capital to enjoy ownership of commercial properties not normally affordable by an individual investor.
Is it possible to finance some of the cost of the investment?
Many investors make use of financing to purchase limited partnership units, as this strategy provides additional tax relief in that the interest on the loan is tax deductible. We have arranged a loan program, through select financial institutions, whereby the investment may be purchased with a $5,500 down payment (subject to credit approval).
How do I account for my participation in the partnership when preparing my tax return?
A T5013 partnership income tax slip is sent to investors in March for the previous tax year. In the early years of the investment, there will be losses reported that can be deducted from your other sources of income. In later years, you will have income to declare.
What are the tax advantages of this investment?
One of the benefits of participation in a limited partnership is the favourable tax treatment. In the first years of the project, the costs associated with syndication, and improvement of the property, are transferred to investors as a 100% tax write-off. Most of this write-off applies in the first year of the partnership, with lesser write-offs in subsequent years. Capital Cost Allowance (CCA) may also be written off as the project progresses, to reduce or eliminate taxable income of the project. Preferential tax treatment of capital gains, at only 50% income inclusion, also applies to the net proceeds of any future sale of the property. **
How secure is my investment?
The general partner is the holder of the land title. As a limited partner, you receive a limited partnership unit. Your security is the inherent value of the real estate.
How will I know how my investments are performing?
Millennium III provides annual financial reporting. We also provide regular progress reports that include details of leasing and any improvements to the property. In addition, investors are invited to an annual meeting to discuss the previous year’s performance.
What kind of returns can I expect to receive?
Millennium III partnerships using our current syndication model have historically delivered average annual returns in excess of 20%* over the first 14 years of the investment. These returns are a combination of tax write-offs, appreciation in the value of the property, increase in equity through debt reduction, capital distributions from the partnership, and income generated by the property.
What is the term of the investment?
Millennium III partnerships have an indefinite term. Our strategy is to produce a permanent income stream from the property, ideal for retirement planning or for passing on wealth to spouses, children or grandchildren. The possibility of disposition of the property exists, in which case the partners will receive their share of the net proceeds of the sale.
Can investment units be transferred to a spouse or children/grandchildren?
Investment units can be transferred to a spouse to facilitate income splitting. Many investors purchase the investment to provide tax relief for a high earning spouse for the first four years, and then when the major write-offs are exhausted, transfer the unit to the lower income spouse, who then takes the partnership income at a lower tax rate.
Transferring investments to children or grandchildren will incur liability for capital gains tax on 50% of the fair market value (FMV) of the investment less the adjusted cost base (ACB). To minimize tax exposure, this is best done once the tax write-offs have been taken and the FMV and the ACB are nearest in value.
A good mechanism for passing on investment units to family members is a trust. The units are transferred into the trust when the capital gains tax liability is lowest. The investor can continue to benefit from the income from the investment by taking income from the trust, or pass the income onto other beneficiaries as desired. As long as the investment is held in trust there is no further tax to pay except on income. Units will flow out of trust to capital beneficiaries without further capital gains tax consequences. **
Why are Millennium III real estate limited partnerships a better investment than other real estate offerings?
The best reason to invest with us is the long-term advantage. Millennium III is Western Canada’s most experienced sponsor of commercial real estate partnerships. At Millennium III, we are proud of our reputation built on our ability to deliver excellent returns to our limited partners over our many years of operation.
Is this a good short-term investment?
No. Millennium III’s real estate limited partnerships are designed to produce long-term income, and may not be readily converted to cash.
Why haven’t I heard of these types of investments before?
Millennium III’s investments are private, and are not publicly traded. Most of our sales are done through select investment dealers so we do not advertise widely.
Prior to 2001, securities commission rules restricted how promoters of private investments such as Millennium III could advertise.