Li WHIT is the purpose of a limited partnership? Quite simply, it is a structure used to raise investment capital. It is com- prised of 2 “general parmer” who will raise the money and manage the part- nership, and “limited partners,” who invest their money in return for limited liability, income, capiral gains, tax benefits and the promise of an arm- chair hassle free investment. Limited partner- ships have been used for decades to raise investment capital for purposes as diverse as the finauc- 2, Of oil and gas exploration, the hunt for lost treasure, the production mited partnersh ny — with litte or ao assets -— to attord himself a degree of limited Jia- bili The limited partnership structure has proven to be a very viable and profitable investment format for many investors. Yet for others the head- lines tell a different story. Here is a simplistic example. A GP is raising investment capital to acquire a real estate project comprised of 200 rental condos. His pian is to acquire the property, upgrade the suites ro gain higher rents, then self the project at a later date and divide the profits berween the LPs and the GP on a predeter- lines understanding being —- should an investor loose his entire investment, he would not suffer any adverse lifestyle changes except the wrath of his spouse. } prefer a more simple definition —~ “if you do not know what being a sophisticated investor entails” — just know that you are not one and a limited partnership invest- ment is nat for you. Another concern has to do with the amount of moncy being raised. Go back to the real estate example. Say the acquisition of the property requized $5 million. An additional ips ca Friday, August 21, 1998-— North Shore News ~ 43 @eeoeoneoseoseoeeoeeseonrxteseveeoocesevess n be opti $1.5 million is aecded for the upgrading of the project, and another $800,900 to pay for the legal costs and sales commissions paid out to acquire the investment funds. On top of this is another $450,000 for fees charged by the general 7 partner t cover his out-of pocket expenses and to cover his time. Thus, in total, the promoter is raising $7,750 ,000. Given these numbers, the venture must increase the project’s value by 55% just to achieve a break even posi- tion. Can this be done? Yes, it can istic and has been done. Is it likely? That's another story. in reviewing the general partner’s forecasts, not only will it seen achiev- able, iv will probably look tike a sure thing. That is the nature of a pro- moter — to be optimistic. You, as the sophisticated investor, must do your own realistic evaluation. It is your responsibility to be “Buyer Aware.” Next week I will examine what could go, and has gone, wrong with real estate limited partierships and some precautionary tips. . mined basis (i.e. 75% to the LPs with 25% to the GP}. The area surrounding the project is undergoing rapid growth and there is a high demand for up-graded rental accommodation. Projections show that the annual net income will steadily grow ac 19% per year and in five years the property should casily be worth double the acquisition rice. The LP enjoys limited liability and will gain yearly tax credits and income. The GP (now a limited com- pany) assumes full liability, manages the investment, reccives a ‘monthly management fec and upon seiling the project, shares in the profits only after the LPs have had their initial investment capital returned. A sim- pie, hassle-free and high return investment. Right? On paper this may look great but one significant danger i is in the pro- posed venture itself. Limited partner- ships are not designed for the novice investor. Usually a limited partner- ship, especially one involving real estate is highly speculative with a great degree of risk. Governed by The Securities Act of British Coiumbia, these securities are designed for what is termed the “sophisticated investor.” { have heard many definitions of what this means. The most commonly expressed of motion pictures and to acquire and develop real estate projects. When entering a limited partner- ship the investor (the limited | partner or LP) reliriquishes all contro! over the management of the investment to the person or group initiating the venture called the general partner (SP) or promoter. S.A story-line of a limited parter- ship may go something like this. : ', An individual has found what he believes to be a very good investment venture. To pursue this venture, the promoter requires investment capital. ‘To raise the capital the promoter forms a limited | partnership with him- self acting as the general partner. "As the GP, he will be responsible ~ for all aspects of managing the invest- This in includes creating the ; ent-offering documents, gain- ing t the necessary approval under ‘law, selling. the limited part- “nership units and then managing the venture to 4 profitable conclusion. Generally, the GP offers his time and expertise to form and manage the venture to create a fattire profit that will be divided between the limited : 78 anid himself under a prior, agreed u on, profit-sharing formula. -The general partner who assem- bles: the limited partnership assumes .. full ability of the project and he will usually form’ an incorporated compa- ’ i, “ : na 4 . ; hie’ WEST Vancouver residents could be seen “fishing in the sky” a at John Lawsor; Park during iast weskend’s Harmony Arts. Festival. The kite fiying festival was just one of this summer's: events, which celebrated lite and cufture on the North Shore. Panoramic view Magnificent Chartwell. On top of the world, with spectacular views. This fabulous home has been designed aad maintained beautifully, It’s 6,900 sq.ft. includes majestic living room with floor to vaulted ceiling windows, true gourmet kitchen, masier bedroom, dining area and spacious deck aff with panoramic southern views. A den/library with added outside entrance leading to private gardens, spacious four bedrooms and five bathrooms, family room and two car garage. Custom marble fireplaces and slate fisoring. Large indoor pool with view, whirlpool, sauna. A lovely home with complete privacy and totai security. LOT SIZE: Front 102 ft. 134/167/51/27 CWO O CORO OK OOOO REO SO RDO EH ONESETECOS ELTON FIMISHED FLOOR AREA: 6900 S&. FT. Perr rrr rier rir) NUMBER OF BEDROCMS: 4 SPOR m ere ree ETO e Eee EE DEERE OHO EEDESUSOL EDS NUMBER GF FLOORS: 2 ASKING PRICE: $1,150,000 OPEN HOUSE: Aug. 23, Sunday 2-4 LISTING AGENT: Rod Maclean & Jeff Qavis 986-9321 SPECIAL FEATURES: indoor pool, view, alarm system, inground sprinkler system Rod Maclean & Jeff Davis, Sutton Group - West Coast Realty