REAL ESTATE MANAGEMENT.

OFFICE
GTA Cap Rate: 4.75% - 7.75%
(2014 3rd quarter)
Office properties have very stable cash flow and extremely low vacancy rate. Tenants usually pay most expenses related to the property. Lease agreements between tenants and landlords are long term which secures low intensity management. The nature of tenancy guarantees a minimum depreciation and damage to the property. It is a low risk commercial property investment category.
SHOPPING CENTRES AND HOTELS
GTA Cap rate: 4.75% - 11.5%
(2014 3rd quarter)
Shopping centres and hotels have a moderate risk level among commercial property categories. They yield stable and high revenue from rental income. Vacancy rates for shopping centres and hotels are very low in GTA area as most existing such businesses are busy and thriving. They also yield the highest cap rate among all commercial properties.
INDUSTRIAL BUILDINGS
GTA Cap rate: 5.5% - 7.25%
(2014 3rd quarter)
Industrial buildings are very attractive commercial property investments in the Greater Toronto Area, especially in suburban areas. Besides considerable rental income, most industrial properties are disappearing as the city grows. Increasing in zoning density will transfer industrial properties into residential or other commercial usage. This allows investors great opportunities for potential development projects.
HOW DOES THE INVESTMENT WORK ?
• We look for the best investment properties on behalf of our investors and deal with all management related issues. We are motivated and strive to secure for our investors a net return on investment (ROI) exceeding 10% per annum at lower risk than other asset classes.
• We look for properties close to public transit (or in an area planned for public transit access improvement).
• We favour properties with existing long-term leases and potential re-development opportunities.
• We scour the market for the best properties in the price range of $4 million to $10 million (including mortgage).
THE RISK OF REAL ESTATE INVESTMENT ?
• Property price depreciation is low risk in our specific asset class. Even during the worst of the 2008 financial crisis, Canadian property prices did not drop significantly and recovered within a year, based on MLS House Pricing Index.
• There can be risk from vacancy (typically between tenants). The Greater Toronto Area has very low vacancy rate. Given a 5% vacant rate, an investor can expect some months’ vacancy between two long-term lease agreements. This time is usually used for upgrades or development, and planned well in advance.
EXAMPLE OF A TYPICAL REAL ESTATE INVESTMENT
• A typical investment in this scenario would be in the range of $3m, leveraged 50% for a $6m asset.
• We assume that the asset will be held a minimum of 5 years but the decision to exploit or sell the asset is entirely the investor’s, based on advice backed by our market research and financial analysis.
• After paying off the remaining loan and other fees, we aim to realize a net return to our investors exceeding 10% per annum (conservatively, this is composed of 6-7% in rental income return and 3-4% in capital gains).
For example, currently, Ochre Capital manages an investment vehicle which owns a 45000 sq. ft. property in Mississauga, Ontario since 1997 for European investors, long-rented by a Swiss pharmaceutical company. This property has generated an annualized return of 17% (13% from rental revenues and 4% from property appreciation).

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