Q&A: Land Banking and LEIT®s
What kind of investment is land banking, and what is a LEIT®?
Land banking investment is the acquisition of property in advance of expanding urban development, in which the profit comes from the sale of the property once it has been rezoned. A LEIT® or land equity investment trust is the term TSI has coined to describe its next-generation land banking investment products [link to LEIT Offerings page].
What is the history of land banking, and what is special about your LEIT® series?
Land banking is one of the world’s oldest and best methods of obtaining wealth. Traditionally it was the reserve of the nobility, who could afford to buy vast tracts of land. Modern-day kings of land banking include Donald Trump, Li Ka Shing and Minoru Mori, who all recognized the significant profits that land banking can produce. Our LEIT® products offer you the chance to enhance your investment and return potential, including the option of pairing the property with other assets, such as guaranteed investment certificates (GICs) and other secured financial instruments.
Is a large amount of money required?
If you are investing with TSI International, the answer is no. We subdivide our properties into undivided units, giving even small individual investors access to this exclusive master-class asset and the opportunity to earn significant profits.
Why raw land?
We believe that raw land is a unique investment opportunity that allows all investors to participate in the appreciation of real estate values. The greatest appreciation occurs when undeveloped or agricultural land is rezoned for other uses, be it residential, commercial or industrial development. TSI International’s deep expertise in selecting properties and planning their development ensures that your investment will one day be approved for redevelopment into a new residential area, industrial park or other urban development. At this point, the value of your investment promises to increase significantly.
What is TSI International’s competitive advantage?
Very few firms are capable of purchasing large tracts of land as TSI International does. We also purchase all our land outright—no loans are involved. Furthermore, because we are able to purchase extensive tracts—usually a minimum of 100 acres per project—we are able to pass our savings on to you.
Why is this investment so affordable?
Because you are buying an undivided interest of a large parcel of land in what is essentially a syndication. Additionally, the large parcels of property TSI International buys are typically greenfield, which traditionally is the most affordable land available. We are able to pass those savings on to you. Q. What exactly am I purchasing?
What exactly am I purchasing?
An undivided interest in a parcel of raw land—a part of the whole measured in what we refer to as units. You are registered on the title as a property owner with the government of Ontario. This is important, because you actually own the land with your fellow investors and are registered as such. Although you cannot point to the exact unit(s) you own, you legally hold a part of the whole. For example, if the size of the parcel of land is 100 acres, and 1/10 acre = 1 unit, there would be 1000 units in total (100 divided by 1/10 = 1000). If you have purchased a single unit, you would have a one-thousandth undivided interest in the whole parcel.
What is undivided interest?
Undivided interest means you own a part of the whole. For example, if the size of a parcel of land is 100 acres, TSI International may sell undivided interests of the land equivalent to a tenth of an acre per unit. Although we are not able to show you exactly where your tenth of an acre is located, we can show you the property of which you are a co-owner.
What are the details of the title to the land?
You receive an undivided beneficial interest in the property, which is registered with the Ontario government.
Is such an investment in land secure?
Yes, your investment is secure. You receive a certificate of interest and your name is registered with the government of Ontario, Canada on the title as the beneficial owner of an undivided interest in the whole property. In the unlikely event that something happens to TSI International, you would still have your investment, because you are registered on the title as an owner.
What are the benefits of beneficial ownership over registration on title?
Through beneficial ownership you get the same benefits of power of attorney and government registration that you would with being registered on title. However, beneficial ownership offers additional benefits, including complete privacy (the general public are not permitted access to your investment details) and fewer restrictions upon the exit of the property (for example, only 51 percent of the property owners need to agree on the sale). This benefit of beneficial ownership ensures a timelier exit, since there will be fewer obstacles when the sale of the property is executed.
If I buy an interest equivalent to one acre, can I build a house on it?
No, because the land is not subdivided. The primary objective of this investment is a long-term investment for future sale and/or development. Profits are divided among the investors according to their proportion of interest.
Is the property leasehold or freehold (fee simple)?
All properties are owned as freehold property (in perpetuity). Note: Freehold legal estate in land, giving the owner the right to hold the property for life and pass it down to his or her legal heirs. There are three types of freehold estates: life estates, or estates limited to the lifetime of the holder; FEE SIMPLE, estates without any restrictions; and fee tail, meaning estates inherited by the donor’s direct descendants.
How does TSI International add value to my investment, and how do I make money?
TSI International is a full-service Canadian asset management company that acquires real estate, in particular raw land. Our expertise is in identifying opportunities where we can purchase large blocks of land and take that land through the land value creation stage, where surveys, planning and reports are compiled for future development, which is how we are able to add value.
Does TSI International retain an interest in its projects?
Yes, TSI International retains an interest of between 5 and 10 percent in all of our projects. We are also designated as the manager of the project, making us responsible for getting the land approved for future development. TSI International therefore has a powerful and vested interest in seeing the projects through to completion and the profit-taking stage.
How does TSI International dictate what the final exit strategy will be for the investors?
TSI International does not dictate what the final outcome will be on a project—you and the other investors do. When an offer comes in from an outside party, we bring that offer to our investors together with our recommendations. We require a simple majority—51 percent approval—before we accept an offer.
What is the maximum share one person or entity can hold in one project?
No one person or entity may hold more than 25 percent of any project. That means no single investor can control or delay a project. The investors make the ultimate decision collectively. TSI International only acts as the manager and facilitator, and can even be replaced if the investors are dissatisfied with our performance for some reason.
What are the various exit strategies?
One: Sell outright to the end user, builder or developer; two: establish a joint venture with a builder; and three: TSI International develops the property.
What risks are there in the investment?
The two primary risks are currency exchange rates and the time required for the property to reach the exit stage. In respect to currency exchange rates, the payment and subsequent sale for the individual beneficial interest are in all cases made in Canadian dollars. Should the investor wish to receive the profit in another currency, the exchange rate will be a factor. If 51 percent of the property’s owners approve an offer, the sale will go through, regardless of whether gains or losses were made in exchange rate differences between the time of purchase and the time of sale. In respect to the time taken for a particular property to exit, it may require longer than anticipated to obtain rezoning permission and find a buyer. TSI International therefore cannot guarantee the time period it will take for the property to exit. However, TSI International’s selection strategy is to seek out properties in high-growth areas near existing infrastructure and mitigate the risk, so our target is for properties to exit within a time frame of four to seven years. As noted above, however, the targeted investment period could be extended.
What is the average holding period for investors and expected return?
We aim to at least double your money in a time frame of four to seven years.
Could you tell me how well land banking and LEIT® products perform in returns?
Land equity investments typically generate returns between 15-25 percent per annum. At TSI International, we target properties that will generate 15-20 percent (or more) per annum during the investment time horizon.
Is it possible to redeem my investment before the completion of the investment?
In general, a land banking investment should be regarded as an illiquid investment that is held for the entire investment period. However, it may be possible for TSI International to find a purchaser for your holding and redeem your investment. There is no guarantee that we will be able meet your request within a set time frame, however.
Can I sell my undivided interest?
Yes. Since you have a title to your undivided interest, you can sell it to anyone, anytime. But you must provide details on the person(s) you are selling to to TSI International so that the land transfer between the parties involved can be executed under the official jurisdiction of the Ontario government. Unless the registration has properly been documented with TSI International and the provincial government, the transfer will not be considered valid.
After purchasing my LEIT®, what additional costs—management fees and so on—will I need to pay to TSI International on an annual basis?
None. To date, not one of our investors has had to come up with additional cash outside of their initial investment.
Who pays the property taxes?
Our properties are all leased, and the rent collected is used to pay the property taxes.
Are there any future hidden costs for the investors?
What sort of updates do I receive?
Every TSI investor receives a biannual report on the progress of the property(ies) he/she has invested in.
Can I visit the land?
Of course. It is advisable to contact TSI International beforehand, however, so that arrangements can be made for your visit.