Our Income Property Business Model
Managing a real estate portfolio for optimal growth and returns requires the kind of specialty knowledge and insight that the RealStream management team possess. Our expert managers have a deep and broad understanding of vitally important and significant markets:
The real estate market in which you are buying or selling
The debt markets in which you are borrowing
The leasing markets in which you are competing
The property management markets in which you are operating
Our expertise is critical to the success of RealStream as the complexity increases when you consider that these markets can be significantly different for each property type, such as retail, office, industrial, and residential, and they can vary from each community or region. Our investors appreciate this and thus don’t look to go it alone.
Building wealth with RealStream Income Properties
As accredited and registered Portfolio Managers, Jonathan Veale and Richard DeLuca recognize diversification is a key component of successful investing. Up until 2013 their investment management firm, DeLuca Veale Investment Counsel, like most others, could only offered publicly traded stocks, bonds, and REITs. While publicly traded securities have served their clients well over the years, these public markets can suffer from higher levels of volatility, which investors strongly prefer to minimize. To both reduce volatility and create another compelling option for building wealth and income for investors, DeLuca Veale created RealStream Income Properties LP, a private limited partnership built to acquire, manage, lease, improve, and operate a portfolio of revenue-producing British Columbia properties that are largely located outside of the lower mainland. In order to distribute this specific real estate investment, DeLuca Veale became registered as an exempt market dealer in addition to its long-standing registration as a portfolio manager in British Columbia and Alberta.
The RealStream Investor
RealStream serves investors who are looking to add an income-producing real estate portfolio to their investment plan. This portfolio is a diversified pool of strategically chosen properties with leases in place with quality tenants. Clients benefit from enhanced diversification and economies of scale, reducing both risk and costs. Investors receive quarterly cash distributions and the potential for growth as lease income rises and property values increase.
The Mandate of RealStream
Acquisition Parameters and Objectives
Individual purchases typically range between $3 million and $20 million. Our acquisition objectives include purchasing properties with capitalization rates typically between 6% and 8%. In keeping with conventional practice, each property is acquired using a mortgage for some percentage of the purchase price and RealStream equity capital for the remainder.
A solid, steady cash flow is crucial for building and preserving wealth in real estate. RealStream is designed to provide a steady cash flow, enabling us to collectively leverage our equity and secure mortgages on each property in the portfolio. Since borrowing rates are typically lower than the rate of return generated by the cash flow, the yield to investors is leveraged higher. The cash flow from tenants also pays down the mortgages over time, which increases each investors equity and ownership in the real estate portfolio.
RealStream investors have the option of taking a quarterly cash distribution as a source of personal income or reinvesting the cash flow to accumulate more units of the limited partnership. The target cash distribution is expected to contribute up to 5% per year towards the total return target of 7% to 9% per year.
What is the cash distribution expectation?
Approx. 5% per year* (paid quarterly); a DRIP (distribution reinvestment is available)
*Distribution of 5% based on original $10.00 net asset value (NAV)
Real estate can realize significant appreciation in value over time. The long-term appreciation expected for the RealStream portfolio of properties is 2% to 4% per year. This appreciation in value of the properties is known as capital growth and it forms part of the total return to investors.
Contributors to projected RealStream growth
Periodic rent adjustments over time typically keep pace with inflation. As interest rates rise in an inflationary economy so too will rental rates as leases are renegotiated. Purchasing properties that have below-market rents creates the room to raise those rents to market rates over time creating significant capital growth.
Although the operating expenses of each property are usually passed on to the tenant, they affect the rent tenants can afford to pay. High operating expenses can limit rent increases; therefore, in some cases, rents may need to decrease to prevent a tenant from leaving. Property taxes, the largest portion of operating expenses, must be fair relative to other properties in the competitive market set—this is critical to maintaining market rents. Lowering operating expenses can increase the value of a property by achieving a higher net operating income.
Improvements and re-positioning of properties
Making improvements to existing properties can lead to a higher building classification, thereby attracting higher rents from future tenants. In more extreme cases, properties can be rezoned for “higher and better use” to re-position the property as a completely different property type—for example, turning a storage warehouse into retail space.
These tactics can also be used to solve long-term vacancy issues by re-positioning a property in a market segment that has a greater demand for space.
Resolving short-term vacancy issues
Purchasing properties for prices that factor in short-term vacancies can provide a reasonable yield rate with the current cash flow. Then, finding tenants for the vacant spaces increases the value of the property significantly.
Downward pressure on market capitalization rates
As market demand increases for income-producing properties, the market-derived capitalization rates are driven lower, which increases the prices that purchasers are willing to pay for the properties.
Upward pressure on land values
As market demand for land increases and building densities increase, land values tend to rise over the long term. In some cases, the land value drives the total property value higher as the current use no longer satisfies the “highest and best use” for the property.
The market value of income-producing real estate is tied to the income stream from the properties and the stability of the market value can be attributed to the following factors.
There is no automated daily exchange for private real estate transactions; therefore, price fluctuations tend to be more muted. Transaction values between a willing seller and a willing buyer are determined by a thorough investigation of the property’s income stream and physical characteristics. This private exchange leads to valuations that tend to be more accurate and predictable. Unlike equities and real estate investment trusts in public markets, private investment real estate valuations are made infrequently, making them more stable. This limited liquidity helps create price stability.
Quality long-term tenants
The investigation by a buyer of real estate will involve a thorough lease analysis. Long-term leases (three to ten years) help create a stable environment for the value of income-producing properties and will entice a higher-price offer.
Income-producing properties with quality tenants are considered to be relatively conservative, stable real estate investments, primarily because solid tenants with multiyear leases continue to pay their rent even during difficult economic times.
Residential leases are often much shorter and can even be month to month; however, they often continue for years at a time. During tough financial times everyone still needs a place to live, and if things are very difficult, residential vacancy rates actually decrease as a higher number of people become renters rather than owners.
Valuable assets (and income producers)
The income stream is a highly-valued benefit of real estate investment, but the land and buildings that produce the income also have great value as assets for the owners and as habitable or useable spaces for the occupants. Over time the utility may change as market conditions change or as buildings age, but properties located in good locations will always be suitable for renovating and repositioning—much like a house in a good neighbourhood.
The importance of diversification
Even with expertise and careful research, unexpected events can occur with a specific property, a property type, or within a specific community. To minimize the effects of these unexpected risks, RealStream diversifies its real estate investments by purchasing many properties across multiple income property types and in different communities:
Diversity in property types: Our property portfolio will include retail, office, industrial, and apartment complexes.
Diversity in tenant types: We have multiple tenant types as well, including national and government tenants.
Diversity in communities: Our primary real estate investment markets are located in Victoria, Cowichan Valley, Nanaimo, Port Alberni, Comox Valley, and Campbell River, with an expectation to enter the Southern Interior of BC as well.
Expectation for Returns
*Portfolio rate of return may be negatively impacted by numerous economic events outside of the control of the manager. To fully understand the risks, please read the offering memorandum.
Did You Know?
The greater the stream of cash, the more valuable the building will be. Now you can better understand our name...RealStream!
What others are saying about RealStream…
I love what RealStream is doing. By pooling the funds of a number of investors, RealStream affords each investor the opportunity to leverage the management team’s expertise and own larger high-quality Vancouver Island income-producing real estate, which is often unattainable to the individual buyer. Through RealStream, an investor can rely on the knowledge and skills of seasoned financial and real estate professionals and diversify among a number of different properties and asset classes. From what I’ve seen during the due diligence process, investors can rest assured that this team is detail-oriented, taking every step to manage risk for their clients while keeping an eye on the future upside of a property.
Jason Winton, Colliers International Vice President and Managing Broker
How is an LP different than a real estate investment trust (REIT)?
A limited partnership or LP is a partnership formed by investors. The limited partnership has a general partner. The general partner is the managing partner and has control of the partnership and, therefore, the liability. The limited partners have limited control and thus limited liability. Liability of the limited partners is restricted to the amount of money invested to acquire their units in the limited partnership. A REIT is an investment vehicle with a similar purpose, but it is a trust and not a partnership. (For a fuller understanding of limited partnerships and REITs, we recommend seeking legal counsel from a qualified lawyer.)
Who is the portfolio manager for RealStream?
Jonathan Veale and Richard DeLuca are the two principals of DeLuca Veale and along with their business partner Jim Stewart, are the principals of RealStream Asset Management Inc. RealStream Asset Management is the manager of RealStream Income Properties LP.
DeLuca Veale is not the manager of the partnership but is the exempt market dealer for RealStream and thus the distributor of the investment. All investments in RealStream are completed through DeLuca Veale.
As a DeLuca Veale client, will I automatically be invested in RealStream LP?
No investors are not automatically invested in RealStream simply because they are a client of DeLuca Veale. RealStream is not a discretionary investment for DeLuca Veale. Only the publicly traded investments DeLuca Veale manages for its PM clients are managed on a discretionary basis.
RealStream is an option for British Columbia residents who wish to add income producing real estate to their portfolios. Upon request, potential investors will receive an offering memorandum to review as well as a thorough overview from a DeLuca Veale dealing representative. If both parties agree that this represents a suitable investment for the client, a subscription agreement will be signed by the investor to subscribe for units of the LP. This distribution of the RealStream units is completed through DeLuca Veale as DeLuca Veale is the exempt market dealer for the LP.
What are the fees?
RealStream Income Properties LP pays an annual management fee of 1.5% on the total assets to the manager, RealStream Asset Management. There is a one-time dealer administration fee of 1.5% payable at the time of purchase. There are no other fees charged to the subscriber by the manager or dealer.
Can I invest registered funds in RealStream™, such as my registered savings plan, tax-free savings account, or registered income fund?
This is not an eligible investment for a registered account at this time.