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episode # 10

How to Buy Commercial Real Estate for Only $1 with Mitch Jarvi

Ever wanted to buy commercial real estate but never felt you had the financial ability to do so? This week, Cory and Matt welcome Mitch Jarvi from the new crowdsourcing investment platform Addy.

Mitch walks through the new opportunities Addy offers to its members by acquiring shares in various commercial real estate properties for as little at $1.00 and up to a maximum of $1,500.00 per property. Each opportunity offers different risks and returns based on the property type and location. Addy allows its members to customize their portfolio of commercial holdings similar to buying a single song on iTunes vs having to buy the whole CD to get the one song you are after. This new crowdsourcing approach makes commercial real estate affordable for anyone looking to enter the market place.

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Episode Summary


 

Please tell us about yourself.

I am a seasoned vet in commercial sales. I created a website out of high school that celebrated owners of the Harley Davidson F 150 pickup truck, which led to a job in Ford Motors as a consultant in digital marketing. I then moved into the travel world and stayed there for 10 years. I realized if you’re not doing what you love, you’re not enjoying life. I learned things about community, opportunities certain people have and others don’t, and the privilege of home ownership. I then found a way into commercial real estate that is near and dear to my heart and helps to give opportunities to the average investor. 

Do you see yourself as a real estate guy or technology disruptor guy?

I’d say I’m a real estate guy. My skills have pivoted quite well into the commercial real estate game. But I’m not a real estate guy by trade. Some of the biggest disruptors we’ve seen, like Uber or Square, weren’t professionals in driving or banking. They were individuals who saw a void they were able to fill. 

We’re a bunch of geeks here at Addy and see a need for democratizing real estate and using software to help that occur. 

What is Addy?

Our mission is to enable every human to be a homeowner. That means a lot of different things to different people. It’s a provocative mission, and it’s supposed to be. 

We provide opportunities for those who have never had it to invest in real estate across Canada for as little as $1 and up to $1500. If you look at a REIT, you can compare that to an album. You pay $14 for 5-6 good songs and 10 you don’t like. Then iTunes came along and allowed you to spend that $14 on songs you like, so you could be a better consumer. Addy lets you create your ultimate real estate playlist. 

How do you go about educating people with no real estate experience?

It’s a tough balance between providing education without providing advice. We want to give people information to make an educated decision without telling people what investment they should make. 

The types of deals we’re offering are typically only for the wealthy. They happen off-market, without average investors knowing about them and there’s massive amounts of risk. So we’re trying to put in another avenue of capital that comes from the retail space. 

Every property we bring onto the platform has gone through a rigorous due diligence process. Did it come from a trusted source? We want the people who don’t need Addy capital, but are willing to slice out another LP (limited partnership) unit for us to help enable and empower the crowd. Does the story of the seller add up? We need to know why there is a need for this capital. We have to ask what value does a crowd investing platform bring to this opportunity. 

For example, Addy allows 1000 people from Chilliwack to help to build and densify a purpose-built rental building in their community as investors, instead of being CAVE (citizens against virtually everything) people who don’t want density in their backyard. 

If you’re a part owner of an RV resort, where do you think you’re going to go camping? Addy drives business and this sense of pride and ownership. This was very evident in the first purpose-built lease out for Starbucks we launched in Chilliwack last year. We had over 600 Canadians invest in that property and 100 of them were from Chilliwack. It’s beautiful and exciting to see the societal change that occurs when you allow 100 people to invest in their own community. The financial education we’re building is another off-shoot of these deals. And when those 100 residents need a coffee, where are they going? 

Are you selling shares? What exactly are people buying? 

For the very first property we did, we owned the property outright to see if random Canadians would purchase a property with strangers online. And the answer was yes. But we learned we don’t want to be the general partner because it’s too time consuming and you have to deal with a lot of the upkeep. We decided we want to be the limited partner.

We set up a corporation for every investment and that corporation acquires the limited partnership. We then sell shares into that corporation for $1 each. We’re able to do all of this through the technology and software we’ve built, which makes these investments more attainable. We’re buying small LP units across Canada and allowing thousands of Canaidans to invest into what would typically be taken by credit investors or institutions. 

The key is finding opportunities that would typically only be available to institutions, and providing those to the crowd.

How do you find the opportunities?

As we start to get more momentum, the deals are starting to come to us. People are realizing that getting Addy capital has more power than other capital. There’s a vetting process where a general partner can’t talk to us unless a general partner we’ve already worked with vouches for them. We then do our due diligence with them and their specific deal. It’s really starting to develop on its own and they’re managing themselves. 

What is the process of getting involved? 

We’re not trying to sell out these issuances quickly to 20 different people. We’re trying to give access to as many Canadians as possible, which is why we have that $1500 cap per property. 

Let’s look at 1 West Avenue in Hamilton, Ontario – it’s a beautiful, mixed-use retail office space in downtown Hamilton. Our capital is locked in for four years and we have an estimated IRR (internal rate of return) of 20.9% based on the building having finished its renovations and being fully tenanted. All of that information is available for Addy members when the project launches. You can look at building reports and anything that was used in the acquisition stage of the project. You also receive an offering memorandum to see what you’re buying into, all the risks involved, the flow of funds, and anything associated with the market. 

How do investors exit?

Each offering memorandum will outline the exit strategy. Each one is different – some are on a refinance and some are on a sale. Some are longer term with quarterly distributions from rentals until the building is sold in 5-10 years. That’s why we have returns between 3 and 20% because it depends on the risk level and asset type.

Can you invest through your TFSA, RRSP or hold co?

At this time, we haven’t been provided certainty that our transactions would be eligible for tax shelter in a registered fund. So at this time the answer is no. But it is on our road map to make that attainable.

How often are opportunities offered on Addy?

In the first six months of 2021 we launched three properties. And in the last 35 days, we launched another three. So we’re really ramping up. Our membership base can consume, on average, $30,000 per hour. The last two properties sold out in eight hours and 12 hours, respectively. So we need to be quicker to get properties up; our goal is to do 2-3 per month for the remainder of the year. 

Are you firm on properties before going to the investors?

I’m currently going to market with those that are looking for capital raises with two types of products: 1) A guaranteed funding product. This is a project that is past the due diligence phase that we fund and then reimburse the funds on the platform once it’s live on the market. 2) Products where the general partners who want to help empower Canadians give us a cap instead of a detailed number for funding. 

What is the financial capacity of Addy? Are there desired areas that you focus on?

We currently specialize in the $5-50 million deal size. They’re out of reach for accredited investors and not big enough for large institutional funding. That’s our sweet spot. But we don’t want to have the largest LP; we want to be 5-10% of the total value, maybe even less. We don’t want to go in as the majority stakeholder. 

The areas we focus on are driven by membership. People are asking for more Vancouver and Toronto projects, because those markets are so poorly equipped to support young potential homeowners. There’s also a perception that those markets create the greatest returns based on property values. But it’s actually smaller markets where we’re finding the better opportunities – like Kimberley, Mission, Hamilton, Calgary and the RV parks.   

We don’t tell members which deal is better. It’s up to them to decide what fits their investment profile. We’re not here to get rich quick. We’re about getting rich slowly, building your investments, learning about your exit and getting your distributions. When you get those distributions, you can take them or reinvest. 

Is the primary goal to find the best opportunities or put as many different opportunities out there for members?

I think it comes down to learning what we can from every deal and applying that to the next opportunity. The opportunities are endless; there are lots of places we haven’t done deals in yet. 

How do you become a member? What does membership entail? And how does Addy make money? 

We want to make sure you’re not losing money just for the sake of making an investment. Your membership gives you access to deals you couldn’t have otherwise. You can become an Addy user with just your name and email to look at investments and see past opportunities. When you’re ready to invest, you can purchase a $25 annual membership. That gives you access to every project we put on the platform and you can invest $1-1500 per property. 

We make money through membership fees. Our goal is to hit 50,000 members this year and that is our revenue stream at the moment. 

What is your advice to someone getting into commercial real estate? 

Invest in what you use, love and know. 

Find out more: https://www.addyinvest.com/

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