Frequently Asked Questions
Lionaire welcomes all questions and inquiries. Answers to the most frequently asked questions can be found below. Please contact us if you have any additional questions or would like to learn more about Lionaire or our future investment opportunities.
Q: Why invest in income producing real estate?
Q: Why is financial diversification such an important benefit of investing in real estate?
Q: How much income producing real estate should an investor hold in his or her portfolio?
Q: Why invest in real estate with Lionaire?
Q: Why does Lionaire invest in multi-family apartments?
Q: What is the impact of changes in inflation and interest rates on future investor returns?
Q: What geographies does Lionaire target for its investments?
Q: What time frame does Lionaire use for its investments?
Q: How have Lionaire's investments performed to date?
Q: Does Lionaire put any of its own equity at risk?
Q: Does Lionaire accept investors looking to reinvest the profits from the sale of a prior investment property using the 1031 tax deferred exchange method?
Q: What is the legal mechanism by which Lionaire structures its investments?
Q: What are the US tax implications for an individual who invests in a Lionaire asset?
Q: What is Lionaire’s minimum investment?
Q: What is required to qualify as an accredited investor?
Q: Can I use my IRA to invest with Lionaire?
Q: How do I learn more about current or future Lionaire investment opportunities and requirements for becoming an investor?
Q: Once I have invested with Lionaire, how am I kept up-to-date on the status of my investment?
Q: How does the tax reporting work?
Q: Why invest in income producing real estate?
A: There are many important financial reasons why investors look to commercial real estate as a component of a well balance investment portfolio. Many financial advisors recommend that their clients hold approximately 20% of their financial assets, excluding their primary residence, in income producing real estate in order to have a well balanced investment portfolio. Direct ownership of real estate has historically provided investors with: Capital Preservation through Financial Diversification, Wealth creation, Increased Return with Lower Volatility, Current Income and Tax Benefits.
Q: Why is financial diversification such an important benefit of investing in real estate?
A: Every investment carries some form of risk: there are numerous economic, political, and market forces that affect asset classes differently. Most wealth managers would agree that a balanced investment portfolio for a high net worth individual should contain cash equivalents, domestic equities, foreign equities, fixed income securities and income producing real estate. Ownership of income producing real estate provides diversification within an investor's portfolio because it is not highly impacted by the daily movement of the stock or bond markets and thereby acts as a counterweight to the fluctuations of the values determined by the market.
Q: How much income producing real estate should an investor hold in his or her portfolio?
A: Many financial advisors recommend that their clients hold approximately 20% of their financial assets, excluding their primary residence, in income producing real estate in order to have a well balanced investment portfolio. For example, David Swensen, the Chief Investment Officer for Yale University, in his recent book, “Unconventional Success: a Fundamental Approach to Personal Investment,” recommends that individuals allocate 20% of their investment portfolio to real estate.
Q: Why invest in real estate with Lionaire?
A: Successful sole ownership of large commercial real estate properties is a viable option if an investor has the knowledge and time to find, negotiate and finance a property; the desire and skills to manage the asset; and sufficient capital to purchase an asset of adequate size in order to gain the advantages of economies of scale. Many investors find it more desirable and profitable to work with a firm like Lionaire that is focused strictly on these activities and to pool their funds with other high net worth investors in order to participate in the direct ownership of income producing real estate.
Q: Why does Lionaire invest in multi-family apartments?
A: Lionaire believes that apartment complexes offer the most attractive risk-return ratios of all classes of real estate.
Apartments comprise 15-20% of the total market of investment grade real estate in the US according to the NCREIF Property Index (NPI). This index tracks return data nationally from 1978 forward. During these years, apartments have had a total return of 10.03%. From a risk perspective, apartment performance, as evidenced by the NPI data, has been less volatile than most other property types. Occupancy levels in most markets over the long term have rarely dipped below 90% for significant time periods. In contrast, office occupancy levels have dipped to 80% or less in several major markets. The commodity nature of apartments tends to produce a more efficient market. Vacancy levels within a sub-market rarely differ by more than 10% among specific apartment properties, but can vary widely for other asset classes.
Q: What is the impact of changes in inflation and interest rates on future investor returns?
A: Multi-family housing are likely to benefit from an increase in inflation because apartment leases are, typically, one year or less and thus the unit pricing quickly adjusts to macro economic issues, including inflation. Some leases often contain rent escalation clauses that are designed to keep their rents in line with inflation increases.
Q: What geographies does Lionaire target for its investments?
A: Lionaire focuses on high-growth urban and suburban markets nationwide.
Q: What time frame does Lionaire use for its investments?
A: The hold period for Lionaire’s investments varies based on our analysis of when a property will reach its maximum financial value. While the majority of our investments are held for 3-5 years, we are willing to hold a property for ten or more years if the financial returns merit a longer time horizon. In all cases, we prefer to provide our investors with an early return of original equity through refinancing. Rather than sell a property and create a taxable event, refinancing a property allows us to continue to hold an asset while returning our investors' equity capital in a tax-efficient manner. Because many institutional equity firms invest over shorter time frames, Lionaire is often able to obtain more favorable returns for our investors utilizing this more patient investment approach.
Q: How have Lionaire's investments performed to date?
A: To date, the majority of stabilized properties in Lionaire’s portfolio purchased for their income-producing capabilities are meeting or exceeding their target pro forma projections.
Q: Does Lionaire put any of its own equity at risk?
A: Yes, Lionaire's principal, Jesse Jenifer, personally invests 10% of the equity we raise for each investment on the same economic basis as our investors. We strongly believe that our commitment to co-invest significant amounts of our personal capital demonstrates our confidence in an investment and ensures that our firm’s interests are always aligned with those of our investors and operating partners.
Q: Does Lionaire accept investors looking to reinvest the profits from the sale of a prior investment property using the 1031 tax deferred exchange method?
A: Yes, occasionally, when the sum of money being reinvested in a potential Lionaire investment is significant and the timeframe is reasonable. Please contact us at your earliest convenience if you are contemplating entering into a 1031 exchange.
Q: What is the legal mechanism by which Lionaire structures its investments?
A: Lionaire forms a Limited Liability Company (LLC) or Limited Partnership (LP) legal structure for each of the properties we purchase on behalf of our investors. Lionaire is the managing member of the LLC, or General Partner when we utilize an LP structure, while investors are members or limited partners, respectively. Investors own a pro rata ownership interest in the LLC or LP entity based upon the size of their investment. Lionaire utilizes these legal structures in order to limit an investor’s economic risk to their invested capital as well as to be able to pass through to investors the economic benefits of depreciation that derive from the property. Further, unlike some other forms of legal ownership, LLC and LP structures prevent Lionaire’s investors from being taxed twice; instead, any gains and distributions are only taxed once at an investor’s individual tax rate.
Q: What are the US tax implications for an individual who invests in a Lionaire asset?
A: Lionaire utilizes either a Limited Liability Corporation (LLC) or Limited Partnership (LP) legal structure in order to avoid double taxation. Distributions in an LLC or LP are not taxed twice—once at the corporation level and again at the individual level—but only once at the individual level. All cash distributions are reported on a K-1 tax form as a return on capital. Note that Lionaire is not a qualified tax expert and offers no tax guidance to investors. We encourage all potential investors to consult with their personal tax specialists before making any new financial commitments.
Q: What is Lionaire’s minimum investment?
A: Lionaire’s investment minimum is $25,000 and all investors must be accredited as defined by the Securities and Exchange Commission. On occasion, Lionaire will accept first time investors at $15,000. Lionaire reserves the right to change our minimum investment requirement at our discretion.
Q: What is required to qualify as an accredited investor?
A: The US Security and Exchange Commission (SEC) defines an accredited individual investor in Rule D, Regulation 501 as a person who has a net worth of at least $1 million (excluding car, home and furnishings) or a minimum of $200,000 annual gross income for two years prior to and in the year of the investment. If purchasing an investment with a spouse, a couple’s joint income must exceed $300,000 for those years or their net worth must exceed $1 million. The SEC established Rule 501, Regulation D to ensure that investors are able to bear the risk of holding an investment for an indefinite period of time as well as the potential risk of loss of the investment. Further, Rule 501, Regulation D is designed to ensure that prospective investors have such knowledge and experience in financial and business matters that they are capable of evaluating the merits and risks of an investment. For more information on accredited investors, refer to the SEC’s web site: http://www.sec.gov/answers/accred.htm
Q: Can I use my IRA to invest with Lionaire?
A: Yes, provided an investor is accredited and less than 60 years of age at the time he or she enters into a Lionaire investment. To learn more about how to use self-directed IRAs to invest in alternative assets, including commercial real estate, Lionaire strongly recommends that investors consult with their CPA and/or tax advisor. Further, we recommend you contact a self-directed IRA custodial firm that accommodates the purchase of alternative assets using IRA funds. While Lionaire investors are free to work with the self-directed IRA custodian of their choice, two of the larger self-directed custodians Lionaire has ongoing business relationships with are Equity Trust and PENSCO; their web sites contain a wealth of information about the benefits, rules and mechanics for IRA investing.
Q: How do I learn more about current or future Lionaire investment opportunities and requirements for becoming an investor?
A: Please contact us directly to set up a conference call or meeting.
Q: Once I have invested with Lionaire, how am I kept up-to-date on the status of my investment?
A: Lionaire believes in frequent and transparent communication with our investors. On a quarterly basis, our investors receive an investment distribution based on their pro rata ownership share in the property, financial reporting including a profit and loss statement and a balance sheet, and a management letter on the property's current performance and its future outlook. Further, Lionaire welcomes investor questions and is highly responsive to all inquiries.
Q: How does the tax reporting work?
A: Annually, every investor receives a K-1 tax form for each investment in which they participate.