Some Good Concrete in the Exempt Market
By: Cora Pettipas
After years of only the ‘bad apples’ getting press, it is time for exempt market participants to assertively attest that they are an integral part of the capital markets. Private equity is an important alternative for all stakeholders, including entrepreneurs, issuers, dealers and investors. Since the gravitational force of the global economic crisis took hold in 2008, coupled with the regulatory change and the accompanying administrative burdens, private equity markets have been challenged by the winds of change. But with change comes opportunity. The exempt market can shake off old stereotypes created by the fraudulent practises of a few firms in the exempt market industry and embrace a new public image in the capital markets.
Prestige Capital is a company that has taken advantage of the workings of the exempt market, in their goal is to help Calgary “become a world class destination for conference and business travel,” says Curtis Potyondi, President of Prestige Capital. Their ambitious new project will boast three new Hilton branded hotels, including Alberta’s first full service Hilton Hotel, as well as a 30,000 square foot conference center two blocks away from Calgary International Airport. This project provides much needed amenities at the airport to accommodate business and international travelers, and has been promoted overseas by Alberta Tourism. Prestige Capital is pleased with the progress so far, as the first two phases of this project have completed raising equity, with development underway, anticipating that the hotels will be operational next year, with the third phase remaining for 2015. For Calgary, the project will also create approximately 100 construction jobs during the length of the project, as well as 200 long term positions infusing Calgary’s economy with $150,000,000 plus additional economic spin offs.
For this project, Prestige is raising a total of $43,000,000 in the exempt market. The executives at Prestige Capital attribute their success to having a sound balance sheet that can withstand changing economic climates. "When we present a business opportunity to the public we are always very cognizant that it makes proper business sense that gives our partners (investors) the best chance to make money like we have in our own businesses. We don’t believe in get rich quick schemes. We believe in sound business principles that can withstand fluctuations in business cycles over the long run," states Ayaz Kara, one of the principles of Prestige Capital. Curtis Potyondi attributes their success to this sound business acumen, as well as participation in exempt market funding to helping Prestige achieve their goals of strong financials, expedited project timelines as well as creating an environment where their private company could partner with public funds. Potyondi’s advice to anyone looking to raise capital in the exempt market is to make sure the securities issued match the business model of the project. There needs to be a sound business model, as opposed to the terms of the investment driving business decisions.
Another Calgary project involves the Prism Group of Companies. One of their many projects is Prism Place, an eleven story office tower in the Calgary beltline, with 200,000 square feet. “As we have seen in the last year vacancy has dropped dramatically in commercial office space down downtown Calgary. With us adding new commercial office space downtown, it will allow Calgary as a city to continue to flourish by making more room for companies to expand and occupy more space as their businesses grow,” stated Prism’s President Ricky Arshi. They have anticipated correctly, as the office building already has an estimated 60% occupancy rate. The official ground breaking ceremony was held last month, and was very well attended by dealers and investors. The estimated construction timeline is 18-24 months before businesses can start moving in.
Over the years, Prism has established a solid reputation with market participants. Their advice to new participants in the exempt market is to put the investor first. When the securities commission enacted Bill NI 31-103 the executives at Prism thought that it would be harder to raise capital in the exempt markets. To their pleasant surprise, this bill has made it easier to raise capital as it has added credibility to the industry, as the regulations have been helping in shutting down less than ethical exempt market participants. “Over the years we have built a strong, loyal and pleased investor base that continues to follow us from project to project. When we entered the Exempt Market we ended up growing our investor base significantly larger! We will continue to use the Exempt Market as it has allowed us to meet new investors and allowed the investor to participate in our projects.”
A third project that exempt market investors had the opportunity to invest in is 6th and Tenth, a condo tower being developed by Lamb Development Corp. and financed with the assistance of Fortress Real Capital. The condo tower located in Calgary’s beltline will stand 31 stories tall with 234 residential units and ground floor retail space that will include a restaurant. Brad Lamb, president and CEO of Lamb Development Corp, is excited about their first condo venture out West. He describes Calgary as the next “boomtown,” and that “Calgary’s best days are coming.” What differentiates this condo development from others in Calgary is the focus on style and architecture, states Lamb. In all cases, they assure that their buildings are driven by the design and not the potential revenue created from them. The direct economic infusion for Calgary includes an estimated 85% of the $85,000,000 spent on this project. The project will take approximately three years, creating several hundred jobs, as well as economic spin-offs, over that time.
Lamb Development Corp. has used the exempt market to raise $6,700,000 from investors to facilitate this project by partnering with Fortress. Brad Lamb has used Fortress in the past for other projects and speaks highly of the company’s principals. He states that of the advantages Fortress Real Capital presents is the ability to raise money faster, and with less administrative hurdles, than from alternative suppliers like pension funds. “We liked the ability to raise money very quickly. Fortress raises the capital as an equity partner and minority stakeholder, 8% goes to the investor with a potential upside,” said Lamb. His advice for anyone seeking financing through the exempt market is to focus on making sure the project is viable, and to make sure your project can deliver the money back to investors at a fair return. “I would have no hesitation in the future to go to the exempt market again to raise capital for our developments.”
Access to capital is the lubricant for turning business ideas into business success. It also ensures the best possible use of resources which is essential for investment returns. As is the case across the country, the exempt in Calgary is alive and well, as evidenced by these three real estate projects. Projects like the airport Hiltons and conference center, Prism place, 6th and tenth, although variant in their uses and purpose, are concrete examples of exempt market success. These projects, and ones like them, give alternatives to investors, money to entrepreneurs, and direct the whole local economy to thrive with employment and economic spin offs. As Brad Lamb indicated that “Calgary’s best days are coming,” it is the same for our industry and its participants.