Ratel Investments
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Frequently Asked Questions

Ratel 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 Ratel or our future investment opportunities.

Q:  Why invest in income producing commercial real estate? 

Q:  Why is financial diversification such an important benefit of investing in commercial real estate? 

Q:  How much income producing real estate should an investor hold in his or her portfolio?  

Q:  Why invest in commercial real estate with Ratel?  

Q:  Why does Ratel invest in multi-family apartments and retail assets?  

Q:  What is the impact of changes in inflation and interest rates on future investor returns?  

Q:  What geographies does Ratel target for its investments?  

Q:  What time frame does Ratel use for its investments?  

Q:  How have Ratel’s investments performed to date?  

Q:  Does Ratel put any of its own equity at risk?  

Q:  Does Ratel 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 Ratel structures its investments?  

Q:  What are the US tax implications for an individual who invests in a Ratel asset?  

Q:  What is Ratel’s minimum investment?  

Q:  What is required to qualify as an accredited investor?  

Q:  Can I use my IRA to invest with Ratel?  

Q:  How do I learn more about current or future Ratel investment opportunities and requirements for becoming an investor?  

Q:  Once I have invested with Ratel, 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 commercial 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.  Click here to learn more about the benefits of investing in this asset class.

Q:  Why is financial diversification such an important benefit of investing in commercial 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.  To learn more about the diversification benefits of commercial real estate, Click here.

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 commercial real estate with Ratel?
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 Ratel 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 commercial real estate. Click here to learn more about the benefits of investing with Ratel.

Q:  Why does Ratel invest in multi-family apartments and retai assets?
A:  Ratel believes that large apartment complexes and mid-size retail centers offer the most attractive risk-return ratios of all classes of real estate. 

Apartments:
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.

Retail:
Retail investments, in the form of shopping centers, represent approximately 20% of the commercial real estate universe in the US.  The NCREIF Property Index (NPI) tracks return data nationally from 1978 forward;  over this period retail investments have returned 10.36%.  Similar to apartments, retail properties benefit from having multiple tenants, thereby reducing the risk that the loss of any one tenant will have a significant negative impact on the financial health of the property.  Further, retail properties benefit because their large tenants have long-term leases coupled with rent escalations to keep lease rates abreast of inflation. Smaller retail tenants, like apartment tenants, typically have short-term leases whose rents can be adjusted relatively quickly for inflationary pressures.

Q:  What is the impact of changes in inflation and interest rates on future investor returns?
A:  Multi-family housing and retail centers are likely to benefit from an increase in inflation because apartment leases and leases on small retail spaces (versus larger anchor tenant spaces) are, typically, one year or less and thus the unit pricing quickly adjusts to macro economic issues, including inflation.  Large retail spaces occupied by anchor tenants often contain rent escalation clauses that are designed to keep their rents in line with inflation increases.

Q:  What geographies does Ratel target for its investments?
A:  Ratel focuses on high-growth urban and suburban markets nationwide with an emphasis on real estate assets located in the Western/Southwestern US.

Q:  What time frame does Ratel use for its investments?
A:  The hold period for Ratel’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, Ratel is often able to obtain more favorable returns for our investors utilizing this more patient investment approach.

Q:  How have Ratel’s investments performed to date?
A:  To date, the majority of stabilized properties in Ratel’s portfolio purchased for their income-producing capabilities are meeting or exceeding their target pro forma projections. See the Performance section of this web site for details.

Q:  Does Ratel put any of its own equity at risk?
A:  Yes, Ratel’s principals personally co-invest 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 Ratel 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 Ratel 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 Ratel structures its investments?
A:  Ratel forms a Limited Liability Company (LLC) or Limited Partnership (LP) legal structure for each of the properties we purchase on behalf of our investors. Ratel 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.  Ratel 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 Ratel’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 Ratel asset?
A:  Ratel 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 Ratel 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 Ratel’s minimum investment?
A:  Ratel’s investment minimum is $100,000 and all investors must be accredited as defined by the Securities and Exchange Commission.  On occasion, Ratel will accept first time investors at $50,000.  Ratel 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 Ratel?
A: Yes, provided an investor is accredited and less than 60 years of age at the time he or she enters into a Ratel investment. To learn more about how to use self-directed IRAs to invest in alternative assets, including commercial real estate, Ratel 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 Ratel investors are free to work with the self-directed IRA custodian of their choice, two of the larger self-directed custodians Ratel 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 Ratel 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 Ratel, how am I kept up-to-date on the status of my investment?
A:  Ratel 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, Ratel 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.