Welcome to the My Private Network Podcast!
Hosted by Bob Simpson, today's episode we invited Group RMC USA's Managing Director, Mike Mangione, to bring to you one of the most lucrative investment strategies, ground leasing.
This investment strategy used by the British Monarchy and the Vatican is seen by Mike as, "the pearl of real estate." Learn how you can add these real estate royalties to your portfolio today!
Today's Expert Guest
Mike Mangione
Managing Director
Group RMC USA
Today's questions of interest:
0:00 Intro
1:14 Tell us about your journey and Group RMC.
6:53 Tell us about how you started ground leasing.
7:57 Could you go more in depth with ground leasing and how they evolve over time?
10:03 Comparing this to traditional real estate, what role do ground leases play in the broader investment landscape?
12:27 How do investors benefit from investing in ground leases?
16:46 How would an investor get into investing in ground leases?
20:58 If interested, how would an investor work with a firm like group RMC?
23:35 What would an investors experience look like in the next 5 years with ground leasing?
26:44 What is the difference between investing in multifamily versus ground leasing?
28:33 Final thoughts?
Transcript
Bob Simpson: Hello everyone. And welcome to another episode of my private network, the show where we explore insights into private debt equity and innovative investment strategies. I'm Bob Simpson co founder of private debt and equity. I'm also vice president portfolio strategy for Wealth Stewards in Toronto. And today we're joined by Mike Mangione, Managing Director at Group RMC's private partnership group.
Mike has a wealth of experience in unique asset classes and today we're going to do something really interesting. We're going to dive into the world of ground leases. So let's get started. So Mike, it's great to have you here today. Thanks for joining us.
Mike Mangione: Thank you for having me, Bob.
Bob Simpson: Yeah, you're welcome.
Wonderful way to, sort of start out a week is to record a podcast, right?
Mike Mangione: Absolutely.
Bob Simpson: To start, maybe you could just share some background on Group RMC. Maybe people in our audience haven't heard of your firm, but also talk about your own personal journey into the world of private investments.
Mike Mangione: Yeah, sure.
Well, first of all, thanks for having me. I really appreciate it. And a big fan of the podcast. So, so great to be here. My background is I'm a CPA by trade. I did my CPA back in, in Quebec, in Montreal. And from there I worked in, you know, bigger tech companies like CGI worked in the finance, reporting a little bit of MNA. Company
grew massively, in a, in a very short period of time. It's a very impressive business. And then from there, I moved to Standard Life, which was acquired by, Manulife, if you guys remember. And then what happened is that my, my best friend growing up, Alex Massa, he was growing this thing with his father called Group RMC.
His father's Ray, who's been a mentor of mine, an amazing guy, for 20 years. And Alex is one of the smartest guys, if not the smartest guy I've, I've, I know. I'm, I know I'm biased, but tremendous guy and Bob, you've met him. And, and he said, Hey, we should, we're doing this co investment thing on the side, you know, you should, you should check it out, check it out and, you know, in life,
you know where one part of the fork in the road goes. But the other part really intrigues you. There's a fork in the road where I knew exactly if I say that, you know, my traditional job as a CPA, I knew where that was going and that was a really good place. But I got really excited by joining people that I love and respect and look up to like Ray and Alex.
So at that time we're about 400 million, you know, 400 million of assets. And, we're about a group of 5, 6 people. Today we're about 50 employees from all over the world. We have about 2. 6 billion us in assets. We bought the largest land deal in Ottawa's history, in Canada, which was a great acquisition recently. And we have offices in Montreal, New York city, in the world trade center, actually, London, Columbus, Ohio, and in Sarasota, Florida. We're some of the largest landlords in a lot of cities in the United States. To take a step back group RMC, stands for Raymond Massa and company.
And when he was younger than myself, there's really four quick chapters. And I won't bore you guys with all the details, but I thought it'll resonate with any entrepreneur out there. You know, it's a really a story of grit and grind and hope. And some of you guys may know, but in the eighties during the SNL crisis, there was, in many ways it was worse than the global financial crisis of 2008. But it was more, you know, insulated in, in Texas.
And you can buy apartments for about $15, 000 that will collect $5, 000 a year in rent. I mean, think about that $15, 000, not $15. And so your breakeven was about, three years. And everywhere in the news, it said it was, it was the end of the world in Texas. I mean, you have pictures of bulldozers. You know, tearing down buildings because the land underneath the building was worth more without the building on top of it.
And so, you know, Ray pulled the hands of many, and he says we should buy this stuff. A bunch of crazy Canadians going to Houston, buy some buildings. And, they accumulated 3, 000 doors. And one lesson that was learned was, where the hell were all the smart people? And the institutions, and the pensions, and you know what?
They did come. They did come later. And, and that was in the form of the legendary Sam Zell, the late Sam Zell, and the largest REIT in the United States, called Equity Residential, bought all 3, 000 doors. And that was the first chapter. The second chapter was Quebec during the savings and loans crisis, I'm sorry, Quebec during the referendum.
And usually when I explain this to people outside of Canada, I've explained to them that we had, you know, the world had something called Brexit, but we had something almost, you know, similar called Quebecxit, and the vote was very, very close. And today, you know, even Bank of Montreal is no longer in Montreal, it's in Toronto, you know, the head office.
And, and that created a very interesting opportunity. If you just, sorry for my language, but just shut up and look at the numbers and not be worried about what looks shiny on an IM. You can make some really good deals and we started buying industrial and office in the outskirts of Montreal, little known places like Jean Pierre, Quebec and, in Sherbrooke and, we did quite well.
And then institutions came a little bit later. So at first, it was just the family offices, but in 2007, at the peak of the bull run. There was a REIT called BTB Toronto listed REIT that had IPO tons of money and offered us very attractive pricing. So we exit our assets. So that was the second chapter again, deep value investments in the third chapter.
You know where I'm going with this 2008 global financial crisis. Bunch of Canadians see the world's greatest economy on sale with a for sale sign. And everybody was going to the, you know, to the coast in New York City to Boston, Silicon Valley. And we would just, you know, not too proud. And we're okay with going over what are so called flyover states.
And we started buying in Kansas city, Columbus, Ohio, you know, Memphis, people forget that Ohio is two times the GDP of Portugal. And so the United States of America in many ways is like the European union where every state has its own country, has its own GDP, has its own laws. And we were very, very excited about buying in these areas.
And, and then the fourth chapter was the pandemic and here we are. And that's when, you know, there's a lot of opportunity, a lot of blood on the streets, a lot of value traps. But if you look at your north star and you have some conviction, there's some good deals to be had.
Bob Simpson: That's a, thanks for sharing that story with us.
It's, you know, I've heard your story before. It's, pretty compelling.
Mike Mangione: Appreciate it.
Bob Simpson: Now, today we're going to just take a look at kind of one of your newer areas, right? Like you haven't been doing ground leases. That's, that's fairly new for your firm. Is it something you've been doing for a while?
Mike Mangione: Well, we own quite a bit of land. Inadvertently when you buy a lot of real estate, there's a lot of land that comes with it. And so our first foray into ground leases was, you know, in a place called corporate woods, 2. 2 million square feet, largest office park between Denver and Chicago. And there was a parcel of land that wasn't used that we own.
And then there was a, there was a coffee joint that wanted to buy the land from us and open up the coffee joint. We said, look, we want to own the land. What if we buy the land? You develop the building and we'll rent the land to you. And they said, sure. And so we thought that was very interesting.
And now we're collecting a little 50 K coupon every year. We still own the land, something that wasn't generating anything before, and it's now an amenity to the rest of the office park. So that's how we got into the ground lease business. But yeah, it is relatively new on the scale that we're doing it now.
Bob Simpson: Yep. Starting with a coffee shop and work your way up is a story of entrepreneurship, right?
Mike Mangione: Right.
Bob Simpson: So explain to us what are ground leases go a little bit deeper and you know, how they evolved over time.
Mike Mangione: Yeah. Well, most people, they picture real estate as you buy the building in the land together, that simple, but there's a world out there, that bifurcate the two.
And I think, you know, we'll just go back in history. One of the biggest players that do ground leases today is actually the British monarchy. And if you look in London, 50 percent of London is actually around 50 percent is on what you call a ground lease. That means that if you're a very wealthy, you know, group or, you know, even a Russian oligarch and you want to go and buy multifamily brand new building in London, well, guess what?
You're not going to own the land. The land will be owned by the British monarchy, and Mr. who owns the building is gonna, or Mrs., will have to pay rent to the landowner in the British monarchy. It's a pretty good business. And I, you know, the Duke of Westminster is doing quite well, in this, in this structure.
The other big group that has done this in a very, very long time ago, and they still do it today, is the Vatican Church. And so they own a ton of land and the buildings on top of them are not owned by the Vatican, but they pay a rent to the landowner, which is the Vatican. And so in many ways, it's, it's kind of, you know, if you guys are familiar with, you know, mining royalties or pharmaceutical royalties or music royalties, it's a little bit like the royalty version of that where you're a taxing authority and you're receiving, you're clipping coupons, from, from, you know, another group on top of you.
If I want to dive in a little bit deeper, You're seeing this in many areas now, fast forward. And we can talk about this later, but in New York city and Toronto and Montreal, there's a lot of examples of groups that are doing this, but it's really a bifurcation between the landowner and the real estate owner on top.
Bob Simpson: Yeah. You are actually the first person ever to use the word bifurcate in our podcast anywhere, I think. So.
Mike Mangione: It's the mot du jour.
Bob Simpson: Yeah. Yeah. So what, what makes. You know, like, so comparing this to traditional real estate, what role, do ground leases play in, in sort of the broader investment landscape?
Mike Mangione: Well, look right now, it's no secret that, you know, what are we today? We're the 4th of November, 2024. There's a, the capital markets are extremely tough and they've been tough for a little while. I think ever since SVB went, you know, bust, a lot of lenders went on the defensive on their balance sheets and on the offensive to those they lent to.
And, and what we're seeing now is you have a scenario where you have developers who absolutely need to develop, they have payroll, they have contracts, they already have debt that's ticking and they're paying it. They have to develop and traditionally their only option, I'm sorry, I bring it there, but it's to get some kind of predatory mess alone at 15 to 18%.
That's literally going to suck the life out of the deal. So in other words, these borrowers want to borrow a hundred million bucks, the developers, but they can only get 80 with these high interest rates in these capital markets. So there's a funding gap of 20 million bucks.
And in order to get that 20 million, they're going to go see, you know, some lenders at 15 to 18 percent that are willing to, you know, patch that gap, you know, and, and go forward. Here's where there's an option. And, you know, with pressure in the systems are saying pressure creates diamonds, and that's when, you know, there's definitely a need for this capital there's, you know, somehow there's, there's out, there's always, there's always an opportunity to create something a little innovative or extremely old school, like I was mentioning.
And this is offering an alternative to those guys and saying, look, Mr. Developer, we'll give you the 20 million, but instead of getting that expensive loan, we're going to give you a 20 million cash, no leverage on our side. And we're going to, we want to buy the land underneath your building. And where it gets interesting for these developers is now they're not borrowing at 15, 18%.
They're generally, they're going to be borrowing at five to 6 percent with some inflation bumps. And so it erodes the total, I guess, the, total cap stack of, of their deal over the longterm, but it's way cheaper. And in some cases, much more interesting to go into a group that's, you know, that's on their side and wants to give them a ground lease.
Bob Simpson: Yeah. So on this call, there are investors, there are financial advisors who are looking for new opportunities. Just talk about how an investor in land leases would benefit, by taking this approach.
Mike Mangione: Well, you know, what's interesting is that when you buy a piece of land, I think you have what a lot of investors are looking for, you know, and also what a lot of advisors are looking for.
You have a hard asset land that's uncorrelated to the markets. It's income producing because you're collecting a rent from the building on top. On top of that, that income grows with inflation, which is very rare to have any kind of investment that grows with inflation. How is it doing that? Because it gets into a lease with a building on top, a 99 year lease.
And we're not going to stay in it for 99 years. But in a world where people are talking about weighted average lease terms of one year in multifamily or five years or seven years in office or 10 years in industrial and triple net lease. We're talking about 99 years and in that lease, there's a clause that says this is going to grow with CPI, with inflation, minimum 2 percent and up to four or 5 percent a year.
And every 10th a year, there's a CPI look back clause. So unless, you know, advisors or investors are looking for, you know, to use some kind of derivative to be inflation adjusted. There's no other way and definitely not this high quality to be able to get an inflation adjusted hard asset that's non correlated.
To the markets and that's income producing, but there's two other factors that are extremely important and I think really sets us apart even more. And many people don't know this when it comes to ground leases or what we call real estate royalties, the owner of the land, get this, the owner of the land is senior to every single other part in the capital stack.
We are senior to everyone in the capital stack. You're senior to the first mortgage, AKA the Royal bank of Canada. You're senior to any second lender. We are the most senior on the capital stack. Everything else is subordinate. And then the final part that's from a safety standpoint, one more bit on the safety standpoint is that we all know that not all cash is created equally.
And, you know, you look at distributions. From a lot of businesses and you know, business will generate revenues and have its expenses and then whatever's left at the bottom line will be paid as a dividend, right? But it's really whatever crumbs are left at the end, we paid as a dividend. If, if it's not reinvested as a growth stock, that's the crumbs at the bottom line, but our royalty, again, like pharmaceutical royalties, mining royalties, just like real estate royalties, which are, which are these ground leases, we're getting the distributions from top line first rank revenue before the building pays operating expenses.
So this is the highest quality cash. So I just wanted to say it again, you got hard asset uncorrelated to markets, income producing, inflation adjusted, senior to everything on the capital stack. And on top of that, it's first rank in revenues. It's above OPEX. So from that perspective for investors, I think it brings them a lot of much needed safety and security and confidence in a world that is increasingly volatile.
And from investment advisor perspective, you know, Ray used to be a very large wealth advisor in the past, and he taught me a lot of great things. And one of the lessons that he taught me is like, Mike, differences sell, similarities don't. And the last time that someone spoke to anybody about ground leases in Canada, I'm not even sure we can count that on one hand.
And so this is very different and very safe, and it's back to pressure cream diamonds is very, very special for today's economic environment.
Bob Simpson: Yeah. So I'm just trying to do the math in my head here. So from an investor point of view, just can just run through the numbers again as to maybe how you would, how an investor would go about investing in real estate royalties, maybe start using that phrase now, how would an investor invest in this?
And you know, what would be their. You know, and I think people in the podcast have heard this that, you know, one time I, I think I was in visiting a doctor and he was going to suggest, make a recommendation to me. And I said, when he walked in the room, and I was uncomfortable sitting in the gown, I said to him, here's what I need to know.
I need to know what are you recommending? How am I going to benefit? What are the risks that are going to be involved? And what's, what's it going to, what's the experience going to be like over the next 2 to 3 years? And I said, Maybe you could just maybe phrase, your comments about, real estate royalties in those terms.
Mike Mangione: Right, right. Well, I'll address the first part and how do you get involved in real estate royalties? It's the honest answer is it's very difficult. It's the, this is for lack of better terms, the pearl of real estate, meaning it's extremely valuable and extremely rare. And the biggest challenge with ground leases is actually finding it in the first place.
And originating one. With all our connections, you know, we're one of the largest landlords in a lot of, in a lot of areas in the United States. We have a lot of connections with brokers and lending brokers and lending brokers want to get deals done, and so because they can only get 80% of the way there with their traditional offerings, lending wise, they, they, they throw us as a narrow in their quiver.
You know, out there and say, look, to get the a hundred percent there, you can use group RMCs, ground lease or real estate royalty strategy. And so now we're pretty much all over the U S and it's happened to me, by the way, Bob, where I was in meetings, where I've never heard of the deal and our logo showed up saying as we're one of the use of finances for this deal.
And so that was, that was a very, out of body experience. Now, if you're at the clinic and the generalist is telling you, you know, You know, these are things you need to do, and this is going to be your experience. Well, the experience is going to be one that's very contractual. In a world where returns and risk is really market driven and crystal ball thinking, it's nice to have an anchor out there, and you know that it's the contract.
The ground lease contract is extremely, extremely strong, okay? It's a contract between the landowner and the building. And usually these would get, you know, And again, it all depends by contract and I'm not just talking about a specific deal or, and I'm talking about globally, usually, you know, in, in better economic times, or, you know, moments where the capital markets are opened, you would see these originated at two to 3%.
Well, now we can get a lot more, you're looking at five to 6 percent ground leases that are being originated. But what's interesting is with that CPI adjustment, if you have a business and every year, you know, at a stable cap rate, the next year, that building is now our business is now generating 2 percent more income because the inflation adjustment. Well, that business or building is worth 2 percent more, all things staying equal.
So you're looking at, you're looking at returns of, you know, 56 plus 2 percent with that growth total returns there. And then there's just so much optionality because remember, I shouldn't say remember, I don't even think I mentioned it. We're doing this all cash, you know, there's no debt here. So you're not even using leverage in a world where leverage is really killing some really smart people out there.
This is all cash. There's absolutely no leverage. And so there's so much optionality there to, to bring you to the, you know, double digit returns and you look at comparables, if you don't mind me, you know, going into this tangent, but there's some groups called, you know, there's some market comms out not naming them that are doing ground leases.
In the public markets and they've done it with too much debt. And they were at some point, the most get this, the most performing, best performing REITs in the United States when good times, and then they became the single worst performing REIT in the United States in harder times. And what happened is that they were the most performant REITs in the United States because the proof of concept of ground leases, the market decided that there were these things were worth a fortune and, and then unfortunately for them, they borrowed to do this.
And so. As interest rates went up 11 times, the spread inverted on them and became negative, and that's the worst, even at their bottom. Now being the worst, you know, their valuations are about two to three times on the public market, what you can get on the private market for these ground leases. And so there's an very interesting arbitrage there.. Very interesting and compelling upside that's way beyond the income they can generate in the contract in this
Bob Simpson: If an investor is interested in getting involved in ground leases, what are their options to invest in these, this sort of thing? How do they work with a firm like group RMC to be able to achieve that?
Mike Mangione: Yeah. So, so to be able to do that, of course, originating on your own, very unlikely. We have a direct investment type solution where you can pick and choose your deal. We have one in Manhattan under a vacant church that is unfortunately a vacant church and now is being redeveloped into multifamily and retail.
We have one in Brooklyn. You can choose to go in that one. And that's under a vacant brewery, main floor retail, 35 multifamily on the top floors. Actually, there's two subterranean levels of retail. We have one in Washington, D. C. again, mixed use. And so you can go direct, deal by deal, if you really like one in particular.
Or, we have something called the Realty Royalties of America Fund. And that is a feeder structure that goes and participates automatically in every single deal that we do. So if you say, I don't want to pick and choose, I just want to be diversified, then you can go into the Realty Royalties of America Fund.
And that's available, if you're in an IA and you're interested in this, in Europe, it's available on Canada. It's available in the United States.
Bob Simpson: Yeah. And the one thing that we could say as a commercial for Well Stewards is that many firms, especially the bank owned firms, they're not, they're, they're not players in this game.
So if somebody is interested in it, we can make that connection for you, with Group RMC and help you to become an investor in this, type of investment. Just reach out, give us a shout. Now, I think, Mike, we've covered a lot of the things that were on my list here today, you know, I had, I think, a dozen questions for you.
You know, we wanna look at risk, you know, take a look. You know, let, let's frame this for investors. If an investor was to have a, let's say a five-year timeframe and they bought into the fund, so they've got that broader diversification, that's the way we would generally. recommend that people go is to go more diversified.
Cause one individual deals can blow up on you. It's better if you have a broader range because you should always be protecting your capital first. So if an investor, and I know that past performance isn't going to help us predict the future and things will pop out that might, might get us, but what, from a return to risk perspective.
What would an investor with, let's say a five year time, time frame, what would their experience be like over the next five years?
Mike Mangione: So the intention here is, is to roll this up into an up, an upgrade this into a master fund and, and IPO this. And going back to my example is if we were to take what we're buying and originating at a five to six cap, and then listing it in the market right now on these market comps, that are super levered. And again, we're not taking any leverage. You're looking at a, I mean, if you take a five to six cap and you sell it at a two and a half cap, you're looking at two to three extra returns in roughly five to seven years with, I hate to say this, but very low risk, given that you're senior on the cap stack, you're under brand new assets and your royalty payment is first rank.
And then if I want to just chip away at that return, what that looks like, it's Total return at the beginning is about 7 percent and that's contractual. You're looking at, you know, about four to 5 percent on the distributions. And because of the CPI adjustment, because it grows with inflation, minimum 2 percent a year.
Every year you have that growth on a stable cap rate of 2%. So you're looking at five plus two. And then again, without any leverage, now there's a chance. There's a chance out there where, because the revenues grow, the income grows every year with inflation. If interest rates go down and that spread becomes large enough where we could get, you know, 10 year first time financing, and you know, do a special distribution to everyone where essentially everybody's exited, right?
And you still own the land, but you got a big special distribution and now you're making a little spread. That's also an opportunity to do that. So there's a way to just get that 7 percent a year. Maybe a first time finance, get all your money out still on the asset and then get a second exit with that upgrade and IPO.
There's so much optionality when you take a very, very low risk approach. And so, you know, Bob, you know us a little bit. And you know that even in our other investments, you know, we're all in for very low LTV's, loan to values. I love the Warren Buffett quote cash is like oxygen. You don't think about it until you run out, then it's all you think about. You know, so the hardest test of time is, you know, the hardest test that passes is the test of time.
And so I think that these nine, nine year contracts, no debt, very senior on the cap stack. I think this is just a way to go. And so you're looking at two to three X, with very little things having to go your way.
Bob Simpson: Yep. And what you mean two to three X is two to three times your money over possibly a five to seven year period.
Mike Mangione: Yeah. And MOIC, yeah.
Bob Simpson: Mm hmm. Yeah, that's right. Which, you know, you compare that to the, traditional deals that a lot of people are looking at in real estate, which are pretty levered, right? You'd look at multifamily. Multifamilies, usually 30 percent equity, 70 percent debt. And you know, a lot of investors have found that the price of the building comes down 30 percent and they're wiped out, right?
They're wiped out. Bad, bad margin calls.
Mike Mangione: So I don't want to interject here, but just you're, you're, you're getting me going here. You know, how many people out there and I'm sure there's a bunch of listeners who are buying multifamily deals at four to five cap. You know, and that's, that's an equity position at four to five cap, that's subordinate to their first mortgage or a second mortgage at a mezz, right?
And so imagine being able to buy land unlevered out of five cap that is senior to the Royal Bank of Canada. That is senior to any second debt that is senior to everyone. And the revenues are first rank. And I don't care about OPEX. If a developer has a run on costs. If the building now has higher utilities, I don't care because I am the land underneath and we have a contract.
And so think about the world just in relative terms where people are originating multifamily four to five, God bless them. That's some, in some cases you do quite well. I've seen cap rate compressions down at 2 percent cap rates, but imagine buying the land, which is way safer, not an equity position, way safer.
You're buying the ground and that's at a five cap and it's growing with inflation. It's, it's a completely different ballgame. And that goes back to why This is the Pearl of real estate. Very rare and very valuable.
Bob Simpson: Yep. And I think the last time we talked to you is the Pearl of real estate analogy before.
Mike Mangione: Yeah.
Bob Simpson: I think that pretty much covers what I wanted to cover here today. Give us this good idea. You know, I think we can, probably take feedback from people who listen to the podcast and maybe, maybe get you to come and join us again. to, to go deeper or just talk to us and we can arrange meetings and give you full explanations as to how this works and, and bring people like Mike into the calls to help us to, answer any of your questions.
Is that, do you have any other final thoughts, Mike, before we, before we let you go here today?
Mike Mangione: No, that was just, it was just a, it was an absolute pleasure being on this. I don't do these all the time. I'm going to add one more food for thought is one of the reasons why these things are so valuable and most people don't realize.
Is that the owner of the land owns the building on top of it at the end of 99 years. So there's a terminal value to that. And if you do a net present value, that's what they call the U. C. A. unrealized capital appreciation and just another reason why the value of these ground leases are just so worthwhile.
Bob Simpson: Yeah. So I think a light just came on for me there. So, I was wondering, because, you know, my goal is to hang around for another 99 years to see a deal like this come up. So in 99 years, the investors in this own the building?
Mike Mangione: Correct. And most contracts, I mean, it depends how you negotiate the contract.
When the vast majority of ground leases, the, the owner of a land called the freehold takes over the lease hold on top of it, the building, and it collapses into one. And so what happens is that the market will do a net present value on that. And they'll say, well, if you have this beautiful building that's been maintained as per contract because they have, they have to be maintained, they can go to a position and to a point where they're not maintaining it or not usable anymore.
That would be a way to break the contract. But you have this beautiful building at the end of 99 years in Manhattan or Washington, D. C. or Brooklyn where they're not making any more land, very good areas. And there's a net present value to that, that is worth an absolute fortune. And that's called UCA or unrealized capital appreciation.
Bob Simpson: So one question, you know, because our firm Wealth Stewards is, we integrate wealth management with accounting firms, tax structure, how, you know, the returns you're talking about are, are great, but how much do people keep from that?
Mike Mangione: Yeah. So, so of course. You know, in real estate, you want to, you love depreciation and just to put it bluntly, you can't depreciate land, so you don't get those benefits.
But what you do get are a couple of nice items if you want to get a silver lining somewhere. When you do an IPO or an upgrade into an IPO, those are taxed as capital gains, which is favorable. Also, because we're doing this all cash, if ever we do put first level financing into a big special distribution and completely exit
still on the land. That's the return of capital event. A refinance is a non taxable event. So you're getting ordinary income at the beginning, plus you're getting upside. The upside, you know, is capital gains when realized. And in the meantime, if we do a refi, that's return of capital.
Bob Simpson: So very tax efficient.
We'll, we'll talk about maybe tax in a future episode.
Mike Mangione: I'd love that.
Bob Simpson: Yeah, I think that covers it anyway. Thank you very much for joining us today, Mike. It's great, great of you to share, you know, this valuable insight with us. Ground leases, real estate royalties are clearly a unique and strategic tool for diversifying a portfolio.
To all our listeners, if you'd like to learn more, be sure to check, group RMC's resources. Keep, you know, we do have on private debt and equity. We do have a spot where you can go and pick up the basic information about that. And if you have any questions, please feel free to reach out to us.
Also keep tuning in, please, to My Private Network for more insights into private investments and strategies. Remember we are doing the investing for income summit, which will be running on Wednesday nights at 7 PM. If you want to, just go to events on www.privatedebtandequity.ca, you can see, a link to that and, and potentially sign up.
But, yeah, Mike, it was a lot of fun, really nice joining us today. Thank you. Yeah. Before making any investment decisions, it's crucial to consult a professional financial advisor to determine suitability. Full disclaimers are available on www.privatedebtandequity.ca. So thanks for listening to my private network.
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