Parsad

The cheapest and most efficient structure must also contemplate the human/relatives factors involved in what you describe. I would recommend the Canadian Corporation with shares issued to each member with restrictions (if any) clearly spelled out in bold including the mechanism for redeeming those shares if need be. All kinds of things can come out of the woodwork when in business with friends and family! Unfortunately the Canadian corporation structure is the least tax efficient. For every dollar in income, only 25 cents will make it to the pockets of investors after taxes, due to double taxation of dividends and personal income taxes. Because there are so many friends/family the core legal entity should be a Cdn Trust, where everyone owns 'units' that they can buy/sell. The Cdn Trust contracting for services (Admin/Acctg, Ppty Mgmt, etc.) & your admin/acctg involvement is via a seperate LLC of your own..... But frankly, the better option is simply a direct investment in the various public REITs (liquidity, diversification, admin, etc). Yes, the trust structure is the best structure and what we originally told them, but the problem is that they are raising only a small amount of capital...$300K-500K. The administrative, custodial and compliance costs are going to eat into their capital. If they were going to use the capital as the 25-30% down payment and then leverage up through mortgages, then you could justify the costs of the trust, but they are buying the homes for cash: Cash: $300K in properties...double in price over five years (only a best case assumption)...$600K - $30K in admin/compliance costs + $20K in operating expenses...$550K/300K = 83% return or about 12.5% annualized. Leverage: $300K in down payment and $600K in mortgages...double in price over five years (again only a best case assumption)...$1.8M-$600K in mortgages...$70K in interest costs + $30K in admin/compliance costs + $20K in operating expenses...$1.08M/$300K = 260% return or about 21.5% annualized. I think you could justify the trust structure cost based on the potential return in the leveraged scenario, but not the way they want to do it with cash purchases. Cheers!

Even Carl's Jr isn't that expensive. That being said, I will definitely go try it once they open. Cheers!

Thanks for trying Netnet. Some answers to your question: I'm U.S. based, so I have not thought about the Canadian implications, but here goes: 1) Why do you need the Canadian structure? Actually it's a client who wants to set it up. They don't care except they want the cheapest, most efficient structure...unfortunately cheap and efficient don't necessarily go hand in hand. 2) Is this to be widely cast to a variety of investors or are they all ready to go now? Most are ready to go, and they are primarily friends and family. They aren't raising capital from outside investors at this stage. 3) How many investors are there? About 10-12 4) Are they deemed sophisticated? About half would be, but the other half would have to qualify under a friends and family exemption. (If you can legally set up a CDN corporation, with all the investors--option 1--, I'm surprised that there are no CDN compliance issues.) In BC, it's pretty easy to set up a corporation operating under certain regulatory exemptions that allow capital to be raised freely from friends, family, associates and accredited investors. Off hand, I would tend to #2, with or without the Canadian entity. If there are compliance issues, then set up a US LLC, which allows you to upstream the profits tax free to the members, but you still have the foreign entity tax treatment issues, which is way beyond me. Unfortunately, the LLC structure isn't recognized by Canada, thus there are certain timing issues in relation to how operating losses can be passed up to the investors...in essence, the LLC structure is viewed as a corporation in Canada, thus operating losses cannot flow through directly to the investors. Cheers!

Sanjeev, Its ok to give them $999,999,999.99 but a billion is too much I agree I would have put a significantly lower amount...about $50M...but I wouldn't want half the board calling me a socialist! ;D This way I alienated only about 3-4 people on this board! Cheers!

Got a question for boardmembers and I thought I would tap the brains of the best, since most of the senior partners, CPA's, CA's and lawyers we've questioned haven't got a real clue: And no, this is not for us...we have no interest in doing this! If you were setting up an investment structure for Canadian residents to invest in U.S. distressed real estate, what is the best structure when considering compliance, taxes and reporting? 1) A Canadian corporation holding the property directly...seems to be very inefficient taxwise. 2) A Canadian GP that sets up a U.S. LP with Canadian investors investing directly into the U.S. LP...more tax efficient, but could have considerable compliance issues. 3) A Canadian corporation with a wholly-owned U.S. corporation that invests directly into the U.S. real estate...probably the least efficient of all structures due to double taxation 4) A Canadian GP that sets up a CDN LP with Canadian investors and then the CDN LP invests directly in the U.S. real estate...seems as efficient as #2, but has more compliance issues and tax filings issues for partners...since both a K-1 and US 1065 would have to be issued. Would be interested in hearing from you guys on these or any other alternatives! Cheers and thanks!

Inherited wealth is one of the great sins of capitalism. I think people should be incentivized to do all they can for themselves, but passing capital from one generation to the next is the antithesis of capitalism. Capital should move freely to where it is most efficiently utilized...inherited wealth does the complete opposite. I'm all for egregious estate taxes for estates over $1B that are passed onto the third generation. Cheers!

Thanks for perking up my day KFR! ;D Cheers!

The kid's amazing! Cheers!

I had my first experience at 5 Guys yesterday. Needless to say the bill was a little under $10 for a burger, fries, and drink. In my mind SNS is 10xs better for half the cost. Wow! That's steep. Vancouver's local burger chain that's been around for 70 years is Whitespot. You can get a Whitespot burger with their "triple-O" sauce, unlimited fries, coleslaw and a drink for about $7 CDN. Take a look below: http://imonlyhereforthefood.com/images/Food/WhiteSpot/WhiteSpot002.jpg Unfortunately Whitespot is trying to change with the times, and they have widened their menu and created more full-dining locations, while also creating more standalone type locations that focus on the core burger menu. I'm sure they've increased revenue, but they've probably done some damage to the brand. I was a die-hard Whitespot fan, but go there increasingly less for the last few years because of the widening menu and the full-dining focus. Burgers are really comfort food and companies can hurt their brand by losing focus on what got them to where they are. If Five Guys pricing in Canada is anything like what CONeal experienced, I probably won't go there that much, and I would suspect alot of people won't. By the way, for those people who have tasted a Whitespot burger and swear by it (or an In-N-Out burger for that matter), I can tell you for a fact that a Steak'n Shake steakburger is actually tastier. And that has more to do with the flavour of the patty rather than anything else. The steakburger patty while thin, is one of the most flavourful patties I've tasted in the lower-tier ($7 or less for a burger) burger market. In fact, for the price, you can't get a tastier burger...especially the double steak-burger! Cheers!

The other thing I've noticed about Five Guys from pictures is that their menu seems to be priced around Fatburger but it's well above the prices at Steak'n Shake or In-N-Out. You can get a single-patty Steakburger meal for $2.89, while a Little Burger (single-patty) with fries and a small coke would run you close to $7 at Five Guys...although they don't have a small fries and Coke, so you would get the regular sizes. Still a single-patty Steakburger with regular fries and drink would be about $4.50 or less! The same meal at In-N-Out would also be about $4.50. It's actually quite hard to spend more than $7 at Steak'n Shake. For that you could get a double-patty Steakburger, fries and a large Chocolate shake! I think Sardar's been very smart about pricing and providing value to customers. That's why traffic numbers have risen so quickly. Cheers!

I'm not sure what you are referring to Tooskin, but is it the free peanuts they offer or no coupons on their products? I've never been to one, so I'm not sure if it is part of the greeting or something in the design of the store, if it isn't the two things I already mentioned. Surprisingly, the interior of the stores don't look entirely different than a Steak'n Shake. One of the most obvious similiarities is the three-square checkerboard pattern that adorns the interior of both restaurants. Steak'n Shake's is black, while Five Guys seems to be red. Steak'n Shake seems to be adding certain menu items that are similar to the Five Guys burgers...BBQ & A-1, as well as the Jalapeno topping and mushroom topping on the short-term specials offered by Steak'n Shake. Both companies seem to make the double-patty burger the standard as well. I'm looking forward to it when it opens. Cheers!

Well, I guess my desires for a Steakburger will have to be satisfied once a year in Chicago! Fortunately, cult-chain Five Guys Burgers is opening a Canadian store in Vancouver, and hope to have 200 open in Canada over the next decade or so. http://www.kelowna.com/2009/11/27/obamas-preferred-burger-joint-setting-up-shop-in-langley-five-guys-opens-in-january-with-further-outlets-planned-for-metro/ Are you listening Sardar? Get on it! Find a great Canadian franchisee for Vancouver...or at least Seattle...since Five Guys and In-N-Out aren't there yet. Cheers!

The amazingly astute insight that Prem, Brian et al had was much more than downside protection. Their earlier hedging strategy had been merely to buy S&P 500 puts. If that was all they had done before the recent crash, they would merely have bought protection against a decline in the value of their equity portfolio. However, they realized that CDS could be bought for an annualized cost not much different than S&P 500 puts, and that these would pay off with a much larger gain once the credit bubble popped, than the usual hedge. They may have noticed that opportunity as credit spreads continued to narrow and added to their stake, but their original investments were made purely on the premise to protect their portfolio and reinsurance recoverables. Virtually all of the swaps they purchased in the first couple of years were done solely for that purpose as Prem indicated in the 2006 Letter to Shareholders excerpt below: Just a brief overview for you on our credit default swaps, which are 5-year to 10-year fixed income derivatives, which fluctuate with credit spreads, that we have purchased from major banks. Here is an example. To purchase a 5-year $100 million credit default swap on a company that sells at a 30 basis point spread over treasuries, one has to invest 150 basis points (30 basis points/year 5 years), so $1.5 million purchases protection on an underlying $100 million of credit exposure of the chosen company over the next five years. The maximum loss to the purchaser in 5 years is $1.5 million if the credit spread stays at 30 basis points or tightens even further. On the other hand, if the credit spread on this company doubles to 60 basis points, the credit default swap can be worth as much as $3 million, and if the company goes bankrupt, that swap can be worth up to $100 million. We have a diversified list of companies, mainly financial institutions, with respect to which we have paid approximately $250 million to purchase protection on underlying credit exposures. Prem does not like to speculate, but he's happy to accept a wager if it is already included in the cost of a hedge. Thus any large profits they would make on the swaps when they initially invested, were just icing on the cake from buying protection at such extraordinarily low prices. Investors don't realize that speculating on things like bubbles often lead to frictional costs that will eat away at returns, since timing is a large part of getting a speculative bet correct. The mortgage bubble could have gone on for several more years. And Fairfax's $500M investment could have easily become a $1.5B investment as the five-year swaps expired and they had to double down on the protection. It's just fortunate (for Fairfax anyway) that the bubble collapsed when it did. Cheers!

HSBC leads the way with regards to UAE loan exposure. Cheers! http://www.cnbc.com/id/34171816

Agreed. Cheers!

I don't agree with Tilson's assessment. He's expecting significant further downside in pricing. I don't think that will happen. I think you will continue to see pressure in pricing as more homes come onto the market and the second round of ARMS reset, but purchases of distressed properties should ease that pressure over time and banks will continue working with mortgagees. I think the recovery itself will take some time...maybe several years...but most areas have seen the worst of it, other than commercial real estate and retail services. Alot of retailers who got bailed out of the 4th Q of 2008 and 1st Q of 2009 in their debt repayments have only delayed the inevitable. Some of these guys are going to fail over the next couple of years. Cheers!

I still don't understand how Peter Eavis, Fabrice Taylor and Herb Greenberg squirmed their ways out of the Fairfax lawsuit. I'm guessing it would have been very hard to bring them into the suit without them utilizing the first amendment to protect themselves...especially Eavis. http://www.deepcapture.com/tag/peter-eavis/ Eavis remains an employee of the WSJ and is a professional photographer. You can see his works and interviews all over the net. I'm not sure what happened to his pastoring sabbatical, but perhaps it was enough to establish a tax-shelter for his retirement fund. I'm also not sure how the hell John Hempton, one of the main culprits in this whole debacle, managed to be excluded from the lawsuit. Perhaps Hempton has become a rat like Sam Antar and is spilling the beans, or perhaps Fairfax is just going after the big guns. Cheers!

More on the biggest potential soverign default since Argentina! If it goes, I'm sure it will take a few others with it. Some European banks and Arabian banks are going to lose ALOT of money. Cheers! http://www.bloomberg.com/apps/news?pid=20601087&sid=aO.S.lkGgmb0&pos=2

The position may have been redundant with the merger now occuring. Omar Janjua (operations head for SNS) left recently and now Moore (operations head for WEST). I'm guessing for $900K, Sardar is going to be running the whole shebang...and who better, since no one is going to work as hard as him! Cheers!

Hope all our American compadres have a terrific Thanksgiving! I'll be in Seattle doing some Black Friday shopping. Cheers!

Gwynn knew exactly who he was releasing the reports to early. The only other people who probably knew were the ones receiving them, and Morgan Keegan since they found enough information to dismiss Gwynn. Cheers!

Max, fantastic work! That is one of the best articles I've read anywhere in the last year. Cheers!

SNS press release saying the Annual Report with the Chairman's Letter will be posted on December 14th. Cheers! http://finance.yahoo.com/news/The-Steak-n-Shake-Company-prnews-3817242740.html?x=0&.v=1

Probably because the key witness is dead! The article discusses how SAC and Kynikos have not been served Wells notices by the SEC. They note that SAC in seventeen years has never been served a Wells notice. I believe Madoff was never given one either in 30 years! Cheers! http://dealbreaker.com/2009/11/sac-not-sweating-sec-investiga.php

State-controlled Dubai World, the builders of the palm-shaped island development and a myriad of other projects, is on the verge of bankruptcy! Cheers! http://www.bloomberg.com/apps/news?pid=20601087&sid=a.LazCgxcywM&pos=1