Canada's Condominium Magazine
Despite regulatory hurdles and a fluctuating market, Canadian real estate remains a solid investment in many aspects. According to representatives at the Real Capital Conference earlier this month, real estate across the country will continue to attract strong investment interest.
Rob Kumer, Chief Investment Officer for KingSett Capital, described a growing trend among buyers to invest in Canadian real estate despite uncertainty in world markets. “As the rest of the world becomes more volatile and more and more uncertain, the segments of the real estate market that perform best are those which can present stable and reliable cash flow,” said Kumer, adding that nearly all investors, whether REIT or pension-funded, have been drawn to the same assets.
Sharm Powell, real estate investments director for the Canada Pension Plan Investment Board, said that real estate investment has become a more significant part of pension plans. The $330 billion CPP fund is invested on behalf of 21 million Canadians with assets in various classes and countries, totaling $47 billion. Approximately $6 billion of those assets are in Canada.
“We get lots of inquiries from inside and outside of Canada from investors that would like to place more capital here,” said LaSalle Investment managing director Stephen Robertson.
Major contributing factors to record-breaking real estate investments include low interest rates, strong market fundamentals, and foreign investors. Powell is not alone in that respect. “For REITs, there are a lot more strategic shifts that lead to a lot more trading volume,” said Jonathan Gitlin, senior vice-president of investments and residential at RioCan REIT. “That’s creating a lot more movement within a space that was once formed on a model where you buy and hold forever.”
However, Gitlin admits that challenges loom in the retail sector, causing landlords to change the way they do business. “As a predominantly retail landlord, it’s up to us to figure out how to stay ahead of new trends in retail and help our tenants evolve their way of doing business,” said Gitlin.
“We work hand-in-hand with them, which is a bit of a departure from the way it’s always been, which has been the tenant is our counter-party, and we just have to extract as much rent from them as possible to thrive and survive. Now we’ve got to evolve and figure out how to work with them to make their business successful.”
According to Kumer, some of the risks associated with real estate investment include: technology changes, rapid evolution of cities and the way they operate, the way people move around in cities, workplace needs and wants, and an evolving shopping experience. Although these factors are immeasurable, Kumer states that instinct and collaboration are necessary to understand the risks going forward.
“I think there are opportunities in all asset classes in all markets,” said Kumer. “The key for us is to look for opportunities where we think the returns are properly compensating us for the risks.”
However, Robertson has noticed dwindling returns, which can make it difficult to plan investments. “The increase in return that you get now from taking on risk is shrinking from where it was,” he said. “That’s really a challenge, so whatever direction you decide to go in, you’re going to want to underwrite really carefully and have an investment thesis that you believe in.”