LaSalle Investment Management’s fifth Canadian value-add real estate fund, LaSalle BVK Canada Advantage, has acquired an industrial portfolio and a multiresidential property in the Greater Toronto Area (GTA).
The acquisitions are the first capital deployments for BVK Advantage after it closed in December 2021 with a capital raise of $306 million. The fund secured commitments from institutional European capital sources and includes a co-investment vehicle.
“Well-located urban rental housing and last-mile, or small- and mid-bay industrial are our two highest-conviction, research-driven themes,” LaSalle Canada chief executive officer John McKinlay told RENX. “We're not limited to that, but that's certainly where we think that the best risk-adjusted returns for this fund series are at this point in time.”
With these initial acquisitions, McKinlay said BVK Advantage has a little less than half of its $306 million still to deploy.
GTA industrial portfolio
The industrial portfolio was acquired from an institutional owner and consists of eight small- and mid-bay properties totalling nearly 400,000 square feet in Mississauga and Brampton. Financial details were not disclosed.
It’s fully leased, with a weighted average lease term of just over two-and-a-half years, and has significant upside due to below-market in-place rents.
McKinlay said there’s not a lot of small- and mid-bay industrial product being built, which is one of the reasons the portfolio appealed to LaSalle Canada. Its unit sizes are in the 5,000- to 30,000-square-foot range, according to McKinlay.
While no major capital expenditures will be required for the buildings, McKinlay said LaSalle Canada will look at ways to make them more energy-efficient.
The GTA industrial market
The GTA is one of North America’s largest industrial markets at 800 million square feet, but it faces land constraints due to the environmentally protected Greenbelt that surrounds a significant portion of the region.
“You're seeing groups buying obsolete office to knock down and build large logistics facilities, because it's hard to get contiguous land,” McKinlay said, noting the embedded land accounts for 80 per cent of the value of the newly acquired eight-property portfolio.
The GTA industrial market has seen rents grow at a three-year compound annual growth rate of 20 per cent amid a surge in demand, driven largely by e-commerce.
“There might be a pause in terms of rents in the next little while, but I think the fundamentals and the kind of macro thesis is still very much there to support these types of investments for us,” McKinlay explained.
75 Eastdale apartment acquisition
The multiresidential property at 75 Eastdale Ave. includes a 15-storey, 253-unit apartment building along with 16 two-storey townhomes in the Danforth Village area in Toronto’s east end. It’s 96 per cent leased with a unit mix that includes studios, one- to four-bedroom apartments and townhomes.
The property was acquired from CAPREIT for $90.1 million.
LaSalle Canada will undertake select unit and common area renovations for 75 Eastdale in an effort to make it more attractive to renters and increase its occupancy rate.
There’s limited apartment supply In 75 Eastdale’s immediate area, which offers close proximity to public transit, retail, restaurants, Taylor Creek Park and employment centres.
“It has all the fundamentals that we want in terms of location, amenities and transit, and we targeted it as a gentrifying market that will continue to grow,” McKinlay said.
The Toronto apartment market
The Toronto market is projected to have 10 million people by 2046, according to LaSalle Research & Strategy. It has averaged under 1.5 per cent apartment vacancy for the past 10 years as demand has outpaced supply.
Toronto’s large amount of quality immigrants, along with high house and condominium prices, will continue to make purpose-built rental apartments in the city an attractive investment for LaSalle Canada.
“Toronto is a major global city which has one of the lowest per-capita rental housing numbers out there,” McKinlay observed.
LaSalle Canada’s investment pipeline
Chicago-headquartered LaSalle Investment Management managed approximately $82 billion of assets in private and public real estate property and debt investments as of Q2 2022.
Its clients include public and private pension funds, insurance companies, governments, corporations, endowments and individuals from around the world.
LaSalle Canada, which has offices in Toronto and Vancouver, has executed more than $7 billion in real estate transactions since 2000.
Its investment pipeline is largely focused on Toronto, Montreal and Vancouver and properties that provide rent escalations.
“We will always be looking for the best risk-adjusted returns,” McKinlay said. “We’re looking for value and we’ve always distinguished ourselves on our ability to be good with deal selection.”