The Fiera Real Estate Industrial Fund has surpassed $1 billion in assets under management (AUM) after completing close to $110 million in transactions during 2023.

The open-ended industrial fund managed by Fiera Real Estate, the global real estate investment platform of Fiera Capital Corporation, was launched in 2014 and now has a portfolio of 108 assets across Canada.

“We focus on small-bay and medium-sized-bay and small, single-tenant industrial buildings,” Fiera Real Estate senior vice-president and fund manager Michael O’Sullivan told RENX.

“To now have scale in crossing $1 billion in AUM is a feather in our cap, but more of a testament to our investors — a lot of whom have been with the fund since inception.”

While there has been some minor development activity, the primary focus of the FRE Industrial Fund is on acquiring income-producing properties. Property management is outsourced to managers with national platforms.

Nine assets acquired last year

The FRE Industrial Fund acquired nine assets totalling 560,000 square feet across the Greater Toronto Area, Ottawa, London and Halifax in 2023 and now has $1.02 billion in AUM.

The acquired buildings were fully leased at below-market rents, which presents an upside for increasing their income, and are considered to be long-term holds.

“We stick to smaller buildings that are often highly coveted by private individuals or companies, so we're up against quite a few bidders when buildings come up for sale,” O’Sullivan explained, noting the average unit size in the fund’s portfolio is about 8,000 square feet.

Many of the properties in the portfolio are older and would be considered B-class, but Fiera Real Estate has a capital replenishment program for physical and sustainability upgrades that will make them more attractive to tenants — and at higher rents.

O’Sullivan said the buying window in the second half of 2023, when Fiera made eight of its acquisitions, was the best in recent history.

A lot of potential purchasers who use a high proportion of debt in their acquisitions were sidelined by higher interest rates and banks unwilling to provide financing. The FRE Industrial Fund’s acquisitions are made with 100 per cent equity, according to Sullivan. 

Also, with some large funds having liquidity restraints, there was less competition for target properties in the last two quarters of 2023.

Marketed and off-market deals

The average size of acquisitions made with the FRE Industrial Fund is about $8 million, according to O’Sullivan, who noted they’re a pretty equal mix of marketed and off-market deals.

“We've got a pretty good broker network right across Canada, so we'll buy buildings in pretty much all of the major cities and even some of the secondary cities,” O’Sullivan said.

“We tend to do a little bit better with the off-market opportunities when you look at our historical returns of the individual assets.”

O’Sullivan anticipates taking advantage of more acquisition opportunities this year.

He estimates the FRE Industrial Fund will deploy between $50 million and $70 million, which is around its historical yearly average.

Having a large number of tenants and geographic diversification is a key part of the risk mitigation the FRE Industrial Fund provides to investors, who must contribute a minimum of $5 million to the fund.

Investors are typically mid-market pension funds, endowments, high-net-worth individuals and family offices.

Outperforming the property fund index

The FRE Industrial Fund’s risk-adjusted returns have consistently outperformed the Canada Quarterly Property Fund Index by the MSCI/Real Property Association of Canada on an annualized basis, boasting double-digit performance since inception.

“Our occupancy levels are high and the rental rate growth is high, which has really driven our returns and led to our competitive advantage,” O’Sullivan said.

The FRE Industrial Fund achieved a gross total return of 8.5 per cent in 2023, ranking it first in the index, which covers nine unlisted open‑ended real estate funds and had a benchmark gross total return for 2023 of negative two per cent.

The FRE Industrial Fund has achieved 18.2 per cent and 16.7 per cent returns over the past three and five years, respectively.

“Within the portfolio, we see more growth in terms of rental rates, demand for our existing buildings is still extremely high, and tenant retention is extremely high,” said O’Sullivan.

“There's not a lot of options for tenants since developers are not building micro-bay, small-bay and small, single-tenant buildings.

"There really is a demand-supply imbalance and that positions the fund and what we already have really well.”

A large number of expiring leases have rental rates of just over $10 per square foot, while the average market rate for those units is more than $13, so O’Sullivan said there’s “still more runway in terms of NOI and income growth.”

The FRE Industrial Fund’s overseers

Since the FRE Industrial Fund is open-ended, Fiera Real Estate continues to look for new investors and get re-ups from its existing clients.

Toronto-headquartered Fiera Real Estate is an investment management company with more than 100 employees at offices in North America, Europe and Asia.

It manages a diverse global commercial real estate portfolio that was valued at more than $10.3 billion at the end of 2023 through a range of funds and accounts. 

Fiera Real Estate is wholly owned by Montreal-headquartered Fiera Capital Corporation, an independent global asset management firm that had more than $155.3 billion in assets under management as of Sept 30, 2023.