Multifamily housing in smaller communities is an excellent buying opportunity which should continue to grow in value, says the CEO of Pier 4 REIT.  His trust has been busily acquiring several of these types of properties over the past few months.

“We’re looking for those buildings which exemplify strong value-added potential. So, the ones in which we feel might have high expenses, low income, in which we can go in and essentially better the building by renovating units, improving the overall structure of the buildings by renovating corridors, doing new roofs . . .” said Adam Ashby, the chief executive officer and co-founder of Pier 4.

The private REIT was launched in June 2020.

It's strategy, Ashby told RENX, is “really about finding that overall equilibrium of bettering the building for the residents that currently live there, but also growing the revenues through renovating the units as well as decreasing expenses.”

In December, that philosophy was on full display as Pier 4 made three acquisitions, two of them in Ontario. It purchased a four-storey, 46-unit low-rise apartment in St. Catharines, as well as another building in Cambridge comprising three storeys and 28 units.

The REIT also looked east and purchased a 35-unit, four-storey building in Moncton, N.B. This was in addition to three other similar properties in Halifax and Bedford, N.S., added to the portfolio earlier in 2024.

Value-add properties in secondary markets

The purchases all align with the firm’s philosophy.

“When you look at some of the particular acquisitions that we’ve made over the course of the last little bit, it is remaining consistent with our investment thesis of looking to buy properties across Canada within growing, but also secondary markets," Ashby explained. "If you look at our investment thesis, we aren’t located necessarily in the major city centres of the Torontos or the Vancouvers. We’re located outside of those major city centres because we feel that they have potential for growth and an underlying opportunity.”

The multifamily focus is also exemplified in its management team. In addition to Adam Ashby, his father Darrell and brother Michael serve as chairman and co-founder, and chief financial officer and co-founder respectively. 

Pier 4 manages more than $160 million in assets, owning 29 properties representing more than 800 units in three provinces.

“As a family we’ve been in the space since the 1980s, originally starting as contractors and over the course of time, through innovation, we realized that multifamily real estate was a strong asset class," Ashby said. They began making investments in the sector in the 1990s and into the 2000s.

"Then over the course of time, we have innovated into creating a REIT which allows for investors to invest alongside us.”

The Toronto-based trust looks to invest in these secondary markets due to a new reality in Canadians’ living patterns, said Ashby.

“They have stronger growth fundamentals due to people migrating to different places outside of these major city centres, while still having that connectivity to the downtown cores if necessary.” 

Many factors attract people to smaller markets

He gave the example of Kitchener, a rapidly growing region about 100 kilometres west of Toronto.

“You’ve seen a tremendous amount of migration within that particular city centre, but it still provides the connectivity to the major city centres via the GO Train or the (Highway) 401," he said. "That’s how we really establish our thesis, is just finding these markets which have strong economic infrastructure within, but also do have underlying connectivity to the major city centres, which they can rely on as well.”

COVID provided some of the impetus for families to move but there are other factors at work.

“When you look at these major city centres, they’re very expensive and I think people choose to move outside of these city centres for affordability and a different way of living," he said.

"If you look over the last couple of years when you look at Moncton or Halifax or Calgary or Edmonton, and you’ve seen these cities growing significantly due to having the ability to have jobs and infrastructure within, but also because they’re affordable, and people can move there; live there, and do what they feel is living their best life.”

The ongoing housing shortage is another factor.

“As we start to see a consistent growth and demand into these smaller markets, it’s inevitable that the cost of the good (housing) is going to increase, and we want to be taking a part of that,” Ashby said.

Housing demand to remain elevated

The value-add strategy to upgrade the buildings will not only also increase their value, it will make them more attractive to tenants leading to further rent elevation on turnover.

“It also goes beyond that, in regards to looking at the underlying opportunity from the building itself, the financials and just what we think would generate value for investors and how we can go in there and also create value for the residents that are living there by modernizing the corridors, modernizing the buildings, renovating the units, and creating an overall better living experience."

The future across the housing market is rosy, according to Ashby, as demand should increase due to lower interest rates.

“I think a lot of people are sitting on the sidelines waiting to see what would happen with the interest rates and the overall market fundamentals and I do think that with it becoming, quote, unquote, more affordable through decreases in interest rates, we will start to see more volume and more demand into the actual market itself in a variety of different facets within real estate,” Ashby said.

However, challenges remain to address the housing shortage. This means that while the for-sale market will see increased activity, demand will remain strong for rentals as well.

“The biggest challenge that we as a country have, it takes a significantly longer time to build and develop the necessary supply that we need and I think that’s the major barrier.”