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Investment executives talk strategies at RealREIT

The combination of a strong performance by commercial real estate and underperformance by some ot...

IMAGE: Christina Iacoucci, BentallGreenOak managing partner and chief investment officer for Canada. (Courtesy BentallGreenOak)

Christina Iacoucci, BentallGreenOak managing partner and chief investment officer for Canada. (Courtesy BentallGreenOak)

The combination of a strong performance by commercial real estate and underperformance by some other investment sectors has led to an “exceptionally robust” inflow of capital, according to RBC Capital Markets Real Estate Group managing director David Tweedie.

He made the statement while introducing an expert panel at the virtual RealREIT conference on Sept. 29. Senior executives from different investment entities outlined the pandemic performance of their portfolios and offered insight into their strategies and priorities.

Tweedie set the stage, noting we remain in a low-interest-rate environment with some inflationary pressure.

He said the Canadian REIT sector is up about 25 per cent year-to-date in 2021, and 80 per cent from early pandemic lows, and some “sectors and companies are trading at historic highs.”

On the private equity side, CRE allocations continue to grow due to the comparative returns, as well as volatility in equity markets. Tweedie noted there’s plenty of “dry powder” which will be seeking assets as the pandemic wanes.

Capsule comments on CRE

Tweedie added several other observations, including:

– “Office fundamentals softened during COVID as companies determined return to office and flexible work arrangements, but we do see fundamentals stabilizing. Consequently, capital took a pause on office investment in 2020 and volumes were down by approximately 70 per cent. However, this trend has quickly reversed in 2021 with more normalized volumes returning.”

– “The industrial sector remains an absolute top performer with double-digit rental growth in our major markets, record trade volumes and new pricing benchmarks almost monthly.”

– “Innovation and resilience is improving and capital is flowing back into retail in most asset sub-classes, especially in defensive necessity-based assets.”

– “Suburban (multifamily) markets remained relatively stable but the pandemic did drive renters out of big cities. But, with the reopening of borders, return of immigration, students, leisure and business travel, and the return to offices, the urban sector should see a strong comeback.”

– “Alternatives, including life sciences, data centres, self-storage and others really awoke over the past 18 months and have been in high demand from investors as we transition out of COVID. We really see this as an inflection point for growth, but the real question is if there’s scale available in the Canadian marketplace.”

– “ESG is the No. 1 force impacting the entire real estate ecosystem today and will be the lens on how companies operate, perform and invest going forward.”


BentallGreenOak is a global real estate investment manager with offices in 12 countries with $69 billion US in assets under management for its 750 clients as of the end of June.

“We haven’t made any significant changes to the majority of our product types globally,” said Christina Iacoucci, managing partner and chief investment officer for Canada.

“We have accelerated on some by moving more into cold-storage strategies and data centres as well as continuing to build out our industrial and multifamily assets and product types.

“We’ve continued to reposition within retail and office, but this was a strategic move that we actually had commenced five to seven years ago for a majority of our clients.”

Multifamily fundamentals were quickly impacted at the beginning of the pandemic but rebounded equally as fast, according to Iacoucci. She said office was the asset class most disrupted by COVID-19 as vacancies and sublets climbed.

“Although there’s still a lot of uncertainty around office, I think there has been one clear trend that has emerged, and that’s really a flight to quality from both a tenant and investor perspective,” she said.

“There’s a clear divide between commodity office and differentiated destination office.”

Deploying capital has been challenging, particularly for clients who wanted investments to stay in Canadian major markets and in sought-after asset classes such as industrial and multifamily where there’s plenty of competition, said Iaccouci.

BentallGreenOak has been looking at joint ventures, off-market acquisitions, development and site-intensification opportunities.

Fengate Asset Management

Fengate Asset Management’s investments span infrastructure, private equity and real estate. The value of its completed real estate portfolio is more than $9 billion and it has more than $4 billion worth of assets under development.

Its real estate includes purpose-built rental apartments, condominiums, student and seniors housing, industrial and suburban office.

“The pandemic afforded us the opportunity to pause and reflect on our portfolio and the resiliency within it,” said managing director and group head of real estate Jaime McKenna.

“We made a lot of decisions on culling aspects of our portfolio and choosing areas in which we didn’t want to invest anymore.”

Fengate has become more deeply involved with residential asset classes, industrial and alternative investments.

It has also moved further along the risk spectrum with its industrial portfolio by getting into development and land entitlement for longer-term development.

“We looked at the organization and started to decide who we wanted to partner with going forward,” said McKenna.

“We’ve narrowed the field of developers we partner with and we also brought some development management in-house because we felt that was good risk management on behalf of our investors.”

Fengate made nine acquisitions last year and four so far in 2021, all off-market.

“The pricing of on-market deals was far out of our yield requirements,” said McKenna. “It’s not that we’re stepping away from on-market, but we really are focusing on building our pipeline from an off-market perspective.”

Lincluden Investment Management

Lincluden Investment Management is a value-focused firm that invests for an institutional client base and represents the debt and equity arm of Morguard, which has an ownership stake in the company.

IMAGE: Participants in the investment panel at the virtual RealREIT 2021 conference. (Steve McLean, RENX, screengrab)

Participants in the investment panel at the virtual RealREIT 2021 conference. (Steve McLean, RENX, screengrab)

Vice-president and portfolio manager of real estate equities Derek Warren manages REIT investments and saw opportunities when the sector was hardest hit by the pandemic. It left the seniors housing and hotel sectors and repositioned its retail holdings while making purchases that previously had been too expensive.

Lincluden has been looking at international REIT investment opportunities as well as in Canada. Industrial has become more expensive while retail and office have become value sectors, according to Warren.

“The REIT market has become quite short-sighted, so if you’re willing to think longer term there are more opportunities,” he said.

Manulife Investment Management

Manulife Investment Management is the global wealth and asset management segment of Manulife Financial Corporation.

Managing director and senior portfolio manager Greg Spafford manages private equity real estate investments for-third party accounts and his clients are mostly pension funds.

“We had already been focused on industrial for several years and had built up a strong portfolio,” said Spafford. “We were well-diversified across sectors and geographies and were well-balanced across Canada.

“We had already expanded into multifamily, but unfortunately we didn’t get as far into multifamily as we had hoped since that was slowed down by the pandemic.”

Manulife’s retail holdings were mostly needs-based, including drug and grocery stores. It will likely convert some periphery office assets to multifamily, according to Spafford.

Manulife tapped into the debt markets to complete some deals and refinanced some properties in order to build up liquidity to withstand the anticipated COVID-19 downturn, but it didn’t turn out to be as bad as expected.

Minto Apartment REIT

Minto has been in business since 1955 and has home-building and income-producing divisions. It invests almost exclusively in multiresidential in major Canadian cities and was privately owned until July 2018.

It’s now half private and half public, with both groups having independent boards and a strategic alliance agreement.

“We had been on an active acquisition spree leading up to the pandemic, either through the REIT or some of our private equity funds,” said Minto Apartment REIT CIO Glen MacMullin.

As transactions have picked up again during the past year, MacMullin said new listings are attracting multiple bids, often with no conditions. For that reason Minto is putting more emphasis on development, with six active projects at various stages within the REIT.

It’s also providing mezzanine financing to developers at a low coupon rate of six to seven per cent in exchange for an option to acquire the asset at a five per cent discount to appraised value upon stabilization.

“It allows the REIT to do more development and have more development exposure, and that’s something we’re looking at doing a lot more of,” said MacMullin.

Minto had low leverage and about $200 million in liquidity when the pandemic hit. It has money to spend but MacMullin said it hasn’t found properties at prices it likes.

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