The Eq8 apartment complex in Montréal, owned and operated by Cogir. (Courtesy Cogir)

It may not be long before investors in Montréal’s multiresidential market will again be able to say “Montréal is on fire.”

That was one conclusion from a session during the Quebec Apartment Investment Conference exploring whether major investors and pension funds are still bullish on the Montréal market. It was held virtually March 23 and 24.

Tyler Seaman, head of hotels and multiresidential, North America at Oxford Properties Group recalled that during quarterly meetings in 2018 and 2019, “the Montréal update was always one of the best because it would start out with ‘Montréal is on fire.’ ”

During those years, Oxford’s major downtown Montréal assets “performed amazingly,” with less than one per cent vacancy rates and “really good rent growth” of three or four per cent.

Seaman said Oxford’s budgets for 2021 reflect a recovery around June and a steady path to recovery from July to December. “Let’s hope that bears out.”

The question is not so much whether Montréal will resume its pre-pandemic upswing, it’s when that will happen, said Curt Millar, chief financial officer at InterRent REIT (IIP-UN-T), which describes itself as one of the largest buyers in the city’s downtown core since 2016.

Montréal’s recovery on the horizon

That could happen as soon as this summer or as late as Q1 2022. “A large part of the timing depends on the vaccine rollout and immigration,” Millar said, adding that getting immigration back on track will be fundamental in Montréal resuming its growth trajectory.

Millar noted the federal government has targeted more than 400,000 immigrants a year coming to Canada in 2022 and 2023, well beyond the 320,000 immigrants in 2018 and 340,000 in 2019.

However, in a separate discussion with multiresidential executives on where the market is heading, Cogir Management president Frédéric Soucy noted that currently 30 to 40 per cent of its rental base of international students and immigrants no longer exists.

The markets for Montréal professionals who need a pied-à-terre in downtown Quebec or vice-versa have also declined significantly. As a result, “we’ll have to be creative to rent all of our apartments.”

Fortunately, Millar forecasts international students will continue to flock to housing in the downtown cores of major cities, as they did prior to the pandemic. This will create a strong demand for rental housing among students.

“You’re going to have second-year students looking for their first apartment and first-year students looking for their first apartment. You’re going to have an increased number of foreign students coming into Canada,” all of which bodes extremely well for later this year 2021 and into 2022.

Seeking apartment properties in Quebec

Colin Catherwood, vice-president, investments at Fengate Asset Management, said the company hopes to expand into Quebec this year or in 2022.

Home ownership rates in Quebec are “significantly” below the Canadian average – about 6.5 percentage points, he noted. In addition, “the demand-supply equation in Montréal after COVID passes is still very strong and lots of people are looking to rent.”

Catherwood said employment continues to be very strong in Montréal and the industrial market has exploded. “It is the obvious choice to be looking at Montréal,” he said. “For a diversified portfolio, you should be in Quebec.”

Fengate, which has about $20 billion under management and a real estate portfolio largely centred in the Golden Horseshoe area of Ontario, has been looking for land acquisition or redevelopment sites in Quebec for the last six to 12 months.

Oxford, which has been buying in Montréal for more than a decade, has decided to direct investment activity outside of downtown until at least Q3 when there will be a clearer understanding of where trends are going, Seaman said.

“I’m a big believer that downtown comes back,” he said, but “I want to understand the trends and re-evaluate whether we reinvest downtown and how quickly.”

A return to downtown Montréal

The Vie apartments at 2255 Rue Saint-Mathieu in Montréal, owned by InterRent REIT. (Courtesy InterRent)

Catherwood believes people will return downtown in droves once restrictions are lifted, particularly young millennials looking to be close to the office, entertainment and sporting events. The current situation is only temporary, he said.

Millar said InterRent still believes in walkable areas downtown and suburban sites close to transportation. Much of InterRent’s portfolio is older, which typically means larger units ideal for the work-from-home era, he added.

If the philosophy is to hold residential properties for the long term, the question is: “Are people going to be riding those Metros and subways five, six, seven, eight, nine, 10 years from now? I think the answer to that is ‘yes.’ ”

Millar said capital interested in investing in multifamily residential “tends to be very patient capital” less focused on this year or next year, but on how the next 10, 15 or 20 years perform.

“That type of capital is very much what is looking to invest in multifamily right now.”

This, he said, will keep the pressure on cap rates and on pricing. For his part, Seaman said cap rates in Montréal “could get more aggressive” while prices remain about the same.

Oxford sold Quebec apartment portfolio

Oxford recently sold its Quebec City residential portfolio of 526 apartments in three recently built complexes in suburban Lebourgneuf for $118 million to Quebec City developer Douville, Moffet et Associés.

Seaman says the sale was all about capital allocation. “We love those investments,” noting the portfolio was the best-performing in Oxford’s 10,000-unit North American portfolio in terms of vacancy rates. However, “there wasn’t a lot left for us to do with those assets. There wasn’t a lot of big value-add remaining.”

Oxford plans to “rotate in and out of markets quicker.” Instead of holding properties on a 10-year or never-sell basis, it will look at a three-, five-, seven- or 10-year basis.

“We thought we could kind of take that capital in a highly marketable asset and just allocate it into a different market where we might be in and out of an asset in five years.”