With hurdles to credit and lack of consumer confidence still low in the US, is Canada the investment Mecca for Baby Boomers and the monied middle class? This question has to, or at least should be, in the minds of all those looking for a stable property investment. If you Google “Canadian Real Estate Trusts”, the trail of money being put into commercial there may just astound you.
News about US real estate and the markets has been a mixed bag for some months now. The elections, the recent Fed news, many variables have played their role in tempering what should be a boom for buying property. At least this is one view of a property sector made of price constraints so minimal demand should be blossoming. We spoke this week with the President and CEO of a key Canadian firm, Adam Gant Partners Real Estate Investment Trust, about just these issue and more. But first, let’s just run down a few headlines on Canada investing:
- The Huffington Post – Canadian Real Estate Above $1-Million Still Finding Buyers: Sotheby’s Canada Report (Luxury)
- CBC News – Record year for St. John’s real estate market (Commercial – condos)
- TD Tower stake swap sets new high mark for commercial property market (Commercial shift)
- CBC News – Canada Pension Plan’s investments see ‘explosive’ growth
- Financial Post – Portion of condo apartments in rental market on the rise across Canada (vertical demand – see below)
- Bloomberg – Canada Consumer Confidence Rises on Real Estate: Nanos
And on, and on, and there are the occasional mentions of an “overheated market”, the sluggish residential side, and so forth, but in general Canada’s real estate market overall is a relative boom compared with some areas of the US. A herd of investment trusts are approaching “opportunities” there from every angle, Adam Gant’s Partners REIT is tightly focused on the commercial end of things, shopping centers and commercial space, with a look into what Gant suggested could be a Canada gone vertical and low maintenance (meaning managed condos etc.). I asked Gant about things interested investors would want to know.
On the stability of commercial in Canada, Gant was straightforward, the Partners REIT noted:
“Canada is very stable and seeing positive inward migration and population growth from other countries as our borders are very open right now to skilled workers of all levels. Unemployment is low historically but we are growing at a moderate pace.”
With this, key variables such as unemployment, reduced barriers to credit in many cases, a lot less red tape in the Canadian system of things, and greater investor confidence, all these and more play a role in propping up a Canada real estate market seemingly capable of a “balance” for positive growth. What I mean here is, consumer and investor confidence in the US kills a commercial market just as it does the residential one. Meanwhile, relatively uninhibited investors in Canada make possible a commercial market that can and does counterbalance a sagging traditional residential market. Gant and I spoke on “new options” emerging for Canada investors:
“We have seen a significant turn around over the last 3 years in the credit markets in Canada to the point now where there are more new options for financing than there were even back in 2007. There has not been a re-emergence of the conduit lending activities and the securitization that we experienced back in 2006-2007 so the loan to value levels are still conservative and more reasonable than they grew to at the height of the peak in 2007.”
With this, you have to be asking; “So why is the Canada market really so attractive?” The answer is pretty simple really, the confidence to invest money is there. I asked Adam why he thinks the US market is still so jammed up, even with prices so low? Even people who do have money to invest are scared to death because of the ineffectiveness of government to solve problems. This is what Gant iterated to me, and it makes so much sense. And he should know, if success is any baromter, since Gant took over at Partners, the firm has been catapulted into the limelight and the profit beam. As of October Gant moving the fund to the TSX board has resulted in a 6X market cap.
After doing their research, it seems pretty clear too, any diligent investor will have weighted Partners REIT as at best a “sure thing” return getter, and at worst a low risk break even proposition. Wanting to know, as some readers may, the complexion of the investor in this sector, I asked Gant about “who” has put their money in so far:
“Partners REIT, as I mentioned, is great for both a Canadian resident and a US Resident because 100% of the distribution is deferred and considered return of capital for tax purposes which also means that there is no withholding tax for a US investor on the income paid out. We are at a 86% payout ratio and are currently trading above an 8% yield.”
Gant has answered the next set of logical questions too. Namely, whether or not US investors should take advantage of Canada commercial, but what said investors might expect to return on their money. Deferred and other tax incentives, plus the aforementioned stability factors, could spell a sort of Northward migration of American dollars.
The video below from Partners REIT shows Gant talking about the firm’s early moves in 2o12 such as the market cap then having been doubled. As we stated, that same market cap has now more than tripled from then. What’s even more significant here is that Gant’s firm is not the only one showing such powerful ROI cards. In fact, the demand for REITs was termed “insatiable” by The Financial Post early last year, and things have not changed much.
It remains to be seen whether or not the “stable” factors Gant discusses will hold true. This is the first and last question most investors will want to ask. Looking at the video from him, and speaking with him about where all those “Baby Boomers” are putting their savings, the term “essentials based” properties comes to mind from our conversation. These kinds of commercial centers will always be a sort of “last bastion” for negative economic situations. People will almost always go to McDonald’s, its true, but the bread store and drug store are even more concrete entities.
Will any Canada investment boom hurt US entities? Of course. Much needed investment for growth in the US, this is another topic Gant and I discussed. In fact, investment is the only way in which the US and other economies can emerge from the ongoing economic situation. People need jobs, jobs come from investing.
Let us hear your views on this. Meanwhile, we’ll keep you updated on all investing news.