Despite the turbulent environment shaped by the coronavirus pandemic, aggressive interest rate hikes and liquidity issues, institutional investors taking a long-term perspective can uncover strong opportunities in the real estate market.
Speaking at the Canadian Investment Review’s 2024 Defined Benefit Investment Forum, Alexandra Katz, managing partner and head of institutional sales at Hazelview Investments, highlighted Canadian multi-residential real estate, which she called particularly attractive due to the ongoing supply-demand imbalance in Canada’s housing market.
“Simply put, supply has not — and does not — meet demand for housing, which supports higher occupancy rates and stable cash flows.”
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The structural shortage, driven by rapid population growth and continued immigration, sets the stage for stable investment in multi-residential properties, she said, noting these assets tend to provide consistent cash flow due to high occupancy rates and diversified tenant bases, making them resilient even during economic downturns.
Regardless of the economic cycle, the need for housing offers downside protection that other sectors may lack, said Katz, as consumer behaviours in areas like retail and office spaces are more likely to shift.
She also discussed the potential of real estate debt, particularly bridge or interim financing, noting this type of investment allows lenders to finance properties that are being repositioned to increase cash flow over time, offering higher returns compared to conventional long-term loans. “We believe that [approaching debt from] the lens of a real estate owner is the best way to reduce risk in real estate debt investments.”
By evaluating key factors such as cash flow stability, the quality of the collateral and the borrower’s financial strength, investors can mitigate risk, noted Katz, adding these short-term loans are more dynamic, allowing lenders to redeploy capital quickly while benefiting from higher yields and origination fees.
She also stressed the advantages of bridge financing for both lenders and borrowers, noting the shorter terms provide flexibility for both parties — allowing borrowers to stabilize properties before seeking longer-term financing and offering lenders the opportunity for quicker capital turnover.
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Katz shifted the discussion to real estate investment trusts, which she calls an effective tool for enhancing portfolio diversification and gaining exposure to emerging property sectors. They can offer liquidity and access to specialized sectors, such as data centres and senior housing, she noted, which may be harder to tap into through private real estate investments.
“Today is a good time to enter the REITs market. . . . REITs have posted positive performance, on average, following hiking cycles.”
Multi-family investments, real estate debt and REITs are well-positioned for growth, she said, driven by favourable demand-supply dynamics and the potential for market recovery. For investors looking to strategically position their portfolios in the current environment, these real estate opportunities offer attractive risk-adjusted returns over the long term, noted Katz.
Read more coverage of the 2024 DB Investment Forum.