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Why Canada’s largest (and smartest) investors are getting into residential real estate

222 Why Canada's largest (and smartest) investors are getting into residential real estate

One of Canada’s largest institutional investors, Sun Life Financial, just announced it’s getting into residential real estate in a big way. RioCan REIT also recently announced a major strategy shift into residential real estate. Why is institutional money flowing into the rental market and what can we learn from this as individual condo investors?

Click Here for Episode Transcript

Why are some of Canada’s biggest and smartest investors getting into the residential real estate market? Find out on today’s episode.

Welcome to the True Condos podcast with Andrew la Fleur. The place to get the truth on the Toronto condo market and condo investing in Toronto.

Hi and welcome back to the show. This is actually my second time recording this podcast because I accidentally hit delete on the first one. Sucks. Too bad. Oh well. Here we go again. It’s probably going to be much better the second time around ’cause I’ve had one time to practice this. Right? Okay, well here we go.

Now, side note, remember the old days with Microsoft Word and Windows 95 and stuff like when you would or you’re writing a paper for university or something back in the day and this is when computers really kind of sucked and you’d lose the file and it wouldn’t save or your computer would crash and you’d lose all your work and there was no automatic saving on files and stuff like that. That sucked. We’ve all been to that and you had to do an all nighter to redo your paper and you’re crying at 3:00 in the morning. No? Ring a bell? Yes? No? Anyways, side note. Has absolutely nothing to do with this podcast here today but thankfully those days are mostly gone but apparently they’re not because I just recorded this podcast and it got deleted. Here we are now, a minute into this podcast and I’m still talking about it. Get to the program. Okay, let’s get to the program.

We are talking about Canada’s biggest and some of Canada’s biggest and smartest investors are getting into real estate, residential real estate. Why are they doing this? What can we take from this as investors? Well, what do I mean by that first of all? Came across this very interesting article in Bloomberg, I’ll include a link to that, show notes at and the headline is, Amid Record Immigration in Canada Companies are Betting on Rentals.

Kind of gives it away in the headline there that immigration is a big reason for this but let’s get into it. Who is this? This is Sun Life Financial. You may have heard of them. Sun Life Financial is boosting its exposure to rental apartments as immigration in Canada’s biggest city booms. The Toronto based firm which managed, this is their, not the whole Sun Life but just their real estate arm which is called Bentall Kennedy, that Toronto based firm which manages $22 billion of assets in Canada, plans to increase multi residential investments to about 15% of its portfolio from below 10%.

Assuming they’re increasing by roughly five or 6% of $22 billion, you do the math on that, they’re looking at spending or acquiring assets in residential real estate to the tune of a billion dollars. These guys are looking to put a billion dollars into residential rental real estate, ie., apartment buildings. Very interesting that big money like this is going into the residential market. Typically these sorts of institutional investors, institutional money and pension funds and stuff are not really in the residential game. If they’re in the real estate game as these guys are, they’re in commercial, retail, industrial land, those sorts of things. Areas where it’s much easier to spend billions of dollars quite frankly. And it’s much easier to manage billions of dollars of your investment.

It’s hard to just go out and spend a billion dollars on residential real estate. That’s one of the challenges that these guys face is they’ve got all this money. They’ve got all this cash. They got to do something with it. They have investors who are demanding returns from them. It’s hard to go out and just buy a billion dollars worth of real estate. If you assume that they’re national so if assume that the real estate they want to get into is say, $300,000 per door, per unit, that’s like 3,000, 3,500 somewhere in that range of units, apartments that they have to buy or acquire or build. 3,000, 3,500, not easy to do that. You can’t just snap your fingers and go out and do that.

This is not like if you want to buy three condo units you can go out and do that. Try going out and buying 30 condo units. It’s very hard to do. Takes a long time. It’s very hard to even find a builder who would sell you 30 condo units as an individual investor for example. It’s very hard to pull a deal like that together. Talking about 30. We’re talking about 300. We’re talking about 3,000. Over 3,000 units. That’s hard to do but they’re doing it. They see the potential there. They want to get into it.

The thing that jumps the most off the page at me here, they talk about the strong economy. They talk about a lot things but the thing that really jumps off the page and that I want to hammer home to you the condo investor to be aware of here is, it says this quote here, “The thing that we’re tracking that’s the most positive is the immigration population growth. It’s really accelerating,” the head of strategy for them says.

This is something we talk about a lot in the podcast over the past few months. The Government of Canada has federally come out and announced their immigration targets are going up significantly from about 300,000 to about 340,000 just over the next three, four years. We see it’s happening. We know. We can’t know everything as real estate investors. We don’t have certainty on everything but we have certainty on this is that more people are coming into this country. We know that they’re going to have to live somewhere. We know how many of them approximately are going to come into the GTA and into the Toronto area. And we know, when we look closer at the numbers and the pipelines of units that are coming in here, we don’t have enough housing to house everyone. We have a shortage of housing and that we have a shortage of housing right now and it’s only going to get worse. This is why we believe in real estate and why we’re investing in real estate right now to take advantage of this trend.

And then what’s interesting is big money, smart money, institutional money like this is also seeing this trend and they’re also looking to capitalize and take advantage and get in on this. They see that there is money to be made here. And that’s a very good thing.

Immigration and the focus on immigration and reason and the backing for this growth in the residential market is very encouraging and exciting to see for us here as Toronto investors. Another interesting point, what are they actually looking to invest in? Well they’ve obviously got some projects in the pipeline. Couple of them, they mention one is a mid market typical rental building. Average unit size about 650 square feet. That’s in Etobicoke. But interestingly they’re also building high end. They’re getting into the high end luxury rental market in Yorkville with units up to $10,000 a month it says in the article. Very interesting to see that. Not just mid market stuff but high end stuff as well. They see potential in that market too. I’m always interested, always curious to see where big institutional money is going and I’ll get into reasons for that more in a moment.

Another article which I came across which was a sponsored info piece. I don’t know what you’d call it. It’s a blog post article but it’s really an ad. Anyways, it’s written by these guys. This institutional group from Sun Life and it’s in the Globe and Mail. You can see the link to it if you want. Four Factors that will Shape Real Estate in 2019 is the headline. Gets into different things. The first one is that solid economic growth will continue to support demand for real estate. Again, that’s the foundation of this all and why we’re investing now is we see that the economy is fundamentally strong. The job market is fundamentally strong and we need that. We need the strong economy and we need a growing economy as a base point for investing in real estate.

But the big point I want to bring up is it says, “Residential rents are on the rise in a new rental living reality.” New rental living reality so basically talking about the fact that more and more people are priced out of owning real estate and more and more people are going to be renting real estate. Again, something that we’ve been talking about on the podcast for a very long time. Probably sounds familiar. Something I’ve been preaching here for many months and probably for the past couple of years. It’s good time to be buying rental assets simply for the fact that there’s going to be more renters coming that traditionally Canada and the GTA being a market where the majority of people own their housing and the minority of people rent. It’s about 70% or so, 65, 70% traditionally are owning and 30, 35% are renting. There’s lots of evidence and I believe that over the next couple of decades that number is going to change dramatically and more and more people are going to be renting.

We’re going to be moving more towards a New York, a Manhattan, other major world cities where majority of the population is renting because they simply cannot afford to buy anything. It’s a very expensive city. Again, that is what these guys are also seeing and saying, institutional smart, big money is saying that, “That’s good. That’s encouraging. We like to see that.”

Another, speaking of institutional investors, look at RioCan, again this is not news. This was from March of last year. Less than a year ago but RioCan which of course they’re known for their retail properties and malls and plazas across Canada, they’re speaking to billion dollar groups. These guys I think are $13.7 billion of assets they’ve got across the country. I’m sure you’ve seen their signs, RioCan at various stores and malls and places that you go.

RioCan made a big announcement last year in March saying that over the decades of experience they’ve built this portfolio of retail and now there’s a major shift that they’re going through and that shift again also is moving away from retail and getting more and more into the residential game. Very interesting when you’ve got all these big players looking at the opportunity that is coming in the shortage of rental housing that we have and the immigration, the numbers that are coming in there. Here’s the quote from these guys, “Over the last 25 years we’ve accumulated a unique portfolio of income producing properties with significant redevelopment potential. Strategically situated on or near existing or approved transit lines,” said Ed Sunshine chief executive office of RioCan. “During that same time, a large shortage of new purpose built rental building has emerged in Canada’s urban centers.”

Large shortage of new purpose built rentals has emerged in Canada’s urban centers. They’re just talking about the same sort of thing. They see the shortage, they see the opportunity. They own a ton of real estate that has performed for them well but they see that retail is sort of struggling right now and dying a bit with Amazon and everything else that’s going on. The move away from retail is happening and has been happening. They’re not just sitting around waiting to do nothing. They’re taking action and the action they’re taking is moving more into residential real estate and turning those dead malls and plazas and things into mixed use development with a greater focus on residential.

They say they have potential they say for 20,000 residential units just on the properties in their portfolio that they own right now. Not even accounting for any new properties that they are certainly acquiring all the time. 20,000 potential residences they can create or build or partner with builders to build on the properties that they own. The majority of these units, the vast majority of them they say will be rental units that they will own, not condominiums. Very interesting. Again, big money is saying, “You know what? The place to put it is residential and the play to do in residential is to own the asset. Not to develop it as condos and sell it off but to actually own the asset.”

When you have all this big money coming in and saying, “We want to own these assets.” Then you as the individual condo investor, it’s very encouraging and it’s a very positive sign to say, “You know what? Yeah, it’s a great time to buy and own these assets. Just like these big boys are doing here right in front of us.” Yeah, that’s RioCan doing that as well.

At the end of the day, why does all this matter? Well why does it matter that we’re paying attention to what these big boys are doing? Us as individual condo investors. Well number one I think is these guys, they like low risk investments with high returns. If you like low risk investments with high returns then do as they do and invest in residential real estate and that’s a great, great way to great place to put your money over the next number of years ahead.

The other thing is, they think long term. These guys are not making these decisions, thinking about where they’re going to make their dollars next year or the year after that. These guys are thinking in terms of decades. They have a huge long track record. You don’t get 10, $20 billion of assets overnight. They’ve been in this game of real estate and investing for a very long time. They have a very long perspective and they plan on being in this game for a very long time to come. They’re not going anywhere.

If they’re investing in residential real estate it’s because it’s because they see that it has huge potential over the next, 10, 20, 30 year. They’re thinking long term. They know that that’s where they’re going to win. They have a perspective that is very different from an individual investor who might be looking at buying a condo today and I’m going to flip it in two years and make tons of money and I’m smarter than everyone else. No, these guys are very methodical. They’re very systematic. They’re very smart. They’ve got teams and teams of researchers and analysts and people looking into every potential aspect of every potential deal before they put a dime into anything and they’re doing that over and over and over again. They have a track record of success. They make their decisions very slowly and then they stick to their guns for a very long time.

If these guys are doing it, if they’re putting billions of dollars into this space for not just the next few years but for the decades to come, it’s because they see there’s something really big happening here. There’s something fundamental afoot. There’s something that is, there’s a new reality that is taking place and that will take place in the years ahead.

Do as they do. It’s very simple. Copy what these big boys are doing on an individual basis. Keep buying residential condo units. Think strategically. Think long term. Don’t think about short term thinking of two, three, four, five years. Think about buying an asset today that’s going to be a great asset to come for the next 10, 15, 20 years and you’re going to do very well with it. You’re going to make great returns on your rent. Rents are going to go up significantly over that time period. Your mortgage is going to paid off by somebody else and property values and the asset value’s going to continue to go up from inflation, from rental rates going up and just from the supply and demand factors and the fact that we just have huge immigration numbers coming into this province and to this region.

There you go. Follow the money. Follow the money. Just like when you’re picking a location to invest in real estate, King West, Yonge Street, east side, west side, north, up suburb, city. You follow the money is a great principle. If there’s money going into an area then that area’s going to appreciate. That’s where people want to be. That’s where you should put your money as well. Same thing here. Follow the money as it were. Follow these institutional billion dollar, very smart, very large investors and you’re going to do well. Where is that money going? It’s going to residential real estate so go there too.

Okay, I hope you found this episode useful. This was my second time going through it as I said so I think it was amazing. Starting to really love this episode. It’s one of my favorite episodes. I’m just kidding by the way. I’m glad that we made it through for the second time. I’m glad that you made it through for the first time.

If you enjoyed this, if you found some value from it, if you got something in here that is going to help you become a better investor, help you make better decisions, help you grow your wealth, encourage you on your journey, gets you closer to where you want to be, if any of those things happened here today and you want to say thank you to me, couple ways you can do it. One is just by leaving a rating, a review for this show on iTunes. It really helps get the word out about this show. The other thing is just go ahead and share this episode. Send it off to somebody that you know. Let them know about this podcast and hopefully they will get value from it too and you’ll look like a superstar to them for doing so.

Thank you very much for listening, until next time, happy investing.

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