Real estate stocks have proven a good investment during the stock market recovery, especially those that have offered yield-hungry investors a decent payout. But recently, many stocks in the sector, as well as real estate investment trusts, have been trading near their highs, pushing yields down and creating an environment where investors must be more selective.
So what real estate companies and trusts should investors now target - and is it really a sector still worth buying into?
Jeffrey Olin, president and CEO of Vision Capital Corp., took your questions in a live one-hour discussion Thursday. Mr. Olin has 15 years of senior-level investment banking experience and 10 years of direct corporate real estate experience.
Vision Capital is an investment counselling and portfolio management company which manages the Vision Opportunity Funds, which are primarily real estate focused. The Vision Limited Partnership was the top performing fund in the Scotia Hedge Fund Index in 2010.
The following is a full transcript:
9:32 Darcy Keith - Good morning everyone and welcome to this live discussion.
9:32 Darcy Keith - I'm Darcy Keith, a web editor with Globe Investor
9:32 [Comment From Jeffrey Olin]
Good morning everybody
9:33 Darcy Keith - Thanks for joining us Jeffrey, we're looking forward to this!
9:34 [Comment From Guest ]
Good morning. What is your opinion of mortgage investment corporations, especially Firm Capital (FC-TSX)?
9:35 [Comment From Jeffrey Olin]
Mortgage Investment Corporations, including specifically FIrm Capital Corporation, are typically useful vehicles to generate relatively low-risk income, however, have limited upside versus REIT and REOC investments...
9:36 [Comment From Jeffrey Olin]
However, they are also less tax-advantaged than REIT distributions or REOC dividends as the dividend/distribution from Mortgage Invesment Corporations is typically taxed as income, at the highest marginal tax rate
9:37 [Comment From Wiliam ]
Good morning. What is your opinion of commercial-property focused REITS versus apartment-focused REITS? Especially in light of so much attention on the "imminent" housing bubble burst. Thank you for your answer.
9:38 [Comment From Jeffrey Olin]
We believe in a combination of top-down and bottom-up analysis, meaning we first look at macro economic factors, regional economic drivers, and regional supply and demand fundamentals...
9:39 [Comment From Jeffrey Olin]
Then, we look at specific attributes of a particular commercial or residential real estate invesment: management team, the strategy, the allignment, the growth, and the valuation...
9:40 [Comment From Jeffrey Olin]
Our portfolio today consists of a mix of both commercial and residential investments that have considered the above factors...
9:41 [Comment From Jeffrey Olin]
In markets where there is tight credit conditions, we would have a favourable bias to multifamily residential because of the access to abundant mortgage financing due to the government guarantee from CMHC financing. Today there is no issue as both commercial and residential entitites have ample access to mortgage financing...
9:42 [Comment From Jeffrey Olin]
We also don't believe there is a housing bubble of substance imminent in Canada.
9:43 Darcy Keith - Thanks Jeffrey. That last point is certainly one of a lot of interest for our readers. Can you elaborate on your outlook for housing in Canada? If no bubble, does that mean overall we're looking at modest growth still to come?
9:45 [Comment From Jeffrey Olin]
The single-family residential market in Canada reflects owners and buyers that are purchasing homes to live in, not as a speculative invesment. The legal framework in Canada limits the amount of mortgage debt to 80% loan to value (unless there is CMHC insurance in place).
9:47 [Comment From Jeffrey Olin]
These factors suggest stability to the market. We do have some concern regarding the condo market where the opposite is the case and typically 40% to 70% of new condos are being purchased by investors for rental income or speculative capital gains purposes. We believe modest growth over a long-term basis should be expected.
9:47 Darcy Keith - Sounds reassuring overall, thanks Jeffrey. Here's a follow-up question on your evaluation of companies for your portfolio:
9:48 [Comment From Mike ]
How do you evaluate the bricks and sticks of a building - do you have access to Building Engineering reports...
9:49 [Comment From Jeffrey Olin]
Typically, on a day to day basis we do not have access to building engineering reports. However, we often seek such reports and other critical due diligence in assessing significant investments of a longer term strategic nature...