Vancouver has become a draw for major institutional investors seeking to invest in the city’s real estate market, and increasingly, the way in is to partner with local developers, say industry experts.
Institutional investors are companies that invest money on behalf of clients, such as hedge funds, pension funds, mutual funds, insurers, or real estate investment trusts (REITs) and typically seek real estate holdings in robust urban markets.
With its growing job market, low vacancy rate with high rents and resilient real estate market, Vancouver is becoming increasingly attractive to big investment.
“The bigger institutions all want to own more in Vancouver,” says Jason Kiselbach, senior vice-president and managing director for brokerage company CBRE Vancouver. “If you can find willing owners of properties here, there is no shortage of capital partners.”
He says investors want their portfolios spread across Vancouver, Toronto, Montreal and Calgary, but most of them have not hit their target for Vancouver.
Real estate is also seen as a safe harbour, particularly after COVID-19 struck and the stock market showed its volatility. Mr. Kiselbach and others saw a bump up in institutional interest at the start of the pandemic. And Vancouver prices so far have held strong. But in the Metro Vancouver market, large-scale opportunities are fewer because the market is smaller and local private ownership groups tightly hold a lot of it, Mr. Kiselbach says.
“As a result, I think some of [the investors] have found a potential solution in just partnering with some of the local owners who already have decent opportunities. [These developers] own the properties, they don’t want to dispose of them, but they don’t mind spreading the risk around and taking on a partner to develop the project.”
Allied REIT, which specializes in office properties, has made it a goal to add significant Vancouver real estate to its portfolio, according to a press release the company released in April. The company has partnered with Vancouver-based developer Westbank Corp., best known for its high-profile residential projects on several mixed-use developments, including the distinctive new 24-storey tower in downtown Vancouver at 400 W. Georgia St., which is Deloitte’s new headquarters. Apple and co-working company Spaces are also tenants.
The tower, currently under construction, is across the street from Amazon’s future office space at the former Canada Post building, a 1.13-million-square-foot redevelopment called the Post, that is key to the city’s emerging tech industry sector. Allied has also purchased the commercial heritage building the Landing, located in Vancouver’s Gastown neighbourhood. Once the Westbank building is complete, that will bring the REIT’s Vancouver property holdings to 820,000 square feet, Allied president Michael Emory said in the release.
Vancouver’s mid-size developer PC Urban Properties Corp., which develops all types of properties, entered into its first partnership with a major institutional investor when it recently closed a deal to purchase a 9.7-acre industrial property with Toronto-based private equity real estate investment firm KingSett Capital. The Richmond property, Viking Way Business Centre, is fully occupied, but the owners have plans for redevelopment, to be announced this fall.
It is PC Urban’s largest acquisition to date, according to chief executive officer Brent Sawchyn. In a press release, KingSett cited PC Urban’s experience for redeveloping industrial properties, and the developer called the partnership a “natural progression of the company’s growth.” Mr. Sawchyn also cited the City of Richmond’s vacancy rate of less than 1 per cent. The developer and KingSett declined a request to comment further on the partnership.
Mr. Kiselbach, who was not involved in the Richmond deal, says there can be sensitivity around these financial arrangements.
“A lot of people are nervous about being out there too much, I guess, talking about the secret sauce,” he says with a laugh. “They don’t want to clue too many people into their strategies.”
But Mr. Kiselbach expects Toronto-based companies such as KingSett and Crestpoint Real Estate Investment Ltd., as well as the Blackstone Group, a multinational private investment management company based in New York, will continue to make further moves into the Lower Mainland, looking for more lucrative partnerships. It puts a new spin on foreign buying. Last year, Blackstone purchased 80 per cent of the downtown Bentall complex with L.A.-based Hudson Pacific, which owns the remainder. Hudson Pacific manages the four towers, which recently became the headquarters for Canadian tech success story Shopify.
“What’s happened is that more of the big institutions from Toronto and even the U.S. have seen the fundamentals in Vancouver over the past five years. We are a growing city and we have more positive immigration happening. That’s leading to tech companies coming here and improving the labour market – it’s like a snowball effect,” Mr. Kiselbach says. “That’s created this growing demand from the bigger institutional players.”
But not all partnerships are suitable, he adds.
Vancouver-based Cressey Development Group has a large portfolio of rental, but for the most part, the family-run company has chosen to maintain full control of those particular assets, says Tom Johnston, vice-president of asset management.
“When you have partnerships in assets that make returns over a long period, you set yourself up for when one partner may need to exit for whatever reason,” he says.
Mr. Kiselbach says that a few local developers who’ve been approached by institutional buyers have turned down the offers because the developers want to remain nimble and not have to get approval to close a deal. But for small- to mid-size developers, a partner can get them the growth that would be unattainable otherwise.
“They are in that mid-tier group and want to scale up and find opportunities. Sometimes [a partnership] is a way for [the developers] to say, ‘I’ve got assets in Vancouver. You have some in Toronto. I want exposure to that market. Maybe we can go back and forth with this a little bit.’ ”
Developer Zack Ross, chief operations officer of the Vancouver-based Cape Group, focuses on the residential rental sector, and he is also seeing increasing interest from Toronto investment companies.
“They are looking outside of Toronto [to] diversify,” Mr. Ross says. “Vancouver is obviously a very attractive market, and people want to live here, which has led to some of the money coming out here. We have a strong rental market and I think that is where the money will be focused. I have had discussions with a few larger funds that are looking. I don’t have anything lined up with them, but there is definitely interest in Vancouver.”