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More investors are turning to alternative investments such as private real estate, equity and debt to help balance their portfolios.

Real estate is particularly appealing to Canadians, both at home and across the border in the U.S. Perhaps not surprisingly, Canadians made up the largest share of foreign buyers of U.S. property, or 11 per cent of purchases, from April 2021 to March 2022, followed by Mexicans, at 8 per cent, and Chinese, at 6 per cent, according to the National Association of Realtors.

For investors, real estate may not sound like a great investment today, given rising interest rates. However, some argue it’s an attractive time to buy into the asset class, particularly the lenders.

“Floating-rate assets paired with attractive characteristics can offer investors a way to mitigate inflation risk,” says Dean Kirkham, president and chief operating officer at real estate financier Trez Capital in Vancouver.

Globe Advisor spoke recently with Mr. Kirkham about how alternative assets, specifically real estate, can fit into Canadian investors’ portfolios.

What are some of the key trends you’re seeing right now in real estate?

The biggest thing we’re seeing on both sides of the Canada-U.S. border is a massive shortfall in housing due to a combination of rising immigration and more restrictive lending since the 2008 global financial crisis.

In the U.S., where we’re focused, there are two markets – the U.S. sunbelt region and the rest of the country. The population is moving south in droves. While inflation and rising interest rates are a concern, the population is still growing and may accelerate due to migration trends.

So, it’s providing a lot of opportunity in these markets that we’re not seeing in the rest of the U.S. We’re focused on investment in the southern U.S. for this reason. We feel confident in the values in this market from a lender’s perspective and the possibility of achieving higher returns on our investments – even better than what we were getting in the past.

Why are higher interest rates an opportunity for investors?

Rising interest rates have cooled the housing market, yet there’s still a lot of demand.

Developers who can get projects off the ground in this high-interest rate environment are well-positioned because of the housing shortfall. Higher rents are also making these projects more viable, creating sufficient returns for developers to launch projects and move forward. That’s where we see the opportunities.

What are you hearing from advisors on your strategy?

When it comes to alternative assets, advisors are looking for expert asset managers who have experience and understand what’s happening in a particular space, such as real estate in our case.

Many like real estate because it’s a relatively stable investment backed by strong macroeconomic trends. Advisors are also interested in achieving stable returns as part of a broader portfolio mix.

This interview has been edited and condensed.

- Brenda Bouw, Globe Advisor reporter

Must-reads from Globe Advisor this week

How to manage the mindset around debt as the cost of borrowing increases

In a persistently low-interest rate environment, the often painful consequences of taking on debt are minimized. Borrowing money during the past 14 years or so has felt almost free, leading borrowers to assume that their rates will stay low and debt payments will remain the same. However, during the past year, interest rates have risen faster than in any other one-year period during the past 30 years. While this sharp increase has affected most asset classes negatively, many people are feeling the pain most acutely when it comes to managing debt. Alexandra Horwood of Richardson Wealth Ltd. gives tips on how to manage debt to reach financial goals.

Why second marriages require a more robust review of estate plans

With one in four adult Canadians getting married for a second time in their lives, according to recent Statistics Canada data, developing an estate plan that works for their new circumstances is becoming more crucial to protect their individual assets, trust and estate, experts say. That’s especially important if both partners have children from their first marriage. While some may want to set up a marriage contract in advance, others may want to take care of their affairs later with an estate lawyer. Deanne Gage looks at why second-marriage couples should set up a mutual estate planning agreement separate from their wills.

How Canada’s immigration goal will drive the growth of residential REITs

Canada’s goal of attracting 1.5 million immigrants during the next three years is acting as a powerful catalyst for the real estate investment trusts that own apartments and multi-family rental accommodations. Although interest rate increases during the past year have battered the sector, analysts say the panic selling was overdone and the future is bright given that demand for affordable housing is already far greater than the supply. The wave of immigration is intensifying the shortages, they add. Adam Mayers gives an outlook for the sector and explores where opportunities exist.

Why this money manager is betting on global food and entertainment giants

While some investors believe a sharp economic downtown is on the horizon, money manager Christine Poole sees some moderating factors that could lessen the pain. “I’m not in the camp of a ‘hard landing’ at this point, unless we have some black swan event,” says the chief executive officer and managing director of Toronto-based GlobeInvest Capital Management Inc., who oversees about $265-million in assets. One stock she’s been adding is Mondelez International Inc. MDLZ-Q, the global snack food company. Brenda Bouw speaks to her about what she’s buying and selling.

Also see:

What makes for a comprehensive estate plan?

Why health care is becoming a growing part of more advisors’ practices

This 85-year-old who’s written several books in retirement relishes being ‘in charge’ of her time

Wall Street titans confront ESG backlash as new financial risk

Over US$1-trillion of risky U.S. loans still shackled to LIBOR as deadline looms

What you and your clients need to know

Mutual fund managers that stand out in prioritizing investor interests

When looking for a mutual fund to hold for the long term, investors commonly consider things such as historical performance (on an absolute basis and in comparison to category peers) as well as fees. Equally important, though, and often overlooked, is having an understanding of the firm that manages the mutual fund, also known as the asset manager. How a firm operates and the way in which decisions are made can affect areas including capacity and risk management, recruitment and retention of key personnel, investment professional compensation, and pricing schemes. Weaknesses and strengths in these areas can affect the longevity of investments. Danielle LeClair of Morningstar Research Inc. looks at top-rated mutual funds from top-rated managers.

Remote work is hurting productivity and innovation, says RBC CEO

The stunted pace of workers returning to the office is taking a notch out of productivity and innovation, Royal Bank of Canada chief executive officer Dave McKay says. The head of Canada’s largest lender made the comments during a conference call to discuss the bank’s first-quarter earnings. While some employers in Canada have mandated that staff work at offices more often, corporate leaders have grappled with employees resisting calls for teams to return to the workplace. “All CEOs in every sector I talk to are struggling with a balance of developing talent, promoting talent, building culture, creating productivity. It’s tough, we don’t have the final model yet,” says Mr. McKay. Stefanie Marotta reports on what the bank is doing.

The government should include a capital gains tax exemption for employee ownership trusts

Seventy-six per cent. That’s the number of Canadian business owners who anticipate retiring in the next decade and must now explore what’s next for their company. With the federal budget just around the corner, the government is in a unique position to help these owners protect their businesses, look after their workers and preserve their legacies with the implementation of employee ownership trusts, in which businesses are essentially sold to staff. As a supporter of the newly formed Canadian Employee Ownership Coalition, and in light of the proven benefits to society of employee ownership, Tony Loffreda urges the government to give serious consideration to include a capital gains tax exemption for business owners in its trust model.

– Globe Advisor Staff

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