It’s nice to be nimble in real estate investing, but Canadians are learning that size and scope – and a tolerance for risk – may be the key to taking advantage of distress in the United States commercial market.
There’s been no shortage of confirmation of this trend, as Brookfield Asset Management seems poised to win the battle for bankrupt Chicago-based mall owner General Growth Properties, and RioCan, the country’s largest REIT, continues the U.S. expansion it launched in 2009’s fourth quarter.
However, it appears to be a game mostly for the big players. Small- to mid-sized firms do not seem to have developed an appetite for dipping into the U.S. market. And if the spirit is willing, the complexities of the U.S. downturn present a unique set of obstacles, Canadian real-estate professionals say.
“Investors are looking for comfort in some signs of recovery in the U.S.,” says Milton Lamb, chairman of the national investment team for Colliers International and one of the authors of the firm’s periodic investor-sentiment survey.
In the most recent survey, released last week, Canadian investors say their home country offers the best risk-adjusted returns because of the strength of the market. “The flip side is because of the dislocation in the U.S., there’s greater opportunity for greater returns – and they’re demanding a risk premium for that,” Mr. Lamb said.
Mr. Lamb says Canada’s major pension funds are “actively investing,” buying directly or through joint-venture partnerships. Real estate investment trusts, or REITs, are also active, and the major life insurance companies, Sun Life and Manulife, have such significant U.S. business “there’s no reason they shouldn’t” buy U.S. properties, he said.
American investors, in Colliers’ global survey, have pegged the U.S. market to be at its rock bottom. But Mr. Lamb says that’s not enough to sway Canadians. “Our natural inclination is we’d rather buy just as it’s coming off the bottom rather than try to buy exactly at the bottom.”
George Carras, president of tracking firm RealNet Canada Inc., says a couple of his clients are focusing on apartment buildings in the U.S. because, they say, cash flows are more stable than those of office, warehouse or retail properties.
The “deep pool of investors” who acquire Canadian apartment buildings keep prices high and yields low, Mr. Carras said, and his clients see opportunity for higher returns south of the border.
Otherwise, “I have clients who had gone to the States who have returned to Canada,” Mr. Carras said. “They view Canada as stable, while those who are going down to the U.S. are opportunistic.” [Read More]
