The right approach to real estate Only three of 41 publicly listed Canadian REITs have seen positive year-to-date returns – so what’s the best way to invest in real estate right now?
AS CERTAIN sectors of the market begin to recover, many are still struggling with the effects of COVID-19 – perhaps none more so than real estate. According to REITReport. ca, out of 41 publicly listed Canadian REITs, only three have had positive year-to-date returns, and the majority have seen returns plunge into the negative double digits. What makes these negative returns even more interesting is the recent positive trends in the Canadian housing market. Late August figures from the Canadian Real Estate Association show that national home sales were up 26% month-over-month, and
“I think an important thing to look at is that there is a difference between real estate assets and real estate funds,” says Cliff Fraser, chief business development officer at Equiton. “Sometimes real estate is looked at as one big blob, regardless of the type of fund or what the asset is actually is.” That grouping of real estate under one big umbrella might explain some of the negative headlines surrounding the space. However, Frank Lonardelli, CEO of Arlington Street Investments, says that while many sectors of real estate have taken a beating, others have flourished.
“There is a difference between real estate assets and real estate funds. Sometimes real estate is looked at as one big blob” Cliff Fraser, Equiton July sales were the highest of any month in history. That likely has many investors wondering how they can best capture returns in the sector. Even though public REITs have struggled, opportunities can still be found, but it’s crucial for advisors and investors to understand the different areas of real estate.
“I would argue that multi-family [rentals] are worth more on any valuation point postCOVID than they were pre-COVID,” he says. “It is one of the only areas that hasn’t been affected as much. The market will be more challenging moving forward – people will have less disposable income to make their
first home purchase, so they will have to rent longer.” Fraser has noticed this trend as well. “Broadly speaking, apartments have done well in the last two quarters; industrial has also done well and certain parts of commercial, whereas hotels, congregate care, office and retail haven’t,” he says. “There are a few reasons for that, but it really comes down to understanding the sector. Companies that couldn’t figure out their e-commerce have figured out their back office and are drop shipping. Data centres and data providers, with everyone living one Zoom call at a time and working from home, are more important now, too. These, plus the Amazon fulfilment centres in suburban areas, will create opportunity on the industrial side.” While Lonardelli also sees potential in industrial real estate, he believes it should be approached cautiously. “I think the Amazons and distribution hubs across North America
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