Interview with Julian Schonfeldt, CAPREIT

welcome to the commercial real estate podcast powered by First National I'm Aaron Cameron of course with me Adam ptic recording live here at the Vancouver real estate Forum as part of our speaker video series like to thank our sponsors appraisal Institute of Canada revesco properties trust and Remax commercial Our Guest for this episode is an individual named Julian shanfeld who is the chief investment officer of Capri Julian thanks for coming on thanks for having me on guys I almost said Julian signf fell and I stopped myself I just hook failed you it's a messy last name yeah no it's my fault um so Julian we were just chatting as we were getting prepped for this you know we've had your um your I guess he's your boss the CEO and president Mark Kenny on a couple of times do the ca story um so we're going to jump into sort of investment thesis you're the chief investment officer so I think this going to be a cool cool story about or cool discussion about investment across the country and apartments and you guys are very active and we'll talk about that SC at scale yeah the most if not one of the most people will argue but I would say the most active apartment investor right now in Canada um in 2024 before we go there there's the hook so stay tuned let's do your background first Julian so just talk about how you ended up in real estate how you end up at Capri how you ended up as the uh CIO yeah sure so born and raised in Ottawa did my school there um I I studied accounting and finance I started out uh working out at um at Price waterhous Cooper uh realized audit wasn't what I wanted to do but I finished up my CPA moved into valuations at uh KPMG really like the the finance side of it more but you know doing valuations for for notional accounting purposes wasn't really that interesting so I switched into uh investment banking at a boutique Investment Bank in uh in Toronto an opportunity came to to work in the real estate investment banking group at RBC Capital markets and so I switched into that and so over there um was working with a lot of the different REITs did did all the Capital Market stuff you know Equity raises debt issuances IPOs m&a strategic advisory all of that fun stuff um covered a bunch of REITs and uh I I covered capr Reed uh spent a lot of time with them we raised billions of dollars of equity with them and advised on a whole bunch of transactions so I became very close and you said my boss Mark I call him my boss my friend Mark um got to know him really well and it was about two years years ago um that Mark and uh Stephen our CFO they approached me and um they asked if uh if I'd be willing to go in-house and so look having worked with them so much and they're great guys it's a great shop it's a great asset class and it it's a very big platform it it was really hard to say to say anything but yes and so about two years ago I joined so I'm the chief investment officer now um I oversee a variety of different groups but you know the Investments Group the Investments Group the Development Group uh investor relations um strategic finance and and the legal group and and here I am today I don't know where I want to go from here now let's let's just let's let's just talk about the transition you had one out RBC ticket to it's a bit of a different approach now when you're actually you're not just advising on the decision-making but you're the one that pulls the trigger for lack of better analogy for For Better or For Worse look H honestly I got a great experience at RBC I got to work with some incredibly smart investment bankers the best in the country I I just had the best colleagues there and I got to work on a lot of fascinating transactions and you know having been there for for 12 years in particular when rates were going down there was just a lot of activity so I got to work with the the executives at a variety of REITs uh touching a lot of very interesting transactions many that went through but many that didn't go through um it was a great experience and and I'm so grateful for that um but for me you know there was something that was lacking in that like there's a difference between advising and doing and it's exactly as you said and so the advising you get to learn a lot but in actually doing and executing on stuff and owning it that accountability I love and so nervous the first couple like uh oh this goes sideways I got nobody to blame but myself 100% but I actually like that like if you own the wins and you own the losses it it's so much more than telling someone else and and it's their their their their blessing or mess to to deal with and so for me it it was uh it's been excellent so far I I haven't had anything go terribly wrong yet so far and we've had some pretty good wins but uh but I'm but I'm loving that side of it like it's EXC it's really interesting and exciting for me so it was a really great P pivot on the career how you asked me how did they take it over there um you know it it it it was tough but I I think most folks realized this was a great opportunity for me and we're we're we're encouraging of it and I'm still in regular contact with them uh they're they're ex- colleagues but they're also friends how much is Art sorry Adam how much is Art how much is math oh that you know that's a good question I don't know it's it's so 5050 right hard to pinpoint it exactly right but like how many transactions have you closed so far in your current role on terms of number I I couldn't tell you exact number but I mean we did 700 over $700 million of deals that was seven Acquisitions the dispositions I can't I couldn't count how many there but and the year before we did about 700 million as well okay so let's so over a billion yeah okay so out of those out of those transactions I mean Acquisitions and dispositions I guess the decision makers the same you're look at the math and you always have the numbers you got to have your performers or whatever it is that you're using to justify how often are you going against what the numbers say because it's just what your instincts are telling you to do you know I i' say it's a two it's a twofold thing like if we're buying something and it's not penciling out with a good irr it's not often that we'll override that and say okay well we're just going to do it because it feels good but you know I where I'd say it's like assumptions and maybe that's the better way to put it you have to make some assumptions that are you're more gut feeling right and so sometimes you might go my assumptions are that this will work out in the end especially if it's further in the future think it's really murky on yeah no 100% and and and you know some of the Acquisitions we we've made like I mean look we bought one uh here in Vancouver not very far far away from here at Commercial and Broadway um it was a high ticket price it was about $1,000 per leasable square foot but uh you know and it was fully leased it's over $5 doar a foot but we just thought that location was exceptional we thought the price we were getting represented a big discount to to replacement cost but when we bid on that that was in October of 2023 when rates were super high now we had a bit of an Outlook that you know we thought that that was a bit of a spike and that they might come down by the time we put the financing in place and uh we just thought you know buying at such a big discount you you know helped with that with that but uh a discount to replacement cost would help with that and uh you you know so so it's a little bit like you look at the numbers and then if you get a really good feeling or if you conversely get a really bad feeling you can you know can give you a little bit more flexibility than just purely looking at the math and did the financing cooperate on that one well you know what funny enough we still haven't put the mortgage on that but the rates have certainly gone down since then but our ability to buy without mortgages it's you know it helps quite a lot and that actually is what helped I think in that deal we ended up uh that that was a really that was a really um tight timeline that was a deal where they said timing is going to be one of the most important things and so we went with uh something pretty wild it was 30 30 days of DD and 15 days to close so we moved really really quick and that was actually pretty helpful because as as you recall the cmhc backlog was really strong back then and so our ability to look at leverage on a portfolio wide basis rather than individual assets gave us the strength to act on that pretty quickly how much of your debt is unsecured no all all of it cmhc insured no we we have a well because the spreads are just so tight right I mean you know on on a 10year GOC to be able to borrow at 90 basis points I mean any unsec like I've never seen un secure B the freedom I think some of your colleagues will will like the freedom and the flexibility yeah but but that pricing is just too too great and I mean from our perspective like we've got a team that does it you know we've got I think about you know over5 billion dollar of cmhc insured mortgages actually you know the majority of it's with uh with First National no no no no Daryl's Daryl's great he helps us a lot be to hear that you're advising a 100% CC client Maybe consider other options correctly that's the yeah maybe just be totally transparently you indicated First National and capr have a long history and and we're closely together so there's some there's familiarity and some comfort I can ask these types of questions knowing that I'm I there's no there's no chance of damaging the relationship so it's a strong relationship so maybe um we you know getting into know specific deals here maybe kind of you know pulled back to the the higher level view uh you've had a major repositioning strategy uh taking place over the last couple years anyway maybe it's kind of cover you know what the overarching goal is from the portfolio aspect and you know kind of why you're doing it yeah so I'll walk back on the history so um you know cap re ipoed in 1997 it's it's become quite a large re now the the history has been raising equity in the public markets going and acquiring assets and and just rinse and repeat and so you know we find ourselves now being the biggest reat by float in the country is A8 billion float where in the TSX 60 you know the story of growing for the sake of growing that's not there anymore you know we're already the biggest we don't need scale anymore and we don't have the backdrop of uh falling interest rates that can really reward just buying as much as you can and so the focus right now is taking the $ 17 billion balance sheet and just working within it and improving it and so what we've been doing is we've been within every Market identifying which are the properties that we think are going to contribute the least to the the the future story and matching that with where there's liquidity and trying to get some raising capital in that sense and so selling there and then buying into new construction properties the portfolio was predominantly a n you know standard 1960s apartment uh type portfolio now some of it's re actually I said the vast majority are real gems iconic properties but there's also some stuff that came along with Properties or that were maybe bought you know not perfectly in the past and so we're looking to recycle out of those rejuvenate the portfolio reduce the capex risk uh you know the the op enhance the uh operating margins enhance the Growth Store story and diversify the risk uh in in doing that do you want to go around the horn maybe just talk about different geographies and kind of what your strategies are across the trusty organization across the the country because this is truly a national View kind ofec I mean there's so many things I mean I the Adam and I it's almost like kids in a candy store right now right because you've got the largest apartment owner who participates across yeah right and we're obviously a large apartment lender so there's just so many different angles I can go but maybe we just do the do let's go East Coast West Coast end here where we are and just kind of talk about how you're you're seeing and approaching different different geographies yeah well so so one of the things actually I did when I came in um was I took a look at all the major markets that we were in and and we took you know we collected a whole bunch of data on every one of them and um we started ranking them against each other and that helped us form views of and comparing that to also like where our allocation of the properties are and you know if we're overweight underweight and then you know what our view is in that market you know should we be overweight or underweight and that's been helping to shape a little bit of where we're more aggressively buying and selling now I will say it's not a grocery store where you can just pick stuff off the shelf and and and you know buy wherever you want you're you're kind of bound to the opportunities that are put in front of you but it does help shape our our our appeti and um you know touching on the point we said before you know the last two years of the the first kind of couple years where we've done significant dispositions and last year was the first one where we were actually a net sellers so it's it's it's been a bit of a shift um so talking about the differ geographies I mean as you mentioned we're we're Coast to Coast we're in all the major markets and some less major markets even as well um going out east I mean Halifax we definitely have a very overweight position but it's a market we love we think the you know the rents are uh the rents are decently affordable it's you know in our opinion my opinion the one of the most livable cities in in the maritimes and where it's going to attract a lot of folks to go and and uh and live in there too so is that an is that a geography where you're looking to kind of do that absolutely absolutely so well I I I'll tell you we haven't actually launched anything for sale like you'll you know it's not hard to see where we've have listings or anything we don't have anything for sale in Halifax um it's not a market that we're going to look to be selling and we we you know we're that bullish on it and uh yeah we bought one last we bought one last year you you know you'll likely see some more stuff com into our portfolio there as well we like it the rent regulations are are are are reasonable it's 5% on renewals and and you're free to do as as as you wish on turnover so you know between very strong fundamentals a decent regulatory environment and good prospects going forward we we like that market um you know conversely Prince Edward Island's a market where they came down really hard on uh on the rent regulations and it made you know made it really hard for for landlords and so you saw us selling in there and uh you'd be hard pressed to see us buying anything in there but they they the rent can't increase on turnover and they last year they pegged the the renewals at 0% so the entire portfolio is at 0% but I can tell you the wages we're paying there don't grow by by 0% right yeah it it it makes it exceptionally tough and I mean that's why it's funny but you know in that Island our occupancy I think the last published occupancy we had was 100.0% which is you know hard to imagine that that you know that that's sustainable um you know Quebec we have a very you know very large portfolio out there um it's it's an interesting Market um you know there's there's some tougher things on the fundamental side I mean the housing's a little bit cheaper um the the you know the forecasted population grow maybe a little bit lower than some of the other markets we you know given the overweight position that we had we were a net seller there um and we we have done uh quite a bit of selling Ontario we've got a very overweight position I mean you know we're the only Reit with meaningful Toronto portfolio and um when you look at it by value it's over 40% of it but actually that's been that's been that's worked out exceptionally well for us the fundamentals are fundamentals are amazing there I mean the housing costs so so is intentionally overweight then in Ontario is that the yeah that that is it um we do like the exposure there the rent growth has been has been strong and we've been rewarded for it and that you know as as I was saying the pop like it's in is the city of Toronto and it's where population growth is going to be strongest very hard to develop uh the housing costs are very very very high which is going to bring bring folks in in into renting Vancouver at the Vancouver real estate forums let's not do too much but I mean to support the Toronto argument you know the financial epicenter of the country you health Happ center of the country there's so many different economic drivers economic centers that ultimately no matter what you think or believe about Toronto center of the universe well no I wasn't saying that there it's a very diverse economy and so it will inevitably always attract a lot of people a lot of talent yeah you know and the fundamentals of apartment owning uh outside share of immigration yeah will will will inevitably be strong yeah for the forceable future yeah and L London and uto we like we like the fundamentals there as well I mean London we just closed uh we just closed $130 million acquisition uh in London at Fon Wonderland you know beautiful property we bought that for $385 per per leasable square foot for a luxury concrete building so kind of thought how could we go wrong with that one it's got to be one of the biggest transactions of the year in that market yeah for sure for sure for sure we're really really happy with that one we think we got exceptional pricing and it's a beautiful beautiful uh property um you know going west in the Prairies you know the markets are a little bit smaller in in Saskatchewan Manitoba so you you know it's not ones that we focus too too much on I've got a couple properties in saskat but that that's about it and you know Peg of course which would be the center of the Prairies you know I went so we don't own anything in Manitoba I did go there to scope the market out and look at a bunch of properties but it was just on the fundamental side it it it was hard for us like you know the vacancy was a bit higher the incomes are a bit lower uncertain how much population growth can be attracted there and uh and um yeah yeah just it it didn't score super high for us no it's on a market you're tied to um you know we were talk about real estate being a boots on the ground industry if you're not there and you don't you're not tied to it cuz there are a lot of people that that believe strongly in the Winnipeg market and are very active some of your your counterparts and colleagues right um but I'm not surprised to hear you say it's tough to make the decision to go long because it's a cold start there yeah it's not the kind of thing you kind of go in and go after a couple years go you know what never mind I'm G to get out like you're once you do it you're you're done yeah that yeah exactly um and then you know Alberta and BC are very interesting for us I mean uh in particular Calgary you know we've got portfolios in Calgary and Edmonton but it is one that we're underweight um and and we we'd look to increase it I mean the the rent control environment is great the population growth there is great and we you know we think it's a good good environment to be in um and and BC were also have a strong outlook for it I mean last year we did about $200 million of uh new construction apartment Acquisitions here I that's got to have been the largest one in in the province and uh you know we're still very excited about continuing that pace going forward we think the fundamentals here are exceptional here in in BC is it um predominantly new build stuff that you're looking to buy absolutely it's almost exclusively I would say almost exclusively yeah like I mean we'll we'll we'll keep an open mind to to anything but you know as we go on this mission of uh rejuvenating and increasing the portfolio quality that's where the focus is for us right now it's also um the Dynamics of the market right now are also favorable towards that and so so a lot of these Merchant developers will use high leverage variable rate uh debt and so you know for there are some that are feeling a little bit of pressure from the the from the high interest rate environment and so um we're finding that we're one of the few biders out there and you know one of the only ones that are able to you know pay decent pricing and so we do get a I I I feel that we're getting a look at pretty much everything that comes up and there's there are some you know compelled Sellers and so I I do think we'll be able to Source out some good opportunities here is that space you always hear about um the merchant Builders it's usually one of the large rats would be the potential buyer how competitive is in that space if you see somebody uh you just capping out a building you think it's time to just step in um who else are you up against in that space to buy that product yeah on the re so look you don't always see again who you're bidding against and and so that another big partner of ours active in that forward sales Bas yeah exactly kum's in there too right we we we just chatting with uh with Phil Fraser yeah skyline's in there I mean I think dmer is in there start yeah yeah but no so so you're saying a lot of the names there I I'd say the competition from the reach side has been a lot more mild in this market I mean we're you know everyone's trading below the below the navs um and and don't you know a lot of them don't have the ability to raise significant amounts of capital to make big bets like that and so um while all all those names are are are around there I do find that our position of having you know sold through assets and and short up liquidity and and also having a pipeline for future liquidity from the decisions that we have going on right now um you know puts us in that position well yes there are other people looking around it but I I you know I'm not constantly getting beaten out by uh by any one of them and I do feel like uh for the most part if it's something that we want in this current market in this current time we can usually get a pretty good stab at it um vacant or fully occupied so we'll we'll we'll look at anything but there's a strong bias towards fully occupied um in terms of that's curious because that's the opposite of some of your colleagues that they want to do the leing part of their sace so no we do prefer to do the Le leasing or at least to have control over it because like we have had some Acquisitions where um these Merchant developers will put anyone in there to pum pump the rent up as much as you can ab absolutely well and at the highest rents possible right and so they can relax those criteria um for us there's two things one a lot of the pro a lot of the Acquisitions that we've done are repeat business so we we have a relationship with them so we know if it's going to be an issue or not I'd say I think pretty much almost everything that we bought last year was one where there's a historical relationship so we have a bit of cover in that sense um but you know we'll usually put terms in there that we have to approve the leases or the lease up so you know we'll go through a DD period and then you know they'll have to hit a certain leasing threshold but we have to have approved every one of them you know not to be unreasonably withheld but um we do keep maintain a little bit of control on that but it does help us uh der risk it a little bit but that said we also buy buildings and Lease up too so we've got a really strong National platform so when we're underwriting an acquisition and underwriting the time it'll take to lease up and the rents that we'll get we usually have a pretty good level of comfort there so it's not something we're you know too scared to do you've got um three different assets all same size same vendor doesn't matter all identical let's call them sister assets but one's in Toronto one's in Vancouver one's in Halifax for fun okay okay uh and you got to buy one do you have you can't buy all three Julian okay you got to buy one that was his first answer do you take different yield expectation approaches depending on where it is you National and scope yes shareholders across country do you approach different geographies and different yield expectations 100% I mean you you picked three cities there um they're they're all exceptional cities like you know they're all cities we love to be invested in you know I'll take all three but no if you're going to make me pick so so look the fundamentals are really like those are all three cities that we that we would Target um Toronto and Halifax we are quite overweight and so you know just on that all L equals I mean Vancouver might be one where we'd push a Little Bit Stronger Just to to to get more exposure in there um you know in terms of the the other the reads you know we're the only one with a meaningful Toronto and and frankly Vancouver portfolio and I mean that when you think about the housing crisis um you know that that's where you would think of it as Mo most acute and so and you know again the MTV are the three largest cities and we've got great presence there but yeah Vancouver albeit we have a pretty nice portfolio here wouldn't mind adding a bit more I I want to add a fourth option then on the table uh buying your own Reit units capitalize on that discount to nav how does that Stack Up up against investing in any of those cities so you know whenever we're doing an acquisition we're always comparing it to the alternate s uses of capital and so you know that that could be primarily now that's repaying debt or buying back our shares right and so um we're trading at a significant discount to our nav and we you know we do our best to to portray the most honest view of our nav so so it is actually a relevant Benchmark in our case I wouldn't say for all reachs but for us we we we do have a lot of faith in there and we're actually quite transactive so we do believe in it so you know with our nav just over $54 um when our Shares are trading at a significant discount um in a way it's one of the most safe Acquisitions you're buying at a cap rate in an irr that's far higher than anything else you could buy and there's no due diligence period you're buying your own assets I mean what you really know what you're getting into there so it's been a powerful tool we've done over $300 million worth of it uh since we started doing that about two years ago around the time I I joined and uh it's been very attractive for us like we you you know one of the ways I frame this sometimes is we're selling um you know we would call our least desirable assets right and we're selling we've sold those all at or above our IFRS navs so if I you know so we're saying our our navs $54 if I'm selling at a premium to that it's akin to raising Equity above $54 so I the way I'm raising Equity at $57 $60 and then I get to buy my shares back at $45 while improving the portfolio quality because we're getting rid of of the least desirable assets and so for us that's been a really you know powerful tool to increase value for our shareholders I wonder if anybody listening to this who bought one of your assets hates to hear it referred to as desirable assets well yeah there still misalignment in goals it's not to say that they're Bad Assets justos yeah no no um let's let's talk about just investment or sorry development thesis you've got a ton of additional land um I think you you you you've indicated you're going through some entitlement process ESS but you you guys are not active developers talk about that logic yeah so capr hasn't had a history of developing there's been a lot of different uh chatter about it over the years but so you mentioned it correctly in in you know we've got a huge portfolio here in Toronto um Toronto's where the the land values are the highest and and uh a lot of these portfolios were acquired in the 60 or built sorry in the 60s and70s and we're you know we're built with uh you know vacant adjacent land be a patch of grass surface parking and stuff stuff like that but you know not the highest and best use in the current market and so for us surfacing that value is is uh something we need to do for our shareholders but um but uh in terms of developing it right now we're buying assets at significant discounts to what it costs to build so why would we build into that when we can spend less money um buying the assets that are already developed with no development risk and already leased up with no lease up risk at at a discount and so for now we're focusing on going through the entitlement process um to maximize that land value and we've got a couple of uh a couple of projects on the way our 33 Davisville uh our 141 Davisville where we've got about 300,000 approximately 300,000 square feet of uh developable uh properties on each one of those sites and uh over 2 million square feet that we're applying for at Young and Steels as well and so we're we're we're right now just focused on the entitlements whether those lands get sold or something else happens you know we'll cross that bridge when we get there but in the current environment I think we'd sooner sell the land rather than build a property um for higher cost than we could than it would be worth in your portfolio in the last couple years obviously you've cleaned out a lot of the older product brought in a bunch of the new is part of the consideration there um ESG driven is of course you now have a much more energy efficient portfolio just by the nature of owning assets that are 3 years old rather than uh 50 years old yeah absolutely so with the new buildings they're definitely a lot more green than than some of the older ones and we we think that's a we think that's a great attribute of them you'll have buildings with uh high efficiency boilers or not even or not even having boilers relying on uh heat pumps uh will will be uh F having far more submetered so you'll get a lot more responsible usage from the tenants um and and that's a twofold thing I mean it it helps with our contri we're a public company um you know ESG matters to us it matters to us as a company but as as people underneath as well but it also helps with the returns because you know we everyone saw what happened with Nat gas over the last couple of years and so you know if you can reduce um your exposure to those by having more um ESG friendly buildings it not only it helps you know with us contributing as Canadians to being uh environmentally sustainable but it also helps um with reducing the volatility of the of the utilities uh line item on on the noi I I'll also say actually in a lot of cases CH some of the Acquisitions that we've done the because of the environmentally friendly element of it they qualify for the mli select financing which um you you know helps a little bit as well on the on the return side too we got to go to affordability of what we're talking about s ESG it's part of the S part um you mentioned M select and qualifying for the M select program I know you've also qualified for that program using affordability and maintaining your rents as affordable it's one of those things as a as a for-profit public entity you have a fiduciary obligation to your shareholders to ensure that you're you know maximizing profits but you also are a major public entity one of the largest if not the largest owner of apartment buildings across the country you have a social obligation to help house Canadians and are part of the solution for this for this housing crisis we find ourselves in we would just talk through what the conversations are like in the boardrooms at capr about how you guys can approach helping house Canadians across the country yeah you know that that's very important to us I mean we do have an obligation to earn a return as you said but we're also all Canadians we all have family members and friends and you know we we're seeing what's happening with the housing crisis it it it's one of those things we get targeted as a big Reed or big bad coroporation you know different different uh different labels there yeah Laura yeah lord of the lands there yeah no uh rental housing provider and we're we're so so we get painted with with a bad brush there on that by a lot of folks but in reality we think we're one of the most responsible ones we you know we have public financial statements we're transparent as we disc we just discussed ESG is very important to us we treat our staff very well we have reputational risk like you know the glorified mom and pop owners they don't have that reputation risk and that's where you see that bad behavior you see the ren evictions the outsized renewals um you know not doing repairs treating treating the tenants poorly like we you know a we wouldn't do that you know we have a really good culture in the company but we couldn't even do that and so you know some some of the rhetoric against the re is is really completely unfounded but um you're not there just to squeeze every last penny out of the the unit we're exactly we're there to earn returns but we treat our we we take our responsibility of treating our tenants very uh very fairly we take that very seriously and um you know as it comes to affordable housing we have a lot of social housing units throughout our building um we measure and refrain restrain our eles when we're uh issuing renewals we um we're also acquiring and we have uh buildings that are under the affordable programs through the merp here in Vancouver the one we just bought in December U the mli select uh financing affordability program and so we we're proud to have that in the portfolio and that is something that does get discussed at the board level and again is something that I think distinguishes us from some of the smaller private ones this is something that matters to us it it's you you know we do as you mentioned have the obligation to generate returns but at the same time you know we do want to be good um you know uh good rental housing providers and good Canadian citizens we're uh debatably into the next cycle or the next cycle starting soon how much of your positioning a strategy now revolves on trying to capitalize uh heading into the next cycle or is your time Horizon larger than uh you know the next kind of 18 months when you think about these decisions so we'll deal with whatever cycle we we're in and we'll do whatever it is is to increase the portfolio quality enhance returns and and and ultimately do best for for our uh unit holders but you know my view of the current landscape is it's a it's a favorable one for us to be within we have liquidity we have size and scale and you know we're chugging through dispositions that continue to feed into that liquidity and we're not seeing as much competition when it comes to acquiring properties and so it's kind of what I was touching on before you have the developers um that built and and have debt to pay off and and higher uh higher rate variable uh debt and then we have uh you less competition on the buy side and so for us this is a great Dynamic so um how long do I think it lasts I think a lot of it's going to be tied to you know interest rates and how long they're higher so I think it's a bit a bit of well how long do we think rates are going to stay elevated yeah but it but it is it is actually a fun environment to be to be in right now having capital and having uh you know more more motivated Sellers and not having that much competition you know my my good feeling is how long does this last I don't know 6 12 months but for now uh we're looking at everything we look at we look at around 300 Acquisitions a year um we put out Lois I'm I'm I I feel like I'm traveling every week somewhere and and and looking at properties and uh you know I'm I'm hoping it lasts longer but we we we are we do want to take a a bit of an aggressive stand and and be able to look back and say hey during that time of that tumultuous time we uh we we were able to capitalize and buy some real gems at that prices that that uh represented again great great discounts to the cost to build and are going to generate our shareholders great returns you mentioned uh motivated sellers um any distressed sellers like how how motivated are they for some of these deals you're seeing we've seen we've seen a range we've seen a range like I've seen somewhere the they just you know they won't sell unless they hit their you know ridiculous number we've seen some where they you know they could really use the money to pay off some debt and and uh or or or you know reallocate to other priorities and then we've seen a few where they're pretty much we have to sell and you know that they're their backs up against the wall but the the distress hasn't been extreme um you know selfishly love to see just a little bit more so we can pick up some more great properties but uh but so far it's been it's it's it's been a fine Market it hasn't been extreme in either way one of the things and we're running out of time so I I'm we'll wrap it up I got a couple more questions at least one more when I say the word posit POS leverage excuse me when I say the words positive Leverage What does that mean to you okay well so I mean I think the conventional way means that your cap rate's higher than your cost of debt um when we look at the Acquisitions that we did last year and are looking at now the cap rates were in and around the four to 4 and a half% range and when you look at the cost of borrowing it was in within that range right and so did we have positive leverage no but you know within new construction properties that we're buying there's a couple things that are worth noting so one is the capex burden is significantly lower not only on a perd door basis but the fact that the doors are worth so much more um you know we're trading I'll say about three or four Suites of the value add the older stuff to buy one Suite um and the capex per door is a fraction of what it was on the older ones and let alone the fact that one door is replacing four so the capex burdens are significantly lower and um um and the rental growth and and you know th those are what helped the story so we you know we don't need to have um a strong positive leverage to make a good return out of it and that but I think maybe the key there and I like that that's a great answer that's one that I've I can actually understand and follow sometimes I just hear say well but in 15 years it'll be positive so don't worry about it um you are replacing those assets so your capex burden is down I I I guess the challenge I'm still having and just correct me if I'm wrong maybe it's just as a lender brain in me the ultimate irr though does that still pencil it doesn't pencil out necessarily on day one or do you have to bring in the fact that you've got that disposition kind of tied to that acquisition no for us like the way we look at returns it's the income yield and also how much the property appreciates and value and the noi grows in there right and so um years 10 years we tend to look we look at 10year models like we we're a Perpetual holder right um it's a perpetual vehicle it's a read it's not a 5-year fund and so we have the ability to look out longer I mean anything longer than 10 years and it's nonsensical really right but so we tend to look out 10 years and we we factor in the income we're getting now but also the value appreciation right so how much is this going to push up our nav and how much uh how much income are we getting out of it and so you know that's a fortunate position for us and it allows us to to to buy into stuff that you know maybe others might not be able to if they're purely reliant on the income on day one and it's a big enough portfolio as well like I mean that's 7 billion um and and you know our Leverage is really modest it's responsible at 40% Mo you know most folks are are are are quite a bit higher than that um it allows us to you know when we're doing individual properties to like I said we can buy some that are unlevered and not have to focus on on on that and same thing if the the cash contribution is not perfect on day one again it's a big enough Perpetual vehicle that if we think that there's going to be good value appreciation that that we can make sense out of it and maybe putting words in your own mouth taking a 10,000 ft view when you go to bed at night you've you've replaced older 1960s circuit units with newer brand new builds and so ultimately the portfolio is changing and evolving into in a positive way yeah that's exactly it right and so um it I I I do have to say I mean there is a lot of 1960s buildings is 1970s all that that we love like iconic locations 80% of the marketplace is those units right right right exactly but that but but but that's exactly it and and what's remarkable is if you look last year at the the you know we sold at just over $400 million and we bought uh just over $300 million worth of properties the stuff we sold was actually at lower cap rates than the stuff we bought so when we were swapping you know property for properties you know sweets for sweets we were actually improving our noi and our and our ffo while at the same time improving the portfolio quality so it was it was a really good Dynamic for us like usually usually when people are enhancing quality of portfolio the earnings snc but in our case it's actually marginally going up while improving it your properties are coming saying I can get these rents up I can get rent appreciation I'll pay a three and a half cap because in three years when I get the rents rolled over I love they show up at year wait a minute 20% year capr was not managing that property well and so that's why you're rolling that rents yet yeah well it well it's not that we're not managing it well they just man they I and and it's funny because we'll sell at these lower cap rates or these lower irrs and you know the questions I get in the investment meeting like who's buying that who's paying that that doesn't sound logical why would they do that and I said well they're just in it a little bit differently and they may be a little bit more aggressive on some approaches they may spend less on capex you know candidly they may just not prioritize the tenants in the same way as we do and that that's what irks us a little bit about us being painted as the as the bad rental housing provider right you're not allowed to sell anymore that's the maybe uh maybe last question go what's the most interesting thing you heard at the conference today um well you know as we talk towards the about the crisis uh some of the interesting work that's being solved to do being uh done to solve that um you know I like what what they've done in BC I mean the the talk about the RPF has been pretty interesting I don't know yeah yeah and I don't know if if anyone caught that but we sold uh 108 suets out in Langley to them um that closed very recently and uh we got to work with uh with with Katie and and team and the New Vista nonprofit organization and we thought that was a we thought that was an exceptional uh transaction for for cap re for the RPF for n Vista and and for uh for BC residents so you know that that's a really fascinating uh uh program and opportunity there uh selfless plug we've just had Katie Mas lishko on the president of the rental protention fund so either it's coming soon if you're listening to this or it's already been released and go and download it and listen to that episode not sure what order but either way it's coming or it's out thanks very much Julian I really appreciate you taking the time um great topic always it's our favorite of course with the uh the approach to to Apartments across the country um like to thank and fora for hosting us here at the Vancouver real estate Forum as part of the speaker video series um our sponsors of that video series appraisal Institute of Canada revesco properties trust Remax commercial and of course the first national for powering the podcast thanks again Julian appreciate it thanks for having me on guys

Channel: TheRealEstateForums

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Keywords: Real Estate Forums, The Real Estate Forums, Canadian Real Estate Forums, Commercial Real Estate, CRE, Canadian Commercial Real Estate, Real Estate Conference, Commercial Real Estate Conference, Real Estate

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Length: 39min 51sec (2391 seconds)

Published: Thu Apr 18 2024