InFocus: Real Estate Investing

What properties offer the greatest ROI?

What properties offer the greatest ROI?

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It is really all about residential, here in Canada and in the U.S., and with the current frenzy of building going on north and south of the border, that window of opportunity to invest is closing fast.

Some 40 years ago, there was a wringing of hands and gnashing of teeth among landlords and investors when rent control measures were introduced in the 1970s, slowing new apartment builds to a snail’s pace. But that distant pain has provided a lot of present gain for REITs as those crumbling properties have generated a demand for new apartment buildings, and rich opportunities for investors.

“In our prime, we were building 50,000 to 60,000 apartments a year as a country. It slowed to a trickle since the 1970s, but now it has started to pick up quite significantly,” says Greg Romundt, the founder and president of Centurion Asset Management Inc.  “I see no reason why over the next 10 years we couldn’t build a few hundred thousand new apartments across Canada.”

Those gigantic numbers may take some by surprise, but Romundt frames his estimates with the current building frenzy in Canada’s largest city.

“That may seem like a big number,” he told WP, “but when you see how many condos are being built in Toronto, it is not that big a number.”

Analysis from the Royal Bank of Canada shows that investors looking for long-term returns would be better off with REITs than condos, comparing returns in Toronto and Calgary, Alta.

RBC economists found that from 2008-2014, REITs produced more than double the annual returns than condos (comparing returns from condo markets with two real estate investment trusts which own condos in those respective cities).

That demand for apartment rental buildings can be seen in Toronto, says Romundt, who dismisses the argument that new condos are eating up potential renters here in Canada.

“If you decide to rent a condo, don’t bother to unpack your bags,” says Romundt. “Because the guy who rents you his condo may decide that he wants it back to put his kids in it or wants to sell it – and you’re out. You don’t have security of tenure. And if you are renting from a guy in Hong Kong, and something goes wrong, who do you call?

“I do not believe the condo market is the solution for rental needs,” continues Romundt. “For anyone who wants to make renting a lifestyle, they need to live in a professionally managed apartment building.”

The flip has all but flopped

It wasn’t long ago that the craze to find older properties for a quick fix and flip were all the rage. That has changed, says Romundt.

“Given where interest rates have gone, they have driven the price on existing products to very high levels,” he says, “even for old stuff requiring a lot of work.”

Romundt says that Centurion used to do a lot of business to find properties that were tired and underpriced, and through a little bit of what he calls “spit polish” create some value.

“That is much, much harder to do today, because more people are trying to do that,” he says. “So we’ve found a lot more opportunity in the new construction properties. It is just a question of relative returns.”

That potential for new apartment construction of several hundred thousand may even seem conservative, given that the vast majority of the current apartment building stock was built during the prime years of apartment building (1950-1970).

And then there is the vast potential of the senior market, which will certainly prefer the convenience of apartment living, says Romundt.

“For a lot of seniors, the apartment rental option is the option of choice,” he says. “Any service issues are taken care of with a simple phone call, as opposed to debating with a condo landlord over who is responsible for a leaky faucet.”
 
Tomorrow: Luxury and service – the evolution of investment
 

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Centurion Asset Management Inc. is a Canadian asset management company offering a growing portfolio of real estate investment products.  Centurion Apartment REIT owns and operates multi-unit residential apartments and student housing properties in Canada.  Centurion Real Estate Opportunities Trust is a unique product that provides investors with exposure to a diversified portfolio of mortgages and real estate development.  Centurion has the expertise, infrastructure and resources to deliver end-to-end real estate solutions.  Centurion is opportunistic and innovative, using a value-oriented strategy to make responsible and intelligent investment choices with a goal of delivering monthly income, capital growth and capital preservation.