With the real estate market maintaining its head of steam, there is one investment vehicle that is rising right alongside it – except for one thing.
That one thing? Having to deal with the hassle of tenants and maintenance headaches.
Investment properties offer a lucrative return for those who choose to become landlords, but many investors steer clear, seeing the pitfalls of being tethered 24/7 to their properties and the problems that can come with them – which can make private REITs the popular choice for investors.
“Investing in a private REIT is the closest thing to actually owning a direct property, removed from the volatility of the stock market,” says Matt Barnes, associate director of sales at Centurion Asset Management Inc. in Toronto, Ont. “It is a step removed from the headaches of managing direct ownership real estate while receiving income from the properties. It also offers diversification and access to economies of scale.”
The private route Centurion’s investment team to ignore what Barnes characterizes as “the noise” surrounding asset management, citing the difference in returns from public and private portfolios as the proof in the pudding.
When the 2008 financial crisis hit the financial markets, the TSX was down 33 per cent, the Canadian REIT index was down 38 per cent, and some publicly traded REITs down almost 50 per cent.
“However, those who had added private real estate investments to their portfolio had a much different experience,” says Barnes, pointing to the ICREIM/IPD Canada Residential Apartment Property Index (TR), which was up 6.4 per cent that same year.
“Public investments can have extreme and lengthy divergences from their underlying fundamental value,” he says. “This stands in stark contrast to private real estate that is rationally valued based on its fundamentals and where the larger private market is trading. The public market noise has little impact.”