Canada’s largest bank might be your landlord in the not-so-distant future… if they aren’t already, at this point. The RBC Global Asset Management (GAM) Canadian Core Real Estate Fund entered into an agreement to buy half of a real estate portfolio from Quadreal this week. The deal comes as more investors are crowded out of the bond market by central banks, resulting in yield chasing through alternative asset management.
RBC Fund Scoops 50% of Another Quadreal Portfolio
The agreement was announced yesterday, with RBC expanding its relationship with Quadreal. In this round, they’ll buy 50% of a $1 billion Quadreal property portfolio. Real estate firms tend to hold multiple portfolios of property, to separate investor interests and financing. This stake being acquired, consists of 12 core properties, located in Toronto, Vancouver, and Edmonton. About 70% of the properties are industrial, and 25% were multi-family residential — a fancy way of saying apartment rentals.
The deal isn’t the first RBC GAM has struck with Quadreal, it builds on an existing relationship. Quadreal is the real estate arm of BCI, the pension managers of BC’s public service employees. RBC’s GAM division now has over $9 billion in property partnerships with BCI.
Rental Yield Is Replacing Low Bond Yields
The trend of institutions chasing yields through real estate investment has been expanding since the Great Recession. Bond yields were cut below the rate of inflation, forcing fixed-income investors to seek a “hedge.” Now alternative investment funds are flush with cash, looking for relatively safe regular income.
Investors have two options — they can lend capital in the bond market, and receive interest payments lower than inflation… or they can borrow that cheap capital, buy property the government will work towards protecting the value of, and charge tenants rent, that grows at least the rate of inflation. Which one would you choose? Exactly. The increase in property value is also an added bonus.
It’s explained very concisely in RBC’s marketing material: “Operating income providing yield that is linked to long-term domestic inflation.”
Institutional Investors Are Increasingly Buying Residential Real Estate
US mega-investment firms like Blackrock and Blackstone have been the subject of criticism for similar moves. There are abstract issues, such as well-capitalized and influential investors easily slanting the system in their favor.
More concrete examples include evicting tenants at a much higher than typical rate, according to the US Federal Reserve. Evidence also exists to show they’re more likely to abuse the system to make tenant lives more inconvenient, in an attempt to replace lower-paying tenants with deep-pocketed ones. Being managed by investors across the country, looking to extract the most profit from a tenant as possible, tends to be a little more emotionless than mom & pop landlords.
In Canada, the rise of institutional landlords has been mostly under the radar. Public pensions have long dabbled in real estate, but only recently started looking at the residential market. As long as cash is cheaper than inflation, expect the trend to only get bigger.
Like this post? Like us on Facebook for the next one in your feed.