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.
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Pension communism is real. You’ll either work for the government and have a pension, or the pension will exploit you for rents to pay public workers.
I really didn’t think low interest rates could push the divide between the rich and poor so wide. I really feel ashamed for thinking it meant people will “save” money on their debt servicing.
That’s okay, champ. Once you realize the system isn’t created for you, and you’re pre-selecting from a group of people who the system has pre-determined they’re comfortable with, you’ll become much better at making money.
None of these policies are designed to help people, they’re just sold that way. Politics is sales, which is why honest people have such a tough time.
Interesting point. I recall back in the late 80s and early 90s, everyone was screaming at then BoC Governor John Crow to lower rates, because high rates were just a “subsidy for the rich”, and were making inequality so much worse. I never bought into that criticism, even back then. As though rich people prefer to just sit there and collect interest, while high rates suppress their real estate, stock and bond holdings. For the small saver however, high rates can provide a safe, secure return. But of course, activists always focus on those who have nothing, at the expense of those who have just a little. Those who have a lot will be fine no matter what.
You people do realize all these policies are BS right? Foreign buyers are just a distraction, anyone with half a brain would know the only way to stop this is to tax people who own multiple residential properties. But no one is talking about it. Banning like 2% foreign buyers wont do anything. Its mostly Canadians who are speculating.
Ding ding ding. The vast majority of multiple property owners, well over 90% are Canadians, Canadian corps and US corps. Who cares about taxing a foreign millionaire who bought a penthouse for their kid to go to school, they aren’t the problem. It’s just the easy media headline despite the fact it promotes xenophibia (ironic that we are allowed to hate the faceless ‘foreign buyers’ but not our neighbour!). Just look at all of the politicians and wealthy middle class who own 5 condos or 3 houses. 5-7 years ago, my wife worked with the former education minister who owned something like 6 rental properties in toronto, plus her own house, plus a house out east. We had an architect in toronto boast to us that he had just bought his 4th house in toronto but had to use an ontario numbered corp so the government wouldn’t find out and combine the properties. Think about how this has accelerated. We’re all a bunch of plebes…don’t forget that.
I think it’s about even, foreign buyers investing in Canadian real estate and millennials in their 30’s and gen x in their 40’s FOMOing but they’re the ones that are going to get the rug pulled out from them the fastest. About 35% of households have paid off their principal and fully own their homes, another 35% are on a mortgage and they’re the ones under threat when the house of cards come tumbling down. The last 30% are renters and will benefit from this.
One or two quarters isn’t a trend — it happens. The problem is when exuberance becomes persistent, without any correction. Fed researchers say five quarters of exuberance is when the market is exuberant.