Canada’s wealthy families have made their fortunes in many ways, often by creating successful businesses that lead to generational wealth. Perhaps most notable are those who have built their empires in real estate and homebuilding.
Among them is Toronto’s Mandelbaum family.
“We’re more real estate-focused than most because it’s our primary business,” says Zev Mandelbaum, president and chief executive officer of Altree Developments. Altree is part of Almond Tree Enterprises, a family office headed by his father, Mark Mandelbaum, which serves as an umbrella for several family enterprises, many involved in real estate.
The family’s business roots run deep. Zev Mandelbaum’s grandfather, Sandy Hofstedter, co-founded the family’s real estate business in the 1950s under the banner H&R Developments.
As the head of Altree today, Sandy’s grandson Zev Mandelbaum is the third generation of the family to find success in this asset class. Altree’s focus remains on multi-family real estate, though it has expanded to include hotels, resorts and condominium developments. All told, the firm has about $6 billion in assets.
One of the goals of Altree is growth. In fact, real estate families often adopt a “grow or die” mentality, in hopes of supporting the family for decades.
“There is a succession problem whereby families often grow faster than their wealth,” Mandelbaum explains. “There’s one rich guy who has four kids, and each one gets 25 per cent of the wealth, and if they each have four kids, you have to earn 16 times the amount of money to be as rich as the first guy.”
At the same time, existing assets eventually need upgrades and repairs, especially for owners of multi-family high-rise rentals that are decades old. Today, families are facing these costs as rental income struggles to keep pace with inflation.
That said, Mandelbaum notes that “asset values have increased more than the cash flow, simply because Canada has a low vacancy rate.”
Families facing upkeep challenges have options, he says. They can sell to a real estate investment trust (REIT) in exchange for shares, which defers taxes. They can refinance to re-invest and increase rents over time. Or they can lever and use the capital to fund other ventures.
Of course, assets can also be sold to a buyer, and that might be family-owned Global Capital Management, based in Winnipeg. It has more than 8,000 rental suites and some commercial assets in a handful of Canadian markets worth about $2 billion.
If your business has grown and needs cash, “and you tell them, ‘Sorry you can’t get that cheque because we need to replace the roof and windows,’ that’s when problems often start,” says Richard Morantz, Globe’s president and CEO. “That situation has led to opportunities for us.”
People who believe in real estate always believe in it even if they’re having a bunch of bad years.
Zev Mandelbaum
Globe’s established strategy has been to acquire multi-family rental buildings, upgrade them and then gradually increase rents over the long term, particularly as former tenants move and new ones move in. Originally founded by his grandfather decades ago, Globe’s foundation has long been multi-family real estate generating steady cash flows.
Morantz, who has three siblings, joined the family business in the 1980s. By the late 1990s, he had bought out his parents and siblings and become sole shareholder.
He also has sought to increase Globe’s ownership stake in its assets. Before Morantz took over, Globe acquired assets through syndication, whereby other investors also held equity in the properties. Its equity stake in most assets was about 50 per cent.
“I’ve been on a program of buying out partners, so we now own close to 100 per cent of the portfolio,” he says, adding that being the sole owner allows Globe to pivot more quickly to market changes.
Part of that strategic shift has been to fund acquisitions on its own, focusing mostly on newer buildings with fewer upgrade requirements.
Recognizing the need to grow, Morantz has also moved into development. After all, he may have bought out his siblings, but now he has three adult children, two of whom work in the business. All three receive distributions and have their own corporations, which manage that wealth as they see fit.
The vision is for Globe to remain in the family and grow, Morantz says. “Every day, [my sons] are more familiar with the business, and we’re looking forward to a generational succession.”
Similarly, real estate remains a family affair for Mandelbaum and his relations. A portion of their wealth is invested in diversified, managed portfolios, but for the long haul, like so many other successful families, real estate remains their foundation and will be for the foreseeable future.
“Real estate is a long game, so even though we are suffering through a couple of years of a tough market, over longer periods, it’s always a good investment,” he adds. “People who believe in real estate always believe in it even if they’re having a bunch of bad years.”
In general, real estate offers stable cash flows, inflation protection and long-term capital growth, says Gavin Reiff, vice-president, real estate advisory, at Richter Family Office in Toronto.
Among enterprising families in general, the typical allocation to real estate is between 10 and 20 per cent, he adds. Those who already have significant holdings through their business ventures may have much less in their managed investment portfolios.
Real estate is an attractive investable asset class, he adds. “On stabilized assets, it’s generally a really good place to park capital and let it grow.”
And because real estate is tangible, people take pride in it, he says. “They like the idea of driving by and asset, and saying, ‘This is our building.’”
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