Historically, many Canadian family offices amassed real-estate exposure through familiar markets and asset classes, often holding real estate tied to their operating businesses (such as industrial or retail properties). But higher interest rates, changing economic conditions and increased operational complexity are prompting many to rethink that approach.
The shift is creating a divide among family offices: Some are staying with familiar strategies, while others are looking beyond their traditional markets for different investment opportunities.
You have legacy family offices with generational wealth and long-established real-estate holdings, and then you have newer family offices created from recent business realizations — often tech exits. They approach investing quite differently.
Braiden Goodchild, vice-president, Capital Formation and Strategic Transactions, at Equiton Inc.
Although families have traditionally adhered to segments that they’re very comfortable with and knowledgeable about, that approach does not always result in the ideal portfolio construction and may lead to higher concentrations in development, industrial, or other asset types, Goodchild says. Now, he continues, more families are taking a hard look at opportunities outside their area of expertise and are looking for experienced partners to collaborate on those investments.
A changing real-estate environment
“Real estate generally delivered returns that outperformed for a long time coming out of the GFC [Great Financial Crisis],” says Goodchild. “Development was often associated with private equity-like return expectations, income-producing properties benefitted from near-zero bond yields, and headlines across residential generally espoused home price increases above inflation.”
But since 2022, as financing costs rose, cap rates moved out, and more development projects struggled to get off the ground, many investors have questioned the value of having real-estate holdings in their portfolios. “Is it supposed to generate private equity-style returns?” Goodchild says of their questions. “Is it an inflation hedge? Is it there to provide tax-advantaged income?” The answer, he adds, is probably somewhere in the middle.
Goodchild believes many families are recognizing real estate’s potential to provide income and contribute to long-term portfolio growth, although outcomes can vary and are subject to market conditions. “Historically, some investors have viewed real estate as a longer-term investment approach with return characteristics that may differ from those of equity markets.”
Many clients are reassessing their holdings and changing where they invest, he says. One area that’s seen a lot of interest is the multifamily sector: Residential properties designed to house multiple households under one roof. “Housing is fundamentally different because people always need somewhere to live,” says Goodchild, adding that despite changes to immigration policies in recent years that have reduced the number of entrants to Canada, the population is expected to continue growing in the coming years.
With Canada continuing to experience a severe disconnect between housing demand and rental supply, the need for more apartments creates what Goodchild feels is an attractive investment window. “When you layer population growth over a collapse in future supply, today’s acquisitions could look very attractive three or four years from now.”
Experienced partners needed
The complexity of real estate investing has grown dramatically. Today, families seeking exposure to the multifamily sector often go beyond simply owning a building. Many seek support with various aspects of property management, including leasing, maintenance, rent pricing, and tenant management.
Goodchild says customer relationship management (CRM) systems allow property managers to track every aspect of the business, from a leasing query to maintenance requests. “The multifamily business is ultimately about customer experience. It’s not enough to think about landlord-tenant relationships. You have to create a living partnership with residents.”
The CRM-driven efficiency, bolstered by AI, of managing multifamily dwellings also helps support higher occupancy rates, lower costs and better income visibility at a time when market conditions are softer and capital growth is slower.
Relying on the expertise of an experienced partner can also enable families to manage expansive real-estate portfolios across multiple markets, Goodchild says. “If you’re investing in your own backyard, you may be well positioned to evaluate local opportunities because real estate is inherently local. However, when investing in other markets, an experienced operating partner can provide local market knowledge and operational expertise, and that can be very valuable.”
Building a relationship with an investment partner, he adds, comes down to a shared investment philosophy that is supported by transparency, clear governance, chemistry, and aligned goals. “Fundamentally good partnerships come down to alignment across a number of vectors, and if there is misalignment that could create problems later.”
At the moment, Goodchild believes family offices need to look at current economic conditions opportunistically. Despite prevailing economic and geopolitical uncertainty, Goodchild says multifamily properties can offer families the opportunities that have long made real estate attractive: income visibility and long-term growth potential.
“Those windows of opportunity don’t stay open forever,” he says. “Right now, we think this is one of those moments.”
Disclaimer: This story was created by Canadian Family Offices’ commercial content division on behalf of Equiton Inc., a member and content provider of this publication.
Anna Sharratt is a business and health reporter and editor with more than 20 years of experience. Based in Toronto, she has written for Canadian Family Offices since 2021. A regular contributor to the Globe and Mail, she has written for Inc.com, Forbes, Business Insider, Canadian Business, MoneySense, the National Post, The Toronto Star and other publications. She is the former managing editor of smallbiz.ca, health editor of Chatelaine and senior health writer for the CBC.