Asset manager Equiton wants every Canadian investor to have the opportunity to put their money into high-quality real estate investments.
“I noticed that there was such a desire for people to invest in real estate and there weren’t a lot of options available,” says Jason Roque, the company’s founder and CEO, who spent the better part of two decades as a real estate investor and developer. “This is where we stepped in to give Canadians access.”
Historically, private real estate investments, other than owning one’s own home, were only accessible to institutional investors or ultra-high-net-worth investors who could buy buildings themselves. Roque wanted to help democratize real estate by making it easier for retail investors to buy into and take advantage of the many benefits this sector has to offer, including access to an asset that can offer consistent returns with low correlation to the public equity markets.
Equiton, founded in 2015, invests in residential and commercial properties as well as developments, offering private real estate investment opportunities. Investors can benefit from the firm’s deep experience in the real estate field. The company uses an active management approach with its multi-residential properties to capitalize on value creation opportunities and build a robust portfolio.
“We are proud to have provided investors with a consistent return on their investments,” says Roque. “There’s been a really good reception, both from investors and advisors.”
Growing demand for private real estate
Interest in private real estate investing is growing, as evidenced by just how quickly Equiton has expanded over the years. It started with three people and now has a staff of more than 200 while managing more than $1 billion in assets and 44 rental properties in Canada.
“Growth has been healthy, and one testament to our team is that we’ve been able to achieve some quite dramatic growth during very challenging times,” he says, referring to the COVID-19 pandemic and the more recent high interest rate environment.
Part of the reason for Equiton’s success is that the company focuses on what Roque calls “value-add properties,” which “tend to be buildings that need some work.” When a tenant leaves their building, Equiton renovates the unit to bring it up to a more modern standard, allowing the company to boost rental income and enhance the resident experience while increasing the property’s overall value.
Equiton also utilizes 10-year fixed-rate mortgages, which helps keeps financing costs steady amid fluctuating interest rates. As an institutional investor, Equiton also has access to favourable mortgages through the Canada Mortgage and Housing Corporation (CMHC), which can offer significant savings compared to conventional mortgages.
“Having a longer term alleviates the challenges that can come from the recent kind of dramatic increase in interest rates, because we know our financing costs are fixed,” Roque notes.
Choosing investment options
Investing in Equiton’s funds requires a minimum investment of as low as $10,000, depending on the fund. “The barrier to entry has been dramatically reduced,” he says, adding that the structure is similar to a mutual fund, but with monthly, rather than daily, liquidity options, which is common in the private real estate space.
While returns are made up of rental yields and capital appreciation from a property, distributions are often considered a return of capital (RoC) rather than straight income. That makes these investment vehicles, such as Equiton’s Residential Income Fund Trust (better known as its Apartment Fund), which is currently 100 per cent RoC, highly tax efficient. This is because, in many circumstances, RoC is not taxable in the same year it is received.
Equiton’s Apartment Fund specializes in multi-residential properties and targets an annual net return of eight to 12 per cent. Meanwhile, the Equiton Real Estate Income and Development Fund Trust gives access to institutional-grade real estate and development projects and targets an annual net return of 12 to 16 per cent over a 10-year period. The company also has other offerings that provide exclusive access to development projects designed to target annual net returns of 16 to 20 per cent per year, paid upon project completion.
Strong tailwinds ahead
While private real estate may seem complex to investors less familiar with this market, it isn’t a complicated investment, Roque notes. Most people are familiar with real estate, either as a renter or a homeowner and understand how mortgages work and the pressures around housing demand.
Demand for multi-residential apartment rentals in particular is growing, as rising rates have made homeownership more expensive, while an increase in immigration means more people are coming to Canada and need places to live. With Canada facing a housing shortage, demand for renting isn’t going to wane anytime soon.
“I’ve been involved in real estate and development for my entire career, and I don’t think I’ve ever seen a supply-demand imbalance as dramatic as I see today,” says Roque. “Adding stock is going to be very difficult,” due to challenges related to the availability of land, regulatory approvals, rising costs and a shortage of contractors and construction trades, he adds. “Being in the multi-residential space, our investors will benefit from those strong tailwinds.”
When choosing locations to invest in multi-residential properties, Roque says Equiton looks for properties in mid- to large-sized, economically diverse cities, “where people want to live, where people want to come to, where there are jobs … where you’re always going to have a stable renter base.”
With its proven resilience during tough economic times, Equiton is well positioned for continued growth. Its focus on the real estate space offers stable investment opportunities for investors both today and into the future.