Farmland Archives - Avenue Living Asset Management

Stability, Growth, and Sustainability: Avenue Living’s Themes for 2023

2023 was a challenging year for Canadians and the broader markets. While inflation has slowed and interest rates appear to have stabilized, the overall economic picture continues to fluctuate.

“It’s been only one year, but we’ve seen changes that you don’t normally see within five,” says Gabriel Millard, Senior Vice President, Capital Markets – Equity and Research. “We’re still in the midst of digesting one of the fastest rate-hiking cycles in history, with a lot of variables in the macro environment.”

In light of this, investors have expressed increased interest in alternative investments for stability and returns that are non-correlated to public markets. Against that backdrop, we’ve continued to invest in the everyday, striking a balance between defensibility, growth, and sustainability across our strategies.

Multi-family and self-storage: from pause to growth

“During the first nine months of 2023, we took a deliberate pause on acquisitions within both our multi-family and self-storage strategies,” Millard says. “Over that time, we saw material net operating income (NOI) improvements from rent adjustments enabled by heightened service standards and introducing new operational cost-efficiency measures.”

Avenue Living shifted gears in the back half of the year, adding over 1,600 units to our multi-family residential footprint. In November, we finalized a deal with a large institutional investor for a 700-unit portfolio across five towers and a number of townhomes.

“We’re seeing opportunities to acquire higher-value properties from institutional players, including pension funds, which weren’t available even two years ago,” Millard says.

As borrowing costs accelerated, the importance of vertical integration, active property management, and managing rising costs in the real estate space became acutely clear. Across both the multi-family and self-storage markets, pure capital allocators struggled to sustain their investment returns, creating more acquisition opportunities.

“We’re exiting 2023 at just over 17,000 multi-family units,” Millard says. “The Mini Mall Storage Properties fund also grew quite rapidly to almost 8 million square feet — including the largest acquisition in its history of almost 900,000 square feet across 19 properties — making Mini Mall the top 21^st largest self-storage operator in North America by rentable square footage.”

The multi-family Prairie markets are seeing growth from record net immigration, driven by households seeking affordability. A sizeable portion of these newcomers are coming from higher-growth markets like Vancouver, Toronto, and Montreal where rent payments can take up 40% to 50% of households’ income.

Historically, self-storage has proven to be a resilient asset class and remained stable even in times like the 2008 North American real estate crash. Robust consumer-driven demand continues to propel the investment class, painting a constructive picture.

Strong tailwinds for Canadian farming

Avenue Living’s two Saskatchewan-focused agricultural strategies, the Avenue Living Agricultural Trust and Tract Farmland Partners LP (Tract), have also managed well amid persistent demand for farmland investment from across Canada.

In its mid-2023 report on farmland values, Farm Credit Canada saw Saskatchewan lead the nation with an average gain of 11.4%. Most locations in the province, the report said, saw increases between 7% and 11%. On the ground, Tract identified acquisition targets from word-of-mouth referrals within the farming community, a testament to its reputation as a trusted partner.

“It’s a consolidation play that’s still just in its early stages. An estimated 98% of transactions within the province remain outside of investment funds, and we’re continuing to acquire assets,” Millard says. “By the time we close a deal, we’re already seeing impressive appreciation.”

ESG efforts coming to fruition

Roughly two years after striking its partnership with the Canada Infrastructure Bank (CIB), Avenue Living is moving forward on a number of energy retrofit projects across its multi-family residential portfolio, including work on large solar arrays, exterior renovations, and mechanical upgrades.

“A large portion of the acquisitions in our self-storage fund are within the Sun Belt region of the United States. Our portfolio is made up of assets that are wide, not high,” Millard says. “That offers an abundance of roofline where we’re able to implement solar projects.”

Avenue Living’s agricultural strategy also lends itself well to ESG, given Canada’s outsized role in producing staple grain products.

“The opportunity to help improve food security for Canadians and other nations is something we’re very proud to be a part of,” he says.

Avenue Living released its first full ESG report in 2023, with a second one set to come out this year. Beyond that, we’ve bolstered our commitment to responsible investing. In 2021, we became a signatory to the United Nations-supported Principles for Responsible Investment (PRI) and over the last year we furthered our commitment and became members of the Responsible Investment Association (RIA).

Avenue Living continued its annual Avenue Giving campaign, bringing together donations from residents and staff to support local food banks. We also launched an Employer-Supported Volunteerism program in the last quarter of 2023. In three months, employees volunteered for over 160 hours with 10 organizations including local food banks, Canadian Blood Services, veteran and seniors’ resource centres, community kitchens, and drop-in centres across the Prairies.

For 2024, a continued stewardship focus

From the beginning, Avenue Living’s growth has been inextricably tied to its commitment to the customer. Millard says that focus will continue in 2024, along with a focus on ensuring defensibility across the organization.

“Since 2020, it’s been a volatile period, and 2024 doesn’t appear to be any different,” he says. “As a responsible asset manager, we’re maintaining a leverage profile in the low 50%, and keeping over 10% of our NAV in liquidity to ensure defensibility.”

Last year, Avenue Living acquired over half a billion dollars in multi-family assets. With a large pipeline of acquisitions, it’s pressing its growth advantage in 2024, allowing improvement of margins by spreading fixed head-office costs over a larger number of units.

“We don’t grow for the sake of growth, but to improve our overall operations through accretive transactions,” Millard says. “Through technology and operational improvements, our focus is to continually level up our operations for the benefit of our residents, customers, and investors.”

This commentary and the information contained herein are for educational and informational purposes only and do not constitute an offer to sell, or a solicitation of an offer to buy, any securities or related financial instruments. This article may contain forward-looking statements. Readers should refer to information contained on our website at https://avenuelivingam.wpenginepowered.com/forward-looking-statements for additional information regarding forward-looking statements and certain risks associated with them.

2023 Year in Review

Over the last year, we’ve stayed the course and once again proved we’re equipped to navigate any environment.

We saw a number of formative milestones in 2023, including our largest acquisitions to date in both our multi-family and self-storage funds as well as achieving over $5 billion in assets under management.

Moving forward, our focus is on bringing our proprietary management model to more Canadians and expanding our investment offerings.

Core Farmland Mini Mall Opportunity

Avenue Living’s Most-Read Content for 2023

Examining the economy and markets heading into 2024, we see a landscape dotted with opportunities. We believe our strategy of measured growth, sustainability, and defensibility has put us in a strong position for the next leg of our journey.

As we reflect on the year, we’re looking back on the blogs and white papers that resonated most with our readers in 2023.

The topics run the gamut from our partnership-oriented agricultural investment strategy to academic research on key stakeholder segments for our business, to our efforts in leading the charge on sustainable workforce housing.

At the heart of it all is our commitment to providing value for our residents, investors, and the communities where we’ve put down roots.

BLOG:

Harvesting Alpha in Canada’s Agricultural Heartland

We unpack how the Avenue Living Agricultural Land Trust and its successor strategy, Tract Farmland Partners LP, are set to benefit from long-term tailwinds while prioritizing an active approach and partnership with the community.

WHITE PAPER:

An International Examination of Market Orientation and Performance in Residential Property Management

In this peer-reviewed study, our leaders in the Capital Markets team, Gabriel Millard and Cameron Hills, collaborated with the University of Regina’s Dr. Grant Wilson to examine how a commitment to understanding and serving residents translates into tangible benefits — including loyalty, trust, pride in accommodations, and timely rent payments — for residential property managers.

BLOG:

Multi-Family Retrofits: The Case for Going Green

Following on from our 2022 partnership with the Canada Infrastructure Bank (CIB), this blog outlines the energy-conservation measures (ECMs) we’re planning across our Canadian portfolio of multi-family rental properties. It also uncovers our framework for ensuring the viability and impact of deep energy retrofit projects.

WHITE PAPER:

Examining Personal Financial Advisors’ Knowledge, Client Recommendations, and Personal Investments in Private Real Estate and Real Estate Investment Trusts (REITs)

In another collaborative study published in the Journal of Financial Services Marketing (JFSM), our Chief Investment Officer, Jason Jogia, worked with Dr. Grant Wilson to investigate the under-researched subject of financial advisors’ REIT knowledge and engagement with REITs, including how their personal perceptions influence client recommendations. JFSM is a leading journal in finance and marketing, ranked B on the ABDC list, and recognized by all management and real estate journal quality lists.

BLOG:

Revitalizing Canada’s Housing Landscape: The Crucial Role of Retrofits

As the country manages two major challenges — housing affordability and environmental impact — it’s becoming clear that retrofits to existing buildings are a key part of the solution. This blog looks at how strategic retrofits can help solve Canada’s increasingly critical housing supply challenge.

Core Farmland Mini Mall

Avenue Living: Creating Defensibility and Stability for Alternative Investors

Alternative investments are experiencing a surge in interest from advisors and investors seeking ways to drive returns.

With a focus on hard assets, Avenue Living has consistently delivered stable returns over the past decade — a trajectory that we anticipate will continue due to strong market fundamentals including population growth and limited supply.

Hear from our SVP of Capital Markets, Gabriel Millard and Head of Sales, Alex Steele, about how our vertically integrated management platform and solid financial partnerships set us apart, making Avenue Living a defensible choice for alternative investors.

Commercial Core Farmland Mini Mall

Avenue Living passes $5B in Assets Under Management

Our CEO and Founder, Anthony Giuffre, sat down with Real Estate News Exchange (RENX) to discuss Avenue Living’s recent acquisitions, growth strategy, and how our expertise as property managers is helping us navigate the current market.

Read the Full Article

Core Farmland Mini Mall Opportunity

A Proven Alternative | Communicating Our Value Proposition

Alternative investments are enjoying a rise in popularity, but not all are created equal.

Investments in alts, such as real estate, may offer opportunities to increase diversification and generate competitive returns while potentially providing protection against inflation. Avenue Living’s funds offer an accessible way to invest in multi-family real estate, farmland, and self-storage.

Learn what investors should look for:

Core Farmland Mini Mall Opportunity

2023 Mid-Year Review: Laying the Foundation for Stability and Growth

As our leadership team reflects on the first half of 2023, the theme is one of sustainability and continued growth for Avenue Living. As we progress throughout the year, we’re poised to reach new milestones given the strong foundation we have spent the last few years cultivating. Each of our funds has access to a robust vertically integrated platform with talented experts in finance, legal, marketing, technology, accounting, HR, and customer service to support their operations. As we grow, that platform scales with our different businesses, allowing us to maximize efficiency across the organization.

Multi-Family

This year, our Core Trust has sustained its steady growth trajectory, as the groundwork from previous years allowed us to find upside in constrained markets. Our approach as an active property manager, and the platform we have built to support our operations, has helped us deliver superior resident experiences and manage our assets while mitigating rising costs.

“We remain focused on our defensibility and advancing our business for the rest of 2023,” says Avenue Living Founder and CEO, Anthony Giuffre. “We continue to be bullish on the Prairies given its population growth and affordability when compared to other markets.” Our multi-family acquisition pipeline includes over 3,000 units in the region which have the potential to close in the latter half of 2023 or early 2024, which could bring our portfolio to over 18,000 units.

“Our investments in people and technology have created the basis for us to support new acquisitions across our asset base without increasing management costs,” says Jason Jogia, CIO of Avenue Living. “This ability to scale, coupled with our ability to borrow strategically while taking advantage of the inverted yield curve, allows us to minimize our costs while investing in our assets and delivering a superior resident experience.”

Sustainability remains a key cornerstone of our business, as we invest in capital improvements and strategically plan our projects to reduce greenhouse gas emissions across our portfolio. These projects — many of which will launch in the second half of 2023 and progress over the next four years as part of our landmark partnership with the Canada Infrastructure Bank — will improve the energy consumption of approximately 240 buildings and enhance comfort for around 10,000 Avenue Living Communities residents.

Self-Storage

Mini Mall’s focus on operational efficiency at the beginning of 2023 has been key to its growth. This approach has allowed the front-line customer service team to deliver a consistent experience at every location, bringing new acquisitions to the MMSP standard.

“With over 100 stores coming online last year, we wanted to stabilize our operations and quickly produce consistent performance and results on these assets,” says MMSP CEO, Adam Villard. Mini Mall delivered on that by adding operational expertise to the executive team and focusing on efficiency, resulting in close rates increasing by 48% and delinquencies decreasing by 84% between January to June.

“We’ve really been focused on ‘the three C’s’,” says Villard, “closing, cleaning, and collecting.” By putting strategic practices in place to help close leads, bringing facilities up to the Mini Mall standard for aesthetics and cleanliness, and lowering delinquencies, site managers and staff can concentrate on creating a seamless customer experience across the organization.

Mini Mall also implemented new marketing and customer service strategies to refine its lead generation process, which doubled results between the end of March to the end of June. “Those efforts are really what’s driving our business right now,” says Villard.

Going forward, Villard sees Mini Mall maintaining strong occupancy throughout the winter to balance the seasonal fluctuations the industry is known for, and continuing to drive targeted programs to build on revenue and occupancy numbers.

Farmland

2023 has been a notable year for our farmland investments as we developed and launched Tract Farmland Partners – building on the success of our Avenue Living Agricultural Land Trust. Interest in farmland as an investment gained traction during the pandemic and it shows no signs of slowing. In its first six months, Tract now holds 3,560 acres of arable land.

CEO of Tract Farmland Partners and Agricultural Land Trust, Leif Snethun, credits the recent world events for the uptick in people’s interest in food supply, noting that the launch of the Agricultural Land Trust in 2017 was slower to get underway than Tract has been. There has always been interest in farmland, but since 2020 it has become more widespread among investors.

“The farmland industry has always been a wonderful space to be in,” says Snethun. He sees Tract adding more assets to its portfolio for the remainder of 2023. “I’m eager to see the momentum build as people remain interested in the agricultural sector and want to know where their food comes from.”

Our Path Forward

The first half of 2023 has been significant for our investment vehicles, as we fostered our ground-breaking partnerships, launched new projects, and saw growing investor interest in our asset classes. Our active management model and platform of services — coupled with careful planning and analysis — will allow us to capitalize on a breadth of opportunities. We’re excited to continue driving our business forward and deliver a competitive advantage in these unique economic times.

Core Farmland Mini Mall Opportunity

What Investors Need to Know About Borrowing Amid Rising Interest Rates

The past year has been punctuated with announcements of rising interest rates, as the Bank of Canada (BOC) redoubled their efforts to combat inflation with successive rate hikes. The latest, in July, brought the overnight rate up by 25 basis points to 5%, its highest since early 2001. Changes in interest-rate policy can have wide-ranging effects throughout the economy, and for real estate investors, it’s vital to interpret the different outcomes between long-term and short-term rates. Understanding the inversion of the yield curve — where long-term interest rates are lower than short-term rates — can help well-prepared property owners mitigate risk.

Understanding the Yield Curve

Figure 1

During the period of rising interest rates, there has been a notable difference between prime-based borrowing rates and bond-based borrowing rates in Canada. While the prime rate has experienced significant increases (from 2.7% in March of 2022 to 6.95% in June of 2023), the Canadian 10-year bond rate has remained relatively stable over the same period. Whereas retail borrowing is often based on prime, commercial borrowing is traditionally based on long-term government bonds. Therefore, well-managed commercial borrowers will generally be less impacted — as compared to retail borrowers — by the recent rise in interest rates. One of the many upsides to indirect real estate investment through entities such as REITs is that investors are able to benefit from the relationships and knowledge of a team of experts. By indirectly investing in real estate, everyday investors can take advantage of bond-based borrowing rates through a strategic asset manager, without becoming a commercial borrower themselves.

With the Canada Mortgage and Housing Corporation (CMHC) setting lending rates at a spread over the 10-year bond, those who have access to bond-based borrowing for long-term decisions have been in a more favourable position since the beginning of 2022. A visual representation of these trends can be observed in Figure 1.

Figure 2

As per Figure 2, during an inverted yield curve, where long-term interest rates are lower than short-term rates, long-term borrowing becomes cheaper than short-term borrowing. By securing financing at lower rates, long-term borrowers benefit from stability and predictability in their interest costs over an extended period. Conversely, short-term borrowers and those with variable rates may experience heightened volatility and financial strain as their borrowing costs increase in response to rising short-term interest rates. The inversion of the yield curve emphasizes how important it is for borrowers to consider duration and structure when interest rates are rising.

Rental property owners facing rising interest rates can take advantage of the differences in duration between short-term leases and long-term debt. Using long-term debt instruments, such as a 10-year mortgage, alongside shorter lease terms, allows property owners to adjust to changing market conditions in real-time, counterbalancing the impact of higher borrowing costs. However, property owners should also consider market conditions and the resident experience before implementing this strategy.

Interest Rates and Homeownership

Rising interest rates — and the resulting increased cost of short-term borrowing — can have a negative impact on development projects, lowering construction activity and limiting the supply of housing units. With fewer developments, the cost of housing increases, leading to higher rents and housing prices. Scarcity of supply and increased borrowing costs compel developers to set higher prices for their projects, ultimately affecting affordability.

A survey conducted by Chartered Professional Accountants Canada identified several barriers to homeownership among non-homeowners in the country. Rising interest rates were cited as the top obstacle by 89% of respondents, followed closely by the affordability of down payments (84%), necessary renovations (83%), and finding a home in a desired area (83%). Other challenges included taxes and mortgage payments (81% each) and income instability (69%).

Existing homeowners also faced hurdles, with renovation costs affecting three out of five individuals, ongoing difficulties in affording home maintenance (46%), and challenges with mortgage payments, property taxes, and utility payments for varying percentages of respondents. These findings shed light on the financial obstacles Canadians encounter in their quest for homeownership, as well as the ongoing strains faced by prospective and existing homeowners.

Navigating the Landscape

Canada’s rising interest rates present distinct challenges for many sectors of the economy — but they also give rise to opportunities. It’s essential for borrowers to understand the benefits and drawbacks of short- and long-term interest rates and formulate their debt strategy accordingly. For property owners, understanding the interest-rate landscape, managing duration, and responding to local market conditions can help minimize borrowing costs and optimize revenue.

Understanding how an asset manager uses different debt vehicles to mitigate risk and reduce borrowing costs allows investors to make informed decisions. Asset managers like Avenue Living, for example, can make strategic use of short- and long-term borrowing to potentially maximize returns and de-risk their portfolios. Considering an asset manager’s borrowing strategy — along with other factors — can help investors find the vehicle that’s right for them.

Commercial Core Farmland Mini Mall Opportunity

From Trust to Partnership: How Avenue Living Does Farmland Investment

A focus on partnership underpins our successful Canadian farmland investment strategy and has been key to fostering relationships with about 90 tenant-operators across Saskatchewan.

Avenue Living Agricultural Land Trust is now winding down with a fixed sunset date. In response to investor demand, the firm is looking to replicate that success through its new Tract Farmland Partners Limited Partnership.

“Our partnerships with farmers demonstrate our commitment to their success while establishing ourselves as a reliable buyer in the farming community,” says Leif Snethun, CEO of Tract Farmland Partners LP. “They’re business-minded and sophisticated, and I’m honored to be associated with them as they shape the future of Canadian agriculture.”

Learn more about our newest fund, Tract Farmland Partners:

View Article

Farmland

Harvesting Alpha in Canada’s Agricultural Heartland

For investors seeking to diversify away from the public markets, the case for investing in Canadian farmland is all too clear. And with our sights set on Canada’s breadbasket, it’s an opportunity that’s been growing for over half a decade.

“We launched the Avenue Living Agricultural Land Trust in December 2016,” says Gabriel Millard, SVP, Capital Markets – Equity & Research at Avenue Living Asset Management. “From its inception up to now, it has performed well for our investors, and we’ve seen a significant and increasing demand for the strategy.”

Harvesting returns

Since 2016, the fund’s portfolio has grown to 83,000 acres of farmland across Saskatchewan, with historical annual returns consistently above 10%.

“Within the farming community, a lot of operators look for opportunities to expand. They often don’t have access to the capital required to acquire neighbouring parcels when they come up for sale. Others are looking to exit, and don’t have heirs or successors to buy them out of the business,” Millard explains. “We leverage our considerable capital resources to acquire productive, arable farmland in Saskatchewan, which we rent to farmland operators and help them to expand their businesses.”

The Avenue Living Agricultural Land Trust has a fixed sunset date within the next two years and we’re looking to replicate its success with our new fund, Tract Farmland Partners LP.

“We wanted to give investors a way to keep benefitting from our experience with Saskatchewan farmland, as well as our active management capabilities in the agricultural space,” Millard says.

Our approach to farmland is led by Leif Snethun, the CEO of the Avenue Living Agricultural Land Trust, and Tract Farmland Partners LP. Snethun comes from a proud tradition of Canadian farming. His father was the youngest of five boys raised on a farm in east-central Alberta. That farm was homesteaded by Snethun’s grandparents, who immigrated from Norway. With help from his wife, Snethun owns a cow-calf operation west of Stavely, Alberta and helps his younger brother operate the near-by family farm.

Sowing seeds for future alpha

“The average urban person can’t imagine the size of the farmland parcels we deal with in the portfolio. 83,000 acres equates to almost 130 square miles,” he says. “With that said, it’s easy to understand why our farmland managers can’t possibly know the specific nuances of the portfolio of land the way our tenant-operators do.”

To maximize alpha, Snethun and his team actively encourage tenants to come forward with land improvement ideas. Through investments in land reclamation and remediation, and the construction of strategic grain storage facilities, we add direct value to our portfolio and improve tenant farming efficiencies. These improvements mean the tenant is able and willing to pay increased rents.

“We’ve earned a great reputation in the community,” Snethun says. “I believe that there’s no other form of real estate where the tenant and the landlord are so aligned. Our tenants are financially motivated to look after the land like it was their own as that is how they maximize crop yields.”

According to Millard, the new strategy leverages the same economics that makes farmland appealing, along with our proven management capabilities and reputation in the agricultural space.

“Over the six years we’ve spent running our Agricultural Land Trust, we’ve developed a track record of being able to close land acquisition deals on time with farmers, which provides important liquidity for them,” he says.

Returns generated through our farmland model have the potential to be boosted through a judicious use of leverage. Despite having similar soil characteristics as farmland in neighbouring provinces such as Alberta and Manitoba, Saskatchewan farmland trades at over a 30% discount.

“With the Federal government’s interest in food supply and security, farmers in Canada benefit from added stability through crop insurance,” Millard adds. “This creates a layer of protection for our tenant-operators in case they suffer adverse weather conditions or other occurrences that negatively impact their crop yields.”

Favourable tailwinds

Globally, the case for investing in farmland is gathering strength from several macroeconomic tailwinds. Urbanization is playing a part in the depletion of farmland acres. Over the decades, arable farmland area has shrunk from 5.6 acres per capita in 1961 to 1.2 acres per capita as recently as 2016 (Food and Agriculture Organization of the United States (FAOSTAT), 2021).

There’s also pressure from the growing global population, which officially topped eight billion last year. As more countries enter a period of economic prosperity in the coming decades, the World Bank forecasts an increase in the average daily caloric intake among developing nations, with citizens’ dietary preferences shifting toward higher-value, more calorie-dense foods such as meat.

Because of limited supply and the prohibitive cost of meat products, import-dependent markets may turn to pulse crops – including legumes such as lentils, peas, and beans – as nutritionally equivalent alternatives. The Canadian Prairies stand as the largest exporter of lentils, peas, and chickpeas in the world today. Within Canada, around 90% of lentils and 50% of pea production originates from Saskatchewan (Government of Saskatchewan, 2021).

“According to the Government of Saskatchewan, the province accounts for more than 40% of the cultivated farmland in Canada,” Millard says. “It’s a critical piece of Canada’s food production capacity, and critical to helping fill the growing global food supply gap.”

Historically, farmland has proven to be a strong inflation hedge, with annual returns outpacing gains in the CPI over the past 30 years. That trend is set to continue as demand grows and a breakdown in supply chains throws the world into a new commodities supercycle.

“Increases in commodity prices tend to correlate with revenue increases for farming operators as well as generating more investor demand for farmland. As the price of each acre of farmland increases, so does the value of the asset,” Millard says. “Even in years where CPI is negative, we’ve historically seen positive farmland returns.”

Investing in farmland also provides diversification, as its return performance is generally uncorrelated to other asset classes. Saskatchewan’s expansive terrain encompasses a variety of weather patterns, allowing Avenue Living to capture a wide continuum of crops and crop yields.

“Right now, our farmland ownership is scattered throughout the arable portion of Saskatchewan,” Snethun says. “We’ve witnessed a massive change in people’s awareness and interest in the agricultural space over the past three years, and we’re very excited to be part of that wave.”

References

Food and Agriculture Organization of the United States (FAOSTAT). (2021). FAOSTAT. Retrieved from Food and Agriculture Organization of the United States: https://www.fao.org/faostat/en/#home

Government of Saskatchewan. (2021). Saskatchewan Agriculture Exports 2021. Retrieved from Government of Saskatchewan: https://www.saskatchewan.ca/business/agriculture-natural-resources-and-industry/agribusiness-farmers-and-ranchers/saskatchewan-import-and-export-information/resources-for-importers/trade-statistics

Farmland

This Year’s Most-Read: Our Top Content in 2022

We’ve gathered the blog posts, articles, and white papers that garnered the most interest from our readers last year. They cover a diverse range of topics, from our partnership with the Canada Infrastructure Bank to the complexities of the private rental housing market, but they all come back to one thing: understanding the real estate investment landscape. As investors seek opportunity in a changing market, it’s important to explore and analyze the fundamentals that impact our industry to refine our strategy and provide value for our residents, our investors, and the communities in which we operate.

PRESS RELEASE:

CIB COMMITS $120 MILLION TO AVENUE LIVING — THE FIRST REIT ADDRESSING MULTI-FAMILY RESIDENTIAL RETROFITS AT SCALE

This announcement is the next step in our commitment to ESG — one we officially started when we began a relationship with PRI (Principles for Responsible Investing). Our partnership with Canada Infrastructure Bank will allow us to undertake capital improvements that reduce our carbon footprint and provide comfortable homes for our residents, without compromising affordability.

WHITE PAPER:

RE-EXAMINING A HEDGE AGAINST INFLATION: Multi-family Residential Real Estate

This paper examines the effects inflation and rising interest rates have on affordability, and how investors may find opportunities in multi-family real estate.

PEER-REVIEWED WHITE PAPER:

PRIVATE RENTAL TARGET MARKETS: A COMPREHENSIVE SPECTRUM

Our founder and CEO, Anthony Giuffre, collaborated with the University of Regina’s Dr. Grant Wilson on this examination of the North American rental housing market, identifying the lifestyles, demographics, and value propositions that make up six major groups in the housing spectrum. The peer-reviewed paper was published in the International Real Estate Review in April 2022.

WHITE PAPER:

DIVERSIFICATION WITH AND WITHIN REAL ESTATE

This white paper explores how diversification in real estate portfolios — across asset types and markets — can enhance value for investors, helping them minimize risk and maximize the potential for returns.

BLOG:

WHY WE SEE OPPORTUNITY IN THE WORKFORCE HOUSING MARKET

We examined factors that make the workforce housing market an attractive investment opportunity and why it’s the focus of our multi-family strategy.

Commercial Core Culture Farmland Mini Mall Opportunity

Avenue Living’s 2022 Year in Review

In 2022, Avenue Living grew in more ways than one. In addition to expanding our footprint and operations with new offices in Toronto and Dallas, we improved our customer satisfaction through active management, invested in technology, and elevated our ESG efforts. We’re also entering our third year as signatories for PRI and since signing on, we have partnered with the CIB to sustainably retrofit nearly half of our multi-family portfolio. In 2023, we look forward to commencing phase one of the project and making a positive impact.

Commercial Core Culture Farmland Mini Mall Opportunity

How Avenue Living’s formidable 2022 provides solid base for 2023

With a cycle-tested business model and a steadfast commitment to the everyday, Avenue Living continued to make great strides.

In 2022, accelerating inflation and rising interest rates created a challenging investment environment, with negative returns flashing across the asset spectrum. Still, that didn’t stop Avenue Living’s 16-year growth streak.

After ending 2021 with just over $3.1 billion in total assets under management (AUM), the organization grew by 48% to reach $4.6 billion AUM. It achieved broadly diversified growth across its multi-family apartment, farmland, and self-storage real estate portfolios — all while staying true to its strategy of investing in the everyday.

“It speaks to the durability of Avenue Living’s business model across multiple market cycles,” says Gabriel Millard, SVP, Capital Markets – Equity & Research. “2008 (GFC) and 2014 (Commodity Crisis) were lost years for many other players, but they were periods of growth for Avenue Living as we leaned into the opportunities. 2022 was another very formative year for us.”

A win-win in the multi-family residential space

Avenue Living entered the apartment space as owner-operators in 2006 with a relentless focus on the resident experience. The company has continued to grow while offering an institutional level of service to those who call its buildings home. A pivotal strategic development was the establishment of the Avenue Living Real Estate Core Trust, which has grown into the first North American Workforce Housing Fund in just five years. Today, Avenue Living’s residential portfolio includes over 15,000 multi-family suites across 3 Canadian provinces and 5 U.S. states.

While headlines around real estate investments tend to revolve around high-growth markets — the likes of Toronto and Vancouver — Avenue Living leans into moderate growth markets, such as the Prairie provinces, where assets are valued at a relative discount. Its vertically integrated business model has also allowed it to control operational costs.

Those factors have enabled Avenue Living to responsibly raise rents in pace with higher inflation and interest rates, without hurting residential stakeholders. “We’re achieving our targeted returns while still maintaining affordability for our residents,” Millard says. “We’ve seen collections improve, occupancy continued to tick up, and we have wait lists at over 100 of our buildings.”

Growing opportunity in Canada’s breadbasket

Meanwhile, Avenue Living’s farmland holdings have expanded from 49,000 acres of Saskatchewan farmland at the end of 2021, to over 83,000 acres today.

In terms of global output, Canadian farmland represents a large portion of durum wheat, peas, and other important base crops. Saskatchewan is a big piece of the agricultural puzzle, as it accounts for approximately 40% of the cultivated acres in Canada.

“We’re witnessing a breakdown in the global food supply chain,” Millard says. “Canada has a real opportunity to be a world leader in ensuring food security.”

With a history of outperforming inflation over the past 30 years, farmland is also growing more attractive as a diversifying asset class. That’s bolstering Avenue Living’s bullish view on Saskatchewan farmland, which remains at a steep discount compared to neighbouring provinces.

Great strides in self-storage

The Mini Mall Storage Properties Trust has also cemented itself as a premier player in the secondary and tertiary markets of North America’s self-storage industry.
From just over 2 million square feet at the end of 2021, the trust has grown to nearly 6 million square feet of self-storage space. That expansion was partly driven by Avenue Living’s ability to introduce its proprietary technology stack and operating expertise into all the new locations it enters.

“A lot of innovation has happened in the primary downtown, new-development segment of self-storage over the past decade,” Millard says. “We’re taking that approach and applying it to older legacy-run assets that have traditionally operated as mom-and-pop, cash-and-paper businesses.”

Avenue Living is pushing for more growth through a new office in Dallas, where it has hired key industry leaders in the self-storage landscape.

“Our expansion into Texas has taken us from a smaller, scrappy Alberta-based company into a truly North American player,” Millard says. Mini Mall Storage is now a top 25 self-storage operator in North America.

More milestones

Above the 49^th parallel, Avenue Living has arrived on Bay Street with a new Toronto office. With that new foothold in Canada’s financial hub, the company is positioned to further reinforce and broaden its capital base in the years to come.

With about $160 million in expenditures made toward capital improvements in its residential properties, Avenue Living is also sharpening its focus on maintaining a superior resident experience and providing great customer service.

After becoming a PRI signatory in 2021, the company is doubling down on sustainability through a partnership with the Canada Infrastructure Bank, which includes a $150-million co-investment on deep energy retrofits on its older-style multi-family assets.

“Real estate – especially older stock properties – represents a significant portion of GHG emissions in Canada,” Millard says. “Our goal is to reduce GHG emissions by at least 49% through deep energy retrofits”.

Leveraging its unique perspective on workforce housing, Avenue Living has also published industry-leading papers and research. That includes a peer-reviewed paper on the residential housing spectrum, which unpacks the nuances of typical renter demographics, as well as their needs in terms of rental housing.

“We’ve published a number of white papers on the importance of affordability, and how a changing cost of capital affects real estate across different markets and asset classes,” Millard says. “We’re really solidifying ourselves as thought leaders within the industry, while continuing to advocate for our residents and provide value for our investors.”

The way forward

Avenue Living has built a strong capital stack. Coupled with a diversified equity base and the use of longer term, fixed-rate debt instruments, Avenue Living is focusing on innovation and investment to ensure strong same-door performance and operations in 2023. It also plans to continue focusing on active property management to deliver the best possible results for residents and investors alike.

“We’re heading into a world with a lot of dark clouds, but we’re seeing opportunities in the market. We’re in a defensible position, and we are aiming to take advantage of any disruptions that may come,” Millard says. “2023 is going to be an interesting year globally, and a very exciting year for Avenue Living.”

This commentary and the information contained herein are for educational and informational purposes only and do not constitute an offer to sell, or a solicitation of an offer to buy, any securities or related financial instruments. This article may contain forward-looking statements. Readers should refer to information contained on our website at https://avenuelivingam.wpenginepowered.com/forward-looking-statements for additional information regarding forward-looking statements and certain risks associated with them.

Commercial Core Culture Farmland Mini Mall Opportunity

Avenue Living Wins Gold in 12th Annual Best in Biz Awards

The organization demonstrates a commitment to innovation, sustainability, and customer service excellence.

Calgary, Alberta – December 7, 2022 – Avenue Living Asset Management (“Avenue Living”) has been named a gold winner for Company of the Year – Canada by the Best in Biz Awards.

By investing in the everyday and adding value to its properties, expanding the organization’s footprint, and focusing on its workforce and brand advantage, Avenue Living has demonstrated the ability to be defensible, stable, and strategic in its daily operations and long-term vision to drive value for its customers and stakeholders.

The 12th annual Best in Biz Awards saw more than 700 entries from public and private companies of all sizes and represents diverse industries and regions in the U.S. and Canada, ranging from global brands to the most innovative start-ups and local companies. This year’s judges highlighted the winning companies’ visionary leadership, innovative strides in the use of new technologies, and the adoption of workplace best practices. Many winners also continued to invest in environmental and corporate social responsibility programs.

“We’re incredibly proud of the resilience our team and organization showed throughout 2022,” says Jason Jogia, chief investment officer of Avenue Living. “Being named a gold winner for Company of the Year by the Best in Biz Awards is a testament to our team’s commitment to excellence and sustainability in the multi-family industry.”

Since the program’s inception in 2011, winners of the Best in Biz Awards have been determined by independent judging panels assembled from some of the most respected national and local newspapers, TV and radio outlets, and business, consumer, technology, and trade publications in North America. The 2022 judging panel included, among others, writers from AdWeek, Computerworld, Forbes, The Globe & Mail, Inc., The Oregonian, and Portland Tribune.

“The depth and breadth of this year’s nominees in Best in Biz Awards – and especially the winners – demonstrate savvy business acumen among the leadership and represent the type of entrepreneurship powering today’s economy,” said Dustin Klein, Smart Business, judging his first Best in Biz Awards competition.

After reviewing hundreds of submissions, the judges were impressed with Avenue Living’s growth, both in terms of employee numbers and assets under management. They highlighted Avenue Living’s focus on serving all stakeholders, including offering new features such as integrated payments through its fin-tech platform, Zenbase. Its resident retention and Google reviews clearly showcase how this has resulted in high resident satisfaction. In addition, the panel emphasized Avenue Living’s commitment to sustainability and its involvement in the United Nations-supported organization, Principles of Responsible Investment, to spearhead environmental retrofits, implement smart solutions, and update aging assets.

For a full list of gold, silver and bronze winners in Best in Biz Awards 2022, visit: http://www.bestinbizawards.com/2022-winners.

About Avenue Living Asset Management

Founded on the principle of investing in the everyday, Avenue Living focuses on opportunities that are often overlooked by others, having grown to $4.25 billion CAD in aggregate assets under management across four private real estate investment mandates. The Avenue Living team includes over 900 professionals with expertise in real estate operations and transactions, property management, research, investment origination, and capital markets, as well as a suite of subject matter experts to support Avenue Living’s growing portfolio of multi-family residential, commercial, agricultural land, and self-storage assets. In addition to 15,000 multi-family units located in Canada and the United States, Avenue Living and its related entities own over 496,500 square feet of commercial space, 82,900+ acres of productive farmland, and more than 5 million square feet of self-storage space.  

About Best in Biz Awards

Since 2011, Best in Biz Awards has been the only independent business awards program judged by a who’s who of prominent reporters and editors from top-tier publications from North America and around the world. Over the years, judges in the prestigious awards program have ranged from Associated Press to the Wall Street Journal and winners have spanned the spectrum, from blue-chip companies that form the bedrock of the global economy to some of the world’s most innovative start-ups and nimble local companies. Each year, Best in Biz Awards honors are conferred in two separate programs: North America and International, and in 100 categories, including company, team, executive, product, and CSR, media, PR and other categories. For more information, visit: http://www.bestinbizawards.com.

Commercial Core Culture Farmland Mini Mall Opportunity

Cultivating Alpha Opportunities in Canada’s Breadbasket

For investors seeking stable returns from agricultural farmland, Saskatchewan-focused fund may be the ideal play.

As an alternative investment, farmland has historically offered the potential for diversification and inflation protection within institutional portfolios and family offices. As investors look to fortify their portfolios against economic and market headwinds, the Avenue Living Agricultural Land (ALAL) Trust is turning heads. Launched in 2016, the first closed-end fund of the ALAL Trust has grown by 12.6% on an annualized basis. The portfolio holds 83,000 acres of productive farmland in Saskatchewan valued at $175 million. With that fund now closed, Avenue Living is set to launch a new open-end investment vehicle to provide investors with indirect exposure to farmland.

This commentary and the information contained herein are for educational and informational purposes only and do not constitute an offer to sell, or a solicitation of an offer to buy any securities or related financial instruments. This article may contain forward-looking statements. Readers should refer to information contained on our website at www.alamstg.wpenginepowered.com for additional information regarding forward-looking statements and certain risks associated with them. 

Read the Article

Farmland

Avenue Living Surpasses $4.25 Billion in Assets Under Management

Calgary, Alberta, October 18, 2022 – Avenue Living announced today it has exceeded $4.25 billion in assets under management (AUM).

Following a series of key acquisitions in its multi-family residential, self-storage, and agricultural funds, Avenue Living reported this significant milestone, representing a 4X increase to its AUM since 2018. Headquartered in Calgary, Alberta and Dallas, Texas, the organization has grown to over 900 employees in seven provinces and 13 states, with additional plans for growth on both sides of the border.

“Our business philosophy of ‘investing in the everyday’ means that we see potential in properties and markets that others often overlook,” says Anthony Giuffre, founder and CEO of Avenue Living. “We have built a scalable, defensible model that continues to perform through varying market cycles, and we have effectively institutionalized low-density property management by developing an infrastructure that is sustainable and repeatable.”

Starting in 2006 with its first acquisition of a 24-unit property in Brooks, Alberta, the journey to becoming one of Canada’s largest property owners in both the multi-family rental residential and self-storage sectors has resulted from a clear, strategic focus on the North American Heartland. The organization has a well-researched understanding of the unique demographic profile, dubbed ‘workforce housing’, which it defines as a subset of the economy earning between $15 and $50 per hour.

Jason Jogia, chief investment officer at Avenue Living states, “The days of passive income through property ownership are ending. In the largely unconsolidated markets we enter, legacy owners are looking for succession plans for their properties and businesses.” Jogia asserts that, “We find and acquire properties that are underperforming, and invest in strategic operational, capital, and technological enhancements to bring these properties up to the Avenue Living standard. These improvements not only enrich the customer experience but improve the operating performance of the property. Our growth is measured, conservative, and deliberate across the geographies we target; and the assets we choose have proven to be defensible through times of volatility.”

Avenue Living is the second largest building operator in Canada by roofline and has 10 per cent of their residential multi-family portfolio in the United States. The organization’s self-storage fund, Mini Mall Storage Properties, has grown exponentially in just over two years with over 4.6 million square feet of storage space and 56 per cent of its facilities in the U.S.. In addition, Avenue Living Agricultural Land Trust steadily grew across the Canadian Prairies, with 82,900 acres under ownership and leased as active farmland.

The organization’s focus away from ‘shiny objects’ has historically insulated the portfolio from the high highs and the low lows seen in high-growth markets. “Our growth is intentional; it creates economies of scale and scope, which continuously enhances our operational excellence,” says Gabriel Millard, senior vice president of capital markets. “We focus on markets that have historically exhibited low to moderate growth, where we use our expertise to manufacture alpha. As we see a resurgence across the North American Heartland, we are well positioned to continue capturing the upside of this economic trend.”

ABOUT AVENUE LIVING  

All financial figures are in Canadian dollars.

This commentary and the information contained herein are for educational and informational purposes only and do not constitute an offer to sell, or a solicitation of an offer to buy any securities or related financial instruments. This article may contain forward-looking statements. Readers should refer to information contained on our website at www.alamstg.wpenginepowered.com for additional information regarding forward-looking statements and certain risks associated with them.  

Commercial Core Culture Farmland Mini Mall Opportunity

Manufacturing Alpha: Avenue Living’s Three-Factor Formula for Success

Our CIO, Jason Jogia, joined @Wealth Professional to discuss the strategy that sets Avenue Living apart, allowing us to thrive regardless of market conditions.

“We’ve always had to manufacture alpha by out-operating our peers,” says Jason. “By being able to operate effectively, we’ve been able to create a defensible multi-family portfolio.”

Our approach is built on three key drivers: strategic diversification, customer focus, and operational integration. Read more about these foundational elements and how they have allowed us to build a successful business model.

View Article

Commercial Core Farmland Mini Mall Opportunity

Diversification With and Within Real Estate

Authors

Grant Alexander Wilson, Ph.D., Assistant Professor, Faculty of Business Administration, University of Regina

Jason Jogia, MBA, M.Fin., Chief Investment Officer, Avenue Living

Author Bios

Dr. Wilson is an Assistant Professor at the Hill and Levene School of Business, University of Regina. His research focuses on marketing, strategy, and innovation. He has published over 20 peer-reviewed articles in top management journals including Journal of Small Business Management, Research-Technology Management, and Journal of Business Strategy. His research has been featured in the National Post and by the World Economic Forum. Dr. Wilson is also a research consultant and contributor to Avenue Living Asset Management.

Mr. Jogia is the Chief Investment Officer at Avenue Living and has over 15 years of experience in real estate capital markets, originating over $10 billion in real estate loans and $1 billion in equity. He has extensive experience in real estate investment analysis and capital structure across various real estate classes. In addition to holding 2 Masters’ degrees in Finance, Mr. Jogia is pursuing his Doctorate of Business Administration and currently serves as an instructor at the University of Calgary, specializing in real estate finance.

INTRODUCTION

Diversification is synonymous with “not putting all your eggs in one basket.” If the basket drops, all of the eggs break. Therefore, placing eggs in multiple baskets – the act of diversifying – reduces such risk. The concept of diversification has a long history in finance and portfolio management (Markowitz, 1952). Diversification is a strategy that aims to reduce risk through the inclusion of multiple and differing investments. “The rationale behind this technique is that a portfolio constructed of different kinds of assets will, on average, yield higher long-term returns and lower the risk of any individual holding or security” (Segal, 2021). This paper first explores modern portfolio theory, the mechanics of how diversification reduces risk. Next, it examines the importance of diversifying portfolios with real estate investments and diversification within real estate portfolios for institutional investors. Last, the paper explores the limitations of diversification and advantages of specialization for small real estate owners/operators. It concludes by offering strategic directives for real estate investors.

MODERN PORTFOLIO THEORY

Developed 70 years ago by economist Harry Markowitz, modern portfolio theory can hardly be considered “modern.” Despite its age, modern portfolio theory’s relevance is timeless, as it offers a framework for designing portfolios that maximize return and minimize risk (McClure, 2021). According to Markowitz (1952), an investment’s risk comprises systematic and unsystematic risks. “A systematic risk is one that influences a large number of assets, each to a greater or lesser extent” (Ross et al., 2007). Systematic risks are also called market risks (e.g., recession) and cannot be eliminated by diversification (McClure, 2021). Conversely, “an unsystematic risk is one that affects a single asset or small group of assets” (Ross et al., 2007). Unsystematic risks are also known as asset-specific risks (e.g., supply shortage of a company’s input) and can be reduced through diversification. Markowitz (1952) argues that overall portfolio risk can be reduced to a certain point by diversification, as the inclusion of investments that do not move proportionally in the same direction at the same time eliminate unsystematic risk (Figure 1).

FIGURE 1 – MODERN PORTFOLIO THEORY

Sources: McClure (2021), & Ross et al. (2007)

Although modern portfolio theory was quickly and heavily embraced in the stock and bond markets, its application to real estate was much slower (Viezer, 2010). Only in the 1980s were diversification and modern portfolio theory applied to real estate. Today, savvy investors both diversify portfolios to include real estate and diversify within real estate investment portfolios.

DIVERSIFYING WITH REAL ESTATE

Miles and McCue (1984) were the first to show that real estate investments were significantly correlated with inflation, providing support for real estate as an investment hedge. Miles and McCure’s (1984) findings are highly relevant today, as recent examinations show that capital appreciation of real estate assets outpaces inflation (Wilson, 2021). Researchers have also shown that real estate investments have low correlations with stocks and bonds (Miles & McCue, 1982; Miles & McCue, 1984; Robichek et al., 1972; Viezer, 2010; Zerbst & Cambon, 1984), making them ideal for diversification (Markowitz, 1952; Ross et al., 2007).

The question of how much real estate to include in an investment portfolio has been widely debated (Firstenberg et al., 1988; Fogler, 1984; Giliberto, 1992; Hartzell, 1986; Irwin & Landa, 1987; Kallberg et al., 1996; Webb et al., 1988; Webb & Rubens, 1987; Viezer, 2010; Ziobrowski & Ziobrowski, 1997). Hartzel (1986) recommended smaller real estate investment allocations, such as 3% to 11%. Kallberg et al. (1996) and Giliberto (1992) offered similar recommendations of 10%. Firstenberg et al. (1988), Folger (1984), and Irwin and Landa (1987) argued that portfolios required 15% to 20% of real estate investments to achieve maximum diversification benefits. Ziobrowski & Ziobrowski (1997) concluded that 20% to 30% of an investment portfolio was necessary to realize the greatest return. Others have suggested that the majority of one’s portfolio should be comprise of real estate investments (Webb et al., 1988; Webb & Rubens, 1987). Despite the contrasting empirical evidence, research overwhelmingly supports the inclusion of real estate in portfolios to reduce risk and increase return (Viezer, 2010).

To illustrate, an examination of changes to home prices, land values, stocks, and bonds illustrates the benefits of Canadian real estate (Figure 2).

FIGURE 2 – ANNUAL CHANGES TO CANADIAN REAL ESTATE, STOCKS, & BONDS

Sources: Bank of Canada (2022), Farm Credit Canda (2021), Statistics Canada (2022), Yahoo Finance (2022)

The new house price index – a measure to assess changes to home prices in Canada – has shown consistency and strong year-over-year appreciations, particularly from 2019 to 2021 (Statistics Canada, 2022). Annual changes to Canadian farmland values have also been favorable and consistent, ranging from 4% to 8% in the period examined (Farm Credit Canada, 2021). In contrast, the S&P/TSX composite – the benchmark Canadian stockmarket index – has shown double-digit returns but also extreme volatility from 2016 to 2021 (Yahoo Finance, 2022). Over the last several years, Canada’s 10-year government bond has offered stability, but at the expense of nominal returns (Bank of Canada, 2022).

The risk and return benefits of real estate – demonstrated by past empirical examinations and in the above depiction – emphasize the need to include real estate in investment portfolios for diversification. According to Viezer (2010), “first decide the optimal allocation of real estate to a multiasset portfolio, and then decide how to diversify within the real estate portfolio.”

DIVERSIFYING WITHIN REAL ESTATE

Researchers have debated the most effective means to diversify real estate portfolios, as unsystematic risk can be reduced by property type, geographic, and financial diversification (Anderson et al., 2015; Benefield et al., 2009; Campbell et al., 2003; Cici et al., 2011; Cronqvist et al., 2001; Gobbi & Sette, 2014; Gyourko & Nelling, 1996; Hartzell et al., 2014; Ioannidou & Ongena, 2010; Ro & Ziobrowski, 2011; Santos & Winton, 2008).

According to Miles and McCue (1982), property type diversification offers the greatest return and the lowest risk. This has been replicated in studies of real estate investment trusts (REITs). Benefield et al. (2009) and Row and Ziobrowski (2011) show that diversified REITs outperform specialized REITs. Anderson et al. (2015) corroborate these findings, showing that diversified REITs have a “strong positive relationship” with return on assets, return on equity, and Q ratios (market value to asset replacement cost). Anderson et al. (2015) explain that “the diversification benefit comes from both the ability to select better-performing property types in ‘hot’ markets and the limited exposure to poorly performing property types in ‘cold’ markets” (p. 48). In addition to property type diversification, diversifying with private or public REITs has its advantages. According to Blackstone (2022) and Wang (2021), private REITs generally increase in times of rising interest rates and have less volatility, as compared to public REITs. As such, unsystematic risk can be reduced by REIT type (e.g., public/private) and property type (Gyourko & Nelling, 1996).

There is a significant body of research that shows the benefits of geographic diversification (Campbell et al., 2003; Cici et al., 2011, Cronqvist et al., 2001; Feng et al., 2021; Hartzell et al., 2014; Jud et al., 2021; Oertel et al., 2019). Hartzell et al. (1987) argued that diversification based on geography was strategic, given the performance benefits. As with property type diversification, geographically diverse REITs have been shown to outperform geographically concentrated REITs. According to Feng et al. (2021), “geographic diversification is associated with higher REIT values for firms that can be described as being more transparent” (p. 267). Recent work by Jud et al. (2021) and Oertel et al. (2019) adds to such geographic diversification research, showing international acquisitions offer enhanced portfolio returns.

Grissom et al. (1987) acknowledged the performance benefits of diversifying by both property type and geography. In fact, this research showed that diversification “across markets and property type reduced unsystematic risk more than across just markets or across just property types” (Viezer, 2010). Accordingly, Grissom et al.’s (1987) research supported the combination of property type and geographic diversification to reduce risk and increase returns. A lesser-explored area of research suggests that financial diversification may also reduce unsystematic risk among real estate investments.

There is an inherent risk in concentrated borrowing. According to Gobbi and Sette (2014), in times of crisis concentrated borrowing is detrimental to a firm’s access to credit. Moreover, Ioannidou and Ongena (2010) find that interest rates increase for clients over time and companies can negotiate better deals in new relationships with different banks. Therefore, it is strategic for real estate companies to diversify their borrowing to reduce unsystematic risk and negotiate better interest rates.

It is evident that diversification with and within real estate (e.g., property type, geography, and financial diversification) is necessary to maximize returns and minimize risk, but can endless diversification reintroduce risks?

OVER-DIVERSIFICATION & SPECIALIZATION

When strategically executed, diversification is a proven method to reduce risk and increase return (Allison, 2021). However, it is possible to over-diversify. Investments that are not strategically motivated are unadvisable (Olgun, 2005), as they add unnecessary risk to the portfolio without the added upside (Allyson, 2021). Lynch (1989) coined this phenomenon of worsening the risk and return tradeoff of an investment portfolio by over-diversifying as “diworsification.” This paper argues that the real estate diversification and performance relationship is curvilinear, similar to other strategies (Bhuian et al., 2005; Oswald & Brettel, 2017; Tsai et al., 2008). While diversification is necessary to reduce risk and increase return, beyond a certain level it can become detrimental to portfolio performance (Figure 3).

FIGURE 3 – DIVERSIFICATION & PERFORMANCE RELATIONSHIP

Diversification is also not advisable for new or small owners/operators. According to Kenton (2022), a specialization strategy focuses on limited scope and expertise for greater efficiency and performance. Specialization has been shown to create economies of scale, improve market positions, and enhance the bottom line of small businesses (Intihar & Pollack, 2012; Williams et al., 2018; Wilson et al., 2020). New or small real estate owners/operators are more likely to benefit from a specialization versus diversification strategy, as eliminating unsystematic risk is unlikely due to the small number of properties, geographic concentration, and individual property management. As these new and small owners/operators mature and expand, a diversification strategy becomes more advantageous and reduces their accumulated unsystematic risk.

STRATEGIC DIRECTIVES

So how much real estate diversification is enough, and how much is too much? Diversification with and within real estate is necessary for investors. However, Olgun (2005), aptly states that non-strategic real estate investments are problematic and often produce “negative abnormal returns.” Instead, when real estate investments are strategically included in multi-asset portfolios they increase return and reduce unsystematic risk (Miles & McCue, 1982; Miles & McCue, 1984; Robichek et al., 1972; Viezer, 2010; Zerbst & Cambon, 1984). Diversification within real estate is also required to eliminate unsystematic risk and realize the greatest level of return (Grissom et al., 1987; Hartzell et al., 1987; Jud et al., 2021; Miles & McCue, 1982; Oertel et al., 2019, Viezer, 2010). As Grissom et al. (1987) suggest, the best results come from combined diversification methods (e.g., property type and geography). It is further argued that financial diversification can also help reduce unsystematic risk and lower borrowing costs. In the context of Canada, investment portfolios that include residential real estate and farmland as core assets appear to both enhance value and offer stability. Diversification within these real estate investment categories, such as the types of residential real estate and various Canadian sub-markets, are also likely to enhance the overall portfolio of investors. As Peter Bernstein, one of the most prominent American economists wrote, “diversification of risk matters not just defensively, but because it maximizes returns as well, because we expose ourselves to all of the opportunities that there may be out there.”

REFERENCES

Allison, D. (2021). Signs of overdiversification. Investopedia. https://www.investopedia.com/articles/financial-theory/11/signs-of-over-diversification.asp

Anderson, R. I., Benefield, J. D., & Hurst, M. E. (2015). Property-type diversification and REIT performance: an analysis of operating performance and abnormal returns. Journal of Economics and Finance, 39(1), 48-74.

Bank of Canada. (2022). Selected bond yields. https://www.bankofcanada.ca/rates/interest-rates/canadian-bonds/

Benefield, J. D., Anderson, R. I., & Zumpano, L. V. (2009). Performance differences in property‐type diversified versus specialized real estate investment trusts (REITs). Review of Financial Economics, 18(2), 70-79.

Bhuian, S. N., Menguc, B., & Bell, S. J. (2005). Just entrepreneurial enough: the moderating effect of entrepreneurship on the relationship between market orientation and performance. Journal of Business Research, 58(1), 9-17.

Blackstone. (2022). Why private real estate. https://www.breit.com/literature/

Campbell, R. D., Petrova, M., & Sirmans, C. F. (2003). Wealth effects of diversification and financial deal structuring: Evidence from REIT property portfolio acquisitions. Real Estate Economics, 31(3), 347–366.

Candelon, B., Fuerst, F., & Hasse, J. B. (2021). Diversification potential in real estate portfolios. International Economics, 166, 126-139.

Chakrabarti, A. K. (1990). Organizational factors in post-acquisition performance. IEEE Transactions on Engineering Management, 37(4), 259-268.

Chakrabarti, A. K., & Souder, W. E. (1987). Technology, innovation and performance in corporate mergers: A managerial evaluation. Technovation, 6(2), 103-114.

Chen, J. (2019). Diworsification. Investopedia. https://www.investopedia.com/terms/d/diworsification.asp

Cici, G., Corgel, J., & Gibson, S. (2011). Can fund managers select outperforming REITs? Examining fund holdings and trades. Real Estate Economics, 39(3), 455–486

Cronqvist, H., Hogfeldt, P., & Nilsson, M. (2001). Why agency costs explain diversification discounts. Real Estate Economics, 29(1), 85–126.

Farm Credit Canada. (2021). FCC farmland values report. https://www.fcc-fac.ca/en/knowledge/economics/farmland-values-report.html

Feng, Z., Pattanapanchai, M., Price, S. M., & Sirmans, C. F. (2021). Geographic diversification in real estate investment trusts. Real Estate Economics, 49(1), 267-286.

Firstenberg, P. M., Ross, S. A., & Zisler, R. C. (1988). Real estate: the whole story. Journal of Portfolio Management, 14(3), 22-33.

Fogler, H. R. (1984). 20% in real estate: can theory justify it? The Journal of Portfolio Management, 10(2), 6-13.

Friedman, H. C. (1971). Real estate investment and portfolio theory. Journal of Financial and Quantitative Analysis, 6(2), 861-874.

Giliberto, S. (1992). The allocation of real estate to future mixed-asset institutional portfolios. Journal of Real Estate Research, 7(4), 423-432.

Gobbi, G., & Sette, E. (2014). Do firms benefit from concentrating their borrowing? Evidence from the great recession. Review of Finance, 18(2), 527-560.

Grissom, T. V., Kuhle, J. L., & Walther, C. H. (1987). Diversification works in real estate, too. The Journal of Portfolio Management, 13(2), 66-71.

Gyourko, J., & Nelling, E. (1996). Systematic risk and diversification in the equity REIT market. Real Estate Economics, 24(4), 493-515.

Hartzell, D., Hekman, J., & Miles, M. (1986). Diversification categories in investment real estate. Real Estate Economics, 14(2), 230-254.

Hartzell, D., Shulman, D., & Wurtzebach, C. (1987). Refining the analysis of regional diversification for income-producing real estate. Journal of Real Estate Research, 2(2), 85-95.

Hartzell, J. C., Sun, L., & Titman, S. (2014). Institutional investors as monitors of corporate diversification decisions: Evidence from real estate investment trusts. Journal of Corporate Finance, 25, 61–72.

Intihar, A., & Pollack, J. M. (2012). Exploring small family‐owned firms’ competitive ability: Differentiation through trust, value‐orientation, and market specialization. Journal of Family Business Management, 2(1), 76-86.

Ioannidou, V. and Ongena, S. (2010). Time for a change: Loan conditions and bank behavior when firms switch banks. Journal of Finance, 65, 1847–1877.

Irwin, S. H., & Landa, D. (1987). Real estate, futures, and gold as portfolio assets. Journal of Portfolio Management, 14(1), 29.

Jud, D., Wingler, T., & Winkler, D. (2002). The integration of retail space markets. Journal of Real Estate Portfolio Management, 8(1), 79-92.

Kallberg, J. G., Liu, C. H., & Greig, D. W. (1996). The role of real estate in the portfolio allocation process. Real Estate Economics, 24(3), 359-377.

Kenton, W. (2022). Specialization. https://www.investopedia.com/terms/s/specialization.asp

Lynch, P. (1989). One up on Wall Street: How to use what you already know to make money in the market. Penguin Books.

Markowitz, H. (1952). Portfolio selection. The Journal of Finance, 7(1), 77-91.

McClure, B. (2021). Modern portfolio theory: Why it’s still hip. Investopedia. https://www.investopedia.com/managing-wealth/modern-portfolio-theory-why-its-still-hip/

Miles, M., & McCue, T. (1982). Historical returns and institutional real estate portfolios. Journal of the American Real Estate and Urban Economics Association, 10, 184-198.

Miles, M., & McCue, T. (1984). Diversification in the real estate portfolio. Journal of Financial Research, 7(1), 57-68.

Miles, M., Cole, R., & Guilkey, D. (1990). A different look at commercial real estate returns. Real Estate Economics, 18(4), 403-430.

Oertel, C., Gütle, T., Klisa, B., & Bienert, S. (2019). US real estate as target assets for European investors: New empirical evidence of diversification benefits. Journal of Property Investment & Finance.

Olgun, S. (2005). The performance of acquisitions in the real estate investment trust industry. Journal of Real Estate Research, 27(3), 321-342.

Oswald, M., & Brettel, M. (2017). A five-country study on the curvilinear performance consequences of responsive and proactive market orientation. In The customer is NOT always right? Marketing orientations in a dynamic business world. Springer.

Parrino, J. D., & Harris, R. S. (1999). Takeovers, management replacement, and post‐acquisition operating performance: some evidence from the 1980s. Journal of Applied Corporate Finance, 11(4), 88-96.

Ratcliffe, C., Dimovski, W., & Keneley, M. (2009). Consolidation within the Australian real estate investment trust sector: An evaluation of the impact on unitholder returns. Journal of Property Research, 26(4), 283-307.

Ro, S., & Ziobrowski, A. J. (2011). Does focus really matter? Specialized vs. diversified REITs. The Journal of Real Estate Finance and Economics, 42(1), 68-83.

Robichek, A. A., Cohn, R. A., & Pringle, J. J. (1972). Returns on alternative investment media and implications for portfolio construction. The Journal of Business, 45(3), 427-443.

Ross, S. A., Westerfield, R. W., Jordan, B. D., & Roberts, G. S. (2007). Fundamentals of corporate finance. McGraw-Hill Ryerson.

Roulac, S. E. (1981). How to structure real estate investment management. The Journal of Portfolio Management, 8(1), 32-35.

Santos, J. and Winton, A. (2008). Bank loans, bonds, and information monopolies across the business cycle. Journal of Finance, 63, 1315–1359.

Segal, T. (2021). Diversification. Investopedia. https://www.investopedia.com/terms/d/diversification.asp

Statistics Canada. (2022). New housing price index, monthly. https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1810020501&pickMembers%5B0%5D=1.1&cubeTimeFrame.startMonth=12&cubeTimeFrame.startYear=1989&cubeTimeFrame.endMonth=12&cubeTimeFrame.endYear=2020&referencePeriods=19891201%2C20201201

Tsai, K. H., Chou, C., & Kuo, J. H. (2008). The curvilinear relationships between responsive and proactive market orientations and new product performance: A contingent link. Industrial Marketing Management, 37(8), 884-894.

Viezer, T.W. (2010). The application of modern portfolio theory to real estate: A brief survey. In Guerard, J.B. (eds) Handbook of Portfolio Construction. Springer.

Wang, T. (2021). Private real estate as a hedge against inflation. https://www.franklintempleton.ca/en-ca/articles/clarion-partners/private-real-estate-as-a-hedge-against-inflation

Webb, J. R., & Rubens, J. H. (1987). How much in real estate? A surprising answer. The Journal of Portfolio Management, 13(3), 10-14.

Webb, J. R., Curcio, R. J., & Rubens, J. H. (1988). Diversification gains from including real estate in mixed‐asset portfolios. Decision Sciences, 19(2), 434-452.

Williams, R., & Aaron, J. (2018). Specialization as a small business strategic approach. Small Business Institute Journal, 14(2), 1-15.

Wilson, G. A., Jogia, J. (2021). Canadian real estate & farmland: A hedge against inflation. https://avenuelivingam.wpenginepowered.com/canadian-real-estate-farmland-a-hedge-against-inflation/

Wilson, G. A., Perepelkin, J., & Zhang, D. D. (2020). The roles of diversification and specialization strategies in the entrepreneurial orientation and performance relationship. Journal of Small Business & Entrepreneurship, 32(5), 457-476.

Yahoo Finance. (2022). S&P/TSX composite index. https://ca.finance.yahoo.com/quote/%5EGSPTSE/history?period1=1262131200&period2=1640822400&interval=1d&filter=history&frequency=1d&includeAdjustedClose=true

Zerbst, R. H., & Cambon, B. R. (1984). Real estate: Historial returns and risks. Journal of Portfolio Management, 10(3), 5-20.

Ziobrowski, B., & Ziobrowski, A. (1997). Higher real estate risk and mixed-asset portfolio performance. Journal of Real Estate Portfolio Management, 3(2), 107-115.

This commentary and the information contained herein are for educational and informational purposes only and do not constitute an offer to sell, or a solicitation of an offer to buy any securities or related financial instruments. This article may contain forward-looking statements. Readers should refer to information contained on our website at www.alamstg.wpenginepowered.com for additional information regarding forward-looking statements and certain risks associated with them.

Commercial Core Farmland Mini Mall Opportunity

April 2022 Market Commentary

As inflation and interest rates are making daily headlines, recent economic developments are generating increased interest in alternatives. In our April 2022 Market Commentary, we discuss the performance of private real estate during periods of rising interest rates and inflation, the dynamics of real estate markets, and the connection between interest rates and cap rates.

FINAL-ALAM-Interest-Rates-Cap-Rates-Private-Real-Estate-Commentary-220427(02)

Core Farmland Mini Mall Opportunity

Hedge against inflation with alternative real estate investments

Multi-family real estate has long been recognized as one of the best ways to hedge against inflation. Property classes reflect an A, B, or C grade based on a combination of factors such as amenities, management styles, location, and tenant income levels. However, the best bets aren’t always shiny new Class A properties in hot housing markets with high rents. Avenue Living Asset Management holds B and C multi-family real estate assets and has a tried-and-true track record of providing A-class institutional quality management through customer-centric operations and services, capital improvements and a vertical integration model.

View Article

Commercial Core Farmland Mini Mall Opportunity

Harvesting returns

Sowing seeds for future alpha

Favourable tailwinds

References

Funds

Explore

Investor Relations

Legal

© 2025 Avenue Living. All rights reserved.