Nicola Wealth Real Estate (NWRE) has crossed the $10-billion milestone in the value of its investment portfolio, and its interests in three growing asset classes have played a major role in the Vancouver firm’s success.
While crossing that threshold in and of itself isn’t super meaningful to Alex Messina, the vice-president of acquisitions with the company, he says the mark was reached thanks to a portfolio mix that has found the right targets in multifamily rental buildings, industrial space and self-storage sites.
NWRE has very little office exposure, Messina told RENX in a recent interview about the team’s strategy and market insights. “That has allowed the fund to perform particularly well in the current environment. When you look at some of the other open-ended funds, they have significantly more exposure to office assets, which has put more downward pressure on their valuations and returns.”
NWRE is a subsidiary of Nicola Wealth, a Vancouver-based wealth planning and advisory firm. The property side of the organization manages three real estate funds available to Nicola Wealth clients which oversee those $10.1 billion in assets.
Among the funds are the Nicola Canadian Real Estate Limited Partnership, the Nicola U.S. Real Estate Limited Partnership, and the Nicola Value Add Real Estate Limited Partnership.
“Philosophically, we have never been large office investors because of the capital required to sustain those assets,” Messina said, noting tenant improvements and inducements in the office market are creating “capital drag”.
Other asset classes see robust tenant demand
Self-storage, multifamily rental and industrial has been a more attractive source of cash flow, he said.
Demand for rental homes and industrial space continues to hold up, while barriers to entry for investors and owners continue to reinforce their profitability. This is especially true in markets like Toronto and Vancouver which are seeing a large share of Canada’s booming population arriving, seeking homes, consuming products and requiring work space, Messina said.
Self storage was once considered an alternative asset class in the real estate universe but not anymore. “We operate eight locations under the brand Advanced Self Storage, and our locations are all located in the Lower Mainland and in Greater Victoria,” he said, adding that bigger towers and smaller homes mean more people need a place to keep their stuff.
Messina pointed to the Boundary Road/Lougheed Highway node in Vancouver and Burnaby as an example.
“There are a number of self-storage facilities, including one of our own,” he observed. “The reason we are all in that location is that it’s close to Brentwood, and in Brentwood there are many towers and many more to come.”
On the B.C. multifamily file, Messina’s team is interested in holding apartments in Vancouver, Victoria and Kelowna. “Our strategy is to locate in major markets and strong secondary markets where there’s . . . growing population.”
The firm is also developing new sites. “When you look at our multifamily rental portfolio and pipeline, we have 2,000 units in our development pipeline between Vancouver and Victoria,” Messina said.
For instance, Nicola is working on a 50-50 partnership with Townline in Coquitlam called Meridian, which will have 267 secured rental homes in a 37-storey tower. The building is expected to complete toward the end of this year.
“More recently, we submitted a rezoning application for a site that we own in the City of Vancouver, in Mount Pleasant, along Main Street between 5th and 6th avenues,” he said. The company aims to redevelop the site of the former City Centre Motel into two towers with 446 purpose-built rental homes.
“Our focus on industrial is really split between multiple markets: Vancouver, Calgary and Toronto, with our biggest position being in the Toronto market,” he added.
Steady growth expected next three to five years
With interest rates potentially continuing the decline after recent, prolonged highs, Messina expects more buyers and sellers to come off the sidelines.
“There are still strong fundamentals for certain asset classes, particularly in the Lower Mainland,” Messina said. “For multifamily rental, there’s significant population growth as a result of immigration and other contributing factors, and the municipal timelines to deliver new supply are so long that there is no way that new supply can keep up with the existing level of demand, let alone growing demand.”
That’s a recipe for rental rate growth. “In the three- to five-year timeline, I would expect that growth to continue at a more steady pace,” he said.
Lower interest rates would signal the worst is behind us, Messina said. “That in itself, should eventually contribute to greater investor confidence.”
On drivers of growth, Messina said Vancouver’s technology sector will likely play a larger role in demand for homes and job space (and probably storage too), but it’s not clear where all the homes will come from, especially amid Canada’s continued population surge.
“I think there needs to be more creative government solutions, ranging from all levels of government, to continue to promote housing,” he said, adding that access to skilled labour and trades is also a major issue for developers and builders. “There needs to be a solution to continue to grow the talent pool in the labour force, and the construction workforce.”
Messina emphasized that plenty of angst in real estate is focused on office.
“When you look at major markets in Canada or other asset classes like industrial, multifamily and retail, even though we’re not as active in the retail space, they’re all very healthy markets,” he said. “So, despite vacancy maybe increasing slightly in the industrial markets in Vancouver and Toronto, the vacancy rates are still at, or near, long-term historic lows, and the markets are still very strong.”
