Investors in today’s market need to understand key trends and perfect their strategies—Nicola Wealth can help
Alex Messina, director of acquisitions for Nicola Wealth Real Estate (NWRE), says the key to becoming a real estate pro is understanding the most influential trends in the BC marketplace, which is what drives the company’s success—and it can drive yours, too.
He advises paying attention to the housing shortage, a topic that is widely regarded in the real estate community, as well as immigration and interprovincial migration in BC, which have been outpacing housing starts for the last decade. As home prices continue to increase, so do opportunities for rental housing.
“Until recently, there were decades in which the supply of new rental housing was limited, so the existing stock is dated and doesn’t have the same amenities and features as condo product, for example,” Messina says. “NWRE has over 1,500 units in our development pipeline in Lower Mainland and on Vancouver Island.”
Another trend to keep an eye on is the continued demand for strata industrial, given the constrained supply of industrial land and lack of space available for lease, particularly for small- to mid-sized users. Low interest rates make ownership more affordable, and over time, strata industrial units have become a widely accepted and liquid asset class that can be purchased by both owner-users and investors.
Once considered an alternative asset class, self-storage has become sought after. No longer your single-storey, drive-up format, self-storage has evolved to temperature controlled, modern, multi-level facilities in urban areas.
“The advantage is that rents can be moved with the market as customers are not locked into long-term fixed-rate leases,” Messina says. “A lot of capital is chasing opportunities to acquire and develop self-storage as populations increase, especially in urban areas where there is higher density development.”
Mount Pleasant is buzzing with activity from office tenants looking to break free from downtown, high-rise settings. The demand for creative office space—think exposed ceilings over dropped t-bars, and polished concrete floors instead of pastel burbur has turned this industrial neighbourhood into a hub of activity.
“These tenants are typically in the technology and life-science sectors, and they appreciate Mount Pleasant’s position outside of the downtown but close to amenities and desired residential areas,” Messina says.
To capitalize on current real estate opportunities, consider covered land plays—acquiring income-producing properties that are in the path of progress and that will have a higher and better use in the future.
Investors can maximize their success in real estate by avoiding common mismoves that can have important impacts on their activities. For example, Messina warns against treating real estate as anything less than an active business.
“It’s not as simple as clicking a button to buy a property and letting a property manager take it from there,” he says. “There is a lot of work that goes into underwriting good investment opportunities, completing due diligence and closing. And from there, the real work begins where you need to understand mortgage financing, asset management, and leasing to maximize value. We have a team with specialists in all of these disciplines.”
Avoid putting all of your real estate “eggs in one basket”, opting instead for diversity by asset class and geography, and watching for fund opportunities that are open ended, which means they have liquidity.
Preparing for changes in the market means responsible underwriting—don’t get trapped into thinking that prices will just keep going up; make sure the numbers work based on today’s values and costs.
“It also means you need to be disciplined in your approach to acquisitions,” Messina says. “We take the view that if we can’t get a deal at the right price, there is always another bus coming. We also look for multiple ways out of the room.”
For example, if you acquire raw land and the approvals are delayed or stalled, there are carrying costs. But if there are existing buildings with holding income, you can continue to lease those buildings. “We like to have back-up plans,” Messina says. “It helps us sleep at night.
Remember that when markets turn, premier locations will typically offer more flexibility from leasing, sales and liquidity standpoints. From a leasing perspective, NWRE prefers buildings with good leasing appeal that will attract a wide variety of tenants.
“We can’t control if the leasing market softens, but we want to make sure that we have properties that will attract strong interest from tenants so we can generate cash flow,” Messina says.
NWRE also leans into de-risking strategies, for instance, pre-selling strata industrial projects instead of trying to ride up the pricing wave. “This also applies to renewing tenant leasing early,” Messina says. “In 2019, we went out of our way to renew a number of large tenants and that strategy paid off when the pandemic emerged in 2020.”
Finally, investors need to be prepared for the inevitable rise in interest rates. NWRE has been proactive at locking in mortgage rates for the company’s long-term leased assets to hedge against higher interest rates in the mid-term.
“This also impacts our acquisition strategy as we look for assets where we can increase rents in the future to off-set rising interest rate costs, instead of acquiring assets that are leased long term at fixed rents,” Messina says.
This is just one aspect of NWRE’s strategy, which also includes having an entrepreneurial approach to investing in real estate through which their team of more than 50 professionals can react quickly to off-market opportunities and use a creative lens to find ways to add value instead of just buying existing real estate to clip a rental coupon.
“Most importantly, our real estate team and all staff at Nicola Wealth are personally invested in our funds so we have our own skin in the game,” Messina says. “Our goal is to provide the best possible return for our investors, which includes ourselves.”
Learn more at realestate.nicolawealth.com
This material contains the current opinions of the author and such opinions are subject to change without notice. This material is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. All investments contain risk and may gain or lose value. Nicola Wealth is registered as a Portfolio Manager, Exempt Market Dealer and Investment Fund Manager with the required provincial securities commissions.