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Real estate has always been a hot topic among investors, but experts warn not all assets in the sector should be treated the same. Whether residential or retail, office or industrial, public or private, real estate investing has many nuances and considerations for investors.
In a recent LinkedIn Live event, Dennis Mitchell, chief executive officer and chief investment officer of Starlight Capital in Toronto, spoke with Globe Advisor reporter Brenda Bouw about current trends in real estate investing. Here’s a sampling of that conversation:
How should investors approach real estate investing today?
It often depends on your stage in life and investment goals. For someone younger who’s just getting started in life and doesn’t have a lot of investible assets – and those assets need to be liquid – I would suggest getting into the sector through diversified mutual funds or exchange-traded funds. Someone a bit older and more established in their career, who can put away more capital that doesn’t have to be as liquid, might look at products that are a little higher on the risk spectrum, like private real estate or private infrastructure. But that’s where it can get more challenging because the private landscape has a lot of variety. It also requires more experience and sophistication. That’s where I recommend having a good investment partner to help.
How are you navigating rising rates as an investor in this sector?
The cost of financing has gone up, but it’s affecting [the different parts of] the sector differently. Companies that don’t have a lot of debt aren’t as affected by higher interest rates. Those are the companies we like to invest in. Not only are their borrowing costs under better control, but they also have the potential to deliver higher cash flow growth.
What subsectors within real estate do you like the most right now?
One is industrial real estate, which includes warehouses and logistics centres. It’s not just e-commerce driving demand for industrial real estate but also the rise in consumerism worldwide, particularly in developing countries with a growing middle class. Another area we like is cell towers and data centres, which are being driven by the creation and rapid growth of data in the world today.
You noted the retail subsector is performing a little better than expected amid the rise in e-commerce. What’s happening there?
Not all retail real estate is the same. A company that has most of its rents from consumer staple retailers like drug stores and grocery stores will have a very different risk-return profile than a mall dominated by consumer discretionary items like electronics and apparel, for which there’s more economic sensitivity. If you dig into it a bit more, you can find great companies that have the potential to do better.
This interview has been edited and condensed.
- Brenda Bouw, Globe Advisor reporter
Must-reads from Globe Advisor this week
This advisor wanted to be a neurosurgeon before her father suggested a career in finance
In this new series, Behind the Advice, we ask advisors about their relationship with money from a young age, lessons learned over the years, and how their experiences shape the advice they give clients today. Maili Wong, senior wealth advisor and senior portfolio manager with The Wong Group at Wellington-Altus Private Wealth Inc. in Vancouver, shares her personal experiences. As told to Brenda Bouw.
How business owners can get ready for the CEBA loan forgiveness deadline
Canada Emergency Business Account (CEBA) loans were a $49.2-billion lifeline for 898,271 businesses trying to survive pandemic closures, but the Canadian Federation of Independent Business (CFIB) says many will struggle to meet the deadline to repay and take advantage of some loan forgiveness. That deadline was recently extended, but only by a few weeks to Jan. 18, 2024 from Dec. 31, 2023. “Only 50 per cent of small business owners are back to normal levels of sales [compared with] pre-pandemic levels,” says Dan Kelly, the CFIB’s president, chief executive officer and chair. Alison MacAlpine reports.
Passion investing drives interest in classic cars but maintaining value requires diligence
It’s vintage cars and coffee season; and after being inspired at these fall auto shows, a client may decide to purchase their dream antique vehicle. But does it make sense financially? Classic cars – vehicles classified as 25 years or older – are the second-highest passion investment for high-net-worth (HNW) individuals globally after art, growing by 25 per cent in value in 2022 from the previous year, according to the Knight Frank Luxury Investment Index. Data firm Statista estimates the classic car industry has grown to US$31.6-billion in revenue worldwide. Deanne Gage has more.
How advisors can prevent new clients from feeling buyer’s remorse
For many advisors, the challenge of growing a business isn’t just attracting new investors, but also bringing them and their assets on board – and keeping them. Advisors need to ensure the initial transfer goes smoothly and warn of any costs, delays or potential hiccups that could happen during the process. They also need to manage the transaction’s emotional side to prevent their new clients from feeling buyer’s remorse. “Managing the emotional aspect is equally important as the technical side,” says Norm Trainor, founder and chief executive officer at advisor coaching firm The Covenant Group Ltd. in Toronto. Brenda Bouw explains.
How alternative investments are redefining portfolio construction
The 60/40 portfolio doesn’t quite cut it anymore. A standard allocation for portfolio management of 60 per cent equities and 40 per cent bonds revealed its warts in 2022. In fact, Morningstar Canada noted that every Canadian balanced index it tracks decreased in value for the first time since 2007. That experience has reinforced the importance of alternative investments, which have long been the purview of institutional investors. Now, advisors and retail investors are using alternatives more widely to diversify portfolios further and deliver stronger performance. These include private debt and equity, commodities, infrastructure and real estate. Joel Schlesinger has more.
Also see:
Why this money manager is trimming U.S. tech stocks and adding more Canadian industrials
Why more investors are seeing fixed income through a green-tinted lens
IPOs offer tempting returns, but is now the right time to invest?
Jobs data to show labour market’s health heading into Q4 in this week’s Advisor Lookahead
What you and your clients need to know
Insurance agents facing penalties and discipline after Ontario regulators uncover ‘harmful’ sales practices
Ontario’s insurance regulator has launched dozens of enforcement actions against agents who work at some of Canada’s largest insurance brokerages after a review uncovered troubling sales practices. The Financial Services Regulatory Authority of Ontario (FSRA) released two separate compliance reports that reveal the regulator took enforcement actions against 65 life insurance agents after examining a sample of about 130 advisors at three separate managing general agencies. The FSRA review found the agents broke about 184 rules under the insurance act. Clare O’Hara provides the details.
Bond-market turmoil suggests investors are betting on higher interest rates for a longer period of time
The months-long rout in global bond markets reached a fever pitch this week, as investors increased their bets that the world economy is entering a new era of stubborn inflation and persistently hawkish central banks. Yields on long-term Canadian and U.S. government bonds hit 16-year highs on Tuesday, before falling slightly on Wednesday. Bond yields rise when prices drop. Mark Rendell has more.
Your finances and investments are getting pounded right now – here’s how to stand your ground
As a plague, inflation is not in COVID-19′s league. But it’s closer than you think, especially in the fall of 2023. Worries that global inflation is entrenched have slammed the bond and stock markets in ways that directly affect your financial well-being. Anyone renewing a mortgage is caught in the latest financial market developments. Borrowers of all types have reason to be concerned, as do retirees and people close to retirement. Rob Carrick explains.
Rebalancing your portfolio should always be top of mind
The most underrated and underappreciated aspect of financial asset management is rebalancing. Even professionals, in my experience, underestimate its importance. Sometimes it’s barely an afterthought. This is unfortunate because it’s of vital importance. It certainly dwarfs a decision like whether one should sell one bank and buy another, which is the type of decision asset managers spend an inordinate amount of time on. Rebalancing is simply adjusting a portfolio’s asset, sector or individual mix with time to reflect changes in prices. Tom Czitron provides his rationale.
– Globe Advisor Staff