Joshua Will has pulled off the side of the road to talk with me about real estate. He’s in the heart of rural southern Ontario, on his way to visit a property in one of the secondary markets that his real estate investment trust (REIT) favours. The president of Woodbridge, Ont.-based Virtus Capital Corporation and executive vice-president of capital markets for Virtus Diversified REIT is confident about the sector, but site visits are never a bad idea.
The REIT’s eight properties are in Parry Sound, Sudbury, Pembroke, Olean, Timmins, Guelph and Caledonia. Measured by purchase price, more than half of the portfolio is in multi-unit residential properties. Retail accounts for a little more than a quarter of holdings. The rest is in senior living and office space.
“We’re kind of a new kid on the block,” Will said. The firm bought its first property in October 2020. “Our niche is to be the opportunistic buyer of real estate. We want to build our portfolio based solely on cash flow.”
Virtus is not to be confused with VirtusCapital, an unregistered outfit flagged by the Ontario Securities Commission.
“We’re seeing a lot of opportunity to take advantage of a dip in the market, and we can be very opportunistic by buying some of these properties” Will said.
Other real estate investment managers are bailing on smaller markets because they’re more confident that major markets will bounce back. Some are freeing up cash to buy in Toronto, Calgary and other cities.
“Valuations tend to be quite sticky in the major metropolitan areas,” Will noted. Managers holding assets in both urban and rural markets are opting to dump the latter.
“Maybe that’s to free up capital for themselves, to take advantage of the dip, and buy some of the major markets.”
Office space comeback
Canada’s real estate sector has been volatile since the Covid pandemic drove residential real estate profits through the roof, even as office buildings emptied out under lockdown orders. The subsequent climb in lending rates has punished residential developers. But we may be in the early days of an office-space comeback.
“I’d say that they’ve turned a corner,” Will said. “It depends on which market you’re looking at. … This whole back-to-work mandate from the Big Six, as well as some of the government agencies, is really driving compression on the availability of floorspace out there.”
It’s not all smooth sailing though.
Trez Capital Mortgage Investment Corp., one of Canada’s largest private commercial mortgage lenders, suspended redemptions temporarily for five of its funds on Monday.
The firm is dealing with “elevated unitholder redemption requests, ongoing loan funding obligations and completing active loan workouts.” It is “evaluating strategic alternatives,” according to a statement.
Will declined to comment, but two separate sources told me that talks had been underway to pair Trez up with Hazelview Investments. That firm has been down a similar path, having frozen redemptions on its Four Quadrant fund twice between 2023 and 2024. We’ve agreed not to publish our sources’ names because neither is authorized to speak publicly about the negotiations.
Advisors and clients both understand that gating is a fact of life in private markets. And mortgage lenders (with some exceptions) are not known for leaving gates in place for extended periods. Trez deserves a bit of patience.
And just maybe, the market deserves a fresh look. “I’m all around bullish,” Will said.