PV, Mit & Jeff
Every Saturday we step back from the numbers and look at the bigger picture. Not what happened this week, but why we do what we do. Why apartments. Why Southwestern Ontario. And why the next ten years matter more than the last ten.
We do not invest in apartments because they are trendy. We invest in them because people will always need a place to live, and Canada does not have enough places for them to live.
Today's thesis: Canada's housing shortage is structural, not cyclical. And the investors who position themselves on the right side of that gap will compound for decades.
Homes needed in Canada by 2030 to restore affordability, according to CMHC. Canada currently builds roughly 240,000 to 260,000 housing units per year. At that pace, the gap widens every single year. This is not a prediction. It is arithmetic. And the asset class that sits directly in the path of that demand is purpose built rental apartments.
Canada has underbuilt housing for over a decade. Population has grown faster than construction permits, approvals, and completions can keep up. Immigration policy brings in roughly 500,000 new permanent residents per year, plus international students and temporary workers. Most settle in urban centres. The math is simple: more people need more homes. When supply cannot keep up, rents rise. When rents rise, apartment buildings become more valuable. This is not a real estate cycle. This is a demographic reality. The gap between where we are and where we need to be is measured in millions of units. And it will take years to close, even if construction starts accelerating tomorrow.
Single family homes have appreciated enormously in Canada, but as an investment they carry concentration risk. One property, one tenant, one vacancy and your cash flow goes to zero. Condos face a different problem: rising condo fees, special assessments, and boards that investors have no control over. Purpose built rental apartment buildings are different. You own the entire building. You control the operating expenses. You decide when to renovate, how to screen tenants, and what rents to charge. With 20 or 50 or 100 units in one building, vacancy in any single unit barely moves the needle. Cash flow is diversified across dozens of tenants paying rent every month. That structural diversification is what makes apartment buildings one of the most recession resistant asset classes in real estate. People always need a place to live. Demand does not disappear during a downturn. It shifts from buying to renting, which actually increases demand for the exact product we own.
London, Ontario · CMHC Financing + GST Rebate Eligible
Government Grants + De-Risked Capital Stack
Targeted Returns: 24% to 27% Annualized
Toronto and Vancouver dominate headlines. But some of the strongest rental fundamentals in Canada are in secondary markets like London, Chatham, and Ingersoll. Here is why. Cap rates in Southwestern Ontario are significantly higher than in the GTA. That means the income you earn relative to the purchase price is better. Vacancy rates sit under 2% across our portfolio, compared to the provincial average of 3% to 5%. Population is growing as remote work and affordability push families out of Toronto. London alone has added thousands of new residents in the past three years. The University of Western Ontario and Fanshawe College bring a steady pipeline of demand. And construction costs are lower, meaning renovations that drive NOI growth deliver a higher return on every dollar spent. We buy here because we know these markets. Our team lives here, manages here, and has been operating here for years. That local knowledge is a competitive moat that cannot be replicated from a Bay Street office.
Interest rates have come down from their peak, but acquisition competition has not fully returned to the market yet. That creates a window. Sellers who held through the rate hike cycle are now ready to transact. Financing terms from CMHC are favorable for purpose built rental. And the supply gap we described above is not getting smaller. It is getting larger every quarter. The investors who position themselves during this window will benefit from the compounding effect of rising rents, increasing property values, and an expanding portfolio. That is exactly what we are doing at Foundation Capital. We are not waiting for the perfect moment. We are building through it, with 350+ units under management and a 350 unit purpose built rental tower now in development in London. The thesis is simple: own apartments in growing Canadian markets, manage them better than anyone else, and let time and demographics do the heavy lifting.
Cash-Flowing Apartment Buildings · Southwestern Ontario
Targeted Total Return: ~15%
Distributions: 7% Annualized, Paid Monthly
"I spent years looking at condos in Toronto and the numbers never worked. Between condo fees, maintenance, and the stress of dealing with tenants, I was always negative cash flow. Foundation Capital gave me the real estate exposure I wanted without any of the headaches. Monthly distributions, no tenant calls, and the returns have been better than anything I could have done on my own."
This week PV, Mit, and Jeff break down the latest portfolio updates, new unit creation at our London buildings, and what the April 30 closing means for investors looking to lock in before the next unit price change.
Got a question about the fund, the portfolio, distributions, or the thesis behind our strategy? Reply to this email. We answer the best ones every Thursday. Nothing is off limits.
To your success,
PV, Mit & Jeff
P.S. If this thesis resonates and you have been thinking about real estate but have not pulled the trigger, the April 30 closing is 19 days away. A 30 minute call is all it takes to see if this is the right fit. Book your call
