Rates elevated. Prices soft. Amateur buyers gone. Insolvencies climbing. This is the exact acquisition window FCPRET has been waiting for, and it does not open often. Today, three signals the window is open, and why the private REIT is the vehicle built to take it.
PV, Mit & Jeff
Three macro signals are pointing the same direction. And the private REIT structure is the only vehicle that gets to actually use them.
Every asset class has a decade in it when the disciplined operator gets to buy on their own terms. Southern Ontario multi family apartments are in that decade right now. Not because the sector is broken. Because the sector is finally priced sensibly, and the amateur competition that dominated 2020 and 2021 is nowhere to be found.
Three macro signals are all pointing the same direction. Read together, they say the window we have been waiting on is open. Right now.
Better Dwelling reported earlier this month that the Canadian residential real estate correction, measured in inflation adjusted terms, is now the largest on record. Prices are back to 2016 levels. That correction has bled directly into the mid market apartment building trade. The exact same building in London or Chatham that traded at a 4% cap in 2021 is trading closer to a 5.5% cap today. That is a materially different acquisition on materially better going in yield.
RBC's most recent housing affordability index puts Canadian affordability at four year highs, still comparable to 1990s bubble conditions. Every year that stays true, rental demand for the buildings FCPRET buys gets structurally stronger.
Bank of Canada rates and the mortgage stress test priced most weekend investors out of the small apartment building market by early 2024. What is left is a much thinner pool of professional operators, and a much less crowded acquisition environment.
The buildings we are looking at today used to attract five and six offer bidding wars in 2021. Today we are often the only serious bidder at the table, on the same asset, at a meaningfully better price. That is the environment disciplined operators buy in. Not the environment they wait out.
Ontario consumer insolvency filings surged in May to the second highest level on record. Business insolvencies rebounded to a four year high in the same month. That distress is starting to work its way into the small landlord segment. The private buyer who over paid at a 3.5% cap in 2021 on a 40% loan to value is now sitting on a building that will not refinance at 2026 rates. Some of them are choosing to sell rather than roll.
FCPRET does not need distress to buy well. But when distress creates an off market seller who has to move, a private REIT with cash and operating capacity is the buyer they call.
A public REIT trades on a stock exchange. When retail investors get scared, they redeem. When they redeem, the fund manager becomes a forced seller of buildings into a soft market. That dynamic is why several major Canadian public REITs have been taken private at discounts to net asset value in the last twelve months.
FCPRET is structured deliberately differently. Private units, no mark to market volatility, and no forced selling pressure on the operating side. Our team gets to be the buyer in a window like this, not the seller. Every FCPRET unit purchased right now is capital that gets deployed against the exact softest apartment pricing Southern Ontario has seen in a decade.
That is not a marketing line. It is the whole structural argument for the private REIT vehicle, and it only actually pays off in a window like the one we are in right now.
$10K Minimum · RRSP / TFSA / RESP / LIRA Eligible · Also Cash
Targeted: 15% Annualized (7% cash monthly + 8% appreciation)
Our Apartment Building REIT across Southern Ontario. Open to new subscribers this month, on the front side of the acquisition pipeline.
FCPRET's acquisition filter is specific. We do not underwrite a building on going in yield alone. We underwrite on going in yield plus the operating runway to force NOI higher after we take the building over. That runway comes from two sources.
Re densification. Oversized 1970s three bedrooms that the current market no longer wants at the size they were built. We wait for voluntary turnover and split those floor plates into two or three purpose sized workforce units, on the exact playbook we walked through on Thursday. Same envelope, materially higher NOI per building.
Adaptive reuse. Underutilized ground floor space, dead storage rooms, and mid century layouts that were never designed for a 2026 tenant profile. Rethinking each of those inside the existing building envelope opens up doors and revenue lines that were sitting in plain sight the whole time.
A building we acquire at a 5.5% cap today, with that operating runway pre baked in, does not stay a 5.5% cap building. It becomes a materially higher NOI building over a two to three year hold. The FCPRET investor pays for the going in yield and quietly participates in the compounding on the way through.
Every year since inception, FCPRET has met its targeted return by doing exactly that trade at scale. This is the environment where that trade is easiest.
The Wellington file continues to move. Resubmission going in this week. Public comments window open with the City of London Planning until August 31. The CBC piece from last week is worth ten minutes and worth forwarding to anyone in your circle who cares about the London housing file.
Public comments open until August 31.
Roughly 1,004 Units Across Two Towers · London, ON, On The Wellington Gateway BRT
Tranche 1 closed. Accredited investors interested in Development Fund III should signal now.
Have a good week,
PV, Mit & Jeff
P.S. Windows like this one do not stay open forever. Rates soften, amateur buyers come back, and the pricing tightens. If you want to be on the buying side of this cycle with FCPRET, subscribe here. $10K minimum, monthly cash distribution, registered account eligible.
