Canadian Investors Interest in US Commercial Real Estate
Over the past four years, the US has seen an influx of Canadian investors into the commercial real estate market. While well capitalized pension funds and publicly traded REITs seek to diversify their holdings, private investors are looking at the returns in Canada and are headed south to reap the rewards.
The return margins have shrunk in the past 18 months. Cap rate parity is occurring in major east and west coast markets with those of the major Canadian markets. As a result, investors have focused on secondary markets across the US. These markets are sizable (for instance, if Buffalo were included in the top Canadian MSAs, it would rank #7), but offer more risk: Tenants are much more mobile than in Canada; the developer pool in each market is that much greater; banks are aggressively pursuing commercial real estate loans for local clients.
With that being said, the US market is healthy and is an excellent place to invest. A few important things to consider are property management and financing strategy. It’s always best to have a property manager that knows the market and has good tenant relationships. With financing, the lender pool in the US is vast and a relationship with a mortgage banker that can navigate the market is imperative.
By Kevin Heiss, Managing Director, Largo Capital Limited