Population ‘moving south in droves’ creates opportunities for U.S. real estate investments

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More investors are turning to alternative investments such as private real estate, equity and debt to help balance their portfolios.

Real estate is particularly appealing to Canadians, both at home and across the border in the U.S. Perhaps not surprisingly, Canadians made up the largest share of foreign buyers of U.S. property, or 11 per cent of purchases, from April 2021 to March 2022, followed by Mexicans, at 8 per cent, and Chinese, at 6 per cent, according to the National Association of Realtors.

For investors, real estate may not sound like a great investment today, given rising interest rates. However, some argue it’s an attractive time to buy into the asset class, particularly the lenders.

“Floating-rate assets paired with attractive characteristics can offer investors a way to mitigate inflation risk,” says Dean Kirkham, president and chief operating officer at real estate financier Trez Capital in Vancouver.

Globe Advisor spoke recently with Mr. Kirkham about how alternative assets, specifically real estate, can fit into Canadian investors’ portfolios.

What are some of the key trends you’re seeing right now in real estate?

The biggest thing we’re seeing on both sides of the Canada-U.S. border is a massive shortfall in housing due to a combination of rising immigration and more restrictive lending since the 2008 global financial crisis.

In the U.S., where we’re focused, there are two markets – the U.S. sunbelt region and the rest of the country. The population is moving south in droves. While inflation and rising interest rates are a concern, the population is still growing and may accelerate due to migration trends.

So, it’s providing a lot of opportunity in these markets that we’re not seeing in the rest of the U.S. We’re focused on investment in the southern U.S. for this reason. We feel confident in the values in this market from a lender’s perspective and the possibility of achieving higher returns on our investments – even better than what we were getting in the past.

Why are higher interest rates an opportunity for investors?

Rising interest rates have cooled the housing market, yet there’s still a lot of demand.

Developers who can get projects off the ground in this high-interest rate environment are well-positioned because of the housing shortfall. Higher rents are also making these projects more viable, creating sufficient returns for developers to launch projects and move forward. That’s where we see the opportunities.

What are you hearing from advisors on your strategy?

When it comes to alternative assets, advisors are looking for expert asset managers who have experience and understand what’s happening in a particular space, such as real estate in our case.

Many like real estate because it’s a relatively stable investment backed by strong macroeconomic trends. Advisors are also interested in achieving stable returns as part of a broader portfolio mix.

This interview has been edited and condensed.

– Brenda Bouw, Globe Advisor reporter

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