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Why you should factor in your real estate when you make all investment decisions –



Seventy per cent of Canadian households own their own home. Some also have vacation homes and income properties. Despite this, real estate is rarely considered when determining an investor’s mix of financial assets. GICs, bonds, stocks and pensions are included, but real estate is kept separate.

At our firm, we generally split out the primary home and treat it as a safety cushion that can, if necessary, fund the cost of a retirement home later in life. This is a reasonable approach in most situations, but if you’re living in a city where multi-million dollar houses are common and home equity is the bulk of your wealth, it may be time to start factoring your properties into investment decisions. This means adjusting bond and stock holdings to complement your dominant asset.

From people I’ve talked to, however, there’s no consensus on how to factor in large property holdings. And certainly, every situation is different. My goal here is to give real-estate-heavy investors some things to think about.

Economic drivers

To start, you should know the investment characteristics of your real estate. For instance, the price of your home is tightly linked to the regional economy, specifically the growth, diversity and demographics of the job market. I say regional because Calgary is different than Windsor is different than Montreal. Some markets are heavily influenced by a particular industry, and others by unique factors such as immigration and foreign buyers.

Real estate is highly sensitive to interest rates. Since the 1980s, house prices have benefited from steadily declining mortgage rates. This year, near-zero rates are helping support prices in the face of job losses, rising debt loads and an uncertain economic future.

To understand how important rates are, it’s useful to look at commercial real estate. In this world, prices are put in terms of capitalization or cap rates, which is the annual income earned (after costs) as a percentage of price. A $5-million building that produces $250,000 of income has a cap rate of five per cent. The lower the rate, the higher the valuation.

The sensitivity is revealed when you make a small change to the cap rate. In the example above, if income stays the same but potential buyers demand a seven per cent return (due to rising interest rates), the property value falls to $3.6 million. A rate increase of two percentage points translates into a 28 per cent price drop.

Your real estate

What you own, and how you own it, are also important considerations. For instance, the amount of debt against a property influences how you factor it in. A house or condo with no mortgage is more stable than one that has a large loan attached (as a percentage of the value). In the latter case, the home equity can double or disappear in a heartbeat.

How you categorize an income property depends on whether it produces a positive annual return (after expenses, depreciation, and taxes) or has only a modest (or negative) cash flow. The former can be slotted in with your stable income securities. The latter is a speculation on higher prices and belongs in your higher-risk bucket.

No hard-and-fast rules

A typical Canadian income portfolio that is heavily invested in utilities, banks, telecommunications and REITs is fuelled by the same forces as your real estate, namely the domestic economy and interest rates. You might consider holding fewer of these types of stocks (I know, this is sacrilege in Canada) and instead owning a higher proportion of foreign stocks. This will improve your overall diversification by giving you exposure to different countries and currencies, as well as industries like technology and health care, which are not well represented in the Canadian market.

Life insurance stocks are good income alternatives, as are reset preferreds. Both tend to do well when interest rates are rising, making them an offset to your real estate.

On the fixed-income side, you also want to avoid adding to your rate sensitivity. GICs and short-term bonds, which are immune to rate changes, are better choices than long-term bonds that move dramatically on the slightest change.

When real estate is a large part of your net worth, you’ve got a high-class problem. You’ve done well but are now heavily reliant on one type of asset that is cyclical and illiquid. It may be time to give some consideration to the size and type of your properties, and how they’re financed, when constructing your investment portfolio.

Tom Bradley is

chair and chief investment officer

at Steadyhand Investment Funds, a company that offers individual investors low-fee investment funds and clear-cut advice. He can be reached at


Copyright Postmedia Network Inc., 2020

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Caisse de dépôt sees more economic pain ahead as it reports first investment loss in more than decade – The Globe and Mail



Caisse de dépôt et placement du Québec president and CEO Charles Emond comments the pension fund’s annual results in Montreal on Feb. 20, 2020.

The Canadian Press

Canadian pension fund giant Caisse de dépôt et placement du Québec has seen a loss on its investments for the first time since the financial crisis more than a decade ago, hit largely by its exposure to shopping centres amid the coronavirus crisis. Its chief executive sees more pain ahead.

The Montreal-based institution, Canada’s second-biggest pension fund, on Friday disclosed a negative return of 2.3 per cent for the first half of the year – its first decline since the $40-billion, 26-per-cent loss of 2008. Net assets fell to $333-billion at the end of June from $340-billion at the end of December.

In the months to come, the Caisse said it would speed up a pivot to more promising real estate holdings and boost investments in technology companies, in which the pension fund has been underinvested of late. It is also writing down to zero the US$170-million invested in Cirque du Soleil since 2015, but declined to say whether it could come back with partners and make an offer for the insolvent company.

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“This is a historic crisis that is not done yet,” Caisse CEO Charles Emond told reporters on a conference call. “We have difficult months ahead of us. We are hoping for the best but we are ready for the worst and for any situation.

“The markets will remain difficult to predict. We will have to be prudent, rigorous, selective because the next year will be difficult given this economic crisis that is going on and we are not immune to it. If it lasts, good companies could go under.”

The results highlight the scope of the challenge ahead for Mr. Emond, a former Bank of Nova Scotia executive who took over as CEO of the pension-fund manager in early February as global stock markets were climbing to record highs. The coronavirus pandemic has altered the picture completely since, creating deep problems in many sectors of the global economy even as it opens up private-equity buying opportunities.

Exceptional central-bank monetary policies coupled with historic government assistance programs have prevented the recession from becoming a depression, but there is a growing dichotomy between the real economy and financial markets, Mr. Emond said. The pandemic has accelerated certain trends that were already under way, particularly in technology and retail, he said.

Trouble in the Caisse’s shopping-centre investments, intensified by the COVID-19 pandemic as many malls were shut down, contributed to an 11.7-per-cent loss for the real estate portfolio, the pension fund said in a statement Friday. The Caisse said it would speed up plans for each of those assets and shift resources to other market segments, such as warehousing and logistics. The bulk of its shopping centres are in Canada, including Vaughan Mills in the Toronto region and Market Mall in Calgary.

Like other major real estate players, the Caisse’s Ivanhoé Cambridge property arm is facing an extraordinary economic crisis, with malls suffering and the future of office towers coming into question as tech giants such as Shopify and Twitter embrace permanent work-from-home arrangements. Ivanhoé head Nathalie Palladitcheff is trying to whittle down the company’s stake in malls, but she told The Globe and Mail in June that she still has faith in office buildings and wants to increase investments in residential and industrial real estate.

Infrastructure, private equity and credit investments were all bright spots for the Caisse in the quarter. The pension fund has sufficient liquidity to meet the needs of its depositors while supporting Quebec companies and investing opportunistically, Mr. Emond said. He said the pension fund came into the coronavirus crisis with a “defensive position.”

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It might have been too defensive. The Caisse took a major hit in the first half of the year from a loss of 5 per cent in equities, which it pinned on its limited exposure to technology stocks that punched to record highs.

To illustrate the dynamic, shares of the world’s five tech giants – namely Google, Apple, Facebook, Amazon and Microsoft – soared 31.4 per cent during the first half of the year while some 3,000 other stocks tracked by the MSCI All Country World Index fell by a combined 4.8 per cent, the Caisse said. The five companies together now make up about 20 per cent of the S&P 500 index, a concentration not seen since the 1990s, it said.

“Caisse analysts are used to evaluating companies based on historical modelling, weighing things like past cash flow,” said Michel Nadeau, a former vice-president at the pension fund who now works for Montreal’s Institute for Governance. “Now they’re going to have to make a leap of faith. When these companies are such huge fixtures in the index, it’s hard to say ‘I won’t [own them].’ “

Given the tech sector’s increasing economic importance, the Caisse has to “look at it through a new lens, open our minds,” Mr. Emond said.

The Caisse, which operates under a dual mandate to generate returns and contribute to Quebec’s economic development, in March created a $4-billion fund to help Quebec businesses affected by the COVID-19 pandemic. The aid includes loans and lines of credit. About 45 per cent of the funds have already been allocated, the pension fund said Friday.

The pension fund was a 20-per-cent owner in Cirque du Soleil, which filed for bankruptcy protection in late June. A court-supervised process to sell Cirque is now under way, with a credit bid worth about US$1.2-billion from the company’s lenders approved by the court as the offer to beat.

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To succeed in the future, Cirque needs “a strategic operator” among its owners in order to reinvent itself as well as a reasonable level of debt, Mr. Emond said. Whether the Caisse puts more money in play and makes a bid for the company will depend on how things unfold, he said.

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Caisse CEO not ruling out further investment in Cirque du Soleil – Montreal Gazette



Article content continued

Emond identified two conditions as an “absolute necessity” for the Cirque to succeed — a “strategic operator” with a deep knowledge of the industry, and a smaller debt load.

“It needs a strategic operator to allow the Cirque to reinvent itself, a Cirque 2.0,” Emond said. “It also needs a reasonable debt level. It’s not the best company for high leverage.”

The offer by a group of Cirque debt holders led by Toronto firm Catalyst Capital Group is valued at approximately US$1.2 billion, according to court-appointed monitor Ernst & Young.

Up to US$375 million will be made available to the Cirque, while two funds totalling US$20 million will be set up to pay money owed to former employees and artisans. The agreement also commits to maintain Cirque’s head office in Montreal for at least five years.

“No matter what happens, there’s a minimum value out there which the debt holders have actually agreed to pay, and conditions for maintaining the Cirque here and taking care of various stakeholders,” Emond said. “That’s something you’d never see in a process like that. So there’s a minimum outcome that’s already been achieved.”

Other bidders have until Aug. 18 to submit a fully funded offer that is at least US$1.5 million higher than the creditor bid.

Canadian Press contributed to this report

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KEDCO's micro-investment program aids 11 Kingston businesses – The Kingston Whig-Standard



KINGSTON — Eleven local companies are to each receive up to $5,000 in support as part of a micro-investment program.

Kingston Economic Development Corporation’s Starter Company Plus program is meant to fund training, coaching and mentoring for business owners who are launching or have been in business for less than five years.

In the past, the program has awarded seven grants, but the ongoing COVID-19 pandemic compelled KEDCO to broaden the scope of the program’s awards. 

“This flexibility has allowed us to reach more businesses in need,” said Ian Murdoch, KEDCO’s business development officer for business retention and expansion.

“I’m pleased to see that we were able to provide some level of grant funding to 11 young businesses this spring.”

Debbie Fitzerman of DFC BBQ Sauce, Jenna Richmond of BSE Skateboarding, Brendan Cregg of Tree of Life & Restoration and Native Plant Nursery, Cynthia Kennedy of Hunter’s Creek Golf Course, Jonathan Zelt of Black Rose Waterproofing Inc., Laura Oomen of Wiggie Wizzle Club, Megan Blay of GreenWell Design Co., Sarah Botros of Yoga LunaSol, Sean Monteiro of Bounce, Suzanne Garrett of Travel Health Experts, and Tammy Watson of Trillium and Maple Woods received funding. 

“Building a company is already a daunting feat for many individuals, but when coupled with a global pandemic, it’s exponentially more difficult,” Monteiro said. “The Starter Company Plus program did an incredible job helping Bounce focus on adapting to these unprecedented times and how to continue building a sustainable business.”

Applications for the fall session open on Sept. 1. Details can be found on KEDCO’s website.

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