America’s neighbor to the north continues to be its biggest source of cross-border funds. Canada, which has been the largest supplier of foreign capital into U.S. real estate for a few years, has remained so even amid the COVID-19 health crisis. According to Real Capital Analytics (RCA), Canadian investor activity reached $13.1 billion across 298 properties from third-quarter 2019 through second-quarter 2020.
This accounted for 28.7% of all cross-border deal volume over that time frame — more than the next three countries (Germany, South Korea and Singapore) combined. Notably, Canada continues to dominate the foreign-investment market for U.S. multifamily properties, accounting for 52% of inbound investment in the sector during first-half 2020, according to CBRE. If that share holds for all of 2020, it would mark the third straight year (and the fourth time in six years) that Canadian companies account for more than half of foreign capital into U.S. multifamily housing.
Granted, with the pandemic significantly weakening the U.S. commercial real estate market, activity from Canada has been no exception. From Q2 2019 through Q2 2020, investment from Canadian sources plummeted by 70%, the second-largest annual drop among the 25 largest sources of foreign capital into the U.S.
Despite the pandemic’s persistent impact on U.S. assets, however, Canadian investors remain primed to be players in this landscape in the short and long term. By a hair, cross-border investors were net sellers of U.S. commercial real estate in Q3 2020, shedding $59 million more than they bought, RCA reported. But while investors from Asia led dispositions during this quarter, Canadian investors were net buyers, acquiring $443 million more than they sold.
One development from 2020 in particular bears watching when it comes to Canadian investment. Brookfield Asset Management, the largest of Canada’s cross-border buyers into the U.S., launched this past May what it called a “revitalization program,” a $5 billion venture targeting the recapitalization of retail businesses in cities containing Brookfield properties. The initiative is helmed by Ron Bloom, notable as one of the officials who brokered the restructuring of the U.S. auto industry after the 2008 downturn.
The program has already made one major move: In October 2020, it partnered with Simon Property Group to buy the assets of J.C. Penney, which filed for bankruptcy in May. The deal, which closed this past December, may prove to be a shrewd move. Having control of the iconic department store ensures Brookfield as a post-pandemic anchor tenant, theoretically offering a lifeline to smaller tenants that depend on big stores to drive foot traffic.
And while overall Canadian holdings are suitably diverse for a country so economically entwined to the U.S., it’s the aforementioned multifamily properties that may be the smartest current play for Canada’s savvy investors. With apartments faring better than other sectors amid an uncertain global landscape, real estate investors are increasingly on the lookout for multifamily assets as defensive, low-risk acquisitions.
Canadian capital sources have been no different. Investors and fund managers such as PSP Investments (with $1.1 billion in apartment acquisitions from Q3 2019 to Q2 2020), Brookfield ($1.1 billion) and Starlight Investments ($469.2 million) were active U.S. multifamily buyers until the thick of this past summer. They showed no signs of slowing down as the pandemic wore into autumn and winter.
This past October, for example, Vancouver’s Western Wealth Capital purchased a 659-unit property in Tempe, Arizona, for $117.5 million. Starlight, based in Toronto, acquired a 340-suite Class A complex in Denver and 321 Class A units in Charlotte in December for a combined $185.6 million. ●