2023 Mid-Year Review: Laying the Foundation for Stability and Growth 

2023 Avenue Living Review

As our leadership team reflects on the first half of 2023, the theme is one of sustainability and continued growth for Avenue Living. As we progress throughout the year, we’re poised to reach new milestones given the strong foundation we have spent the last few years cultivating. Each of our funds has access to a robust vertically integrated platform with talented experts in finance, legal, marketing, technology, accounting, HR, and customer service to support their operations. As we grow, that platform scales with our different businesses, allowing us to maximize efficiency across the organization.  

Multi-Family 

This year, our Core Trust has sustained its steady growth trajectory, as the groundwork from previous years allowed us to find upside in constrained markets. Our approach as an active property manager, and the platform we have built to support our operations, has helped us deliver superior resident experiences and manage our assets while mitigating rising costs.  

“We remain focused on our defensibility and advancing our business for the rest of 2023,” says Avenue Living Founder and CEO, Anthony Giuffre. “We continue to be bullish on the Prairies given its population growth and affordability when compared to other markets.” Our multi-family acquisition pipeline includes over 3,000 units in the region which have the potential to close in the latter half of 2023 or early 2024, which could bring our portfolio to over 18,000 units.

“Our investments in people and technology have created the basis for us to support new acquisitions across our asset base without increasing management costs,” says Jason Jogia, CIO of Avenue Living. “This ability to scale, coupled with our ability to borrow strategically while taking advantage of the inverted yield curve, allows us to minimize our costs while investing in our assets and delivering a superior resident experience.”  

Sustainability remains a key cornerstone of our business, as we invest in capital improvements and strategically plan our projects to reduce greenhouse gas emissions across our portfolio. These projects — many of which will launch in the second half of 2023 and progress over the next four years as part of our landmark partnership with the Canada Infrastructure Bank — will improve the energy consumption of approximately 240 buildings and enhance comfort for around 10,000 Avenue Living Communities residents.  

Self-Storage 

Mini Mall’s focus on operational efficiency at the beginning of 2023 has been key to its growth. This approach has allowed the front-line customer service team to deliver a consistent experience at every location, bringing new acquisitions to the MMSP standard.  

“With over 100 stores coming online last year, we wanted to stabilize our operations and quickly produce consistent performance and results on these assets,” says MMSP CEO, Adam Villard. Mini Mall delivered on that by adding operational expertise to the executive team and focusing on efficiency, resulting in close rates increasing by 48% and delinquencies decreasing by 84% between January to June.  

“We’ve really been focused on ‘the three C’s’,” says Villard, “closing, cleaning, and collecting.” By putting strategic practices in place to help close leads, bringing facilities up to the Mini Mall standard for aesthetics and cleanliness, and lowering delinquencies, site managers and staff can concentrate on creating a seamless customer experience across the organization.  

Mini Mall also implemented new marketing and customer service strategies to refine its lead generation process, which doubled results between the end of March to the end of June. “Those efforts are really what’s driving our business right now,” says Villard. 

Going forward, Villard sees Mini Mall maintaining strong occupancy throughout the winter to balance the seasonal fluctuations the industry is known for, and continuing to drive targeted programs to build on revenue and occupancy numbers.  

Farmland 

2023 has been a notable year for our farmland investments as we developed and launched Tract Farmland Partners – building on the success of our Avenue Living Agricultural Land Trust. Interest in farmland as an investment gained traction during the pandemic and it shows no signs of slowing. In its first six months, Tract now holds 3,560 acres of arable land.  

CEO of Tract Farmland Partners and Agricultural Land Trust, Leif Snethun, credits the recent world events for the uptick in people’s interest in food supply, noting that the launch of the Agricultural Land Trust in 2017 was slower to get underway than Tract has been. There has always been interest in farmland, but since 2020 it has become more widespread among investors.  

“The farmland industry has always been a wonderful space to be in,” says Snethun. He sees Tract adding more assets to its portfolio for the remainder of 2023. “I’m eager to see the momentum build as people remain interested in the agricultural sector and want to know where their food comes from.” 

Our Path Forward  

The first half of 2023 has been significant for our investment vehicles, as we fostered our ground-breaking partnerships, launched new projects, and saw growing investor interest in our asset classes. Our active management model and platform of services — coupled with careful planning and analysis — will allow us to capitalize on a breadth of opportunities. We’re excited to continue driving our business forward and deliver a competitive advantage in these unique economic times.  

This commentary and the information contained herein are for educational and informational purposes only and do not constitute an offer to sell, or a solicitation of an offer to buy, any securities or related financial instruments. This article may contain forward-looking statements. Readers should refer to information contained on our website at https://www.avenuelivingam.com/forward-looking-statements for additional information regarding forward-looking statements and certain risks associated with them. 

What is Workforce Housing?

What is Workforce Housing?

Workforce housing residents comprise a substantial part of an economy’s essential services, with studies suggesting they represent 40% of the renter population. Avenue Living’s strategic focus on multi-family residential, and specifically the workforce housing demographic, anticipates the growth of this important segment of the population and their increasing demand for high-quality, affordable housing.

Starting in the 1970s as an experiment in American ski towns, workforce housing provides affordable and conveniently-located housing options for individuals and families who are part of the local workforce. These homes, like those first developed in Colorado as described in the video, are available for people who work in the region but may have difficulty affording market-rate housing due to lower incomes and consistently increasing housing costs.

Over the decades, workforce housing has expanded well beyond purpose-built communities across North America. Similar developments and buildings can be found in various communities, and they continue to meet the needs of workers who earn moderate to middle-income wages (approximately $15-$50 in Canada).

As a crucial part of a well-functioning community, workforce housing offers many benefits for residents and the communities they live in. It supports local economies, job creation, and employee development. It reduces commute times and contributes to housing affordability. In addition, a community rich with workforce housing can see benefits such as increased access to healthcare and education, while promoting diversity and inclusion, and a higher quality of life.

Watch the video to learn more about the history of workforce housing and why it’s the focus of our multi-family investment funds.

This commentary and the information contained herein are for educational and informational purposes only and do not constitute an offer to sell, or a solicitation of an offer to buy, any securities or related financial instruments. This article may contain forward-looking statements. Readers should refer to information contained on our website at https://www.avenuelivingam.com/forward-looking-statements for additional information regarding forward-looking statements and certain risks associated with them. 

What Investors Need to Know About Borrowing Amid Rising Interest Rates  

Borrowing Amid Rising Interest Rates

The past year has been punctuated with announcements of rising interest rates, as the Bank of Canada (BOC) redoubled their efforts to combat inflation with successive rate hikes. The latest, in July, brought the overnight rate up by 25 basis points to 5%, its highest since early 2001. Changes in interest-rate policy can have wide-ranging effects throughout the economy, and for real estate investors, it’s vital to interpret the different outcomes between long-term and short-term rates. Understanding the inversion of the yield curve — where long-term interest rates are lower than short-term rates — can help well-prepared property owners mitigate risk. 

Understanding the Yield Curve 

Figure 1 

During the period of rising interest rates, there has been a notable difference between prime-based borrowing rates and bond-based borrowing rates in Canada. While the prime rate has experienced significant increases (from 2.7% in March of 2022 to 6.95% in June of 2023), the Canadian 10-year bond rate has remained relatively stable over the same period. Whereas retail borrowing is often based on prime, commercial borrowing is traditionally based on long-term government bonds. Therefore, well-managed commercial borrowers will generally be less impacted — as compared to retail borrowers — by the recent rise in interest rates. One of the many upsides to indirect real estate investment through entities such as REITs is that investors are able to benefit from the relationships and knowledge of a team of experts. By indirectly investing in real estate, everyday investors can take advantage of bond-based borrowing rates through a strategic asset manager, without becoming a commercial borrower themselves. 

With the Canada Mortgage and Housing Corporation (CMHC) setting lending rates at a spread over the 10-year bond, those who have access to bond-based borrowing for long-term decisions have been in a more favourable position since the beginning of 2022. A visual representation of these trends can be observed in Figure 1. 

Figure 2 

As per Figure 2, during an inverted yield curve, where long-term interest rates are lower than short-term rates, long-term borrowing becomes cheaper than short-term borrowing. By securing financing at lower rates, long-term borrowers benefit from stability and predictability in their interest costs over an extended period. Conversely, short-term borrowers and those with variable rates may experience heightened volatility and financial strain as their borrowing costs increase in response to rising short-term interest rates. The inversion of the yield curve emphasizes how important it is for borrowers to consider duration and structure when interest rates are rising. 

Rental property owners facing rising interest rates can take advantage of the differences in duration between short-term leases and long-term debt. Using long-term debt instruments, such as a 10-year mortgage, alongside shorter lease terms, allows property owners to adjust to changing market conditions in real-time, counterbalancing the impact of higher borrowing costs. However, property owners should also consider market conditions and the resident experience before implementing this strategy. 

Interest Rates and Homeownership 

Rising interest rates — and the resulting increased cost of short-term borrowing — can have a negative impact on development projects, lowering construction activity and limiting the supply of housing units. With fewer developments, the cost of housing increases, leading to higher rents and housing prices. Scarcity of supply and increased borrowing costs compel developers to set higher prices for their projects, ultimately affecting affordability. 

A survey conducted by Chartered Professional Accountants Canada identified several barriers to homeownership among non-homeowners in the country. Rising interest rates were cited as the top obstacle by 89% of respondents, followed closely by the affordability of down payments (84%), necessary renovations (83%), and finding a home in a desired area (83%). Other challenges included taxes and mortgage payments (81% each) and income instability (69%).  

Existing homeowners also faced hurdles, with renovation costs affecting three out of five individuals, ongoing difficulties in affording home maintenance (46%), and challenges with mortgage payments, property taxes, and utility payments for varying percentages of respondents. These findings shed light on the financial obstacles Canadians encounter in their quest for homeownership, as well as the ongoing strains faced by prospective and existing homeowners. 

Navigating the Landscape 

Canada’s rising interest rates present distinct challenges for many sectors of the economy — but they also give rise to opportunities. It’s essential for borrowers to understand the benefits and drawbacks of short- and long-term interest rates and formulate their debt strategy accordingly. For property owners, understanding the interest-rate landscape, managing duration, and responding to local market conditions can help minimize borrowing costs and optimize revenue.  

Understanding how an asset manager uses different debt vehicles to mitigate risk and reduce borrowing costs allows investors to make informed decisions. Asset managers like Avenue Living, for example, can make strategic use of short- and long-term borrowing to potentially maximize returns and de-risk their portfolios. Considering an asset manager’s borrowing strategy — along with other factors — can help investors find the vehicle that’s right for them. 

This commentary and the information contained herein are for educational and informational purposes only and do not constitute an offer to sell, or a solicitation of an offer to buy, any securities or related financial instruments. This article may contain forward-looking statements. Readers should refer to information contained on our website at https://www.avenuelivingam.com/forward-looking-statements for additional information regarding forward-looking statements and certain risks associated with them. 

Multi-Family Retrofits: The Case for Going Green

Multi-Family Retrofits

In June 2022, Avenue Living and the Canada Infrastructure Bank (CIB) joined forces to commit $162 million towards deep retrofits across our Canadian portfolio. The partnership will fund upgrades to 220 residential buildings, touching approximately 6,700 homes and helping lower the carbon emissions for nearly half of our Canadian portfolio.

As a key pillar of our ESG efforts and overall strategy, Avenue Living has always made responsible and impactful capital improvements — for example, installing a better-insulated roof, higher-efficiency windows, or a new boiler. These energy conservation measures (ECMs) extend the life of the asset and make living spaces more comfortable in summer and winter.

Our portfolio spans a region with some of the coldest weather in North America, and these upgrades help increase energy efficiency. A better-insulated building envelope, for example, keeps the building temperature more even year-round and allows heating and cooling systems to work more effectively. Upgraded high-efficiency HVAC systems, paired with better-insulated building envelopes, help reduce consumption.

In 2020, commercial and residential buildings accounted for 17 per cent of Canada’s GHG emissions (excluding construction and building materials, which pushes the number to 30 per cent). The Government of Canada is committed to reducing carbon emissions to below 45% of 2005 levels by 2030 and reaching net-zero by 2050 — and estimates that, to meet that goal, Canada needs to retrofit 600,000 homes and 750 million square feet of commercial space per year between now and 2040 to meet those commitments.

Avenue Living is doing our part while paving the way to setting a new standard in the multi-family industry. As an open-source advisor and collaborator, we are sharing how these retrofits can benefit investors, residents, and our communities at large. Our partnership with the CIB aims to reduce emissions from buildings in the program by 50 per cent, and pilot projects are already underway.

CHOOSING ENERGY CONSERVATION MEASURES (ECMS)

Retrofitting buildings to create the most energy savings is based on careful analysis, energy audits, and a well-developed strategy for capital improvements. As part of our current acquisition strategy, Avenue Living systematically determines which capital improvements will be the most impactful for each property. Deep energy retrofits are no different.

Before a property can be included in the CIB retrofit program, it must meet Investor Ready Energy Efficiency (IREE) Certification. IREE is a global framework that signals a building has undergone appropriate due diligence and the retrofit projects have been developed by qualified professionals who adhere to a series of protocols for assessing risk, comparing savings, and evaluating opportunities. This third-party certification reduces costs for transactions, capital, and due diligence and increases investor confidence through reliable and consistent projections.

Baselining is essential to determining the viability of any retrofit project, and as part of IREE protocols, our buildings have undergone multiple energy audits. When we examined our portfolio in search of the most impactful ECMs, we discovered our larger properties — those with more than 24 units — presented our best opportunity to reduce GHG emissions. Energy audits have also revealed that wood-frame buildings can be further optimized compared to brick or concrete buildings, which are already quite efficient. In addition, we closely evaluated other aspects of the building’s mechanical operations and construction for ways to increase efficiency — roofs, boilers, and exterior cladding, for example.

“As we were going through the program details, we looked at a number of factors to determine if a building would be a good candidate for upgrades, for example, will the improvements offset enough energy and emissions to be financially viable, or is the building equipment old or inefficient,” says Daniel Klemky, energy manager at Avenue Living. “If building equipment is reaching the end of its useful life, there may be an opportunity for us to modernize that property in a cost-effective way.”

Our retrofits include:

  • Upgraded heating, ventilation and cooling (HVAC) systems, which allow us to heat and cool buildings more efficiently and keep temperatures even throughout the property
  • An upgraded building envelope and roof, which improves insulation, eliminates the possibility of pipes freezing and improves aesthetics
  • Triple-glazed, high-efficiency windows, to reduce heat loss (or gain)
  • Low-flow water fixtures, to reduce water consumption and provide a better experience for residents
  • LED lighting and more efficient fixtures, for brighter, more effective lighting in common areas
  • Solar panels, where applicable, allow properties to generate their own power, reduce consumption, and offset operational costs

Implementing these retrofits requires coordination — and manpower. Our plan has incorporated a phased approach, which allows us to make as many updates as possible without overwhelming the trades in each city. This perfectly illustrates the combined benefit of environmental projects: job creation, and the need for expansion in the sector. Canada’s Green Building Council estimates that by 2030 the opportunities for growth in the green building sector could account for approximately 1.5 million jobs and contribute $150 billion in GDP.  

“It is difficult to retrofit multiple buildings in a single market at one time,” says Ward Woolgar, senior vice president, capital investment at Avenue Living. “We’ve planned out our retrofits with projected schedules and dates to make sure we have the tradespeople we need available at each phase to minimize delays.”

The solar project slated for Wetaskiwin Mall, for example, requires extensive work on the roof. “It’s not as simple as just putting solar panels on top of the existing structure,” says Klemky. “There’s a great deal of work that has to happen to the roof first, such as detailed design, structural reinforcement, electrical capacity considerations, and regulatory restrictions.” The mall’s solar retrofit, however, will also account for the biggest reduction in emissions.

BENEFITS BEYOND EMISSIONS REDUCTION

While reducing consumption and emissions is our primary goal, we know that these building improvements have other benefits for residents. As an active property manager, we recognize that happy residents stay in their homes for longer, and these upgrades will enhance the comfort and livability of their rentals. Studies show North Americans spend approximately 90 per cent of their time indoors, so air quality, temperature, and lighting are more important than ever.

These renovations require minimal disruption to residents’ lives or schedules, and in most cases happen outside the suites. Although retrofits like window replacement or upgrading water fixtures do require apartment entry, these jobs can be completed in just a few hours, like any regular maintenance task. That said, any construction work in a building has an impact on its occupants, and we’ve developed a plan to communicate with our residents early and often to ensure they understand the work schedule.

“These updates will have a noticeable effect,” says Woolgar. “For example, our upgrades to HVAC systems will mean there’s more even heating throughout the building, so we’ll avoid the problem with overheated hallways and common areas that a lot of apartment buildings have. New windows and fixtures will also mean residents can enjoy more even temperatures in their suites, better water flow and lighting, and improved aesthetics.”

A GREENER FUTURE FOR MULTI-FAMILY

The United Nations estimates that 80% of the buildings in cities today will exist in 2050. Reducing emissions through deep-energy retrofits is key to ensuring Canada — and the world — meets sustainability targets. For Avenue Living, the benefits of this retrofit project are very close to home: we see these retrofits as an opportunity to demonstrate to the industry what is possible. We aim to create a portfolio of properties that provide residents with safe, affordable, comfortable, and modern homes — ones that are well-equipped for a low-carbon future.

This commentary and the information contained herein are for educational and informational purposes only and do not constitute an offer to sell, or a solicitation of an offer to buy, any securities or related financial instruments. This article may contain forward-looking statements. Readers should refer to information contained on our website at https://www.avenuelivingam.com/forward-looking-statements for additional information regarding forward-looking statements and certain risks associated with them.

Vertical Integration and Performance in Residential Real Estate

Vertical Integration Real Estate

We’re thrilled to share our newest piece of thought leadership that contributes to the research and best practices that shape our industry.   

The article explores vertical integration, a growth strategy where a company engages in multiple stages of the value chain — an approach Avenue Living has taken since 2006. Few studies have examined the effects of vertical integration in real estate. We aimed to fill that gap by surveying 1,251 renters in the U.S., the U.K., and Canada, exploring their perceptions of property managers’ downstream vertical integration and effectiveness. The results show that property managers’ vertical integration enhances their overall effectiveness, as perceived by their residents, leading to better residents, sustained real estate performance, and an overall competitive advantage.  

View our most recent paper in Critical Housing Analysis, a ranked peer-reviewed journal by the American Real Estate Society:

This commentary and the information contained herein are for educational and informational purposes only and do not constitute an offer to sell, or a solicitation of an offer to buy, any securities or related financial instruments. This article may contain forward-looking statements. Readers should refer to information contained on our website at https://www.avenuelivingam.com/forward-looking-statements for additional information regarding forward-looking statements and certain risks associated with them.

Investing and Connecting with a Community: Wetaskiwin Mall’s New Mural

Wetaskiwin Mall

Inclusivity can take many forms — the people who make up an organization’s team, the causes they support, and the principles they operate under. But it can also take the form of representation in other ways like in the case of Wetaskiwin Mall, an exciting piece of original art, painted by a local, renowned Indigenous artist.  

As property owners and operators, we know our investments have an impact on the people who live and work in the communities in which we operate. We invest in spaces — multi-family homes and commercial space — that people develop deep connections with. The mural at Wetaskiwin Mall aims to showcase the culture of the community and evoke the theme of “Healing Medicine.” 

Collaborating with a Local Artist 

Painted by distinguished Indigenous artist Lance Cardinal, the 50-foot mural in the north wing of the mall symbolizes many ways of healing: ceremonial, medicinal, cultural, and healing through dance — a fitting subject given its location right outside an Alberta Health Services office and the Care Gateway Clinic. Cardinal painted the mural over ten days, with the help of an assistant.  

Cardinal, from Big Stone Cree First Nation, is an artist and entrepreneur on the rise. In 2022, he collaborated with the Edmonton Oilers to write and produce the team’s new land acknowledgement and design their Turtle Island logo, which helped raise funds for Edmonton charities, while being one of the most popular and beloved alternate designs in the team’s history. His shoe collection with Kunitz Shoes, an Edmonton-based company, is set to launch this year and is currently on display at the Royal Alberta Museum.  

Wetaskiwin, Alberta, which is 70 km south of Edmonton, is a community of around 13,000. The city is located on Treaty Six territory, bordered by two of the four Maskwacis First Nations — the Ermineskin and Samson Cree Nations — and serving two others — the Louis Bull Tribe and Montana First Nation. Wetaskiwin has rich Indigenous history; its name (which means “the hills where peace was made”) is a direct reference to the outcome of a battle between the Cree and Blackfoot. 

Bringing People Together 

Our strategy with Wetaskiwin Mall has always been to create a “community hub,” a place that provides customers with the essential services they need all in one place. In addition to national retailers and locally-owned stores and services, the mall is also home to Alberta Health Services, a pharmacy, medical clinic, optometrist, and more. Avenue Living has invested in Wetaskiwin for over a decade, with a presence that includes 401 multi-family units and 158,000 square feet of commercial space. In keeping with a key tenet of our strategy as an active manager, we have developed a deep understanding of the market and its residents.  Since acquiring the shopping center in 2017, Avenue Living has carefully curated a roster of retailers and services that reflect the needs and wants of area residents.  

“You don’t usually see local art in a retail environment like this,” says Slava Fedossenko, Director, Commercial Asset Management for Avenue Living, “but we wanted to create something that reflects the culture of the community.” 

Avenue Living is immensely proud of our partnership with Lance Cardinal and the finished mural. While it is one of the first projects of its kind for us, we have plans to ensure it is not the last, and we look forward to working with local artists in other communities to showcase the places our residents and customers call home.  

Read more about Lance Cardinal and this exciting project in The Wetaskiwin Times. 

This commentary and the information contained herein are for educational and informational purposes only and do not constitute an offer to sell, or a solicitation of an offer to buy, any securities or related financial instruments. This article may contain forward-looking statements. Readers should refer to information contained on our website at https://www.avenuelivingam.com/forward-looking-statements for additional information regarding forward-looking statements and certain risks associated with them.