A Proven Alternative | Communicating Our Value Proposition

A Proven Alternative

Alternative investments are enjoying a rise in popularity, but not all are created equal.

Investments in alts, such as real estate, may offer opportunities to increase diversification and generate competitive returns while potentially providing protection against inflation. Avenue Living’s funds offer an accessible way to invest in multi-family real estate, farmland, and self-storage.

Learn what investors should look for:  

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. 

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 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. 

From Trust to Partnership: How Avenue Living Does Farmland Investment

A focus on partnership underpins our successful Canadian farmland investment strategy and has been key to fostering relationships with about 90 tenant-operators across Saskatchewan.

Avenue Living Agricultural Land Trust is now winding down with a fixed sunset date. In response to investor demand, the firm is looking to replicate that success through its new Tract Farmland Partners Limited Partnership.

“Our partnerships with farmers demonstrate our commitment to their success while establishing ourselves as a reliable buyer in the farming community,” says Leif Snethun, CEO of Tract Farmland Partners LP. “They’re business-minded and sophisticated, and I’m honored to be associated with them as they shape the future of Canadian agriculture.”

Learn more about our newest fund, Tract Farmland Partners:

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Harvesting Alpha in Canada’s Agricultural Heartland

Investing in Canadian Farmland

For investors seeking to diversify away from the public markets, the case for investing in Canadian farmland is all too clear. And with our sights set on Canada’s breadbasket, it’s an opportunity that’s been growing for over half a decade. 

“We launched the Avenue Living Agricultural Land Trust in December 2016,” says Gabriel Millard, SVP, Capital Markets – Equity & Research at Avenue Living Asset Management. “From its inception up to now, it has performed well for our investors, and we’ve seen a significant and increasing demand for the strategy.” 

Harvesting returns 

Since 2016, the fund’s portfolio has grown to 83,000 acres of farmland across Saskatchewan, with historical annual returns consistently above 10%.  

“Within the farming community, a lot of operators look for opportunities to expand. They often don’t have access to the capital required to acquire neighbouring parcels when they come up for sale. Others are looking to exit, and don’t have heirs or successors to buy them out of the business,” Millard explains. “We leverage our considerable capital resources to acquire productive, arable farmland in Saskatchewan, which we rent to farmland operators and help them to expand their businesses.” 

The Avenue Living Agricultural Land Trust has a fixed sunset date within the next two years and we’re looking to replicate its success with our new fund, Tract Farmland Partners LP.  

“We wanted to give investors a way to keep benefitting from our experience with Saskatchewan farmland, as well as our active management capabilities in the agricultural space,” Millard says.  

Our approach to farmland is led by Leif Snethun, the CEO of the Avenue Living Agricultural Land Trust, and Tract Farmland Partners LP. Snethun comes from a proud tradition of Canadian farming. His father was the youngest of five boys raised on a farm in east-central Alberta. That farm was homesteaded by Snethun’s grandparents, who immigrated from Norway. With help from his wife, Snethun owns a cow-calf operation west of Stavely, Alberta and helps his younger brother operate the near-by family farm. 

Sowing seeds for future alpha 

“The average urban person can’t imagine the size of the farmland parcels we deal with in the portfolio. 83,000 acres equates to almost 130 square miles,” he says. “With that said, it’s easy to understand why our farmland managers can’t possibly know the specific nuances of the portfolio of land the way our tenant-operators do.” 

To maximize alpha, Snethun and his team actively encourage tenants to come forward with land improvement ideas. Through investments in land reclamation and remediation, and the construction of strategic grain storage facilities, we add direct value to our portfolio and improve tenant farming efficiencies. These improvements mean the tenant is able and willing to pay increased rents. 

“We’ve earned a great reputation in the community,” Snethun says. “I believe that there’s no other form of real estate where the tenant and the landlord are so aligned. Our tenants are financially motivated to look after the land like it was their own as that is how they maximize crop yields.” 

According to Millard, the new strategy leverages the same economics that makes farmland appealing, along with our proven management capabilities and reputation in the agricultural space. 

“Over the six years we’ve spent running our Agricultural Land Trust, we’ve developed a track record of being able to close land acquisition deals on time with farmers, which provides important liquidity for them,” he says.  

Returns generated through our farmland model have the potential to be boosted through a judicious use of leverage. Despite having similar soil characteristics as farmland in neighbouring provinces such as Alberta and Manitoba, Saskatchewan farmland trades at over a 30% discount. 

“With the Federal government’s interest in food supply and security, farmers in Canada benefit from added stability through crop insurance,” Millard adds. “This creates a layer of protection for our tenant-operators in case they suffer adverse weather conditions or other occurrences that negatively impact their crop yields.” 

Favourable tailwinds 

Globally, the case for investing in farmland is gathering strength from several macroeconomic tailwinds. Urbanization is playing a part in the depletion of farmland acres. Over the decades, arable farmland area has shrunk from 5.6 acres per capita in 1961 to 1.2 acres per capita as recently as 2016 (Food and Agriculture Organization of the United States (FAOSTAT), 2021). 

There’s also pressure from the growing global population, which officially topped eight billion last year.  As more countries enter a period of economic prosperity in the coming decades, the World Bank forecasts an increase in the average daily caloric intake among developing nations, with citizens’ dietary preferences shifting toward higher-value, more calorie-dense foods such as meat.  

Because of limited supply and the prohibitive cost of meat products, import-dependent markets may turn to pulse crops – including legumes such as lentils, peas, and beans – as nutritionally equivalent alternatives. The Canadian Prairies stand as the largest exporter of lentils, peas, and chickpeas in the world today. Within Canada, around 90% of lentils and 50% of pea production originates from Saskatchewan (Government of Saskatchewan, 2021). 

“According to the Government of Saskatchewan, the province accounts for more than 40% of the cultivated farmland in Canada,” Millard says. “It’s a critical piece of Canada’s food production capacity, and critical to helping fill the growing global food supply gap.” 

Historically, farmland has proven to be a strong inflation hedge, with annual returns outpacing gains in the CPI over the past 30 years. That trend is set to continue as demand grows and a breakdown in supply chains throws the world into a new commodities supercycle. 

“Increases in commodity prices tend to correlate with revenue increases for farming operators as well as generating more investor demand for farmland. As the price of each acre of farmland increases, so does the value of the asset,” Millard says. “Even in years where CPI is negative, we’ve historically seen positive farmland returns.” 

Investing in farmland also provides diversification, as its return performance is generally uncorrelated to other asset classes. Saskatchewan’s expansive terrain encompasses a variety of weather patterns, allowing Avenue Living to capture a wide continuum of crops and crop yields. 

“Right now, our farmland ownership is scattered throughout the arable portion of Saskatchewan,” Snethun says. “We’ve witnessed a massive change in people’s awareness and interest in the agricultural space over the past three years, and we’re very excited to be part of that wave.” 

References  

Food and Agriculture Organization of the United States (FAOSTAT). (2021). FAOSTAT. Retrieved from Food and Agriculture Organization of the United States: https://www.fao.org/faostat/en/#home  

Government of Saskatchewan. (2021). Saskatchewan Agriculture Exports 2021. Retrieved from Government of Saskatchewan: https://www.saskatchewan.ca/business/agriculture-natural-resources-and-industry/agribusiness-farmers-and-ranchers/saskatchewan-import-and-export-information/resources-for-importers/trade-statistics 

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. 

This Year’s Most-Read: Our Top Content in 2022

We’ve gathered the blog posts, articles, and white papers that garnered the most interest from our readers last year. They cover a diverse range of topics, from our partnership with the Canada Infrastructure Bank to the complexities of the private rental housing market, but they all come back to one thing: understanding the real estate investment landscape. As investors seek opportunity in a changing market, it’s important to explore and analyze the fundamentals that impact our industry to refine our strategy and provide value for our residents, our investors, and the communities in which we operate.

PRESS RELEASE:  

CIB COMMITS $120 MILLION TO AVENUE LIVING — THE FIRST REIT ADDRESSING MULTI-FAMILY RESIDENTIAL RETROFITS AT SCALE

This announcement is the next step in our commitment to ESG — one we officially started when we began a relationship with PRI (Principles for Responsible Investing). Our partnership with Canada Infrastructure Bank will allow us to undertake capital improvements that reduce our carbon footprint and provide comfortable homes for our residents, without compromising affordability.

WHITE PAPER:  

RE-EXAMINING A HEDGE AGAINST INFLATION: Multi-family Residential Real Estate 

This paper examines the effects inflation and rising interest rates have on affordability, and how investors may find opportunities in multi-family real estate. 

PEER-REVIEWED WHITE PAPER: 

PRIVATE RENTAL TARGET MARKETS: A COMPREHENSIVE SPECTRUM 

Our founder and CEO, Anthony Giuffre, collaborated with the University of Regina’s Dr. Grant Wilson on this examination of the North American rental housing market, identifying the lifestyles, demographics, and value propositions that make up six major groups in the housing spectrum. The peer-reviewed paper was published in the International Real Estate Review in April 2022. 

WHITE PAPER: 

DIVERSIFICATION WITH AND WITHIN REAL ESTATE  

This white paper explores how diversification in real estate portfolios — across asset types and markets — can enhance value for investors, helping them minimize risk and maximize the potential for returns. 

BLOG:  

WHY WE SEE OPPORTUNITY IN THE WORKFORCE HOUSING MARKET 

We examined factors that make the workforce housing market an attractive investment opportunity and  why it’s the focus of our multi-family strategy.  

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.