Investing In The Long Term: Capital Expenditures Create Benefits For Everyone
Sometimes, the things that make the biggest difference in the quality of a home are the invisible upgrades, not the flashy finishes. The roof that keeps the elements at bay, the flooring that wears well and is easy to keep clean, the faucet that doesn’t drip. They’re the things that keep residents happy and comfortable and, when done well, make sure our investment in a building benefits everyone over the long term.
The Avenue Living model focuses on investment in class B and C multi-family housing — the type of buildings that others often overlook. When adding assets to our portfolio, we focus on how we can reposition these buildings in the market by investing in extensive capital expenditures, from siding to roofs and boilers. Older or “vintage” buildings in established neighborhoods sometimes need some TLC to help them reach their potential. Since 2015 Avenue Living has invested $340 million on capital improvements, adding value to our portfolio, investors, and residents.
It’s an approach that’s different from other owner-operators, and it highlights our philosophy that we’re stewards of capital. We see ourselves as working alongside our investors to ensure the buildings we acquire and the projects we undertake provide the best value for everyone.
“We take a long-term view on building improvements,” says Neal Shannon, Senior Vice President of Capital Expenditures, “and that’s a different approach from others in this space.”
For example, Avenue Living will often invest in roofing — many operators will use a spray roofing product that seems more budget-friendly up front but doesn’t last long-term. “Our team will source a much more robust and long-term roof material and assembly that will bring the useful life to 25 years or more, so while we would spend more initially on the investment, the total cost of ownership of that roof system over time is a lot less when we buy the right product,” says Neal. “It’s a good example of where the long-term view on a capital expenditure has benefits for us as an owner-operator.”
Since 2015, our capital projects have included 55 roof replacements, more than 80 full boiler replacements, and improvements to over 150 common areas. In 2020, we invested in 3,558 “suite turns,” which are improvements we make to suites between residents, allowing us to renovate without disrupting tenancies.
Neal and his team carefully evaluate the capital projects we undertake in order to create the most benefit for all stakeholders, which includes our organization, residents, lenders, and investors. The team works closely with procurement specialists, which allows us to find the best deal possible. In some cases, we may be able to work directly with the manufacturer, as we do with the stone plastic composite flooring we use in our suites and common areas.
“Buying directly from the manufacturer has allowed us to get a commercial-grade product for a lot less than we might have paid otherwise,” says Neal.
The group also uses a rigorous process to choose service providers — such as tradespeople and installers — clearly defining a scope of work and reviewing multiple bids before moving forward. The process ensures Avenue Living hires the right team for the project every time, rather than going with a single-source contract. “There can be substantial variance in quotes,” says Neal. “We’ve seen fifty or even 100 per cent variance, so we could have potentially overspent by single-sourcing projects.”
The benefit for investors seems straightforward, as it does for Avenue Living: by installing higher-quality fixtures, roofing, or mechanical, the cost of ownership over time is much lower. But there’s a benefit for residents, too — they know someone is looking after their home. Higher quality materials mean fewer repairs, which in turn means less disruption for residents. But it also cultivates a sense of pride in their home — we hope the residents who live in our well-kept buildings feel respected and want to join us in taking care of their home.
“By purchasing higher-quality materials we do distinguish ourselves from other owner-operators,” says Neal. “And that’s also how we invest in the everyday.”
Benefits for Residents, Investors, and Communities
Investing in capital improvements to vintage buildings often has benefits for the surrounding community, as well. The buildings we invest in are usually in established areas, and creating a new, desirable place to live can have a ripple effect. Residents have a place to call home that’s comfortable, well-maintained, and affordable, and we work to foster a sense of community in the building and with the surrounding neighborhood.
“You can do a lot more with a lot less by converting existing rental stock into workforce housing,” says Neal. “Building brand new and then having to charge $2,000 a month to cover those costs is not an affordable solution.”
These expenditures are also part of our consideration for the triple bottom line — environmental, social and governance principles (ESG) that inform our business decisions. Our capital expenditures often help minimize our carbon footprint. We make investments that reduce our energy consumption and help lower greenhouse gas emissions. So, when we replace a roof, we install new insulation to keep the interior temperature more even. When we replace mechanical, we invest in high-efficiency equipment that uses less energy. We install LED bulbs in our common areas, so we use less electricity.
Our ESG initiatives have also led us to replace aging furnaces with high-efficiency models in over 300 townhomes in Edmonton, Wetaskiwin, and Camrose. The new furnaces reduce energy consumption and provide residents with more even heat throughout their homes. The project — a $2 million investment — has been such a success we plan to continue it in properties in other cities. Additionally, we have a service agreement with a provider who guarantees an on-site response within 24 hours of service calls to improve the residence experience in cities that have some of the coldest climates in Canada.
Our Capital Improvements team keeps an eye out for programs and grants that can help offset the costs of this investment, bringing even more value to our investors and residents. We’re in the process of applying for the Alberta Energy Savings for Business grant to replace the windows on a building in Brooks, AB with triple-pane units, which improve thermal efficiency.
These investments are not the kinds of fixtures and fittings that show up in design magazines, but they’re the ones that make living in an Avenue Living building comfortable. And in the end, they benefit us all.
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 www.avenuelivingam.com for additional information regarding forward-looking statements and certain risks associated with them.