Canadian investors bullish on U.S. multifamily market

Cross-border real estate investment between Canada and the United States is on a healthy trajectory, overcoming challenges induced by the pandemic, says a new report from Marcus & Millichap.

Canada comprised 32% of international investment in the U.S. between the first quarters of 2020 and 2021, the largest share of any country, which Marcus & Millichap attributes to proximity and familiarity with the American market. Ninety percent of all foreign capital was invested in multifamily, industrial and office assets.

The report also noted a growing propensity to invest in smaller markets, a marked departure from a decade ago when a third of commercial property investment dollars found their way to New York City.

“For the 12-month period ended in March, less than 10% of cross-border capital was flowing into the metro. Instead, buyers from abroad were turning their attention toward Seattle-Tacoma, Dallas-Fort Worth, Atlanta and Phoenix, as well as a series of smaller markets including Indianapolis, Tallahassee, Florida, and Savannah, Georgia,” said the report.

“A stronger long-term population growth outlook in many secondary and tertiary markets, paired with fewer disruptions from COVID-19, likely motivated more investors to broaden their criteria in recent quarters. As the health crisis abates, both domestic and international buyers are likely to continue to consider properties in non-primary markets at a high frequency. As the U.S. population ages, more young adults are expected to relocate to suburban areas in lower-cost cities, increasing the demand profile for local properties. Assets in smaller locations also often feature lower entry costs and higher initial returns, and may face less competition from new supply.”

Ottawa-based Mada Partners, which raises capital from Canadians for multifamily developments in Philadelphia, is also looking at investing in Florida and Texas, but the pandemic has temporarily shelved those plans. Mathieu Laquerre, the company’s founder and vice-president, says that because price points surged in Canada during the pandemic, it’s much harder for investors to create value, but that isn’t the case in the U.S.

“Affordability in Canada is starting to hurt investors and we’re seeing better returns in the U.S. right now,” he said. “In Philadelphia, for the product that we’re putting out, the absorption rate is very, very high and we’re selling the majority of our stuff fairly quickly, and for the prices we’re asking for.”

Mada is so bullish on the U.S market that it created an investment fund called Mada Capital Inc. for Canadians to invest monies south of the border, where Laquerre says their returns will be above average.

“We’ve shifted our business model a little bit and created an investment fund to scale our business and to generate a little more capital and grow quicker in the U.S.,” he said.

“We’re starting to do properties that are a little bigger, including a townhome development of 44 units, which we’re starting to dig in the fall. We just started digging on a six-unit townhome project that has a zero carbon footprint. We have around 489 doors planned over the next three years.”