Leveraging rate cuts and strategic acquisitions, Equiton strengthens its multifamily portfolio and positions itself for continued success in Canadian real estate
This article was produced in partnership with Equiton.
Equiton eyes future growth as $1 billion real estate fund expands amid falling interest rates
Leveraging rate cuts and strategic acquisitions, Equiton strengthens its multifamily portfolio and positions itself for continued success in Canadian real estate.
As interest rates continue to fall, some real estate investors see a prime opportunity to capitalize on market conditions. Geoff Lang, SVP of Business Development at private equity real estate firm Equiton, explains how the current environment offers a unique window to acquire valuable properties at attractive prices before rates fall further and valuations rise.
“Now is a great time to acquire properties for our portfolio,” Lang said. “Rates are still higher, but they’re coming down. There’s still an opportunity to purchase properties before rates drop further, which will drive up valuations within our portfolio. We’re active buyers in the market and just acquired a four-building portfolio in Toronto, Ontario. We hope to get a few more in the pipeline in the next month or so.”
This recent acquisition under the Equiton Residential Income Fund Trust (The Apartment Fund) includes four top-tier, stabilized buildings located in desirable communities. The Apartment Fund comprises of 41 properties with a total of 3,463 portfolio units as at September 30, 2024.
As more bidders enter the marketplace, property values are expected to increase, positioning Equiton for both near-term gains and long-term stability. This strategic activity highlights the company’s bullish stance on multifamily assets, particularly private Canadian apartments. “Multi-family is a great sub-sector within real estate backed by strong tailwinds such as population growth, demographic shifts and low housing supply, we believe it will continue to significantly benefit our Fund.” states Lang.
Earlier this year, Equiton’s flagship real estate fund exceeded $1 billion in assets under management (AUM) with a four-property acquisition in Welland, Ontario. With a strong mix of reliable monthly cash flow and capital appreciation, the Apartment Fund has demonstrated resilience, even during challenging market conditions.
Interest rate cuts: Boosts property values
“The recent rate cuts have been a long-awaited positive for the real estate sector,” Lang explained. While the timing of these cuts was slightly delayed, the overall impact remains highly beneficial. “We expected rate cuts to come sooner, but they're here now, and we anticipate more before the end of the year. As cap rates contract, we’re expecting to see a significant appreciation in property values,” he said.
Cap rate compression typically leads to higher property valuations, driven by in bidders eager to capitalize on a favourable borrowing environment which leads to increased competition for assets. Equiton’s properties, which are appraised quarterly, are expected to benefit from this trend.
Lang further emphasized the advantages of lower borrowing costs, particularly for a company like Equiton. With their Fund’s weighted average mortgage rate at 3.19% (as at June 30, 2024), there is ample room for flexibility. “As rates come down, it gives us more capital to reinvest, either in new properties or in value-add projects within our portfolio. This is a huge advantage for us,” he added.
Equiton’s strategic practice of locking in 10-year fixed-rate mortgages has mitigated much of the risks associated with fluctuating rates. As rates rise, cap rates typically increase, which can put downward pressure on property values. But Equiton’s significant rental gap—where current rents are accessible, below market rates—has allowed the company to steadily increase cash flow, offsetting the impact of rising rates. “This strategy has enabled us to maintain strong performance, even in the face of higher borrowing costs,” Lang explained. “With the worst of high rates behind us, we can expect growth to pick up even more.”
Lang was quick to emphasize that while hitting $1 billion AUM is worth celebrating, it won’t change the disciplined approach that got the Apartment Fund there. “Whether it’s $1 billion or $5 billion, we’re sticking to our game plan. We’ll continue to scrutinize every property with the same sharp focus. Yes, we’re proud of the achievement, but our eyes are already on the next opportunity.”
