CanFirst Capital Management is a fund manager focused on the industrial and office sectors in Canada.
Founded in 2002, the firm has raised almost $1.2bn of equity. Its latest fund, CanFirst Industrial Realty Fund VIII, closed on $219.6m of commitments last fall and will hold a second close in October.
Green Street News spoke with Mark Braun, executive vice president for investments and business development, about the company’s perspective on the Canadian industrial market and where it sees opportunities.
Can you talk about CanFirst’s investment strategy?
We have three different strategies that we’re investing for. We have our value-add funds, our income and our development strategies.
We try to find value by underwriting assets that other investors maybe are not looking at. It comes down to optionality, particularly for our value-add funds. We like to have multiple outs. It could be that we’re deriving value by driving rents. Maybe it’s a portfolio we’re breaking up or we’re selling to users.
It gives us comfort when we’re making an acquisition where maybe other groups don’t have that flexibility.
Right now, we have three active value-add funds, CanFirst Industrial Realty Funds VI, VII and VIII. Fund VI is in divestment mode. It’s a 2017 vintage fund, so we’re slowly selling down the assets. Our value-add funds have eight-year lifespans.
What markets are you focusing on for possible investment?
We’re focused on Toronto, Ottawa, Montreal, Vancouver, Calgary and Edmonton. Southwest Ontario, which is Kitchener-Waterloo/Cambridge, Guelph and London, to a lesser extent.
“We try to find value by underwriting assets that other investors maybe are not looking at”
In Quebec, we have some assets in Vaudreuil, and we have some properties on the South Shore. We don’t like to go too far away from Montreal, so maybe [Salaberry de] Valleyfield would be the maximum distance we would go.
Alberta, we would stay relatively close to Calgary. We would look at Balzac or Conrich around it. And same thing in Edmonton, we would look close by, but not too far. We’re sticking to the larger markets. We’re staying away from the secondary and tertiary.
In B.C., we would do the whole Fraser Valley. We have assets in Abbotsford, which is about 50 minutes away from Vancouver. And we would go a little bit past that, maybe out to Chilliwack. It’s just a very challenging market to get into. But there’s still some great real estate out there.
As a private equity company, are you seeing some opportunity of late for acquisitions as Canadian institutional investors increasingly look to divest their industrial real estate holdings?
Yes, the institutional groups have been relatively quiet and certainly on the acquisition front. And they’ve been sellers — not all of them — but many have been sellers. So there’s some opportunities for private equity funds and fund managers to get in and try and pry some assets loose.
“There’s several large portfolios that are actively being marketed right now, large listings”
On the larger deal front, there’s some opportunities. There’s several large portfolios that are actively being marketed right now, large listings. There also are some distressed groups with financial difficulty.
We’ve been in discussions with various brokers about opportunities, but nothing has happened yet. It’s mostly due to groups that were over-leveraged over the last year or two, particularly with floating rate debt. But nothing has happened yet.
Are you concerned that we’ve reached peak demand in Canada when it comes to industrial, particularly for large bay warehouses?
I wouldn’t say we’ve reached a peak. Is there concern? Certainly. Demand has softened to an extent. In particular, the large bay sector in Toronto is the most overbuilt sector.
That’s where most of the construction that’s been happening over these last few years has occurred. I wouldn’t say it’s growing like it has been the last few years. It’s hard to say how many groups are sitting on the sidelines because they’re thinking prices are going to drop.
So, the market’s rebalancing itself?
I think so. Really though, that’s all large bay. In small bay, nothing’s being built, certainly not from a rental perspective, so there’s still real future long-term supply issues in that space.
Data centre investment is hugely popular right now. What do you find exciting about that sector?
I think data centres are very interesting. How that plays into real estate though is still not quite yet determined. The largest data centre providers — the Amazons and the Microsofts — they’re building their own data centres for their own use.
There are data centres you can build for specific or one-off clients. There are also data centres you can build and lease to groups who will then sublease them out. Those I think are a little bit harder to make dollars on. It’s really hard to know the long-term future of that structure.
But overall, I think the product itself is extremely necessary. Who you lease it out to and how you build and make money — we haven’t figured that out.
