Going it alone in commercial real estate investment can be challenging, but that’s exactly what Wendy Cheung is doing.
Cheung got her start in real estate as a broker and is the founder and chair of Vancouver-based Empirio Capital, an investment firm that holds more than 550 multifamily units, 12 commercial properties and two industrial properties.
But it’s her solo investment activity that has recently garnered attention. In August, Cheung purchased a 159-unit rental building in Edmonton for almost $38m. That deal came nearly a year after she turned heads with her purchase of a 263-unit property in Calgary.
And there’s more coming, she says. Green Street News spoke with Cheung about how she approaches investing and what the future holds.
You’re investing in some large residential rental properties by yourself as opposed to being part of a large company. What is your approach?
I’m not sure how many individuals are out there investing the way that I do. However, purchasing rental properties seem to be a common wealth-creation strategy by most people’s definition. What I do differently is mainly focusing on the scalability of my business.
“What I do differently is mainly focusing on the scalability of my business”
What came about is that I studied the trends to where the REITs were buying and why they were focusing on the multifamily and industrial space. It made it more obvious when office and retail products were taking a hit during Covid.
As an investor for more than 20 years, knowing investing is absolutely paramount to hedge against inflation, I asked myself this question: How can I make a bold move with what I know about the market?
Next question was: Why do REITs buy what they buy. and where do they put their shareholders’ money? Given private and public REITs have a lot more resources and can invest in any part of Canada, what drives their decisions?
I traced where they go and noticed the trends among the big boys, their path of consistently divesting their portfolio in the smaller town or suburb locations, and moving to more centralized and bigger cities.
So, does the way REITs behave greatly affect your decisions?
Somewhat. There’s pros and cons in every investment. I’m not explicitly advocating where the REITs invest is the absolute best strategy for all types of investors. Every time when one invests, it’s always based on that individual’s horizon, risk tolerance and the ability of the investor or their trusted invested company to roll out and strategically execute their business plans.
For me personally, on the note of investing, I would like to be much more conservative. I like to ensure stable cashflow is eminent and mitigate risks in all angles as much as possible. For me, it’s taking what I know about the REITs and outmanaging the managers.
“For me it is taking what I know about the REITs and outmanaging the managers”
So, I’m not saying that I’m a hundred percent going to be right. I’ve been wrong before. But sometimes, my decisions do pay off. It’s always about where do you think your head space is and no matter what, try to do your best.
Are you planning anything more coming up in the next year?
Yes, I do have something on the go. I have a couple more acquisitions coming up, one that will probably be in the latter part of 2024 and may overlap into the next quarter.
How involved are you in the purchases? Do you go through and do all the due diligence by yourself?
Yes, yes, yes. I do have my team. So, my asset-expansion team is just a small core group where they do the analysis. My team involves analysts, CPAs, asset management and lawyers to review third-party reports and city bylaws.
It sounds like you’re pretty involved in the deals yourself. So how much of your day does this take up now?
I really enjoy it. I like looking at deals and analyzing them. By nature, I’m an opportunist. So, when I see something that does make financial sense, it gets me excited. So, certainly in terms of the hours, it can be a couple of hours a day, to none.
My team is competent and self-sufficient, but I do oversee. My role mostly is to source new deals and with brokers now, they call me up quite often to show me what they have. And I’ll be able to have a funnel of things coming through, be able to look at it, along with my analysts to crunch the numbers.
And what kind of deals whet your appetite the most?
New or newer large-scale multifamily in Alberta, especially in Calgary and Edmonton. Strong [capitalization] rates, having a stabilized net operating income and located in growing desirable areas are important factors. Preferably under 10 years old, near transportation hubs, close to the ring road and LRTs.
Also, I’ll look at the competition to see if there are other developments that may be competing for the same tenants. Of course, look at the current rental income against the market trends to see it has runway for the numbers to catch up. Perhaps, look for intrinsic value as well, for example if it comes with extra land or possibility of rezoning. These metrics are what I am looking for with buildings of 200 to 400 units in size.
Where do you think the market’s going to go with multifamily and industrial over the next year?
Great question. I think no one really knows. That’s what is often asked, but I think even professional economists will say one thing one year and the next year, with hindsight in their favour, would often need to justify their prediction. Given what had happened, I hope we won’t experience another life-changing catastrophe.
The good news is all previous economic downturns have generally been temporary. However, I don’t know where the next decade will bring us. What I know for sure, though, is that inflation is going to happen regardless of our guesses. So therefore, rents are most certainly going to rise to make up for the increase of real estate prices, which is to offset the constant climbing of construction costs.
“I solely rely on cashflow-driven deals with current bankable numbers”
Therefore, for long-term holds, investments in multifamily over time should be rewarded. And I think my philosophy is a little different. I don’t bank on future growth. I mean, it’s nice to have it, but it’s certainly not my cornerstone. I solely rely on cashflow-driven deals with current bankable numbers. And if the market does better than my prediction, then that’s the gravy to my steak.
