Blackstone’s Move Further into Canadian Real Estate is Met with Mixed Reactions
Earlier this week, global investment giant Blackstone Inc. made headlines when it announced it would open a real estate office in Toronto.
The move was quickly met with mixed reactions, as Blackstone became the subject of passionate online banter. In the past decade-plus, Blackstone has been accused of profiteering in the U.S. during the 2008 housing crisis by buying foreclosed single-family homes at cheap prices.
So, it didn’t take long for the alternative investment management business to start to get slammed on social media after Monday’s announcement. “The vultures are here in anticipation of a housing market bloodbath,” wrote one Twitter user, for example. Meanwhile, Reddit was alive and well with banter of its own.
Whether a scapegoat or a legitimate culprit, institutional investors like Blackstone have been blamed in part for North America’s housing crisis. And many Canadians — some, inevitably would-be homebuyers in another time and place — are shouting “NIMBY” at them loud and clear.
On one hand, proponents argue that the entry of institutional investors could add much-needed rental supply to the housing market. On the other, critics say it may make it even more difficult for first-time buyers to purchase homes by removing stock from the market, ultimately contributing to the affordability crisis.
But, while some may have been quick to assume that Blackstone will come in and purchase large quantities of single-family homes like they did south of the border, there is actually no indication to suggest this is the case in Canada. In fact, the company says it’s not happening.
“In Canada, we’ve been long-term investors in areas like logistics, which continue to be under supplied and are benefiting from growing ecommerce. Our focus will continue to be on investing in our highest conviction themes, including logistics, high quality creative offices and life science offices, studios, and multifamily residential,” said Nadeem Meghji, Head of Real Estate Americas, in a statement to STOREYS.
This doesn’t mean that other institutional investors aren’t buying up single-family homes in Canada. Last June, Core Developments purchased $1B worth of single-family homes, including properties in eight Ontario communities. Core has purchased properties in Cambridge, Hamilton, Peterborough, London, Barrie, Kingston, and St. Catharines, and Guelph.
“These are mostly in secondary markets; they’re buying these homes, renovating them, adding basement suites, and creating an additional unit in the rental marketplace. I don’t see that as having a major impact on some of those smaller markets,” says Ben Myers, President and owner of Bullpen Research & Consulting Inc, of Core Developments’ mass purchase. “Yes, it’s removing one unit of ownership housing, but it’s creating two units of rental housing. In a lot of those markets, the percent of single-family homes for rent is only 10% — a small percentage of an overall total and it’s a good option to have for people.”
Not everyone is as thrilled with the growing presence of institutional investors in the housing market. “In our opinion, it’s a disaster,” says Geordie Dent, Executive Director of the Federation of Metro Tenants’ Associations of Blackstone’s move further into Canada’s real estate market. “Institutional investors tend to look at units as money making machines, not as places where people live. So, they’ll often cut services, try to jack up rents for existing tenants, or — more often or not — try to evict tenants who are in there now. They’ll try to jack up rents through renovictions or other illegal means. When they did this in the U.S., the rents went up. They were a disaster in the U.S. and they’ll be an issue in Canada.”
But, even if they wanted to, it would be difficult for Blackstone to purchase clusters of homes in Toronto, says Myers. “In the U.S. markets, they’re able to purchase so many cheap homes in sprawl-like communities,” he says. “They can scale the business and have one person looking after a cluster of homes. I don’t think there’s the same availability in the Greater Toronto Area market to do more of that. There’s no more room to build single-family homes in Leslieville, or The Annex, or Rosedale. There’s a fixed number of houses. So, it’s not something I’m too particularly worried about.”
Myers points to how Blackstone has been investing with existing rental owners like Starlight in the U.S., which is intensifying their existing rental supply. “Blackstone is essentially creating more rental housing supply,” he says. “I know people always want to get scared of big bad companies coming into Canada from the US, but I think this will actually be a positive thing.”
When it comes to the growing role of institutional investors in Canada, Elke Rubach, principal at Rubach Wealth Management, says the idea sounds good in principle. “But if permits take forever to go through, the supply issue still won’t be solved at all,” says Rubach. “Canada will continue to be an attractive place to live and work. The demand for supply is there; the need is there. If they can provide it, by all means. I do think there has to be political support there to make that happen, and some oversight to ensure there aren’t abuses. Every level of government needs to collaborate on the supply issue.”
Whether you’re for or against it (or indifferent), the presence of institutional investors in Canadian real estate isn’t going away.