If there’s one thing we can take away from this week’s Liberal election win, it’s that tariffs continue to weigh heavily on the minds of Canadians. Prime Minister Mark Carney built his platform around Canada’s tariff response and, in fact, his first order of business is meeting with US President Donald Trump in an attempt to resolve trade tensions and get tariffs lifted. However, for businesses that rely on cross-border investment, damage has already been done.
Chief Investment Officer and Co-Founder of CPI Capital August Biniaz tells STOREYS that tariffs have had a direct effect on his company’s client-base: (mainly) Canadian investors interested in revenue-producing assets in the US multifamily market. CPI is currently facilitating a for-build, for-sale development deal in San Antonio, Texas known as Apollo Oaks — it's set to include 30 duplexes and 60 units — and Biniaz says that the benefits posed by the US/Canada tax treaty are being overshadowed by the poor optics of associating with anything American.
We spoke with Biniaz to find out more about what it means to be a Canadian business with a hand in US real estate in today’s volatile climate.
STOREYS: How have you seen business shift as the tariff conversation has evolved and escalated?
August Biniaz: Obviously, tariffs are something that Donald Trump has talked about for decades now. When he got into office for a second term, he implemented these tariffs in the hopes of dealing with a trillion-dollar deficit that they're fighting with. The ironic part of it is that while Trump is trying to strengthen the US economy, policies like tariffs are actually weakening the capital flow from friendly nations like Canada. We just went under contract on a deal right when the tariffs were implemented, and we accounted for cost overruns and vacancies, but we never accounted for nationalistic pride or emotional sentiment. Investing is not really purely numbers, it's people first, emotions first. So we’ve noticed a 20% drop in the volume of our Canadian investors looking to invest in our current deal in San Antonio. There’s been a shift in sentiment, and suddenly now, investing in the US feels like supporting the other side. I've seen that personally when there are hockey games between Canada and the US, and the Canadian fans are booing the US National Anthem. So it’s gotten pretty personal.
S: What are you hearing from investors?
AB: At CPI, the way it works is that an acquisition team goes out to the markets that we want to be in, in the markets that have growth. And we look for deals and we analyze them, and when eventually the deal makes sense, we put that deal under contract. The moment the deal goes under contract, that's when we package up the deal and put together our marketing material and send it to our investors, at which time, our investors can then assess the deal and jump on that deal with us if they wish participate. However, we first contact our repeat investors and ask if they would participate in this new deal. So it’s a very intimate, one-on-one conversation that our investor relations team has with investors, and we get to feel the pulse of investor sentiment and investor emotion right on those initial calls. With Apollo Oaks, we noticed that investors were saying, ‘I do have liquidity, however, I'm not going to be participating in this deal because of what's happening in the US, because of my concerns about tariffs, because of the administration that's in office currently.’ Historically, 60% of our equity comes from Canadian investors, and 40% comes from US investors, but the percentage of Canadian investors has shrunk down to 20%.
S: What are your projected cost increases due to tariffs?
AB: Our underwriting team, our analysts, are very risk-averse, so we always put contingencies when we do our analyses. For Apollo Oaks, we have allocated extra buffers for cost — for example, lumber costs. Our total lumber costs on a per-duplex basis is $30,000 USD, and we've accounted for an increase of $7,500 on a per-duplex basis. And that's if tariffs go through, as far as 25% tariffs. And that has increased the total construction cost by 4%. And we also have put a contingency of $2,500 on a per-duplex basis for any petroleum-related materials, like asphalt shingles. It's a total of $10,000 cost increase per-duplex build cost, which again, translates to 4% overall cost. And that obviously does affect LP economics in a deal, but we've accounted for it, so it's not going to be a surprise. The yields are so much more favourable in the US, so we don't see the yields being a concern because we're achieving close to 30% average annualized returns on our deal. However, again, we were not counting for nationalistic pride.
S: We’ve seen fluctuation in the Canadian loonie, and there's some thinking that the dollar will weaken more through this year. What does that mean for CPI and its investors?
AB: We've seen the Canadian dollar precipitously falling now, and our assessment is that will continue. We believe the US dollar will weaken as well, but that will take a few years. We require our Canadian investors to convert their funds from CAD to USD, and their investment is made in USD, and their distributions and, at a time of divestment, their gains are paid back in USD. So obviously forex volatility is another factor that investors are looking at, but our savvy investors understand that over the next little while here with what's happening with Canada, politically, what's happening with our next door trading partner and who's in office, in converting the funds from CAD to USD today, and as long as that deal is exiting over the next few years, they will actually make money on their conversion as a result of the Canadian dollar staying weak or continuing being where it is.
S: What are your thoughts on the future of CPI and cross-border real estate investing?
AB: We've been around for a while now. We've dealt with COVID, we've dealt with interest rates being taken down near zero, we’ve seen interest rates being taken up to fight inflation, as well as many geopolitics situations happening with the Ukraine war and Canadian political situations with our prime minister resigning. This is something we have never really dealt with, which is nationalistic pride for foreign investors. But I think eventually everything will go back to normal, and possibly better than before. Every administration in the US last's a maximum of eight years. This one has a maximum lifespan of the next three and a half years — we know that for sure because Trump has already served four years. And we still have a huge market right next to us, the US is a huge consumer, they consume trillions and trillions of dollars on a per year basis. And you've got to look at it this way: 17 different states in the US, their number one trading partner is Canada. Canada does 75% of all its exports to the US. So we need to be vigilant of that and not burn any bridges.
Questions and answers have been lightly edited for length and clarity.
