A Vancouver-based real estate investment trust (REIT) is betting that the big returns on residential rentals will be found south of the border.
Vancouver-based Pure Multi-Family REIT LP is the only Canadian REIT focused exclusively on the apartment rental market in the United States. In July, Pure bought a resort-style 264-unit Dallas, Texas rental complex on 10 acres for US$16.5 million. The numbers look good: Pure paid US$62,500 per suite and accepted a cap rate of 6.9 per cent. "These units rent for $1,000 to $1,500 per month," said Pure CEO Steve Evans. So far this year, Pure has bought four Texas rental properties for a total of $104 million, with an average cap rate of 6.46 per cent.
"You can't get this level of value in B.C.," said Evans said.
Recent reports show that, as a comparison, the typical low-rise, walk-up apartment rental building in Metro Vancouver sells for more than $185,000 per door and capitalization rates average around 3 per cent.
Pure is trading at $4.40 per share, down from $5.50 a year ago. Evans said the share slump is "due to an overreaction" to rising U.S. interest rates. "We can still get five-year terms at 3.94 per cent."
Evans notes that, unlike B.C., Texas and most other U.S. states do not have rent controls.
The U.S. rental market has some other advantages over Canada, analysts say. These include demand from millions of former homeowners who went into foreclosure; a strengthening U.S. economy; low prices in most urban markets; and a tax system that allows property owners to escape capital gain taxation when they sell an apartment building. The U.S. market is also 10 times the size of Canada.
Since the U.S. housing crash in 2008, the number of households renting has jumped to 38 million, and that is expected to ramp up to 41 million in the next two years, according to the U.S. Census Bureau.
