CANADA PENSION MAKES FORAY INTO U.S. SINGLE FAMILY HOMES
Canada’s national pension fund struck its first partnership to build and rent out single-family homes in the U.S., joining a rush to capitalize on a housing shortage.
Canada Pension Plan Investment Board will join with Greystar Real Estate Partners LLC, the largest property manager in the U.S., to build and acquire communities of single-family rental properties there, according to a statement Wednesday. CPPIB will own 95% of the $840 million joint venture and Greystar 5%.
The surging price of homeownership in the U.S. has forced many families to consider renting single-family houses instead of buying, helping turn such properties into one of the hottest asset classes over the course of the pandemic. More than $30 billion has been committed to rental houses since 2020, according to deal announcements compiled by John Burns Real Estate Consulting.
“This reflects the fact that there is large pent-up demand for housing in general,” Peter Ballon, the global head of real estate at CPPIB, said in a telephone interview. “Renters who choose to rent would prefer a variety of types of housing options.”
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Though other Canadian real estate companies such as Tricon Residential Inc. and Great Gulf Group have joined the gold rush in U.S. rental homes, there hasn’t been the same interest in such ventures in Canada, despite an even more severe housing shortage. As home prices have surged in a country obsessed with ownership, one developer’s plan to acquire and rent out single family homes sparked controversy earlier this year, while a scarcity of available land near major cities also makes new construction difficult.
Asked why CPPIB isn’t building single-family rental homes in Canada, Ballon suggested the country’s smaller population makes the economics of such projects more difficult — though the pension fund is developing apartment buildings there.
“You need a certain scale for sectors to thrive and quite often you’ll see things in the U.S. that you don’t see anywhere else in the world,” he said. “We need both returns for our stakeholders as well as scale to do it efficiently.”
CPPIB’s latest partnership with Greystar follows on a $389 million venture they announced in January to develop apartment buildings in the U.S.
‘If the opportunity exists’: CPPIB open to investing in Canada’s rental market
Canada’s biggest pension fund is open to investing in the country’s rental market to help increase much-needed housing supply – “if the opportunity exists.”
In an interview, the head of CPP Investments’ real estate unit did not shut the door to the idea of pursuing investments in the domestic single-family rental market, much like the pension fund is doing in the United States.
On Wednesday, the Canada Pension Plan Investment Board announced a joint venture with Greystar Real Estate Partners LLC to build and acquire single-family rental communities in the U.S.
CPPIB, which had $541.5 billion in assets as of September, will own a 95 per cent stake in the venture and Greystar will own the remaining five per cent. A total of US$840 million in equity is being poured into the deal.
“Currently, we’re focused on the U.S. The U.S. is a larger market and so it does present larger opportunities. And as big investors, we do look for opportunities where we can invest at scale,” said Peter Ballon, global head of real estate for CPP Investments, in an interview Thursday.
“Having said that, single-family rentals are, as I mentioned earlier, an attractive opportunity for a lot of renters. And while we’re currently not focused on it, I can imagine that this segment could grow here in Canada.”
Ballon said that the deal with Greystar is beneficial for Americans because the two entities are teaming up to build more rental stock – not competing against renters for existing homes.
Increased housing supply has been one of the solutions many Canadian real estate experts have called for to improve affordability.
Ballon said he wasn’t aware of any Canadian government discussions happening with pension funds or other institutional investors to increase the country’s housing supply, but said “that doesn’t preclude us from pursuing that if the opportunity exists in Canada.”
“We think [the global residential sector] offers great opportunities across the full segment of residential and we’ve been an active investor in multi-family apartment buildings for a long time. So this is just a natural extension of taking advantage of other vehicles to access the residential market, and single-family is particularly attractive these days,” he said.