Ralf Spann plays landlord to the world’s chic, young urbanites.
From Berlin’s edgy Kreuzberg to Paris’s 10th arrondissement to that capital of global hipsterdom, Brooklyn, the list of neighborhoods where Spann’s firm rents out apartments by the thousands reads like a guide to the hottest of gentrifying hot spots.
And today, no place looks more attractive to Spann, the chief executive officer of Akelius Residential Property AB, than Canada. Akelius plans to expand on the footholds it has in Montreal and Toronto, including in the suddenly fashionable Parkdale neighborhood, and push into Ottawa, too.
The reason is simple: Canada is home to a severe housing shortage.
Buying a place is out of reach to an ever-growing number of Canadians -- even many in the yuppie set -- after the pandemic turbocharged an already red-hot real estate market and sent prices soaring to record highs. Now, as vaccination rates climb and offices slowly reopen, the pressure is moving to the rental market, with rents rising and vacancy rates falling.
It’s a story playing out in many countries across the globe, including across the border in the U.S., but it’s particularly acute in Canada. A recent Bank of Nova Scotia study revealed the nation has the fewest housing units per capita -- whether to buy or rent -- among Group of Seven countries.
That’s making the market irresistible to Akelius as well as the private-equity giant Blackstone Inc. and a slew of boutique firms run by local financiers. Collectively, they invested a record C$11 billion ($8.6 billion) in apartment buildings in 2020 and are on track to match or surpass that total this year, according to commercial brokerage firm CBRE.
“We expect the housing shortage to continue,” Spann, who joined Sweden-based Akelius in 2006, said in an e-mail.
The model is steadily profitable and easy to execute, albeit a bit unseemly, especially at a time of soaring global inequality: Buy old buildings, renovate them, jack up the rents and market the new units to all those young professionals who suddenly can’t afford to buy.
And while tensions are mounting with the biggest losers in this trade -- the existing, and typically working class, tenants who say they’re being forced from their homes by the upgrades (or “renovicted” in the local parlance) -- there’s little sign that investor interest will subside.
“If you acquire old rental housing properties, it’s quite possible to make a lot of money from that by raising the rent, raising the fees, just squeezing more from tenants,” said Martine August, a professor of planning at the University of Waterloo who has studied the financialization of Canadian housing. “It’s been lucrative for them to date and I think it will continue to be in the future.”
Part of the growing enthusiasm for the trade stems from how well the business held up when the pandemic upended the economy, a reminder of how consistent the returns have proven to be.
As shopping malls and office buildings tanked in 2020, apartment buildings threw off a solid 5.5% return, according to data from MSCI Inc. And over the past two decades, they’ve delivered average annual returns of 9.8%, according to research compiled by brokerage Raymond James. On a risk-adjusted basis, that’s tops among all Canadian real-estate investments.