Creating a Private Equity Real Estate Boutique, Investing in Ontario's Apartment Market, Tips For Federal Government (W/ Adam Batstone)

Welcome to another episode of Inside Canadian Real Estate. Today I am joined by a really interesting guest in a field that's really interesting personally to me, which is the private equity world. I'm joined by Adam Batstone, the founder of Two Sevens Capital. They're a private equity company that invests in apartment buildings all over Ontario and across the GTA and beyond. And they're doing all kinds of exciting stuff, the Renewer Fund, but with a ton of background experience and incredible team. So without further ado, let's jump right in and have a chat with Adam.

All right, Adam, thank you for joining me, man. I appreciate you coming down today. Thanks for having me. Let's let's jump right in, just so we have some context. People know who you are, what you do. Give me a quick intro on you and the company.

Sure. Adam Batstone. I'm the founder, CEO of Two Sevens Capital. So I started this company just about five years ago. We are a private equity boutique. Our core fund or our core offering I guess basically where we got started is, is a real estate focused fund.

So this is we're now about 50 million in in assets in that fund and we do that by raising capital from individual investors and placing it into the strategy at the moment is value add multifamily all Ontario based. All Ontario, very good. Let's bring some background to this because before we go too far, we're going to talk a lot about real estate today and kind of what you guys are doing there. But before we go too far there, let's talk about how you got into this game of setting up your own private equity firm and doing what you do now. Yeah. So I started in finance just over 20 years ago.

So just after 911 is basically when I started my professional career. I started in very traditional finance, very traditional investments. So I was a full service advisor, portfolio manager by trade and training and so I managed money traditional portfolios for wealthy Canadians for over a decade and in 2015 I had clients who were looking for different things, things that we couldn't do in in traditional portfolios. This is after helping hand or helping people through credit crisis like weight and and seeing their equity portfolios bounce around and and whatnot. So after many, many years of of doing the traditional stuff, I found my way out. I sold my practice in 2015.

I went to a large privately held REIT and there I was. I was in charge of running the part of the business that raised capital from the investors. So I kind of backed my way into the real estate side. But I was a party to about a billion dollars worth of acquisitions over a three-year time period. So I kind of learned the game rather quickly, wasn't necessarily by design, but that's that's how it happened and after three years there, left that and took a bit of time off to figure out what my my next moves were going to be towards the end of 2018. Beginning of 2019 is when I launched this business.

Nice. So when you made that first jump into that REIT, which would have been I guess your first kind of jump into real estate, did you intentionally choose a REIT because you wanted to get into real estate or was it just the opportunity? Came out. No, the opportunity was there such that so they were privately held. They weren't. They weren't a publicly traded REIT privately held by the the three founders.

So it was it was still young, but there they had raised all their capital directly from individual investors. So my experience having been on the private wealth side, I thought that I could help them professionalize their investor experience more so to feel like a full wealth management experience. And so that was at least the goal for for me going there And then it just so happened that so that was that was my intention to go there and and help them with their, with their, their clients and about 5000 investors. So it was a huge number of clients to, to help deal with. And yeah, So what what ended up happening is I ended up learning a lot about buying and managing commercial real estate.

For the most part, they were buying multifamily properties. So they they did have some industrial assets and some retail assets, 2 smaller portfolios. But for the most part, it was it was all multifamily. Got it. So I mean something in there must have stood out to you because you're coming from that more like that money management role. You're obviously involved in other assets that were not real estate.

Now you come into this REIT, you see what they're doing in real estate. Obviously you liked it because you've continued on that path. Did anything stand out in particular about that, that you saw it said, oh this is, this is really good. I got to do more of this. Yeah. So the the offering that they had was not something that you would have been able to find on a traditional wealth management platform.

So you know RBC or TD or whatever you you couldn't really find out an offering like there. So it was considered an alternative asset or an alternative structure. Do you remember what it was? What the offering was. Well, just just the structure that. They used the.

Structure that they used. It would be more commonplace to like a private equity fund or or a hedge fund as opposed to you know a mutual fund or an exchange traded fund that you would find commonplace at A at a traditional wealth management shop. So what I I think what I learned from that is it was much easier to raise capital from private investors for a real estate offering than it was for any other alternative. Offering. And I think that has a lot to do with you know you could give people an address and they could, they could, they could drive by and point to it and and intuitively they understood. So you know we we pulled our capital together, we go by that group of assets and people live there and pay rent.

And so the simplicity of it and somewhat over overly simplistic, but I think that that was the eye opener for me is that it was, it was a lot less difficult to sell an investment or and sell an investment idea that was real estate backed as opposed to you know I don't know a hedge fund that might have been, you know not so people couldn't really understand it or something like that. Right now that makes sense, especially in a country where a lot of the country's wealth is built through real estate equity, whether it's in your home. I think a lot of people inherently understand real estate. They assume it's the safe thing. If I can get into it, it makes money.

I could touch it and know where it is. It's real. It has that element to it. And yeah, again, the track of of success in the country of real estate almost always goes up at that time helped a lot because it seemed less risky I'm sure to a lot of people to get into real estate then things they might not really understand. Yeah. Like in the traditional investment space, traditional wealth management, you're you're basically selling paper every, every month, right?

You're selling a statement, you're selling an account statement regardless of what you're invested in. And so this being something that was not not just an account statement that was based on physical assets and you know, simple, simple business model. So I think that was that was something that really stood out to me. The other thing that stood out to me was when I was on the traditional side of investing, we liked to try to become a client's primary advisor. So that's the goal of any, any investment advisor to become a family's primary advisor. So primary source of of advice, but also the 1st place where they're going to give their investment capital and when we would pull our clients when we're doing KYC on our clients, they they're kind of obligated to tell you all the different investment relationships that they have so that you've got a good understanding as to who these clients are.

What I When I was on the traditional model, it seemed like people only had only ever had one or two maybe other sources of investment that they were participating in. When I went to the private private model, what I learned is that most clients have like 7 to 10. So there was a lot people were doing a lot more that were alternative than what they would tell their traditional advisor. So that was another eye opener for me. Interesting. Yeah, that's all valid points.

So you saw that you got excited. You say, OK, this is a good model, I wanna do more of this. And you ended up leaving eventually and starting your own shop. Yeah. And I think there it was me learning. So when you're, when you're providing investment advice for hundreds and hundreds of families over a long period of time to be a good advisor in any capacity, you're, you're wanting to know what's most important for that client, right.

So it's always client focused, whereas I think some investment models can be manager focused, meaning meaning they want to be doing what's best for the manager or the GP or whatever 1st and then if it happens to work out for the investor, then fine. So I think for me having always been concerned for what's best for the client first and foremost and then learning what was seeming to be a pretty lucrative investment structure and strategy. So for me starting my own business, it was more about putting my own spin on things. So how, how can I try to provide an experience and access to opportunity Really that's the core, the, the core, the core goal of our business is not to be an US two business, it's to provide access to things that people wouldn't otherwise get access to, right.

So that's that's kind of the goal. I love that. And so when you did make that leap and end up setting up the shop that you're at now, you went into private equity. So you set it up as basically private equity company For those who don't understand, I mean I I feel like I dig into this all time and I still don't fully understand. So why don't we have you go through again what, what is a private equity company? What is this thing you set up?

Yeah. So the typically a private equity firm regardless of what they're invested in, there would be a series of corporate, corporate entities that are there to manage the business. So you might have a a corporate entity that houses your employees and and has all of your your contracts and and and whatnot or or you're going to use that entity to manage assets under a contract. Then you might have a another entity that acts as a a general partner. So if you're launching a fund in any capacity very traditional investment structure in Canada is a limited partnership that same in the US as well but a very, it's probably the most common structure used to pool investment assets and go acquire investment capital and acquire assets.

So when when people say what are you invested in, well it's not really our business that's invested in things. We create a fund, a limited partnership through our general partner and then our manager, our management entity is the thing that manages it all. So the fund is what people are invested in, they're not invested in our company, they're invested in the fund and that's by design, right. So it's the, the general partner structure is really I call it the risk absorption tool, it's accepting risk that the limited partners wouldn't want to accept. So that's like mortgage obligations. You know when we come to come to real estate investing or you know the removing the slip and fall or anything like that, right.

So it's the the limited partnership is is just a pool structure where investment capital by investors gets placed into and then that goes out and acquires assets. Beautiful. Yeah. Because as opposed to if they were, for example, just shareholders in a corporation, they'd have all the risks the same as everybody else did. You have, you have all the operational risk that the business is taking on tied to your investment into that. As well.

So of course they don't want, they just. Want they shouldn't want, They shouldn't want. For sure. That makes sense now. So why did you choose? Because obviously there's all kinds of ways to structure this.

We've talked about Reit's. We talked about you working in a private REIT. What would inspire you to like when you left, say, I'm not going to just set up another private REIT. Why private Equity over Private REIT? Yeah. So good question.

Really a a REIT is is a tax designation. So it's a trust structure that gets wrapped around the limited partnership structure. So it's an enhancement to the limited partnership structure. So any REIT that you see whether they're they're exchange traded, so like a publicly traded REIT or a private REIT, so it might be distributed through private channels regardless. There's probably a limited partnership underlying first that would be the, the core base of the investment structure and then they wrap the trust, so real estate investment trust, right. So the trust component is the legal structure that gets wrapped around the limited partnership.

Now to have a REIT designation, it means that you have to distribute most of your distributable income, right. That's what gives the tax preferential treatment. So in order to maintain that with CRA that status, you have to distribute cash and so the REIT structure although is useful, it's not useful in at least from my view if you want to keep recycling profits back into your assets or elsewhere across the portfolio. I see you have to keep raising capital. Well, you have to keep raising capital if it's an open-ended structure. But basically the rules are that if you want to maintain this, this REIT status, you have to distribute your excess income.

Whereas the limited partner structure that we have, we're not bound by that constraint. So what we can do is when we have excess cash flows, we can recycle that cash or reinvest that cash either back into a current asset or to be on the hunt for other assets. Interesting. That does make a lot of sense. So it gives you more opportunity to reinvest, so you can grow a little more aggressively, which ultimately should be better for the investors. Well, I mean, if you're.

If they want. If you're an investor who wants or needs income, you know. And if you're if you're in retirement or or you don't work or you need an enhancement of your income, then having an income generating investment might be useful. But I think if you look at many of the Reit's and you did a study now I don't have any data in front of me or any recent data, but many REIT investors reinvest their distributions, which means that they're not actually needing income. So it kind of defeats the purpose of having that that flow through entity or that flow through structure of income. So yeah, so it's most, most REIT investors from from at least my experience are reinvesting their their cash flows in some way shape or form.

So no need to go through the administrative hassles to maintain that REIT status if most of the cash flows are being reinvested back into the fund anyway. Right. No, that makes total sense. So it sounds like ultimately as well private equity is probably a little simpler from a management, it's still very complicated, but from a management standpoint, I'm assuming the read also adds more layers of. Complexity. Yeah, yeah.

Yeah. Again, because you're adding this, you're getting a benefit by adding this trust structure. So in order to maintain that in good standing, there's a lot of obligation that you as the manager, you as the general partner would have to keep keep up with. So managing investment structures, investment pools, there is a lot of admin. So I would say that's one of the barriers to entry for anybody who wants to launch a fund. The administration of a fund is it can be quite onerous.

Yeah, that makes sense. So that's that all being said. So you ended up setting up this private equity company, you got into it. Step one is obviously raising capital. Yep. How, how did that go?

Is it very much a family and friends thing from the get go? Was it just existing relationships like how were we able to find because you guys have not been around that long, you did this pretty quickly is my point. So how, how did you able to like jump into this, start raising capital, start making these acquisitions and be aggressive as you have been like how did that pan out? Yeah, it's, it's interesting. So when I was an advisor, so I'll step back first. When I was an advisor, when I first started out as an advisor, 20 plus years ago, it was very difficult to get clients.

It was even friends and family. They're always your first. They're always your first. It doesn't matter what business you're in. You own a cafe, your friends and family, they're coming first, right? So first clients were friends and family.

And then as you get better and you get, you know, better at better at doing your job and better at telling people what you do, it's easier and easier to be getting clients to the point where my last couple years as being an advisor, everything that I did was prescriptive. So it was almost like being a doctor. It was like, hey, we're going to do this, all right? No problem. Here comes the money. Now, I had grown my practice at that point to be fairly significant in size.

And I had a lot of very wealthy clients. And after I left that and came back and was going back through my through my network and talking to them and saying, all right, I'm going to start a APE firm, private equity firm. And, you know, we've worked together in the past. You know, was this something that you'd be interested in becoming a part of? And resounding answer was yes, absolutely. And so when we were looking to do our first project, I had been in touch with the equivalent of maybe 30 million bucks worth of capital.

So this is me probing my, probing my network and saying, hey, hey, what do you think? What do you think raising capital for a first? So instead of launching a fund, at first we decided to find a project. So could we fund a project, a singular project? And so we found two singular projects and we raised, you know capital to do. One of them was a 66 unit apartment building.

The other was a 20 unit townhouse townhouse. Yep. Development. So, yeah, the interesting point being just 'cause I had had a track record and success in a certain area just because we were a new banner didn't mean that that was just going to happen. But then so think of the timing of this. So this is beginning of 2019 when we start raising capital and with our first two projects and we we succeeded in doing that.

It wasn't easy. We closed on those in the spring of 2019, both those, both those projects. So call it maybe a a dozen investors in each in each project. So not not too many, not too onerous but enough to to give us the, the, the amount of capital we needed to to fund those two projects and then Fast forward eight months and COVID hits, right. So now I have this new business that is dependent on raising capital right from individual investors like that's the that's the model we don't raise from institutions and there's a reason for that. So then we then we switched to Zoom.

So I never thought it would be possible to raise capital via Zoom call, but that was that was the nature of the of the beast. And so all through 2020, I raised capital. I think I raised about 10 million bucks via Zoom calls and this was you know talking about the opportunities, talking about what we're trying to do next. And that was people who we knew of course and there was people who we were introduced to through our network. But yeah, I did a year of capital raising on Zoom. Wow.

And that was that was interesting. Now has that. Hold has have you found I don't have enough time has passed, but do you think that was a temporary kind of feature of where we were at and it goes away or do you think now people in general are still more receptive to that and you can keep doing it that way? I think it is swung back all right. I think less now we are using some of that video technology for doing things like quarterly reporting, right. And and it's actually a good way to do some of that stuff.

Not to say that we won't have a have a video call with people who might be interested in our offering, but more so now it's back to the in person unless there's a huge geography displacement or they maybe they just you know prefer to be online. But yeah, it's it's definitely come back, come back the other way, right? And so now moving forward with like the structure that you guys have is this. And again, I'm, I'm going to be the voice of the listener who knows nothing about anything. So we're gonna maybe it's the first time, maybe some of them do, maybe some of them don't. But you you're raising capital now you're, you guys have obviously at this point multiple projects.

It's not one building you've expanded since those two projects. Is it a new fund for every project or are there large funds that people when they invest, they're investing in the group or are they all investing individually? Yeah, so. The our third structure, our third which is, which is an open-ended fund, which basically means that. It's multi asset, right. So we're constantly raising and we're constantly acquiring inside it and that's that's by design too.

So the first two were single asset acquisition, single asset structures, you know a dozen people in that one structure. We acquire that thing, we own that together and manage it. But then by the early 2021, we had launched what is now our core fund and that is an open-ended fund, meaning it's open for for capital at any point in time. And so we're always taking in or at least trying to take in new capital which means we're constantly looking for new acquisitions. And as the fund gets larger and there's more acquisitions in there, it actually spreads the risk and creates a better smoothed out return profile for an investor. So we are dictated by the pace of capital that is that is the nature of it when you have an open-ended structure and we're always constantly looking for acquisition.

So we're constantly sifting and sorting through our through our pipeline. Gotcha. And so when it's closed ended, you have to basically raise a set amount, the doors closed and then you're going to buy whatever you're going to buy and that's it. You're not really changing much in terms of assets, yeah. You're, you're not adding to it because typically what you're you're doing to your investor group, you're saying, hey, we're going to, however many of us are coming together, we're going to acquire this thing and we're going to acquire this thing and do this with it. There's going to be a very prescribed business plan with that asset and then there's typically a very prescribed exit point whether that's either it's achieved a certain value or a certain amount of time has gone by.

And so everybody knows going in, hey, this is what the experience is going to be. It's going to start On this date. We're going to acquire that thing and it's going to end On this date and then we're going to distribute our profits and everybody's going to go on to their next things. So that's that's a closed end structure or closed, closed fund. Ours being open-ended is such that, hey, here's what we've been doing so far and here's our plan as more capital comes in. Got it.

So someone investing in the fund you have right now is essentially investing in not just what you have now, but the future of the fund doesn't grow is correct. They're bought into that, correct. That's very cool. So. People coming in now would have the benefit of you know, almost two years worth of initial, you know growing pains if you will. They're getting into a portfolio that has some maturity to it and some stability to it.

And so as the new assets are coming in the and and the the older the fund is, the more stable and less risky the fund actually becomes, right. So that's because. Of why that's? Because you have more and more stable, less risky assets already in the fund producing for you. Yeah, right. Exactly, whereas if you.

If you acquire something and so the the the investment strategy on this one is, is value add meaning we buy old tired things that are under managed and need capital that's that's the investment strategy and why you do that. I guess for people who are are used to the Burr method and on single family, single family this is like Burr method on steroids, right. This is the commercial scale of of the Burr method. So as as you've got a portfolio of mature and stable assets that's a less risky proposition than acquiring something that needs a lot of work and new management. Right now you get a big lift in equity value when you successfully take something through its value curve And so that's that's the that's the the draw is people becoming involved in a the prospect of of all of the value that can be created rather quickly with this with this strategy.

And so when we can keep finding finding projects and finding finding properties that fit the characteristics that we look for then we're constantly finding ways to grow the value of the fund. But we're constantly then putting stable assets that are much less risky and much more productive. You know, as as kind of the bedrock of the, of the, of the portfolio that makes sense. Is there a risk at all? Like, is there ever a difficulty with when you're managing an open-ended fund, raising so much capital and not being able to deploy it for whatever reason, where like do you have to start paying distributions on this capital despite the fact there's no new assets?

Like, is there a point where, Oh no, we've raised too much? Or do you kind of know that ahead of time and prevent that from happening? I wish we had the problem of too much capital and that's a little bit tongue in cheek. First off, because it's it's very difficult to raise capital. It's not an easy job to do, but there is so much opportunity and we have our eyes on so much opportunity that we could deploy almost any amount of capital that was coming in. So you wouldn't, you wouldn't provide a distribution just because you've raised too much capital.

Where you would provide maybe an excess or special distribution is if you sold a part of your portfolio and you created or you realized a bunch of the the gains that were that were growing inside it and now you've got all this cash and maybe you can't deploy it as quickly as you should, in which case that's the point that you might make a special distribution, right so. Again, being the voice of the potential investor here I come to you. I give you guys $1,000,000. I hear what you have. I say I love it. That's great.

I want in. I I put $1,000,000 into that open fund which already has assets. Who's you're looking for some more. How do I get paid back now as that new investor, where does my income come from? Yeah, so. The, the fund structure itself and and the current, the the current iteration of the fund, we do actually pay a cash distribution on top of the growth.

So the the investor experience is part of multiple of their equity that they've put in or multiple of the Capital plus a cash distribution. So the current yield equivalent. So it's we can talk about the difference or the the nuance is there but the current yield equivalent is 9% on the cash that you've got invested. So that's coming on a predictable form. We were currently distributing that cash on a quarterly basis. We're about to move to a monthly basis.

So it's the same amount of cash overall, but just more frequently plus the underlying growth of the equity. So it's a it's a two-part experience for for an investor being invested and do you guys have a? Way that you measure and report that equity gain as well like do I see that as an investor, So what you would? See is when we change the net asset value of the fund. So as the assets underlying are growing in value now unlike say an exchange traded fund. So if you've got an exchange traded, REIT the value, so the the, the share price basically the value bounces around day-to-day as as as it's a part of the stock market, it's traded back and forth.

It's traded back and forth. So the value is you're seeing your value what your portfolio is worth day-to-day. So it's marked to market on a daily basis. We don't mark the fund on a daily basis, we mark it once a year. So when the net asset value changes that's how on your paper statement you would see the the underlying value increase. But over time over the year what we're sharing with our investors is how things are going at the asset level and at the portfolio levels they can get an understanding as to hey, the assets are actually growing at a you know 20% rate this year and we show them how and why that is.

So the the idea behind that is saying although although we haven't adjusted the NAV yet, the progress so far this year suggests that it's on this path, whatever that path may be, all right. So you're seeing it underlying in the assets. So we we share what's going on at each property and and how things are going where it was, where it's at now. And then once a year, once the final year end the the final year's accounting has been completed, then that gets all aggregated into the net asset value of the fund. And then you as an investor or unit holder or shareholder would see the change in the value underlying. Oh, that's very cool.

So I put my 1,000,000 bucks in. And I mean, at this point, if you go monthly, I'm getting a monthly, basically monthly check. That's my distribution. And at the end of the year, I'm seeing how much that portfolio's gone up. So I know basically where my value's been. And from an exit standpoint for me, if I say, Oh my God, I've been for a year, I need to get out.

I need my money back. Yeah. How does that work from it? Like, am I getting that equity gain on that exit? Do I lose that? Is there like time frames I can do it in?

How does that work? Yeah, that's a good. Question too. So our fund is designed to be more liquid than your individual real estate holdings. So right now if you're if you own a property and you need it out, you're probably 9000 and 20 days before you're getting that check from your lawyer, right? By the time it gets marketed and closed and and all that kind of kind of stuff.

Whereas if you owned shares in RBC or Apple or whatever the case may be, you sell your shares, you're getting your cash Three days later it's AT +3 settlement. So we're more liquid in the sense that because we're it's an open-ended fund, there's money always coming in. So we don't keep a liquidity pool, meaning we don't keep capital aside. All capital we bring in is invested, but there's capital coming in the front door all the time. So we would say that depending on the flow of that capital, anybody who wants to relinquish their shares or their units, it's probably a 60 to 90 day liquidity. So yes, liquid, but we suggest that anybody making an investment in a structure like this, whether it's ours or any anybody else's, this shouldn't be your money market type money, right?

This shouldn't be your rainy day money. This should be especially because it is invested in real estate. It should be, it should be felt as though you are actually invested in real estate, meaning how would that have to happen, right. So, like you, you can't call, you know, you and say, hey, get me my money, Well, we got to sell your thing first. Yeah, yeah, of course. No, that makes sense.

And it's actually a little more liquid than the actual real estate and more so if you're talking big commercial real estate like if you own larger commercial assets, it's not even a 90 day device, it's you might be all year sitting on market waiting for that thing to move. You can't just get rid of it at the price that you necessarily want. So that's significantly more liquid like I mean from my perspective too like as an individual real estate investor buying properties, especially now with like development projects for example, even small development projects, you start this thing by the time you actually get your permits and your build and all this, you're in this thing for a year, two years like you, you can't just stop and all my money out like so that that's the reality of of being in physical real estate.

This is a much more liquid option by that standard. Like, even if you can do it in four months, that's a very liquid standard, more liquid. And less risky, yes. So you're you're. Still getting exposure to an asset class that you like. Exposure to an asset class that you might not be able to see.

You might have investors who own a couple single family homes or condos, but they can't buy apartment buildings. But here's a way to get exposure to apartment building investment without having to go through the motions of raising all the money, or finding all the money to buy an apartment building and then managing it. And they have the, I guess the advantage to, in your case of these are tangible assets that are semi local, they can actually see them. I'm assume you guys share the property of course, so they can drive out and actually go with their family. And so, yeah, I'm in this building. I'm in this building which is a really cool element of real estate that you still now get even though you're not owning it outright yourself, you still get the tangible point of it, right?

Yep, which is really cool, very good. So where are you guys investing? I mean right now like what's the focus because I know your office is out in, was it in Burlington area, Oakville, Oakville, you're in Oakville. Where are these assets you're looking at like primarily or at least what you have been acquiring so far? Yeah, so. Are.

They're probably not. They're probably obvious spots, especially if people are familiar with the Ontario markets. Our very first investments were in Hamilton. Yeah, Hamilton has changed a lot, but there's at least I think from my, from my research, I think Hamilton is the second most dense renter market in the country. I think, I think Montreal's the, the number one, so, so Hamilton's second second most dense. Yeah, lots and lots of apartment buildings there.

But that said, there's been a lot of institutional money chasing that market for a while now. So I would say it's, I think people want to look there for sure. But so we're we're Hamilton and we've got a pretty big foothold actually in Kingston that would that's probably our most significant area that we're invested in. And part of this is just because the right deals, we started to see some deals and that was 1 area where a good deal came to us. And then because we got into that market, we started trying to get deeper into that market. But as far as other areas where we're very interested, Guelph, Kitchener, Waterloo, certainly Brantford, Cambridge, even down in the Golden Horseshoe.

So Saint Catherine's, London, Windsor, we do like a little bit in the east We we do like Kingston, Ottawa shows some some good signs. Just for us it's even though it's only a few hours away, it's still a little further away. It's a little bit, yeah. We would probably have to be, we would probably want to be a little bigger so that we could have a dedicated team out that way internally to to really, really do something. I don't think we would want to build or buy just one asset out there. I think we would want to buy with the intent of getting pretty deep in that market exactly.

But there's. There's so much. So as far as the types of assets that we like, call it in the in the 20 to 60 unit range, that's what we like, which seems to be big, too big for an individual to go out and acquire. Not that individuals don't acquire own those, but typically too big but small enough that the large institutions aren't really caring too much about them yet. Now we start starting to see institutions buy single family homes. So it's not to say that they aren't coming down down there, you know where they want to find stuff.

But again, our, our research shows that there's probably about $50 billion worth of these assets in Ontario still to be, you know, found and and acquired and managed and maintained. Interesting. Yep. So you have a. Lot ahead of you for sure. You got a lot of work.

Well, as long. As as long as some of the major economic factors don't change drastically exactly right now, there's still so much opportunity here as far as our investment strategy goes that we don't have to try and get distracted by looking at other markets or other opportunities just because there is so much here exactly. Which will lead into my next question of a distraction. Have you guys considered development at all? Is there a reason you have or haven't? Like, what do you think about?

We get asked about development all the time and so we wouldn't do development in this fund because that's not what this fund is designed to do. That said, as a firm, would we get involved in development? Possibly. We have looked at development deals. We've just found that there to be a lot of friction on trying to do development. And when you're dealing with a group of investors, when it's your own money, you can deal with the friction a little little easier.

When you're dealing with other people's money, having to navigate the friction and then and then kind of be the intermediary and and discuss that with a group of investors, it's not that easy. Now what I should say is part of our underwriting and selection criteria for the current portfolio even though we're buying older tired assets we are actually we we do when we score our our projects or potential potential acquisitions we are looking for the ability to develop on the on the assets that we that we acquire so infill or add on. So it's certainly part of our nice to have as far as when we're selecting. So that means for us we're we're doing that not because we will eventually develop all the all the properties or over develop the properties that we do have.

We just, we just want to make sure that it's an opportunity if the market kind of moves that way exactly. That makes sense. I only say it because it seems like when there's so many issues with supply, like it's hard and hard to find deals, you start to wonder at what point do you make your own. But I know it has to also make sense because we've had other guests on the show that are in the space, whether private equity or private reads, where the majority of their funds are set up for apartment buildings and this sort, but they'll have like a dedicated Development Fund. The problem is those are typically closed, ended and locked in for three or more years.

So they pay a lot more, but you can't get the money out at all for years at a time, obviously, because it takes time to go through the cycle, right. So I think that's a that's a different investor profile for sure as well. They have to be OK locking up that money completely and I think. The way that rates have moved so fast over the last year year and a bit that development needs people going into development deal. The economics were quite different you know a year ago when they were starting those projects than they are the realities of it now, which I think some of these might not end up going forward or they're going to get you know re reframed altogether.

So it's. True. We're seeing a lot of, I mean yeah it's changed so dramatically like in just a few years that whatever you ran at the get go from your kind of pro forma is is not going to look at all the same anymore. So the the, the, the basis of what you raise capital on is no longer in existence especially with with rates the way they've went. And then you're also competing with rates from more stable offerings like I've never bought GI CS in my life and recently we did for my son who we started saving for as a little little account growing and growing. And I see these like rates with bonus rates and all this where I'm getting like high 6% guaranteed money with zero risk and work from a bank, it's like now you're competing with that because it well, I can get 9 or 10% with risk or I can get 6 or 7% with zero risk and that's that's an element too that has to be overcome.

So development's giving you, yeah, there's there's a a strong return, but how much stronger than that and how much more risk than that and how much longer would I have to lock my money in? Whereas maybe before it made more sense when the bank was giving you half percent or 1%. Of course I have to find anything else to put my money in, but now I can get six 7% and and do nothing. Yeah, I think the, the in order to help development be more attractive, I think the the government, all layers of government are going to have to be more forthcoming with you know what are the rules, you know, what are the entitlements, what are the, what are the incentives.

And I think once, once that's clear because I think they're going to have to get clear, I mean obviously we need more more supply and we need it in all various types of of housing. But in order for that to happen, because I mean the government themselves aren't going to develop, but they're going to have to incentivize you know those like the risk takers to to develop. Yeah, there was. There was in in Oakville, there was they. They did a massive, I don't know, they had like 3 or 4 layers of government there announcing a affordable housing development and I think it was going to be maybe 50 units or something like that. And the total cost of the projects is like 55,000,000 bucks or something like that.

How is that even like that's not even like spending $1,000,000 a unit to build affordable housing. Doesn't make any sense. This is what I struggle. With we literally had the same thing. We were here a month and a half ago in this office. We're in this boardroom, and Justin Trudeau showed up across the street.

They came in this whole like, Anthony was here, my producer. We're sitting here, we see about 20 Black SU VS. Pull up. We're like, what's going on? So we're kind of like poking around. Sure enough you turn on the he tried to ask security what's what's going on.

He he joked is is Justin Trudeau here? Like keep walking like no, no explanation. He's like, OK, turn on the news. Of course he was right around the corner announcing a similar project so they partnered with real can living dedicated apartment building. All this fanfare, 20 SU VS all these people, all these cameras to announce something like $59 million they're putting into housing. Like, what is that solved?

You build 60 luxury apartments in Vaughn. What? Like you flew all the way here to announce that? Yeah. And there's like, that's solving the housing crisis. Yeah, like that's.

The problem is it's it's all stuff that sounds good and shows well but accomplishes nothing. And they have to flip that on its head and start doing the things that maybe don't look so great, but actually get stuff done. Which I feel like, not that I love Doug Ford, but I seen him recently speaking and he seems to take more of that approach of here's the things that are not going to be popular with the general public, but that will work like incentivizing developers, incentivizing investors because we need them to make this happen. That's the stuff that's going to work. The problem is the general public isn't always very supportive. So I'm not sure how you get around that one.

Well, a little bit. I'm not sure how to get around it, but think about, so I'm talking about, you know, apartment buildings and the old stock. So most apartment buildings are purpose built rentals in Ontario. The last ones were built in the 70s, right. That's crazy and that's So think about what happened. The incentive structure changed and the incentive structure changed such that it was more appealing for condo development.

So the developers who used to be developing purpose built rental, the incentives changed and I'm not sure exactly which ones changed, but you can basically look and see there's not any new residential stock or purpose built rentals after the 70s, it's all then condo. So who's and and part of that is because now they could put the risk on to the condo buyer, right. And that was where the incentive started to move. Point being, once the incentive structure changed, no more purpose built rental got built for 40 years. Crazy. So now the.

Incentive structure has to has to flip into another direction so that there is incentive for the risk takers to to develop, right? And now they're, I mean they've launched these programs, I'm curious how how you feel they've helped or not, but like with CMHC like that select program and the 5% down on the 50 year financing like is that along the lines of what you see helping or is that just another? No, I think that can help to a degree. I think that I look, I do believe and I'm not because I'm not in development, I don't know all the all the nuance, but I do believe that there is going to be better days for developers or people interested in development.

I do. I think so too. I just not sure it's going to be enough to get a real change in the supply fast. Yeah. They're gonna, I I don't think anything will ever fix the housing price problem. I think that's gonna have to be accepted.

It's it's gonna be very hard with the amount unless immigration stops for some reason. With the amount of people we have coming in. It's very hard to solve this or even manage it without a constant supply. Like we need to just keep pushing building and building and building and building. Otherwise these prices just keep skyrocketing. The unaffordability issue continues.

So we'll have to figure out at some point and I'm hoping that when things get bad enough for the average person, like it really becomes like, I can't even afford rent. I can't buy a house. I'll never do any of this, which we seem to be close to. Hopefully they stop caring about the political correctness of it. They just say, I don't care, give the money to developers, help, help invest, do whatever you got to do. I just need housing.

Like, I think if it gets bad enough, people will become a lot more receptive to more dramatic measures. Because right now, every time they try to do something that benefits an investor or a business, it's like, oh, you're helping rich business people, so why would you do that? And so none of them want to do it, but I'm, I'm assuming it's going to get bad enough that hopefully things start to move more in that direction. I don't, I don't know either exactly what they have to do, but something has to be done and I think it will be done because there's not many more options. So I think aligning with that tailwind over time will help, whether it's from an investment strategy, whether you're a developer, they're going to, they're going to have to do something I think.

Maybe I saw this on Twitter or X or something like that. It was comparing US to Canada in the sense that how how. No, we have a huge landmass, but we're densely populated in a couple couple areas of the of the the of the country, right in Canada, whereas you look at the US their population is pretty much it's, it's well dispersed and they've got large centers where you might have cities with 600,000 people, 800,000 people, you know 500,000 people, they got many, many, many of those. Now, we don't have the same population here, but where I'm going with this is I think if the if the government really wanted to help, they would start looking at different ways to create better infrastructure across the country that would incentivize people to create some density in other parts of the country that would make it, you know, make it much more attractive to move to different parts of the country so that it wasn't just centered around Toronto, Montreal, Vancouver, you know, I I agree.

Have have you seen those headlines of some of these? I think it was like what's it called Cochrane ON or something doing the $10 lots potentially and all this. Yeah, that that's an interesting one for sure. And I wonder how much that will help because part of the issue was jobs. If people need to still be able to work, but I guess with this remote work thing remote work. But if you if you're creating a better infrastructure as opposed to just saying here's some financial incentives, that's where you need the government is to help create the infrastructure.

You created a better infrastructure, then I think you would attract the risk takers. Still have to probably incentivize the risk takers in some way, shape or form. I know they. So when I went to that that powerhouse conference, our friend Dougie over here was talking about an infrastructure bank. Have you heard of this? This is a new thing.

I think. I don't, I don't know how much is going to help. The numbers didn't seem great, but essentially putting together a, a fund, like a municipal fund or sorry, a provincial fund that is going to be used to expand like physical infrastructure like utilities, essentially into more remote areas to make it cheaper and faster for developers to build. And they something like, I think they're targeting $200 million in the first year and they want to put more into it from there. So I don't know how much money you need to actually make that have an impact. Like, I don't know if that's a $200 billion thing, if it's a $200 million thing, like how much do you have to raise to actually make that make a difference to actually affect all these, like these little municipalities.

But it seems again like a step in the right direction to your point, like if they can do that, yeah. Now I don't know 200 million doesn't sound like a lot of money to build a structure, but I think the the issue that I would see is you know how much it is, it is it like where's the money coming from First off you know where who's, who's putting up that capital. But the the the government being providing infrastructure is more aligned with how do they create an environment in different areas or different regions for again the risk takers to actually build the stuff that needs to get built, not as opposed to just a fund because of, I mean I don't know, a lot of it's.

Optics. And that's again the problem. It's like they say they're doing something. Oh yeah, we have a fund. This is what we raised. But when you actually look at it, it accomplished nothing.

So I think they have AI hope they figure it out. I do. I'm hopeful that they do. I think real estate is such an important part of the Canadian economy because I was reading something the other day that was talking about different countries and where the majority of wealth has generated like household wealth. And in a lot of countries, it's certain industries. It could be the oil industry or whatever it is.

And in Canada, one of the biggest drivers is home equity. So it's people buying real estate. That real estate goes up in value. They pull that equity out and that's what they're buying their vacations with and that's what they're shopping with and that's that's where the spending power and growth came from. If we screw that up in an economy that depends on that, it's a big problem. So I think at some point they have to get serious about this and figure out how they how they, how they fix it.

Yeah, I think it'd. Be a double edged sword. You know, you're obviously very, very right in what you say, but the reality of why there is so much wealth being created on real estate for individuals is tied to inflation. So it's tied to asset inflation, right. And so it feels good when you own an asset and it inflates in value, but it certainly does put asset ownership at risk or consolidated into the fewer and fewer if asset values become out of touch it. Creates a gap.

Yeah, a very big gap. But which is why you know a structure like ours actually works because you can get access to the same investment structures the OR the, the asset the, the same types of assets that are that are growing in value without having to put up the same amount of capital to to to buy that house. Or, you know, I mean the other, the other feature function that we get out of home ownership is that, you know in your principal residence not having a tax, yes. A. Tax burden on that? That's always nice.

Yeah. That's helpful. That does that. Does help a lot and I've definitely taken advantage of that a couple times. But I think you guys are really well positioned as well because of like everything we just said. Like it's clear also that no matter what happens, we're moving more towards a rental market and I think that's just part of it.

And if you look historically at other countries that it doesn't really ever like, if you, if you go to London, there's no such thing as like like a very affordable, nice detached home around London. Like no, it's not going to happen. It it just is what it what it is. And so people rent and we're probably going to have more and more of a percentage of population become renters by preference and by financial need. There's a lot of people have even lost the desire of home ownership. They just don't want it anymore.

They'd rather put their money in their pocket and then pay their rent and go live. So what for whatever the reason, I think we're moving more and more. We see that year by year more into a renter market. I think you guys have positioned very well for that because you're going to be able to capture that. I don't think that demand's ever going to stop. I don't think there's ever there's no.

Indications, yeah. There's no indications that the assets that we own or the assets that we want to own are going to be out of favor. Yeah. Yeah, I don't. I don't think so. Not the way.

The only way they could is, is if suddenly everyone started deciding they wanted to buy homes and they became super affordable and everything dropped in price and we're all going to buy a house. It's not going to happen. So I think you guys are secure for and that's what I've always liked about multifamily. I know it has its challenges like from a management standpoint, it's very management can be management intensive, you're dealing with people. But from an asset standpoint, it's it's one of the best pieces of real estate you can buy in Canada is going to be multifamily just because of the constant demand that never ends well another. Thing too that I that I like about it that is not is not very obvious to real estate investors and when I say real estate investors those who might own like single family type type assets, is that commercial property and namely multifamily or apartments, they aren't subject to the same market whims that that homes are.

So what I mean by that is you know your home in your neighborhood, your next door neighbor's house is going to be pretty close in value to your house whether they're selling it or not, right, Right. Like so it's just if it's the same similar type, similar vintage, similar style, similar size, that home is going to be pretty close in value to yours. Whereas you could have two apartment buildings side by side, maybe even built by the same builder 50 years ago. But one is managed really well and one is managed very poorly. The one that's managed really well is going to be way more valuable than the one that's not And that has to do with how commercial property is, is valued and that's and that's on its on its rent roll or it's income, it's income and it's that's all it is.

So how productive is the income and that's where the value comes from. That's it. So looking at each of these assets as a small business in and of themselves is is I I like that aspect of it And you can tangibly see how if you buy something in a decent area that is undervalued and you do the work then you're going to get, you're going to get rewarded for doing that. I love that and it. Also creates the buying opportunity to begin with is those mismanaged assets that allow you to actually come in and get that piece of property for less than that neighboring property. That actually creates the opportunity which I which I love.

I know you're right. And and detached like detached single family homes it's just comp based. It's what did that sell for? That's what it sells for. There's no way to really push that value Even so it's even true to some degree. Even when you duplex a house or triplex a house it still doesn't change much.

Outside of the Compton area. There's very little it influences until you get to scale. At the end of the day it's a house and whatever the neighbors sold for the same house it's gonna be very close. Yeah, 'cause the. Banks aren't gonna underwrite that like a commercial property. They're gonna, they're gonna look at it like a single family home that has some.

Yeah. More concrete walls in it. Yeah. No. Agreed. No, I think you guys are positioned very well.

I think you guys have a very bright future. I think you picked the right strategy. So it's interesting to see you guys grow and build what you've built because I know there's a lot of opportunity in that space. And I think as we as this economy changes and things start heating up, I think there's going to be more opportunity for you guys to get to some cool stuff. And I think you're looking at all the right areas, especially you mentioned out towards like Guelph and Waterloo, that's really cool because I know that's such a tech hub. I know so much money is pouring into that.

Now even for some higher end stuff might make sense like when you guys, my last thought I was just having now when you guys are looking for projects, are you looking for things that provide more affordable rental housing or are you going on the higher end of housing and looking for that higher antenna? No. So it's again, it's submarket by submarket, right. But really what we're looking at is what is the top end of the rental market like. So what are if something is like what what's the top dollar? And then so we're wanting to know all right, what do we the type of asset that we're buying, Could we get it to the top dollar or is it just something that isn't going to be available to be to be marketed to the top dollar.

And why this is important is, sure, affordability is a thing, but each market determines what rents are and affordability is more of a provincial measure as opposed to a a market by market measure. And so we do have one. We've got a fairly large asset in Kingston that for the most part, all of it ticks the affordability box. But that's only because they're they're bachelors in studio units. So because they're bachelor in studio units, you can only charge so much for it. So because they come in under that, whatever that threshold number is, it can be designated as an affordable housing program even though it's not designed or destined to be 1.

So what? Happens. There is, you get some opportunity for some favourable financing on it, right? That said, we're we're only caring about that market to market, we're not caring about it as hey, we have to find something that ticks all these boxes to, to be to be noted as affordable. Oh, that's. Interesting.

I didn't know they did it that way. Yeah. So just. It's just based on what that number is, it doesn't really matter. Yeah. So like it's it's.

Just like it's just like what's in the CPI basket of goods. You know, it's like there's there's, you know, there's certain things in there and so there's a number and as long as it's as long as the the monthly amount is below that number then it checks the affordable total box. Oh, very good. Yeah, that's. I'm glad I asked that question because I learned something new. No, that's very cool.

That's very cool, man. So if anyone listening wants to work with you guys or says, hey, this is really cool, I'd love to invest or I'd like to learn more. How do they go about doing that? Yeah, so. Probably the easiest would be through our website twosevenscapital.com which is TWO SO2T WOSEVENS capital.com and then there's ways to either you know, submit their their e-mail or or reach out to us directly from that nice and is. That typically just at a high level, we'll go too deep, but just so they know what to expect in a process is it someone gets back to them, you set up a meeting like what does that look like for any?

Potential investor and they're coming through the website, they're typically identifying as such. You know hey I'm interested in your investment opportunity. Somebody from the team would get back to them and then depending on what their true interests were or what their true inquiry was, you know we we've got a variety of tools that we that we send through and say hey here's here's what an investment with us looks like. But people inquiring on our in our opportunity. Some people make investment decisions within first meeting or two or a couple weeks or two and we've got people take 18 months by the time they kick the tires and timings right and all those things so and everything in between.

Fair enough. So I mean, I think we covered all our bases there. If they wanna reach out, they'll go visit the website, get in touch with you guys, your team will get back to them. Is there anywhere else on social media or anything else you want them to check out well? Both the business and myself personally are on on Instagram and I'm I'm newly reengaged with X or Twitter and so this is, this is actually a platform that I'm feeling good about. Yeah.

So and it's at Adam Batstone on all of those. Perfect there. You have it. They'll go find you there. Well, Adam, thank you so much for taking the time today. I appreciate you having time to come out and spend with us and share all the insights and knowledge.

And I'm sure everyone listening also enjoyed it. Thanks for having me. Awesome. All right. Thanks for tuning into another episode of Inside Canadian Real Estate, guys. Don't forget if you liked the episode, if you found it enjoyable, if you learned something, if you liked our guest, if you liked our topics, don't forget to subscribe to Inside Canadian Real Estate on Instagram.

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