Trading at record low cap rates means stability and income stream predictability

When Canadian Apartment Properties Real Estate Investment Trust (CAPREIT) finalized their purchase of the 980-apartment Olympic Village in Montreal on November 1, 2012, the company achieved their goal to become more geographically-diversified across Canada, while ensuring stable, predictable rental income over the long-term.

It’s got an extremely stable group of tenants who like living there for a very strong income stream,” says president and CEO Thomas Schwartz. “There’s always some growth because we’re a very good operator and we feel we can add value through CAPREIT’s style of operating.”

Schwartz says that CAPREIT’s experiences in Montreal are matched in apartment investments in all the major markets across the country. High occupancies—the rate is 98.2% in Montreal—and extremely low interest rates help. They also receive CMHC financing, an additional benefit that other asset classes don’t enjoy.

We’re getting ten-year money at 2.8% and lower,” says Schwartz. “That’s significantly lower than the mortgage rates for any other asset class, so again that’s another strong driver for apartments.”

Schwartz says he worries that interest rates might rise, and new competition from the condominium rental market will hurt.

CAPREIT plans to invest in Olympic Village improvement. “Like all properties that are old, they need capital to bring them up to our standards of quality and life safety,” says Schwartz. “When we examined that property, we certainly know what’s required and we’re prepared to do it.”

Note: This article was published on p 51 of Canada’s Leading Real Estate Forum Magazine, Toronto, Winter 2012.