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episode # 248

What We Can Learn From Institutional Investors During a Pandemic with Wendy Waters

Institutional money has pivoted during Covid-19, but is it towards or away from Vancouver real estate? Wendy Waters, Vice President, Research Services & Strategy at GWL Realty Advisors (with $15 billion under management in Canada!), joins Adam & Matt to talk pandemic strategy with hard numbers and deep expertise. Tune in for a candid ‘behind-the-scenes’ look at how a top multidisciplinary researcher & real estate investment strategist analyzes Canadian markets and asset classes for high performing pension funds and institutional clients. And, find out where and what GWLRA is buying during these uncertain times and why. The answers might surprise you… and help grow your portfolio.

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Episode Summary


Tell us about yourself.

I head up the research function for GWL Realty Advisors. They manage the real estate assets of pension funds and institutional clients. So we look after office buildings, retail, multi-residential rentals and industrial assets. We do development, buying and management. In the research group, we’re looking at the long term strategy of our investments. We look at what characteristics our assets need to have in the long term. We also look at what’s happening globally as we have branches in the US and the UK.

Where do you own real estate investments in Canada?

Mostly Toronto, as it’s the biggest city with a big downtown. We’re also in Vancouver and Montreal, and then Calgary and Edmonton.

How has Covid-19 impacted your portfolio?

Like many companies, we had to figure things out on the fly. Things have actually gone quite well for our company; lots of people have stepped up and gone above and beyond. Our priorities are the safety of our staff and our tenants, in both offices and residential.

Has rent deferral or higher vacancies hurt your investment portfolio during Covid-19?

We have actually had high rent collection overall across all of our asset types. In the beginning, some clients needed longer to pay. But we’re mostly over 90-95% collected. Some tenants did need some help and we’re happy to work with them. A lot of our assets are offices and while workers are at home, they’re still working and revenue is coming in. We helped some residential tenants apply for CERB which helped them pay their rent.

How is the Vancouver real estate market since Covid-19?

There have been some interesting changes. Back in March, we weren’t thinking about what was going to happen in the ownership market. For example, the shift in Vancouver has seen a growth of sales in the Fraser Valley. I thought that was quite interesting. Of course, lower mortgage rates make those places less expensive. And working from home means you may want more space and commute isn’t a factor. So it’s a logical decision, just not something we were thinking about back in March.

On the rental side, our newer, urban buildings with amenities have struggled with the turnover. So we’ve had more vacancies. But there’s more demand in our suburban product or just outside the downtown core in Toronto. People are trying to get into bigger units and be closer to parks and green spaces. Any assets like that did well during the pandemic.

Buying and renting preferences have shifted very dramatically over the past six months. Will home buyers continue to move out of cities?

We were already seeing a trend pre-covid of people wanting to move to the suburbs, because housing has gotten so expensive. Covid may have accelerated some renters moving in that direction. We also haven’t had the newcomers coming in who may have opted for the urban, walkable, downtown neighbourhood. Younger people who prefer downtown may be staying at their parents’ homes or living farther out because of expenses. But I do think the downtown core will come back to life. People like the walkability, the environment, not needing to have a car, etc.

Pre-covid we weren’t seeing less demand in the core; we were just also seeing demand for the suburbs but there were still new people coming into downtown. But now those new people aren’t there, so the demand for the suburbs is higher.

In all asset classes, covid didn’t change things. It either accelerated them or pointed a magnifying glass at them. People were working at home before covid but now there’s a magnifying glass on that. Will people go back to the office or continue working from home?

How have you changed your investment strategy to accommodate a global pandemic?

That’s hard to answer. On the investment side, there haven’t been a lot of trades so acquisitions are a little trickier to do. So there’s more caution on acquisitions not because we don’t believe in the market but because we’re trying to find the right price. It’s hard to know what the values are so it’s a slower process. But we’ll move on the right opportunity.

Where are real estate investment opportunities right now?

A lot of the sites we look for have opportunities for upgrades or repurposing. We want a site that we can add to. For example, a development we have on Seymour Street used to be a parkade. We took that down and we’re building a new office tower, as well as replacing the parking. So now it’s parking plus an office tower. Across the country, we’ll see options like that.

Apartments in great locations but that are older allow us to do suite modifications. Clients want those upgrades so it increases the value and the appeal.

Will people continue to work from home? Are you bullish on office space?

We actually only have that one office building on Seymour in development right now. It’s over 50% leased and has been in production for years. In fact, during covid one of the tenants decided to lease an additional floor. People are seeing how an office can be used for collaboration and innovation. They’re also seeing the need for additional space in order to keep people safe and healthy.

What does the future of work look like?

We have done a lot of research on this as it’s a big question. The consensus seems to be that the office will never be the same. We’ve all figured out how to work from home, whether that’s more or less productive than the office. We foresee people being empowered to work from home part of the time. That will depend on the company and the role the person has. Some may never need to come in, and that was a trend that already existed. So that will mean less office space needed.

But we’re also seeing companies wanting more space to not only let people spread out but also to allow them to collaborate. So more small meeting spaces, coffee stations, etc. Again, this was being done pre-covid. People go to the office to learn from other people, to build bonds, to be mentored and to mentor, etc. Figuring out how that office will work and whether it’s more/less/the same amount of space is what we’re working on.

There’s also the tech jobs coming in. Amazon has committed to over one million square feet of office space. Microsoft is taking space in Vancouver. Other tech companies have been moving in over the years, as well as financial companies. And they’re all taking up more space. The number of jobs that need office space is growing, and that’s why we’re optimistic about the future of office.

So even if more people work from home and companies need less space, the job growth will require more office space in the future.

Is downtown Vancouver real estate a good investment?

After we move past covid, people will get back on transit. So a transit-oriented, urban space with a short commute (not necessarily downtown and walkable) will be ideal. People want to get to work quickly. Any place well-served by transit and that offers an experiential environment will be in demand. Downtown and Mount Pleasant are neighbourhoods that will be of interest to both renters and owners.

Is right now a good time to buy real estate?

It’s hard to answer. There haven’t been distressed asset sales, so there are not opportunities there. We’ve been finding opportunities on a smaller scale. For example, we’ll do an elevator upgrade in an office building since no one is there to be bothered by it. But it’s hard to find the opportunities beyond just being diligent and going through our process. We’re working on our longer term strategies. If this pandemic and lockdown continues, there might be people who have to sell real estate and that may result in some opportunities.

Are there many distressed real estate sales in Vancouver right now?

If you had asked me in April, I would’ve thought there would be a lot of distressed sales. But right now, there is plenty of credit and financing available. So if you believe in a site, you can get it. If you’re struggling to get a building leased, you can find financing to help you. In 2008 credit froze and in the 1990’s credit was overextended, and that’s when we saw more distressed properties. This time, the big sectors like finance or tech didn’t cause the downturn. Those sectors are still functioning. And interest rates are low.

How do you find great real estate investment opportunities ?

We look at obvious things like population growth, propensity to rent (we like to see more renters than the national average), job growth, etc. We look for regions with liquidity; there are other investors in the region who could buy our asset if we needed to sell. From there, we identify our markets and look for the right opportunity. For example, Victoria is a market we’ve identified and are hoping to find the right opportunity. Some of the satellite cities to Toronto are also of interest, as well as Quebec City.

Are you optimistic about the future of Vancouver? What does the future of Vancouver look like?

I am optimistic about Vancouver and as a company, we remain optimistic about Vancouver for all of the asset classes we work in. Most of our clients want more allocation in Vancouver. In the next year, I think office will be a struggle as we get back from covid. So there’s a longer term view there. We started the downturn at a low vacancy rate so there was pent up demand.

There is a lot of international demand to be in this market. We continue to attract immigrants which is great for the office and residential markets.

One struggle we have is the lack of housing, particularly new rental housing, in the core of Vancouver. That could be a factor that slows growth in the future if it isn’t resolved. We need that to attract a workforce and to grow the city. That’s what makes the city vibrant.

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