One key to overcoming challenges, already alluded to above, is the use of real estate professionals with the specialized skills and localized experience to actively select and manage assets in distinct markets or provide advice on these matters. As in other Canadian private capital markets, such are not in great abundance. Pension analyst Keith Ambachtsheer has noted this gap, along with the further observation that some in the finite pool of value-adding investment specialists may not be sufficiently familiar with the needs of potential clients among pension funds.Endnote 111
The structuring of financing in real estate transactions can often be complex. Depending on the transaction's nature (e.g., purchases of land tracts or properties, development deals) and possible co-investment or partnership requirements, one or several of a wide range of debt and equity instruments may be utilized, as well as mortgages, mortgage-backed securities and mortgage loans.
There are also various methods for conducting real estate investment at-a-distance using public securities exchanges. For example, it is possible to simply purchase shares in a publicly-traded realty company with its own portfolio of high-grade property holdings, such as Trizec Hahn Corporation (Toronto, Ontario). A drawback to this option is the limited number of these listed on Canadian exchanges.
Another alternative is the real estate investment trust (REIT), a publicly-traded, open-ended vehicle for raising capital to invest in mortgages and diverse residential and non-residential property types in different locales. A multi-billion dollar phenomenon in the United States, REITs have also gained popularity in Canada among institutional investors (especially smaller ones with little ability to participate directly) due to their comparative liquidity and avoidance of some of the impediments described above.Endnote 112 This said, REITs and other forms of securitied real estate remain linked to these markets and must, as a consequence, rely on specialty investors and managers to succeed in the end. In addition, this approach resembles stock-picking and may result, some market analysts and practitioners argue, in a higher level of returns volatility than is common in direct, illiquid investment.
Spending on real estate development or redevelopment is a potent means of creating jobs and relatively large multiplier spin-offs, particularly during upswings in economic cycles. Much North American research has confirmed that, depending on the magnitude of investment projects, developmental real estate can produce both general and industry-specific effects.
A recent macro/micro-economic simulation performed by Informetrica for the Canadian Mortgage and Housing Corporation provides one demonstration of this point. Assuming a $1 billion financing of additions or alterations to housing stock over two years, gross domestic product and aggregate employment outcomes in the national economy were found to occur during both the initial investment and in further induced expenditure.
Informetrica lists specific beneficiaries as including the Canadian construction industry that captures over $330 million of the total initial amount in the new construction scenario. Somewhat less - amost $260 million - is captured by this industry in the case of renovations of existing property. Manufacturing industries that are the source of materials also stand to benefit in both scenarios, so long as domestic inputs are preferred over imports. Such leakages may be more prevalent today because of the influence of liberalized trade.Endnote 113
By extension, such investing provides its biggest direct and indirect employment yields to construction and affiliated trades and assorted downstream manufacturing and service trades (again, assuming low reliance on imports). This includes such occupations as carpenters, electricians, iron workers, labourers, masons, operating engineers, painters, plasterers and lathers, plumbers and pipefitters, sheet metal workers and support personnel, both on-site and off. New construction and improvement/up-grading projects are, of course, most welcome to the large share of this work that is seasonal and vulnerable to cycles.