When most people hear the words real estate investing, they think of people buying assets themselves – direct ownership – or purchasing stocks in real estate investment trusts (REITs) that trade on the exchanges where prices are set by a secondary market.
Anthony Giuffre, however, has created another way to tap into this market: through alternative investment funds that privately own and operate real estate. The strategy allows investors to passively participate in the returns of real estate – cash flow and value growth – without the need to directly operate the assets themselves or be subject to the volatility of the public markets.
In 2006, the long-time entrepreneur co-founded the Avenue Living Group of Companies, a Calgary-based real estate and investment business, where Giuffre remains CEO, and Executive Chairman. The Group now owns and operates over $2.5 billion in assets including low density multi-family housing in Canada and the U.S., self-storage facilities, agricultural land, and commercial space targeting essential service tenants. Through five individual mandates developed over the years, Giuffre’s strategy is sound: establish the mandate with your own capital, prove the thesis through acquisitions, de-risk through operations, and then raise capital to grow and scale. To date, it’s raised over $1 billion in total capital, with the co-founders, family and friends, and management, holding a significant position for alignment with external investors.
We spoke with Giuffre about his business, the impact COVID-19 has had on real estate, and the industry trends he sees going forward.
How did you get started?
I grew up in an entrepreneurial family, and I’ve been running my own businesses since I was 17, starting with various small ventures. In my 20s, I was doing some consulting work, trying to figure out what I was going to do next, and I chanced upon real estate. I moved into transactional real estate and eventually started to do some micro-investing with a group that was repositioning real estate for sale. I started to grasp the fundamentals and math of investing in multi-family real estate and I became obsessed with the opportunities it held.
The business purchased its first 24-unit townhome complex in Brooks, Alberta, a well-diversified secondary market just east of Calgary with a significant regional trading hub. The operational strategy was conceptually simple — buy, reposition, optimize, refinance, and hold for re-occurring cashflow. However, the execution was not so simple. The early days entailed many 100-mile drives to Brooks, being one half of a two-person property management company.
Today, Avenue Living Group of Companies is over 700 individuals strong, and among other things, still investing in low-density workforce housing. We have become the niche operator that focuses on investing in the everyday. We know our assets, we know our vendors, we know our residents and our customers. We saw the opportunity to diversify from multi-family and commercial, and have since expanded into self-storage and agricultural land assets. While most of the company’s residential holdings are in Alberta and Saskatchewan, Avenue Living operates across Canada and into the United States.
What kind of opportunities are there?
With multi-family, the revenue or income of the business is fairly consistent. Rent collections are typically high, and for the most part, there’s pent-up demand for rental housing across Canada. What has become apparent through our years of operations is that there is a large disconnect between passive ownership and active ownership. Antiquated methods of managing low density property, including mom and pop and the live-in caretaker model, are phasing away. With over 70 per cent of the rental universe fragmented under various management styles, there is a massive changing of the guard in real estate, wherein lies the opportunity. The next generation doesn’t want the headache of management, and the older generation is avoiding the necessary capital investment in buildings or tech to compete in today’s operating environment. So we’re blazing our path forward, consolidating the unconsolidated. We’re focusing on assets that share these characteristics and markets that offer great fundamentals, and we’re continuing to build an asset pool that’s defensive and long term in nature. Our aggregate pipeline for our mandates of new purchases today is over $1 billion across Canada and the United States.
Many companies own real estate. What makes you different?
We’re still owners and operators. We have a tech-forward, vertically integrated model that was built over 15 years to focus on managing the ‘hard to manage’. What this means is we control the customer journey, the marketing and branding, the operational experience, the leasing activities, the day-to-day maintenance, in addition to renovating and repositioning buildings. We don’t build buildings or buy new, but we buy existing stock and fix them up to our proprietary standards. We also have our own accounting, finance and legal teams, acquisitions team, a group of underwriters and analysts. We’ve set up an in-house platform that is end-to-end.
Another point of differentiation is that we’ve never relied on ‘hot markets’ to perform; we have always sought to generate returns through sustainable value-add operations.
We also pride ourselves in being very disciplined in where we buy. Our acquisitions strategy focuses on markets where there’s sector diversification of the economy, which typically results in the strength and tenacity of the underlying customer. Because we manage every detail, we’ve been able to grow from 24 units in Brooks, Alta., to owning more than 11,000 units across Alberta, Saskatchewan, and Manitoba. We also have a presence in various states south of the border. On top of that, we own 12,000 self-storage units, 50,000 acres of agricultural farmland, and 500,000 square feet of commercial space.
What real estate trends have you seen pop up from COVID-19?
One is reverse urbanization. People are placing a higher value on space with the opportunity to work from home. We’re seeing more occupancy pressure in our asset types as older stock tends to have larger floor plans than new builds. Hand in hand, we’re also seeing more of a focus on the resident experience, especially in the multi-family space. People expect more out of their property manager because they’re home more. For our industry as a whole, the difference is made in how we manage the customer experience.
What does customer experience mean in your case?
Strong customer service means providing timely, attentive, upbeat service to a customer, ensuring their needs are met, if not exceeded. For instance, our goal was to make sure that if someone calls our call centre and says, “I have a problem with something in my suite,” that they will receive service within 24 hours. Typically, we only have 0.9% of all work orders still open after 24 hours, which is well below the industry average. We want to provide a peaceful environment where people feel safe, and we are therefore continuously improving the standards of our assets while maintaining affordability. To provide a heightened peace of mind for our residents, we are currently in the process of wiring most of our buildings with 24-hour monitoring through CCTV cameras. We believe strongly in our Duty of Care to those who live with us.
We are also fully aware that customer experience begins long before someone becomes an Avenue Living resident. We strive to deliver a great impression to each prospect through every brand interaction along their journey. This is key to our growth strategy and engrained in our DNA.
How do interest rates, which many people think will rise, impact your business?
Obviously, people correlate residential housing to interest rates, and they are at historical lows. However, the demand for workforce housing remains relatively constant and it’s proven to be a defensible asset. Leases are typically short term in nature – twelve months – and we have people coming and going every month. When there’s interest rate creep or inflationary forces, we can hedge with those new leases through pricing adjustments. In contrast, a commercial landlord has high lease concentration exposure and longer-term leases, which they might sign before or after an interest rate rise. With 11,000 units, the tenant base is constantly rotating, so we have this hedge in that we can increase rates in correlation with rising interest rates.
Why add an investment fund component to your real estate business?
Our ability to raise equity allows us to continue to scale our asset base through new acquisitions and capital improvements. This in turn allows us to scale our operations and continue to offer a best-in-class experience for our customer base. The additional equity has helped us to capitalize on opportunities in the market, and there are many. Many larger-scale asset owners are now focusing more on their core assets, while family offices or those with private real estate holdings (mom and pops) are transitioning away from active management and a good majority of those properties are coming up for sale. With many of these assets lacking the capital investment required to keep up with today’s rental market, there is a significant amount of value creation opportunity. We’re trying to position ourselves to take advantage of this trend, potentially purchasing the bulk of these assets.
Who invests in your funds?
It started with the co-founders and our network of friends and family. We’re now seeing more high net-worth or ultra-high net-worth individuals and discretionary fund managers and portfolio managers looking to give their clients exposure to assets without having to physically own and manage properties themselves or be exposed to the volatility of the public markets. We are not publicly traded; we are an alternative investment product that trades at Net Asset Value (NAV), which is correlated to the fundamentals of the business, not the market sentiments. Most pensions, endowments, and institutions hold alternatives as a fundamental part of their portfolios, with some holding as much as 40 per cent of their allocation in alternatives. Our business has started to come on the radar of many small institutions as of late.
How do people generate returns off your funds?
Like any business, returns are correlated to profitability. In real estate, recurring income and value gains generate profitability. We evaluate that profitability based on the fundamental performance of the underlying assets, through a disciplined approach of internal and external stakeholders. We mark-to-market monthly, and target to share that return with our investors by paying distributions on a monthly basis, which are based on a fixed dollar figure per unit and then re-valuing NAV. Historically, we’ve been successful in providing investors with NAV appreciation and consistent monthly cash flow.
Where do you go from here?
It’s about continuing to do things better — consistently finding and investing in disruptive technologies that can help us improve. Where others may see something as a challenge, we view it as an opportunity. I often think about how we can reduce our overall carbon footprint. As an example, we could become more focused on renewables, using all the roofline we have in our portfolio to implement solar panels. We also want to deploy fibre-optic internet to make sure our residents can work from home if they want to. Moreover, we believe there is endless opportunity for us in the U.S. for what we do. We are very excited about the future for Avenue Living, and we are proud of the growth we have experienced from all of our funds. Furthermore, the demand we are seeing from the capital markets showcases that our business strategy is striking the right tones with investors. Ultimately, I would like us to continue expanding the size of our portfolio and continuously improve how we operate, both of which are highly correlated. That is our commitment to our stakeholders – shareholders, lenders, and residents.
This commentary and the information contained herein are for educational and informational purposes only and do not constitute an offer to sell, or a solicitation of an offer to buy, any securities or related financial instruments. This article may contain forward-looking statements. Readers should refer to information contained on our website at www.avenuelivingam.com for additional information regarding forward-looking statements and certain risks associated with them.