Managing Partner explains how a focus on resilience and 'heartland' markets set his firm up for growth despite macro challenges
Despite falling rents nationwide, higher borrowing costs, and headline news of a broad real estate pullback Avenue Living has managed to surpass $8.5 billion in AUM. The Calgary based real estate investment firm has completed $1.2 billion in acquisitions this year, achieving nearly $600 million in annual recurring revenue. It’s an achievement that Gabriel Millard, Managing Partner, Equity Capital Markets, attributes to the firm’s strategic focus on resilient assets.
Gabriel Millard outlined the headwinds that Avenue Living’s three focus sectors have seen over the past 6-12 months. He explained how his firm’s approach to multifamily residential housing, self-storage, and farmland has allowed them to grow despite headline downturns. He outlined how the firm deploys capital and what they’ve done to drive value appreciation in the assets they hold now, as well as how advisors can talk to clients about real estate amid a period of heightened risk aversion in the space.
“The main headwinds that real estate has faced since 2022 have been rising interest rates and inflation, but what’s interesting is that at the same time, an affordability narrative took hold,” Millard says. “That started to shift the way businesses and individuals were thinking. This was actually advantageous for us because Avenue had focused on the areas that weren’t really the beneficiaries of the previous tailwinds.”
Starting in Alberta and Saskatchewan and expanding south into the states of the US Midwest and great plains has proven a more effective geographic focus for Avenue living. They haven’t expanded east or west, avoiding some of the downturns seen in major markets like Ontario, Quebec, and British Columbia. With the affordability crisis that Millard mentions has come some significant internal migration in both Canada and the US towards the geographies that Avenue Living focuses on, which has driven rental appreciation for multifamily housing in those markets even while national average rents have fallen.
Avenue Living’s self-storage business has also contributed to its portfolio resilience. Most of those assets, Millard explains, are in the United States, where internal migration has driven an increase in demand. Moreover, the lease terms for these assets, which are typically monthly in self-storage allow the firm to be flexible based on real time shifts in the market.
The farmland assets that Avenue Living largely holds in Saskatchewan have not seen the same headwinds as other real estate assets. Instead, Millard explains, they have enjoyed price appreciation in line with the growth in the money supply as well as continued outperformance against CPI.
Across all three asset classes Millard insists that the growth his firm has seen stems largely from a core investment thesis set by the firm twenty years ago. They maintain distinct investment vehicles for each asset class, they’ve avoided hot markets and looked for steady growth, and they’ve purchased assets with the view that they will never sell them.
“We're not pursuing a five-year purchase and flip, but an aggregate asset for the long-term strategy” Millard says. “It’s a change in mindset that percolates throughout every decision across the firm.”
With that perspective, Millard says that Avenue Living seeks resilience in the assets they purchase. The process begins with identifying a property priced below what it would cost to build an equivalent asset. They look for existing cashflow and positive leverage. They also look for opportunities to deploy capital in targeted areas that will improve the asset. They aren’t seeking gut-job renovations; they’re seeking meaningful improvements that accentuate the positives and eliminate the negative aspects of a property. Operating in more affordable markets enables the firm to maintain residential and storage assets that are secure, clean, and affordable. They deploy capital with that goal top of mind.
Decisions around capital deployment come from consensus at Avenue Living. Millard explains that because the company is vertically integrated, impacted stakeholders have a voice on a critical decision. That means they get buy-in from legal, accounting, property management, acquisitions, and marketing on a decision, and the subsequent actions each arm of the firm takes stem from unity on that single choice. They’ve been able to achieve that unity to a considerable extent lately.
For advisors who are possibly feeling a bit risk-averse around real estate right now, or whose clients might be somewhat less sanguine on the sector, Millard argues that a more broad geographic view and a focus on resilience can help allay fears and keep clients invested.
“Canada’s real estate coverage tends to be dominated by Vancouver, Toronto, and Montreal. As a result, the rest of Canada gets painted with the same brush,” Millard says. “But we view our market as very different…We’re looking at steady growth and very diversified economic bases.”
