Blackstone’s Americas Real Estate Division Bets on Canada. Here’s Why.

New York-Based Asset Manager Could Seek To Tap Population Growth With Multifamily

The head of Blackstone’s real estate group in the Americas says Canada’s growing population has the world’s largest alternative asset manager looking to step up investments in the country’s logistics and residential property.

Blackstone, with more than US$1 trillion in assets, has opened its first office in Canada in Toronto at 333 Bay St. with the expectation that it will be an important part of its expansion in the country.

“This is a market that we are really committed to and excited about. It’s been very active in the last decade,” said Nadeem Meghji, senior managing director in the real estate group at Blackstone, in an interview with CoStar News. “Canada is third behind only the U.S. and U.K. in global destinations for our investor capital.”

Blackstone made its first big deal in Canada in 2018, in a CA$3.8 billion acquisition involving Pure Industrial Real Estate Trust, partnering with Ivanhoé Cambridge, which continues to have a minority stake in Pure. Pure Industrial remains the vehicle for Blackstone’s industrial presence in Canada today. The company has about CA$27 billion of capital in the country.

“We want to continue to invest [in Canada] because of the long-term fundamentals, which we think are quite positive, including population growth five times that of the U.S.,” Meghji said.

Statistics Canada said the country’s population has continued to increase after reaching 40 million residents this year. For the 12 months ended July 1, the Canadian population grew by 1.2 million people, the largest for one year since 1957.

While there are opportunities, there are also challenges. Moving into any new market takes time to develop business relationships. And there’s already a well-established rival in Toronto-based Brookfield Corp., which controls Brookfield Asset Management and has US$850 billion in assets under management.

Meghji, who is based in New York but was in Toronto last week for the opening of Blackstone’s office, chuckled when asked whether there was any rivalry about being on Brookfield’s Canadian turf: “I don’t have a comment on that, and all I will say is we have enormous respect for Brookfield.”

Blackstone’s Toronto office has 10 full-time employees after announcing it had hired Janice Lin as managing director to head up operations in Canada about 18 months ago.

“We started by finding the right leader,” said Meghji. “We built a team around Janice, or she built it. We have folks from other parts of Blackstone, including our private wealth solutions team and our credit team, but fundamentally, having a team on the ground, we think, will make us more effective. We want to send a message that our commitment to Canada is long-term.”

By asset class, logistics and warehouses remain a priority for Blackstone. “Fundamentals remain as strong as anywhere in the world today,” Meghji said. “Supply is muted, and e-commerce penetration continues to grow.”

Blackstone is on the hunt for rental housing in the long term, and taxation rule changes last month, which lowered taxes paid on built units in some provinces by up to 13%, have only strengthened that conviction.

“We would love to find ways to invest in rental housing over time, especially if we can be part of the solution” to the country’s housing shortage, said Meghji. He emphasized that the investment philosophy does not target single-family rental homes in Canada, which is a very tiny asset class north of the border and is hard to profitably own based on housing prices in most cities north of the border.

Blackstone is considering whether to build multifamily and is ready for partnerships with Canadian developers. “There is nothing imminent, but we are open to it. We have been big investors in rental housing globally,” said the executive. “We have very modest exposure to rental housing in Canada at the moment. About 80% to 90% of what we own [in Canada] is logistics.”

The country’s change in apartment construction taxes, whereby developers are 100% exempt from the federal 5% tax and partially exempt or fully exempt in some provinces, did not go unnoticed at Blackstone’s headquarters in New York. “What we know is there is a big need for housing,” said Meghji.

Data centres are also on the agenda for Blackstone, which has been building a platform for them in the United States while being active in India and Japan. “Canada is another market we think presents a real opportunity over time,” said Meghji.

With the latest data from CBRE showing an overall 18.1% vacancy rate for office space in Canada, it is not surprising the sector is not a priority for the American investment giant.

“Canada is very similar to the U.S. in terms of office fundamentals and office utilization. We think it’s time to be cautious, and we were cautious even before the pandemic,” said Meghji. “We are going to be very selective on office.”

The company hasn’t bought a regional mall in Canada or the United States since 2011 because of the pressure from e-commerce. However, grocery-anchored shopping centers are still something Blackstone will consider.

With a long history of buying publicly traded vehicles, Blackstone isn’t ruling out buying a real estate investment trust, either in Canada or elsewhere.

“Globally, we have done over 50 public company transactions over our history in Blackstone real estate,” said Meghji.

He added that “there are moments in the cycle when public companies are mispriced and trade at a discount to the underlying value of their real estate. Given our scale of capital and privatizing companies, that is always something we are open to doing, especially in asset classes we believe in long-term. In moments of volatility, it can often present a company not fully appreciated in the public markets.”

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