Our neighbors to the north aren’t so hot about investing in real estate on this side of the border.
Real estate executives from the Healthcare of Ontario Pension Plan (HOOPP) and Albert Investment Management Corporation (AIMCo), two of Canada’s largest pension funds, are pressing the brakes on investing in the U.S. real estate market, the Financial Post reported.
Though some of the recent trend changes have been minimal, HOOPP and AIMCo are still on alert. Construction costs have risen between 1 percent and 3 percent, but AIMCo is taking a wait-and-see approach.
“We are still waiting to see what happens over the next little bit,” Sarah Esler, managing director and head of mortgage investments at AIMCo, said at a recent real estate conference run by the National Association for Industrial and Office Parks, known as the Commercial Real Estate Development Association. “It has shifted a little bit of our investment strategy in the near term, where we are putting less dollars in new financings today.”
The U.S.’ immigration crackdown could drive up construction costs due to labor shortages, as undocumented workers make up 15 percent of workers in the country, per the Financial Post.
“What we have seen is labour not showing up to sites,” Esler said. “[For] new construction, you need to really pay attention to who your contractor is and do they have good access to labour.”
“We like the U.S. still, and we are interested in continuing to develop our program there, but what we are finding challenging is hedge costs,” Esler added, noting the difference in interest rates between Canada and the States increases costs. “It makes it almost impossible for us to make money in that market. So we shifted our strategy more towards Europe.”
The HOOPP fund is similarly staying wary of new construction in the U.S. as ongoing uncertainty due to tariffs complicates the investment market.
“No new shovels go in the ground unless everything is pre-leased,” Eric Plesman, global head of real estate for HOOPP, said at the NAIOP conference.
One portion of the Big Beautiful Bill, Section 899, would have made the situation even worse for these groups, as it called for a withholding tax on pension funds. It was pulled from the final version of the law, but it still had HOOPP on edge.
“Our perspective is that they were intending to raise almost $120 billion for the U.S. treasury. If you eliminate it wholeheartedly, the question is what do they put back in place to try and make up that shortfall?” Plesman said. “That is why capital flows are not going to the U.S. at the same level as they would have before. If I look at our own book, the bar is fairly high [for a new U.S. investment].”
Unsurprisingly, Canada, Europe and Asia have appeared to be the more attractive options.
Plesman said Canada looks like a better place to invest and the same is true for Europe, with
“I have heard this from some European investors: They have simply changed their allocation that they were otherwise making for the U.S. to come to Canada,” Plesman said, with the country’s stability being “an important attribute.”
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