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A value investor in Canada’s oil heartland targets US housing

(Bloomberg)–Avenue Living Asset Management Ltd. Trying to find fortunes in the places left behind by the North American real estate boom.

The firm, based in Canada’s oil capital, Calgary, began by accumulating apartment buildings and housing complexes in the country’s western provinces. Now it’s getting an American beach by targeting smaller cities like Cincinnati, Ohio, and Kansas City, Kansas, where prices are far below those in major urban centers.

“We’re seeing a lot of opportunities in the US non-gateway markets right now, so we plan to continue investing there,” Chief Investment Officer Jason Jogia said in an interview. He said the firm plans to focus on the US market in the second half of the year and aims to invest approximately C$500 million ($396 million) in multi-family properties in North America.

Avenue’s largest fund, the C$2.6 billion Avenue Living Core Trust, returned 13.2% last year and has earned a 9.7% annualized return since inception, according to fund documents as of March 31.

Property in Alberta and Saskatchewan, the two provinces that produce most of Canada’s oil, are much less expensive than in markets such as Ottawa, Toronto and Vancouver.

But the recovery in energy prices is beginning to weigh on the rest of the economy. Employment is booming in both provinces and the housing market, once moribund, has sprung to life.

Calgary home sales increased 40% last month compared to a year ago. The benchmark price of a one-family home has risen 24% in two years, yet is about a third of Toronto’s price. “We have seen a lot of optimism here,” Jogia said.

The firm’s real-estate strategy began in 2006 when Avenue Living founder Anthony Giuffre purchased a 24-unit compound from its old owners in Brooks, a small town about 100 miles southeast of Calgary.

At the time, Alberta was approaching the peak of a protracted oil boom that would peak in 2008. Yet the rise in domestic prices did not reach Brooks. The minimum wage was the same in both cities, but rents in Brooks were half of Calgary’s. “There was a lot of room to shift the rent and that’s where he saw the opportunity,” the CIO said.

They’ve used a similar playbook ever since. Avenue Living is investing in multifamily units in the townhouse, apartment and low-profile markets, targeting B and C category buildings, which they can fix up and fill with working-age tenants. In 2017, the firm opened the fund to outside investors, expanding the portfolio from 6,000 units to 15,000 in 23 different municipalities in Canada and the US.

Jogia said, “The firm found an unwanted stone and something which was not really noticed as it was arguably worthless.”

In addition to buying buildings from publicly traded companies and institutional investors, Avenue Living still buys from “mom and pop” landlords who built or bought units in the 1980s and are ready to retire from business, Jogia he said. “We are seeing that the next generation does not want to own property and we are seeing consolidation,” Jogia said.

Avenue Living also has a fund that has 3.2 million square feet of mini-mall storage units, an agricultural fund with approximately 50,000 acres of farmland in western Canada, and an “opportunity trust”, which buys assets that require lots of work. needs and tries to change them — sometimes by converting them for other purposes.

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