Canada has captured the global spotlight as a real estate investment destination – and private companies across all industries may be surprised by what that could mean for them.
New EY global research shows continued confidence in the real estate sector, and companies that were once focused on maintaining stability and operational efficiency are now shifting gears, looking for new investment opportunities:
- 85% of real estate industry executives say the global economy is improving or stable;
- That optimism is up 53% over one year ago;
- Canada ranks fifth after India, China, Qatar and Chile among countries best poised for real estate investment in the next 12 months.
And that’s where Canadian private companies come in. A business based here with the right real estate portfolio might be an attractive target for domestic or international investors looking to broaden their footprint in Canada.
Transactions like this can bring significant benefits. Through real estate IPOs or a sale of some or all real estate holdings, private companies can capitalize on the increased value of their properties. Some Canadian companies have already gone this route. For companies whose main business is not real estate, they gain cash flow while eliminating the costs and responsibilities of managing their various properties.
But, how do you know if a deal like this could be the right step for your company? Start by asking four key questions to help guide your strategy, and then build your plan accordingly.
Question 1: Is my real estate going to be in demand by the public markets?
This comes down to quality. Where are your properties, and what do those areas look like? Are the neighbourhoods in demand? Are values rising? What’s the condition of the buildings themselves, and is the type of property sought-after in the area? Do you have good tenants and management in place? Figuring out whether your holdings are in demand is an important first step, and you want to ensure you have the right support team around you to assess the questions well.
Question 2: Is now a good time, or should I wait a little longer?
Timing is everything. Getting a good understanding of the mitigating factors – what’s going on in the local real estate market, what’s about to come on the market, what inventory currently looks like, vacancy rates, etc. – will help determine whether your holdings are primed for sale now or still maturing, so to speak.
Question 3: Do I want the exposure of being in the public markets, or am I happier staying private?
Going public – in any capacity – is a huge step. Once a deal like this is concluded, private company owners will have a new level of exposure and be vulnerable to public scrutiny in an entirely different way. Your role with the properties won’t end completely if you go this route; you’ll have significant skin in the game, and the new responsibility of answering to a different kind of stakeholder. Knowing your gut – and the company’s culture – and being true to that is an important factor when deciding to jump into the public market, or maintain the status quo.
Question 4: Would a different exit strategy be more appropriate for my real estate portfolio?
Moves like this don’t have to be all or nothing. Just because a real estate IPO transaction works for one company doesn’t mean it’s the only way to unlock some of the capital tied up in your real estate holdings. Selling directly to a third party is another interesting option that allows a private company to ride the wave of optimism around Canada’s real estate market without incurring some of the complexities that an IPO would entail. Regardless of the option selected, you should speak to your tax adviser to understand all of the tax implications and review any tax planning opportunities. Ensure that you explore all the other options available to you, speak to experts, and get a good feel for any additional possibilities before you make a final decision.