Identifier: Infrastructure

The global pandemic has caused a sharp, worldwide economic contraction, with supply and demand severely affected across many industries. However, the real estate market was one of the few to experience strong and sustained growth in 2020 and 2021. House prices rose consistently, driven by robust demand and constrained supply.

On the demand side, buyer interest has surged since summer 2020, as people are scrambling to take advantage of low mortgage rates due to fear of missing out. According to the Mortgage Bankers Association (MBA), in the United States (US), the value of mortgage originations for new purchases increased by 13% in 2020, in comparison to 2019, despite the fact that most economic activities were effectively halted in April and May 2020. As America’s biggest generation, millennials have entered their prime years of purchasing power, driving the demand for houses even further. On top of that, as people spend more time at home during the pandemic, demand for bigger spaces increased significantly.

On the other hand, supply has been extremely tight. In the US, months of supply in July 2021 was 2.6, which is an increase from the record low of 1.9 in January 2021, but still at a historically low level. Historically, a balanced market has been defined as 6.0 months of supply. Even before the pandemic, there was a shortage of homes for sale. From 2010 to 2019, the US had the lowest number of homes built than any other decade since the 1960s.[1] From 2010 to 2019, only 5.8 million homes were built, compared to over 27 million homes built from 2000 to 2009. Strong demand for housing in recent years, fueled by low mortgage rates, has exaggerated the imbalance of supply and demand. As a result, house prices keep going up.

The strong residential market is not limited to the US. In the United Kingdom (UK), house prices have been increasing consistently since May 2020. In June 2021, the average house price was £266,000, up 13.2% year over year and 4.5% month over month. This is partially due to the stamp duty holiday introduced in July 2020 to help homebuyers and boost the UK property market during the pandemic. Even though the stamp duty holiday will gradually taper from July 2021, demand still outstrips supply, and prices are expected to stay on the upward trend. One of our holding companies, Savills (SVS LN), has been benefiting from this trend. Founded in 1855, Savills is one of the world’s leading property service providers for both residential and commercial properties. They have a dominant position in many markets across the globe, with more than 600 offices across the Americas, Europe, Asia Pacific, Africa, and the Middle East. In the first six months of 2021, Savills hit record profits thanks to the hot UK housing market, with revenue in the country having increased by 40% year over year.

This housing boom has been positive news for homeowners; CoreLogic analysis shows homeowners with mortgages (roughly 62% of all properties) in the US have seen their equity increase by a total of $1.9 trillion  since the first quarter of 2020, an increase of 19.6% year over year. However, it has also reduced housing affordability, and shut a growing number of people out of the housing market. In the US, homeownership has been falling after its previous peak of 69% in 2004.[2] In the second quarter of 2021, homeownership dropped to 65.4%, which is 2.5 percentage points lower than in Q2 2020. The rate varies significantly by race, with the biggest gap observed between non-Hispanic white households and Black households, homeownership rates for which were 74.2% and 44.6%, respectively. If the trend continues, the US homeownership rate will decline to 62% by 2040.

Therefore, it is crucial to increase the supply of affordable homes to meet the needs of future homeowners and renters. Century Communities (CCS US), a top ten national homebuilder and a holding company in our portfolios, focuses on affordable homes. Entry-level buyers represent 80% of their total deliveries. A total of 43% of the homes are under the price of US $250,000, and close to 90% of homes are under the price of US $500,000. In the second quarter of 2021, the company’s home sales revenue increased by 34% to a record $1 billion, and net income increased by 207% to a record $117.9 million. The company has increased their revenue guidance for 2021, and remains confident in its success in the second half of the year.

It’s not just the home buyers, renters also faced a significant amount of financial stress. In the first quarter of 2021, 17% of all renter households in the US reported being behind on rent. This rate is 21% for Hispanic and 29% for Black renters. Several companies in our portfolio contribute to the rental market’s affordability.

Boardwalk Real Estate Investment Trust (BEI-U CN) is one of Canada’s largest multi-residential real estate owners and managers. Founded in 1984, the company owns 33,513 residential suits, concentrated in Alberta, Quebec, Saskatchewan, and Ontario. The REIT is committed to providing the best product quality and experience to their clients, at affordable prices. The average rent is approximately 20% of the average renter’s household income. Thanks to its strong brand of service at affordable prices, Boardwalk has been gaining market share, and maintained an above-market-average occupancy rate.

SBB (SBBB SS) is a Swedish-focused, social infrastructure property company. Of its portfolio, 94% is in rented residential and social infrastructure, including education, senior care, healthcare, and government/municipal buildings. The government backs 88% of the rent. As of Q2 2021, the company invests 27% of its social assets in affordable housing. The average rent levels for SBB’s rent-regulated residential portfolio is about 40% below the rent levels of new productions.

Advance Residence (3269 JP) is the largest residential REIT in Japan. They focus on compact apartments, mainly in Tokyo metropolitan areas; 64% of its portfolio are studio and one-bedroom properties, the rents for which are more affordable. Over 50% of the rents were below JPY 100,000 per month (approximately US $911). As a comparison, a typical mid-range, two-bedroom apartment in Tokyo is about US $1903 per month, according to a Deutsche Bank report.

Affordable housing is part of Goal 11 of the Sustainable Development Goals (SDGs). It’s also central to achieving almost all of the SDGs. The demand for affordable housing keeps growing, given the trend of urbanization and population growth. Investment in this theme will not only allow us to ride the secular trend, but also contribute to a more sustainable and inclusive future.  

[1] https://www.statista.com/statistics/1041889/construction-year-homes-usa/

[2] As defined by the US Census Bureau, the homeownership rate is the proportion of households that is owner-occupied.

Wind turbines in Navarre (Spain) Renewable energy concept.

Investing in private market infrastructure assets is an effective means of generating stable cash flow and long-term capital growth. Historically, this asset class has only been available to institutional investors with deep pockets. However, in recent years investment managers have started to provide their high-net-worth clients with opportunities to invest in this asset class.

In this article, we provide an overview of infrastructure investing, how we approach it, and the opportunity for investors. For information on other alternative asset classes, please read our Portfolio Guide – Beyond Stocks and Bonds.

What is infrastructure investing?

Infrastructure investing refers to making investments in physical, or “real”, assets that provide an essential product or service that is critical to society. Infrastructure assets are varied – from roads, rail, schools, and hospitals to power generation, energy transmission and distribution, and digital infrastructure. 

Typically, attractive assets share a number of key characteristics including long lives, low competition and high barriers to entry. When combined with predictable revenue streams – often from contracts with government counterparties or counterparties with high credit ratings – this makes infrastructure investing a source of portfolio stability and return.  

Understanding the opportunity for investors

While institutional investors have long embraced infrastructure investing, it is a less familiar option for high-net-worth investors, given the complexity and high cost associated with access to the asset class. Three key benefits include:

  • Uncorrelated: Infrastructure cash flow returns have a low correlation to other asset classes. It means they do not typically rise or fall in lockstep with liquid asset classes like stocks or bonds or private asset classes like real estate, private debt or private equity.
  • Resilient: Infrastructure returns are relatively resilient to economic turbulence. Even in recessionary economic environments, infrastructure returns have been relatively stable, given their essential, and often contracted or regulated, nature.
  • Long term: Infrastructure assets typically provide steady returns over a long time. Assets usually benefit from long contract lengths of more than 20 years and the assets themselves often have even longer useful lifespans – some hydroelectric assets have reached upwards of 100 years. 

These benefits make infrastructure an attractive asset class. Incorporating infrastructure into a broader portfolio can provide important diversification benefits and may also deliver increased average returns while reducing risk. 

Another characteristic of investing in infrastructure and other private asset classes is restricted liquidity. This is because the holding period of infrastructure assets reflects the long-term nature of the investments. For investors that do not require their capital in the short term, infrastructure can be a relatively safe and low-risk way to generate income and long-term growth.  

Our approach to infrastructure investments

At CC&L Private Capital, our infrastructure investments are primarily in Canada, the US, and Chile. We expect to add infrastructure assets in other geographies over time in a measured and disciplined way. 

Our portfolio is focused mainly on small- and medium-sized traditional infrastructure projects (e.g., roads, rail, hospitals) and energy infrastructure projects (i.e., hydro, wind, and solar).

Choosing the right investment manager

We strongly believe in the benefits of infrastructure investing. That is why we invest a significant amount of our own capital in our portfolio, as with all our private market investments. It shows that we are committed to our portfolio’s performance, as we benefit alongside our clients. 

When evaluating potential investment managers, whether they have ”skin in the game” is important, particularly for alternative asset classes. Other criteria investors should consider include the stability of the investment manager’s team, the manager’s proven ability to generate returns, the direct nature of the investments and the quality and diversity of the infrastructure portfolios.

To learn more about how to choose the right investment manager for your goals, please read our Portfolio Guide – How to future-proof your investment portfolio.

Find out more

If you would like to find out more about our approach to infrastructure investing or learn how we can help you grow your investment returns, please contact us.

This post is for information only and is not intended as investment advice. The views expressed are those of the author at the time of publication and are subject to change at any time.

TORONTO, ON, February 10, 2021 – Crestpoint Real Estate Investments Ltd. (Crestpoint) today announced the acquisition of Northport Business Park in Edmonton, Alberta. Following this major acquisition, along with continued growth within its existing portfolio, Crestpoint’s total assets under management have grown to $5.8 billion. 

EDMONTON, AB

Northport Business Park – 17306 129 Ave., 17408 129 Ave., 17315 129 Ave., 12908 170 St. & 12861 175 St.

Northport Business Park is a Class-A new-generation warehousing and distribution complex located in northwest Edmonton. Built from 2009-2015, the property is comprised of five state-of-the-art buildings totaling 846,000 square feet and also includes 16.5 acres of outdoor storage yards, and 42.8 acres of serviced excess land which could support an additional 700,000 square feet of density. Strategically positioned in proximity to surrounding transportation corridors, the property provides quick access to several major highways and the CN Edmonton Intermodal terminal. It is 94% leased to 11 tenants operating in various industries including third-party logistics, medical distribution, and building supply. Crestpoint acquired the asset within the “Crestpoint Core Plus Real Estate Strategy,” Crestpoint’s open-end Fund.

“Crestpoint’s acquisition of Northport Business Park, a premier Class-A industrial park, is a great addition to our portfolio’s existing number of quality industrial assets located across Canada. As the gateway to the north, Edmonton is conveniently located in several trade corridors, providing distribution and logistics companies with strategic access to all of northern Alberta, northern British Columbia and many parts of Saskatchewan. As e-commerce adoption continues to grow, we anticipate that the demand for quality industrial space, such as Northport, will continue to drive absorption and rental growth.” said Colin MacKellar, Executive Vice President & COO of Crestpoint.

About Crestpoint Real Estate Investments Ltd.

Crestpoint Real Estate Investments Ltd. is a commercial real estate investment manager, with $5.8 billion of gross assets under management, dedicated to providing investors with direct access to a diversified portfolio of commercial real estate assets. Crestpoint is part of the Connor, Clark & Lunn Financial Group, a multi-boutique asset management company that provides investment management products and services to institutional and high net-worth clients. With offices across Canada and in Chicago, New York and London, Connor, Clark & Lunn Financial Group and its affiliates are collectively responsible for the management of over $86 billion in assets. For more information, please visit: www.crestpoint.ca.

Contact

Kevin Leon
President
Crestpoint Real Estate Investments Ltd.
(416) 304-6632
[email protected]

TORONTO, ON, January 29, 2021 – Crestpoint Real Estate Investments Ltd. (“Crestpoint”) today announced the acquisition of two significant investments with a total value of $205 million: i) Legacy Apartment Portfolio, and ii) FedEx Distribution Centre. Following these major acquisitions, Crestpoint’s total assets under management have grown to $5.5 billion. 

VANCOUVER, BC

Legacy Apartment Portfolio – various addresses

Legacy Apartment Portfolio is comprised of 15 multi-family residential properties, acquired from six different vendors, strategically located across Metro Vancouver. The portfolio includes nine concrete mid-rise apartments and six wood frame apartments. The properties range in size from 14 to 72 units with a mix of bachelor, one bedroom and two bedroom units, with a total of 614 residential suites across the portfolio. Located in the highly desirable and amenity-rich neighbourhoods of Vancouver’s West End, Kitsilano/West Point Grey, South Granville and Marpole, the portfolio has an average walk score of 90. Crestpoint, on behalf of the “Crestpoint Core Plus Real Estate Strategy”, its open-end Fund, partnered with InterRent REIT with each acquiring a 50% interest.

“We are thrilled to be acquiring such an irreplaceable core multi-family portfolio in one of the most sought-after residential markets in the world. As our first residential investment for our Fund, we are excited to use this as a launching pad into the multi-family sector and look forward to partnering with InterRent REIT, one of the most highly regarded operators in the sector” said Elliott Altberg, Executive Vice President at Crestpoint. “The multi-family residential sector in Canada is highly fragmented and has historically been characterized by stable, attractive risk adjusted returns. As such, we look forward to further expanding our multi-family presence across Canada and are eager to continue diversifying our Fund into this highly desirable asset class.”

WINNIPEG, MB

FedEx Distribution Centre – 365 Black Diamond Blvd.

Strategically situated on 38.1 acres of land in Southeast Winnipeg, the FedEx Distribution Centre is a 248,000 square foot brand new design-build package distribution and sorting facility. It is located in Boniface Industrial Park, Winnipeg’s second largest industrial park and offers convenient access to numerous key transportation routes. The state-of-the-art Class-A facility features a clear height of 28 feet with 76 dock loading doors and six drive-in doors. The single-tenant industrial property is fully leased to FedEx for 15 years. Crestpoint acquired the asset within the “Crestpoint Core Plus Real Estate Strategy”, Crestpoint’s open-end Fund. 

“This asset represents Crestpoint’s second industrial acquisition in Winnipeg in the last 14 months, providing the Fund with geographic diversification and exposure to a high-quality core industrial asset. Given its central location within the Winnipeg market and the long term commitment from such a reputable tenant we are really excited to add this asset to our Fund.” said Kevin Leon, President & CEO of Crestpoint.

About Crestpoint Real Estate Investments Ltd.

Crestpoint Real Estate Investments Ltd. is a commercial real estate investment manager, with $5.5 billion of gross assets under management, dedicated to providing investors with direct access to a diversified portfolio of commercial real estate assets. Crestpoint is part of the Connor, Clark & Lunn Financial Group, a multi-boutique asset management company that provides investment management products and services to institutional and high net-worth clients. With offices across Canada and in Chicago, New York and London, Connor, Clark & Lunn Financial Group and its affiliates are collectively responsible for the management of over $86 billion in assets. For more information, please visit: www.crestpoint.ca

Contact

Kevin Leon
President
Crestpoint Real Estate Investments Ltd.
(416) 304-6632
[email protected]

FOR IMMEDIATE RELEASE

CONNOR, CLARK & LUNN INFRASTRUCTURE CLOSES
U.S. RENEWABLE POWER INVESTMENT

TORONTO, JANUARY 11, 2021

Connor, Clark & Lunn Infrastructure (CC&L Infrastructure) is pleased to announce that it has completed its previously announced acquisition of an 80% equity interest in a U.S. wind and solar portfolio.

This transaction, which was completed alongside Régime de Rentes du Mouvement Desjardins and Desjardins Financial Security Life Assurance Company (together, Desjardins Group), included the purchase of four operating wind projects and one construction-stage solar project located in Indiana, Wisconsin, Oklahoma, and Ohio. Each asset is fully contracted through long-term power purchase agreements with high-quality offtakers, and the portfolio provides geographically diversified exposure to three distinct U.S. electricity markets. Construction of the solar facility began in December 2020 and is expected to be operational later this year or early in 2022.

“Completing this investment achieves an exciting milestone for our business,” said Matt O’Brien, President of CC&L Infrastructure. “The addition of these projects increases the total capacity of our renewable power portfolio well past a gigawatt globally. We look forward to operating these high-quality projects alongside our partners over the coming years.”

CC&L Infrastructure now owns approximately 1.4 GW of renewable power globally, with more than 1GW in operation. On a combined basis, these operating facilities are expected to produce approximately 4 million MW hours of clean energy each year – enough energy to power more than 320,000 homes and offset the equivalent greenhouse gas emissions of more than 600,000 passenger vehicles for a year.

About Connor, Clark & Lunn Infrastructure

CC&L Infrastructure invests in middle-market infrastructure and infrastructure-like assets with highly attractive risk-return characteristics, long lives and the potential to generate stable cash flows. CC&L Infrastructure is a part of Connor, Clark & Lunn Financial Group Ltd., a multi-boutique asset management firm whose affiliates collectively manage over CAD$85 billion in assets. For more information, please visit www.cclinfrastructure.com.

Contact

Kaitlin Blainey
Director
Connor, Clark & Lunn Infrastructure
(416) 216-8047
[email protected]