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About this podcast

Michael Kitt, Head, Private Markets and Real Estate Equity Investments, joins Dave for an update on the real estate sector in the wake of COVID-19. Michael also provides his perspective on the opportunities that could arise in commercial real estate, as businesses find ways to evolve and adapt beyond the pandemic. (Recorded July 9, 2020)


Hello and welcome to the Download. I’m your host, Dave Richardson, and I am joined by a really special guest today, Michael Kitt, who is the Head of Private Markets and Real Estate Equity Investments at RBC Global Asset Management. Michael, welcome back to the podcast.

Thank you for having me.

Now, this is a short-form podcast. I just want to let everyone know — particularly those of you who subscribe to the podcast on iTunes or Spotify, wherever you’re getting your podcasts — we did a longer-form interview with Michael a few months ago. It’s probably about 30 podcasts back on the list and it is an excellent, more in-depth summary of Michael’s expertise, where he’s come from, his background and a general view of how real estate, partic-ularly commercial real estate, fits into your portfolio. Today, we don’t have as much time. And by the way, Michael, that was my mom’s favourite episode, out of the 50 or so that we’ve done.

My mom’s too, actually.

That’s a great coincidence! We talked about commercial real estate in general back there, but there’s a lot of news about commercial real estate and what’s happening around the commercial real estate sector as a result of Covid-19. And I just thought I’d check in with you this morning: what are you seeing going on? What do you think are some of the longer term implications for what’s been happening with the pandemic?

Really to sum things up, I would say that the industry fundamentals are actually holding up pretty well, despite what many of the sensational headlines might lead to believe. Read any of the REIT performance. If you look at that, it’s not really a true signal, it reached a down of roughly 20% overall year to date. And that isn’t really a true signal of what’s going on on the ground. We live in such a headline dominated world and there’s so much emo-tion that is swinging day to day, and when you strip it back and you look at the actual fundamentals of what’s happening in our industry, house prices haven’t crashed. In fact, I read a little news report that house prices in GTA hit a record high. So I think that actually has been relatively stable and demand/supply seems to be balanced, which is the key. Office tenants have been paying the rent and are now planning their return to the office. They’re hardly planning their return to exit offices. In fact, some of the notable companies that have proclaimed work from home in the future, such as Shopify, actually leased more space last week in downtown Toronto. So you have signals of stability returning to the office world. And bankruptcies, historic closures really haven’t decimat-ed the retail world. As a percentage of the total retail landscape, those who have suffered from this incredible crisis actually represent a pretty small per-centage. It’s a fraction of what Sears actually gave back, or Zellers gave back, or Target gave back, when they went bankrupt. And so overall, the retail world is actually hanging in there. It would be the most impacted, but it hasn’t been completely decimated. No doubt we’ve been challenged like never before, but we are slowly starting to see stabilization and green shoots. Businesses are leasing new space and office buildings. Amazon, Telus, Shopify have all sig-nalled that they’re getting back to business. Restaurants, retailers are slowly re-opening. I was at a restaurant last night and it was busy. And new residential projects are moving forward. The underlying theme is caution for sure, but we’re starting to see some stabilization. And I think there are a few reasons for that. In Canada, we Canadians are so well behaved, we follow rules and we care about others. You can see wearing masks and keeping distance. And I think we’re very fortunate in that sense to live in this country. Our health care and our education systems are so stable, it’s something we can fall back on, rely on, and they’ll make good decisions coming into the fall around schools. And in-terest rates are incredibly low. I heard an advertisement for 1.6% mortgage rates for houses and that really does help stabilize a shifting situation in people’s minds. And then the government support programs have been really accom-modative. Nothing’s perfect, but they’ve stabilized economy where they had to. They bought the time that many businesses needed. And so in the short term — let’s call the short term maybe the next year or so — we’re going to have distortion for sure. The entire world has just been quarantined, including our entire country, so we’re going to have funny looking things taking place. Different kinds of behaviors. But this really does create opportunities for those that can adapt and fill the gaps. Real estate has always been a constant in this theme. It’s a hard asset that every person in every business needs in some form or another. It’s not a patent or a brand. It’s something you can touch. It’s a scarce asset. You know, we’re not making any more real estate and the world’s population continues to grow. So, over time this is going to play out in an investor’s favour. And it’s adaptable, which is really important. If you’re an airline company and you own airplanes, it’s really hard to change your business model. But in the real estate world, if you have an empty restaurant, you can turn it into a medical office building in a few months. A mall can be converted to a last mile distribution hub. An office can be converted to residential and retail to office. This has been done many, many times. And as long as you have quality assets in core locations, and you’ve stayed diversified and disciplined, I’m confident all is going to be okay in the long run.

Well, Michael, more than anything else, that’s just tremendous perspec-tive and the kind of perspective I think you need to have as an investor, not just when you’re thinking about real estate or commercial real estate, but thinking about any of the assets that you invest in — stocks, bonds, whatever it might be — take a step back, think about the big picture and also recognize that things do change over time. They’re changing very quickly as a result of Covid-19. If I think back to walking through the Eaton Center in downtown Toronto and who were the major retailers in there 20 years ago versus today. The stores are all filled but a lot of the store names are different. So things do change and adapt. Michael, thank you so much for your time today. I’d love to get you back to talk about the future of office space and office work down the road, which is an interesting topic, but I really appreciate your time today.

All right. Thank you, Dave. Happy to jump in at any time. I appreci-ate it. Thank you.


Recorded July 9, 2020

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