"Real estate is a capital intensive business. So everybody's chasing these bigger complexes, which is 20% of the market." — Bob Dhillon
From flipping homes to becoming the first Sikh billionaire in North America, Bob Dhillon knows his fair share about Canada's rental housing market. The CEO of Mainstreet Equity Corp. has netted a fortune by investing in undervalued mid-market apartment blocks, refurbishing them, and appealing to the inner city, millennial renter.
Why? For one thing, the affordable housing shortage. 73% of Canadians make less than $50,000 a year.
So, build all the fancy buildings you want, but they don't cater to 73% of the population.
In this episode of Sync or Swim, we discuss multiplying your wealth in multifamily by finding niche opportunities with Bob Dhillon, founder, president & CEO at Mainstreet Equity Corp., which focuses on mid-market rentals in Western Canada.
Here's what we talked about:
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Mitch Fanning [0:00:00.0]:
Alright, welcome back to Sync or Swim. I'm Mitch Fanning with Rentsync, and joining me today is Bob Dhillon, Founder, President, and CEO of Mainstreet Equity, a Canadian real estate company focused on acquiring and managing mid-market rental apartment buildings primarily in Western Canada. Bob, how are you doing today?
Bob Dhillon [0:00:18.5]:
Good Mitch. Every day's a gift.
Mitch Fanning [0:00:22.6]:
Absolutely. So maybe you can do that intro some, just justice by expanding it and explaining how you got it started in the apartment rental industry, and specifically how you started investing in mid-market... In mid-market investments.
Bob Dhillon [0:00:37.0]:
Mitch, first of all, thank you for giving me the opportunity to tell my story or my journey on your show. Umm, my journey started out when I was 19 into my early 20s when I was flipping homes, and that evolved to buying and repositioning small apartment buildings, and then moving forward in every type of real estate from strip malls, land development, commercial buildings, you name it. And do my journey have found out that the best undervalued, opportunity, who was midmarket apartment buildings in Western Canada. So then I started the Mainstreet Equity Corp. which is listed in the Toronto Stock Exchange, focused on mid-market, Western Canada. Let me define the mid-market, 80% of the buildings are smaller in size, and Western Canada is Winnipeg west.
Mitch Fanning [0:01:38.5]:
So, when did you have that, cause I think it's quite fascinating. I think you've definitely hit a nice niche there, when did you decide that midmarket was kind of your niche and kind of the thing that you wanted to build out an entire business around?
Bob Dhillon [0:01:55.1]:
Well, let's look at the capital. Real estate is a capital-intensive business. So everybody's chasing these bigger complexes, which is 20% of the market, and 80% of the market are smarter buildings, so there was 80% of the buildings were smaller that have less bids... Institutional capital was chasing the 20%, then our focus was, let's take a step further, was midmarket add value Western Canada, add value meaning anything that we can increase the top revenue by repositioning the asset, so were we became a mid-market add value experts in Western Canada, Winnipeg west.
Mitch Fanning [0:02:37.0]:
Well, obviously, you've done a great job doing that and focusing in that space, so let's talk about that space in Western Canada, obviously, as a result of covid, the Western market has experienced an increase in vacancy rates, there's been a decrease in demand, but according to rental reports, specifically the Rentals.ca 2021 that came out in March, there seems to be in a recovery kind of happening with the vacancy, or not the vacancy, but the vaccine rollouts. So really, I guess my question is, do you agree with that assessment? What's your take? And have we seen the end of this, and we're kind of moving into better territory?
Bob Dhillon [0:03:31.2]:
The population in Alberta has been growing nonstop during the last five years of the recession, so you know when oil prices fell off the cliff of 2014 our population, grew by 5% in the last five years, 4.92% to be exact. So population is growing, and then we have the lowest unit count for population, so we got approximately 44,000, 45,000 apartment unit on a population of 1.5 millon people, which is 2.9%. And let's look at the year 2020, pandemic year, our population grew by .77%, while Ontario grew by .45%, so it's a supply demand equation. Our vacanies went up it's a combination of two things, well multiple things, but let's focus on two. One is a pandemic two is the unemployment rate, people moving back home and don't forget Mitch, we have affordable housing, people can afford to buy condos and homes, it's not like Ontario or BC where you'll never be able to buy a home, unless your daddy writes you a cheque. So for that reason there is movement of people buying homes, populations growing, and we have the lowest unit count per population. So take pandemic out, if you take that out of the equation, and if you look at all these data points, I think vacancy rates will continue to decline, a decline that may not happen instantly, but a long-term trends, the next 18 months or so, we'll see continued decline.
Mitch Fanning [0:05:17.8]:
Now, as the market continues to recover and you guys are looking at, to say new projects, amenities in terms of how you're going to say, reposition those projects or just the leasing process in general, obviously COVID has changed a lot of renter behavior, whether it's just temporary or it's long term. So one example was maybe the demand for larger spaces, 'cause everyone's starting to work for home a little bit, or there's virtual tours happening and just the whole process, the digital transactions are increasing as a result of the rental process going digital. What are you seeing, or what are you and your team seeing there, and is it kind of in line with those friends, make
Bob Dhillon [0:06:07.3]:
Mitch, first of all, let's talk about what our niche is, and I'll give you the trendline, our sweet spot. Our niche is millennial, inner-city living, our amenities is the neighborhoods and the environment around where our buildings are... And they're clustered together, and our trendline, it's been very unique where people are gravitating towards boutique apartments, which is our brand, is inner-city living by Mainstreet, boutique apartments, and boutique apartments mean low density and low density equals health. So I'm seeing a lot of gravitation towards younger millenials wanting to live in low-density buildings versus these massive complexes with multiple elevators and lots of people... And you know what's happening with lots of people, lots of people equals COVID. If I could add on one more thing, I've seen the real optic in or I've seen the real uptic of townhouses as well because I think the digital spaces and back and front yard as well. So it's a low-density mid-market space, which is our space and townhouses where we have a lot of in Western Canada.
Mitch Fanning [0:07:30.0]:
I think you're definitely seeing the millennials looking for those unique kind of spaces, making it something that's their own... For sure, when we had our prep call, I wanna just kinda go out a script for a second, when we had a prep call, you said something that I thought was quite interesting, you were talking about the apartment industry is resilient, and it's gonna continue to be resilient. Can you elaborate on that a little bit? And essentially, what did you mean by that specifically?
Bob Dhillon [0:08:03.7]:
What came out of COVID to me and to the investment community and to Bay Street and to a stock price, and let me start off on my stock price, COVID starts we are in mid 90s, a stock price and drops down to low 40s and it bounces back to 84 now, what that means is the investment community is realized that the most resilient asset class in the multifamily... In the real estate universe is the multifamily and March's collections was like 99.34% when you get it. So if you compare yourself to hotels, theatres, a commercial real estate, it is the most resilient asset class, now, there's a really interesting supply-demand imbalance. We're gonna see the next little while, purpose built apartments, that means these apartment buildings are built for only apartments versus these condominiums that go on to the rental pools, so purpose built apartments, there's only 2.2 million purposeful apartments in Canada, that's from Prince Edward Island to Comox. And Canadian population is gonna grow by 1.2% on immigration alone by the press release done by the Federal Government, so 1.2 million people in the next 3 years, and then you got foreign students and total supply is 2.2 Let's... The vacancy rate is 200,000 empty... I'm just speculating 200,000 empty units. So we got a demand of an excess of 1.2 million and supply of 200, so that's gonna be a supply-demand imbalance that we've already seen, and places like Toronto and British Columbia and tent city, so forth, what's causing is the affordable housing shortage. Now, there's another data point that very few people talk about, 73% of Canadians make less than 50,000 a year. So you can build all these fancy buildings, it doesn't cater to 73% of the population. Again, that's why Mitch, we are in the mid-market space is to cater to the new immigrants, students, foreign students, the workforce, Canadians less 50,000 a year, the bricks and mortars at mid-market, but we transcend, we make them into boutique apartments, so they're not built as boutique apartments that's our creation, our add value creation in the system.
Mitch Fanning [0:10:45.6]:
Absolutely. So as we come to a close before we get to my favorite part, which is the quick-fire round, and maybe you've already touched upon this, but I guess looking forward, what does the future hold for the Alberta rental market or postcovid or specifically just Canada? In general...
Bob Dhillon [0:11:08.3]:
Well, first of all, I believe Alberta is like a Phoenician, it's gonna... Or economy is gonna diversify and you get the lowest tax rate, and the reality is, it's the only affordable major center, what that means is, can you afford to live in Toronto, Vancouver, and what's your plan B affordable housing. Do you know Alberta's got the youngest population and the most educated population and the economy is diversifing and a wealth of Alberta is not oil it's the risktaking entrepreneurs
Mitch Fanning [0:11:43.4]:
As long as you can get over the fact that it's gonna be... It's gonna be snow. Until say May, I think Alberta is a great place to live, for sure.
Bob Dhillon [0:11:58.7]:
Well let's be honest you love skiing, and you love the mountains right? And we got dry cold, it's not humid.
Mitch Fanning [0:12:03.5]:
Just I digress, I actually used to live in Fort McMurray so I'm very familiar with Alberta. So
Bob Dhillon [0:12:10.9]:
There's more to Alberta than Fort McMurray and there's more to Albertia than oil. So it's Calgary, Edmonton, and dynamic cities, and you're gonna see that's why you are seeing hard numbers of population migration, immigrants into provincial, and You know what, white is going away and oil is at 60, 65, 64 WTI, pipelines are getting built... And I think in time you're gonna see a real rebound diverse economy and with the backing of oil, imagine Canada with no oil, just imagine for a second.
Mitch Fanning [0:12:46.7]:
Yeah, it would be... Definitely, it wouldn't be Canada. Let's put it that way. Just guess that's the easiest way of saying it.
Bob Dhillon [0:12:53.2]:
We would be importing and wouldn't have a trade deficit, so please Mitch, all you guys send a message to everybody in Ontario... Maybe forget it, delete.
Mitch Fanning [0:13:05.1]:
No worries. So as we kind of move into the quickfire round to close things off, where I say a statement and you've got about 30 or 60 seconds to reply. Are you ready for this Bob?
Bob Dhillon [0:13:10]:
Yes, let's go.
Mitch Fanning [0:13:13.2]:
Alright, so question one, what do you believe that others disbelieve?
Bob Dhillon [0:13:26.9]:
That Alberta's the centre of the universe.
Mitch Fanning [0:13:29.6]:
Okay, perfect, that was good. That was short. The second one, as a result of covid 19, what have you changed your mind about lately?
Bob Dhillon [0:13:37.3]:
Health, family, friends. Number one priority.
Mitch Fanning [0:13:43.2]:
Excellent. And third, do you have any advice for, say, any other real estate investors or developers moving forward, kind of in this environment.
Bob Dhillon [0:13:55.3]:
It is a long-term investment is delayed gratification, and if you play the culture cyclical game, your returns would be higher like one, because A it's hedge against inflation. You gotta return, you get paid to wait and you get capital appreciation, so you knock off all these buckets... Check off boxes. Sorry. On your investment criteria. Now, if you do believe the Canadian cities, that the populations are gonna grow, if you believe the cities are gonna get deverisfied and if you believe inflation one day will come back, a combination of all these things result in a very decent investment. But if you look at for a shortterm game, stick to cannabis, Bitcoin, if you're looking for a longterm returns go into real estate.
Mitch Fanning [0:14:57.6]:
Absolutely. Last, where can people find out more about Mainstreet Equity?
Bob Dhillon [0:15:04.3]:
We have a website with an investor presentation, you can call me, we have an investor relation department, call up my art department we will put you on the meeting list, call me, I'm available. That's my job is to tell you about our track record and a business model and a strategy moving forward.
Mitch Fanning [0:15:25.0]:
Well, you definitely have a good track record, so I'm sure most people are aware of that. Bob, thank you so much for doing this. That's it for another episode. Until next time, keep swimming.