U.S. property giant Hines has $2-billion to shop for housing development projects in Canada

Real estate giant Hines Interests LP is looking to invest up to $2-billion in Canada, and high on its shopping list is land for rental housing developments.

The Houston-headquartered firm, which owns and manages about 850 properties in 30 countries, views apartment building developments as a top investment in Canada given the country’s shortage of affordable homes. Its significant pool of capital will let it compete for deals at a time when the commercial real estate sector is reeling from higher construction and borrowing costs.

Across the country, the typical price of a home exceeds $730,000 and tops $1-million in the major cities of Toronto and Vancouver. That has pushed many prospective buyers out of the real estate market and kept them in rentals.

At the same time, the federal government has been admitting record numbers of new immigrants, temporary workers and foreign students, which has increased the overall demand for housing. As a result, rental rates have jumped and are now averaging more than $2,000 a month – an amount that many cannot afford.

“The biggest story going on in Canada today is that we have a massive undersupply of housing,” Avi Tesciuba, Hines co-head of Canada, said in a recent interview. “Our primary focus is to help solve that. There’s massive demand for new housing.”

Privately owned Hines has been sitting on this fund for about two years. It has $650-million in equity, and the ability to borrow more to boost its buying power. With debt, Mr. Tesciuba said Hines has about $2-billion to spend on acquisitions. His firm is looking mostly at land in major cities such as Toronto, Vancouver, Calgary and Montreal, where the company can develop apartment rental units.

Hines is not looking to develop single-family homes or townhomes, but prefers to develop large rental-only towers although it would consider projects as small as four to six storeys. Even though Hines can spend $2-billlion, it doesn’t have a minimum or maximum investment in mind. “It’s a matter of whether it’s worth our time,” Mr. Tesciuba said.

Hines would not make one large investment and put all their “eggs in one basket,” he said, and its purchases could also include office buildings developments or combined office and residential projects. “We can tackle essentially any large project,” he said.

Hines has nearly seven decades of experience developing commercial real estate. It started with office buildings in the late 1950s in Houston and now has US$93.2-billion in real estate assets under management around the world. It develops and manages all types of commercial properties from office towers to housing, including condo towers, student housing and rental-only apartments.

This year may offer opportunities for Hines in Canada with a rash of developers facing problems with their residential projects. The high borrowing costs along with significant cost overruns and delays has made it difficult for developers. As a result, there has been a spate of distressed residential projects that are up for sale.

Asked whether this was a good time to be a buyer, Hines Canadian co-head Syl Apps said: “The way we think about it is, we hope that we can be a solution provider.”

Mr. Apps said Hines has a sizable amount of “dry powder” to make purchases in Canada, and that the firm’s expertise could help borrowers, lenders or receivers “achieve the best outcome.”

One of the largest troubled projects in Canada is The One, a luxury condo building in downtown Toronto that was originally conceived to be 85 storeys high. The One’s court-appointed receiver is seeking $1.2-billion for the unfinished skyscraper and the first round of bids was due last week. It is unknown whether any bids were submitted.

Mr. Apps and Mr. Tesciuba both declined to comment when asked if Hines was interested in The One.

But Mr. Apps said that Hines could get involved in distressed unfinished projects. “As a general concept, that’s the type of opportunity where I think Hines can bring significant value to the counterpart,” he said, adding that the company can bring capital as well as “deep, global development expertise that allows us to maximize value.”

Hines has been operating in Canada over the past two decades and has US$3.7-billion in assets under management here. That includes CIBC Square, which when completed will have two 49-storey office towers in downtown Toronto. (Hines is developing the office complex with Ivanhoé Cambridge, the real estate arm of the Caisse de dépôt et placement du Québec.)

Hines has developed condos in Canada as well as rental-only units, also known as purpose-built rentals. It has developed or is completing seven of these buildings amounting to 2,600 units in Toronto and Calgary.

The embrace of rental housing is occurring as the federal government has tried to spur the development of purpose-built rentals. Ottawa has eliminated the 5-per-cent federal goods and services tax on new rental construction and is providing cheaper financing through Canada’s housing agency.

Hines has not yet tapped that source of financing but Mr. Tesciuba said it is critical for developers given the spike in construction costs and municipal development charges.