The PBSH investment market has yet to find its footing: 4 Questions with Blue Vista’s Erik Larson

March 23, 2024

SHURE Initiative


Blue Vista's Senior Vice President, Erik Larson, recently shared insight with The SHURE Initiative about the state of the capital markets and his firm's growth strategy in Canada. 

At Blue Vista, Larson is responsible for sourcing, structuring, underwriting, and executing transactions. Before joining Blue Vista, Erik spent seven years at Cedar Street Capital Partners as Managing Director of Finance, focused on all aspects of multifamily real estate development and ownership, including the sourcing of transactions, deal structuring and capitalization, disposition, and asset management.  

SHURE: Tell us about your current projects and your observations of the market    

EL: We're developing four projects in Kingston; two are online and open for business, the third is topping off and opening next year, and the fourth is just coming out of the ground.

It's interesting to see actual leasing in the buildings online. Vacancy has been very stable. It was zero last year. In fact, we're at a whopping 99 percent occupied this year, with 1 percent vacancy.

On the challenging side, we are managing rates, knowing that we're creating our new products and competing with ourselves with those brand-new products.

In Kingston, Ontario, we experienced 11% year-over-year rent growth, while our project in Toronto witnessed 18% year-over-year rent growth. Other than rent control, two and a half percent on rent control was a bit disappointing, but we'll take the 18% on the market rate. 

In summary, I see very healthy operations but a tale of two stories in the industry: Great operations but very tough capital markets.

SHURE: Do you think your tenants embrace ESG and carbon reduction in the built environment?

EL: The industry has discussed ESG. We embarked on a geothermal project. There is some anecdotal evidence that tenants are attracted to ESG and carbon reduction build methodologies, as evidenced in our very healthy waitlist, with about nine months to go in construction.


SHURE: How are you managing the construction costs increase due to supply chain and other factors?

EL: We are pausing and digesting to figure out where projects will land. There are some positives with costs coming down, primarily taxes and labor materials, but not so much interest rate increases.

We are managing construction cost analysis project by project. There's a benefit of targeting some of these markets and tertiary areas. The Kingstons of the world (Ontario), where land is at least less expensive, helps with the math, but it's still a fine line in this new world if projects can pencil in to support the inflow of international students.

SHURE: What methodology is necessary to get an acquisition/disposition or new ground-up deal to transact in the current environment?

EL: There is a lack of trades in the current environment. We infer the cap rates from where things have not been traded. For example, we tracked a portfolio in Montreal that started off in the high threes, but now we're at four and a half, and I don't believe it's traded at this point.

At this point, we're starting to field some inbound calls instead of the opposite direction. Will deals trade at fives now, given that threes are gone?  We'll get more certainty here soon with a pause in interest rates.  

To conclude, the acquisition/disposition and new ground-up markets have yet to find their footing.

Related SHURE Initiative Event: SHURE: VANCOUVER & WESTERN CANADA | March 26-27, 2024 Simon Fraser University, Burnaby, British Columbia

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