Over the past two and a half decades, InterRent REIT has quietly become one of Canada’s top performers in its field, amassing rental properties in three provinces under the direction of a low-key management team that has largely remained in the business. headline spread.
So it’s really no surprise that InterRent’s new reshuffle at the top is, in many ways, a signal that business is business as usual for the Ottawa-based company.
InterRent announced late last month that Brad Cutsey, who has been chairman of the REIT since 2015, would take over as chief executive effective May 1 from Mike McGahan, who is stepping down after 12 years at the helm.
When it comes to business successions, this one is about as controversial as it comes. Cutsey notes that InterRent has always taken the committee management approach and intends to continue to do so.
“I don’t think you’re going to see much change on that front,” the 49-year-old former investment banker, who splits his time between offices in the Greater Toronto Area and Ottawa, told OBJ in a recent interview.
“I wouldn’t be where I am right now if we didn’t have a great team. It’s really as much about my fellow team members as it is about me.
“I wouldn’t be where I am right now if we didn’t have a great team. It’s really as much about my teammates as it is about me.”
The former leader of this team does not go far. McGahan remains with the company as executive chairman and will continue to have a say in InterRent’s operations – a fact that his successor is delighted with.
“He’s still going to be in a very active role, which I’m happy about,” Cutsey said of his longtime boss. “Mike is just a phenomenal guy for getting things done. When Mike thinks of something, I say, “Watch out.” We are lucky to have him. »
Cutsey’s aw-shucks attitude fits perfectly at InterRent, which was founded in 2006 and really took off when McGahan took over three years later.
Over the next decade, the REIT more than doubled its total number of suites to almost 9,000 and became one of the most reliable players in the Canadian market, with annualized returns of around 14%.
He accomplished all of this with little fanfare in his hometown, or anywhere else for that matter. But observers who followed the industry closely knew what McGahan and Co. was building. In 2018, a real estate analyst told The Globe and Mail that InterRent was a “go-to name in the Canadian REIT space for investors who prioritize organic growth.”
From May 2017 to March 2020, InterRent’s unit price more than doubled from less than $8 to nearly $19 as increased immigration and tighter loan eligibility rules mortgages fueled demand for rental housing that new construction could not satisfy.
Then COVID changed everything.
The pandemic has not been kind to real estate operations like InterRent which rely heavily on a steady stream of new immigrants and post-secondary students to fill their buildings. The growth profile of the REIT, which once resembled a hockey stick, has been more like the foothills of the Rockies in recent years.
Unit price down 13%
As of Monday afternoon, InterRent’s unit price was $13.59, down about 13% over the past 12 months. But Cutsey thinks InterRent is poised to kick-start its growth engines, thanks in part to a slight shift in corporate philosophy.
So far, InterRent has used a simple but effective formula for success: buying back apartment buildings that were getting a bit long or poorly managed, investing in improving suites and common areas, making structures more energy efficient. efficient and increase the rents of rejuvenated properties.
A case in point is the REIT’s floor-to-ceiling renovation of a 440-unit apartment complex on Bell Street in Downtown West. InterRent bought the building for nearly $40 million in 2013 and proceeded to gut the aging structure and reposition it as an upscale property aimed at young professionals — another key customer segment.
“Essentially what we did was take assets that were physically tired or poorly managed from a leasing and marketing perspective and then reposition them and (help) bring (them) back to life,” said Cutsey said. “This has been our bread and butter.”
This rebuilding and revitalization approach will remain a key part of InterRent’s long-term growth strategy, the new CEO said. But in recent years, the REIT has also begun to partner with developers on new projects, such as Trinity Development Group’s plan to build three mixed-use towers at 900 Albert St., across from the Bayview LRT station.
Cutsey says he senses a new will among governments at all levels to cut red tape and make it easier for builders to get multi-family developments approved and built as Canada grapples with a crisis persistent housing affordability.
Clearly, he wants InterRent to play a leading role in what he hopes will be a new boom in rental construction.
“You need the private sector to be involved and as a public company we want to be part of the solution,” he said.
“We want newcomers to be able to continue to come to Canada and contribute to the growth of our country. So we have to understand the housing part. Tighter rent controls won’t get you there. What will get you there is a new offer.
Transformations of office buildings
The Bishop’s University economics graduate – who spent years working on Bay Street as an equity analyst and head of real estate investment banking at Dundee Securities before joining InterRent – also sees a new way forward. growth in the transformation of aging Class C commercial buildings into residential properties.
To that end, InterRent purchased the Trebla Building – a 50-year-old, 11-story office complex at 473 Albert St. – in 2019 for $21.8 million.
The REIT has spent the past two-plus years converting the outdated structure into a mixed-use building that will feature more than 150 rental apartments as well as nearly 4,000 square feet of retail space on the ground floor. Cutsey said the first suites should be ready for occupancy before the end of the year.
“We’re really excited about this,” he said. “You are not adding to carbon emissions and providing more homes on the market.”
After adding a record total of over 1,800 suites to its portfolio in 2021, InterRent now manages over 12,000 apartments in the National Capital Region, Southern Ontario, Montreal and Vancouver. The REIT’s overall occupancy rate has fallen from around 91% in 2020 to 95.6% last year, almost the same level as before the pandemic.
Cutsey is confident the rental market has taken a turn as immigration intensifies, students return to in-person classes and tech hubs, with their steady influx of well-educated young professionals, continue to thrive. .
“I think everything is going in the right direction,” he said. “I think we have a very bright future ahead of us.”