A lot can happen in two years’ time. No one knows this better than Rai Sahi, Morguard’s Chairman and CEO. Since 2012 his company has enjoyed an immense growth spurt, becoming one of North America’s leading, fully-integrated real estate organizations with more than 1,450 dedicated employees and an owned and managed portfolio valued at $15.1 billion. (In 2011, the real estate portfolio was valued at $11.2 billion, a 35% increase.)
Morguard Corporation manages its own portfolio while also investing and managing on behalf of third-party institutional and private real estate investors. Strategically it focuses on high-quality properties and a diversified asset base, and has built a broad and efficient platform in North America.
So how does a company manage to achieve such continuous growth, never faltering from its upward climb? A lot of it comes down to strategic planning and intelligent leadership—and being in the right place at the right time.
Paul Miatello, Chief Financial Officer, has helped oversee Morguard’s growth for more than a decade. A Chartered Accountant by designation, Miatello acknowledges that one of the main strengths of the organization is the fact that it has multiple pools of capital to draw from.
“We benefit from a very flexible financial model; one where Morguard can source capital in a variety of ways,” said Miatello. “Morguard itself generates significant annual cash flow from its properties and from its advisory services business. In addition, the two REITs in which Morguard Corporation owns significant interests are able to access capital from the public markets. As well, we have the responsibility and privilege of investing and managing assets for our clients”. As of December 31, 2013, Morguard was managing almost $8 billion of assets on behalf of pension fund clients.
Morguard operates two REITs : Morguard REIT and Morguard North American Residential REIT—the first, a publicly traded, closed-ended trust comprised of a high-quality portfolio of commercial real estate properties across Canada valued at $3.0 billion; the latter, a publicly traded, open-ended trust with a portfolio of residential real estate assets in both Canada and the U.S.
“Morguard REIT owns Canadian office, retail and industrial properties, which was a natural complement to the group at the time it was launched,” said Miatello. “Now, further to that we have the dedicated multi-residential REIT, which we successfully took public in April of 2012.”
Morguard North American residential REIT
Initially the apartment REIT’s properties included interests in more than 5,400 residential units across Canada and the U.S. Today, its portfolio consists of 12,850 residential suites located in Ontario, Alberta, Alabama, Colorado, Florida, Georgia, Louisiana, North Carolina and Texas valued at $1.6 billion.
“A few years ago, we started to evaluate options for our multi-residential portfolio,” reflected Sahi. “We realized that the timing was right and the capital markets viewed the multi-unit residential asset class very favourably. We had a strong portfolio to sell, a great story to tell and a reputable brand behind it. So it was a pretty natural fit to take these assets out of Morguard Corporation and vend them into a pure-play dedicated apartment REIT.”
Morguard designed the REIT so that it could accommodate a large portion of its asset base in each of Canada and the U.S. Considering the landscape of the Canadian market, Sahi pointed out that the cross-border approach was very unique, strategically giving Morguard an advantage. It meant that if acquisitions remained tight in Canada, the REIT would be able to toggle its effort the U.S. Alternatively, when things tightened up in the U.S., it could refocus its efforts on expanding in Canada. And this proved to be true.
Currently the REIT’s portfolio, by value, is now evenly split with approximately 50% residing in each of Canada and the U.S .This is a major shift from the IPO, when only 5% of the portfolio was located in the U.S. Sahi noted that this shift is a result of the sheer volume of opportunity and the better capitalization rates offered in the U.S. versus the smaller market, much higher pricing, and increased competition in Canada.
Apartment investment outlook
Morguard Corporation’s apartment strategy differs from that of the REIT. The REIT’s U.S. focus is on garden style, two- or three-storey complexes primarily in suburban markets and on high-rise buildings across Canada. Morguard Corporation’s strategy is to pursue opportunities to buy or construct buildings in highly urban environments.
Times have changed in the rental world with the trend moving toward luxury, purpose-built rental apartments, especially in cities like Toronto. Morguard is at the head of this trend in Toronto with the construction of The Heathview. “We expect strong demand for purpose-built rental product in this market,” said Brian Athey, VP Residential, Canada at Morguard. “The Heathview is the first new development in mid-town Toronto to provide an alternative to condos in a prime location with historically low vacancy rates.”
With Toronto’s strong rental occupancy profile resting above the national average and a young workforce driving demand, The Heathview’s two 30-storey towers feature studio, one, two and three bedroom luxury designer suites ranging up to 2,400 SF answering an untapped need for large and small units in short supply.
The Heathview rental office is now busy renting suites in the North Tower for summer 2014 occupancy. The Heathview is a LEED Gold Candidate currently pursuing certification by the Canada Green Building Council.
“You have to put your best foot forward, provide excellent customer service, maintain the physical condition of your assets—not just mechanically and structurally, but the grounds and landscaping as well. Today it’s all about enhancing the tenant experience,” Athey added.
In Chicago, Morguard saw green with the opportunity to acquire a newly-built LEED Gold Certified, 848 suite, high-rise residential rental complex, Alta at K Station. When certified in 2011, Alta was the largest apartment building in the U.S. to have earned LEED Gold certification from the U.S. Green Building Council. Green building practices implemented at Alta include recycled building materials, a green roof, maximized natural light in each unit, and an advanced standard for indoor air quality.
John Talano, Morguard’s U.S. Vice President responsible for all operations, redevelopment, property and asset management in the U.S., is focused on the unification and streamlining of apartment operations centered on ease of access, superior service and developing a true sense of community. Based in New Orleans, Talano shed some light on what makes Morguard’s U.S. approach so effective.
“We focus on first impressions and then follow through,” he said. “Our dedicated management team works to operate our communities much like a four star hotel.” Talano cited Morguard’s new online resident portal as an example of how the company is investing in technology to provide better access for residents as well as prospects. “We are working hard to not only to provide the best possible living experience but also to help reduce some of the stresses of moving”. “The online resident portal will allow new residents to find their apartment, apply, sign a lease, view history, pay rent, submit work orders and provide feedback, all from a mobile device with almost no duplication of efforts.” The portal will also streamline several processes to allow Morguard staff more time to focus on its residents with enhanced services. By streamlining our processes, Talano explained that Morguard is better able to concentrate on the people and the property.
“Relationships and the living experience really are the main drivers of success for an apartment community.” This, he said, coupled with a qualified team creates a greater sense of community and reduces apartment turnover which can have a significant effect on operational efficiency.
Morguard applies this operational and property management expertise to its own residential portfolio and it’s third party managed residential portfolio. In all, Morguard manages more than 18,000 suites across North America.
Vision drives success
When Rai Sahi formed Morguard Corporation in the late 1990s, he’d just completed the sale of Acklands Limited, an auto-parts distributor, for $400 million. At that time, Sahi (who came to Canada from India in 1971), had his sights set on real estate. After acquiring interests in several Canadian public and private real estate companies and acquiring a management services platform, Morguard entered the U.S. with the 2006 acquisition of Sizeler Property Investors Inc., a public real estate investment trust. In 2007, Sahi bought controlling interest of Clublink, the largest private owner and operator of golf courses in Canada
Today, Sahi remains the major shareholder for both Clublink Corporation and Morguard, which he’s described in the past as “a family-oriented business with a responsible work ethic.” Sahi has been open about his affections for his dedicated staff—how through their diligence and hard work the company has seen enormous success. Case in point: In 2013, Morguard’s professional team won an unprecedented 18 industry awards, as well as being recognized by Thomson Reuters with two prestigious Gold Awards as one of Canada’s Safest Employers. It also received a Thomson Reuters Lipper Fund Award for the Morguard-managed CIBC Canadian Real Estate Fund.
But according to Miatello, it is Sahi’s entrepreneurial nature that truly makes the difference. “While the organization as a whole is very disciplined, Rai’s entrepreneurial spirit and drive are ingrained in our staff and in our decision-making processes,” he said. “We are able to be nimble, and have the financial flexibility to structure large, complex deals.”
“The last two years have seen dramatic growth. We have a commitment to focus on management of the owned and managed portfolio and to enhance the properties to achieve future value,” Miatello added. “Knowing when to buy, knowing when to be disciplined and cautious, and knowing how to apply best practices in asset and property management has been a huge part of our success.”
