Private apartment REITs are an all-weather strategy

In a period defined by an evolving trade war, heightened political risk, and subdued economic growth, investors are looking for sources of stable income. Private real estate investment trusts (REITs) focused on rental apartments are one solution, offering an “all-weather strategy” ideal for navigating a range of market conditions, says Geoff Lang, SVP, Business Development at Equiton. 

For instance, the rising interest rates and inflation of recent years were a cause for concern among many investors, he says. But as inflation carved into their traditional investment returns, rental income continued to grow — underscoring private REITs’ utility as a hedge against market forces and a smart tool for diversification. 

“We’re tailored for those long-term investors who can ride on multiple market cycles and want that monthly tax-efficient income over time.“

“With interest rates continuing to decline, your average GIC rate is around 3.5%.* That just isn’t enough income for many investors,” says Lang. “At the same time, volatility and inflation can take a chunk out of publicly traded dividend-paying stocks and fixed-income assets that usually pay a little more. That’s when investors start looking at private REITs, which offer both stability and generally higher income.”

Lang notes the three key benefits of private apartment REITs: reliable, tax-efficient monthly income, climbing rental demand, and the opportunity to invest in a tangible asset. Here’s what they can mean for investors.

1. Stable tax-efficient income

While there are as many types of private REITs as there are property types, those focused on Canadian rental apartments  are often seen as the “gold standard” for stability, particularly among institutional investors like pension funds, says Lang. Private REITs offer investors shares of a portfolio of apartment properties, which can be diversified by location, age, and so forth, and typically pay monthly distributions via rental income.

When it comes to tax efficiency, private REITs may classify distributions as return of capital (ROC), which effectively allows investors to defer taxes on those returns until they sell the investment. “As we know, this is better than dividend income, as well as interest income, like a GIC. So, it’s very strategic for clients looking for tax-efficient cash flow,” says Lang. “It also benefits those with a longer investment horizon, allowing them to reinvest the full amount of their distribution.”

2. Ongoing demand

Canadians will always need a place to live; that’s why there’s ongoing demand for rental units across Canada, says Lang. As well, Canada has experienced historically high levels of population growth, adding further pressure on housing.

In fact, “rental market conditions across Canada’s large urban centres remained tight,” according to the Canada Mortgage and Housing Corporation’s fall 2024 rental market report. Further, rents increased by 23.5% when units turned over. 

“When you have occupied properties,it signals a healthy rental portfolio,” says Lang, adding that Equiton’s Apartment Fund has an occupancy rate of nearly 98%. Compare that to Canada’s national occupancy rate, which has hovered around 96% in recent quarters, signaling intense pressure in the rental market.

3. A tangible asset

“Canadians just love talking about real estate, and it’s fairly easy to understand,” says Lang. Still, not everyone wants the headache of becoming a landlord, he adds, which comes with the responsibility of acquiring properties that have the potential to appreciate in value, collecting rent from tenants, doing renovations, and taking calls late into the night. 

“Canadians have realized that it’s very onerous,” he says. “We see many mom-and-pop style owners divesting their properties and making their lives easier with well-run private REITs.”

He emphasizes that when investors own shares of a private REIT, they become direct owners of tangible real estate investments. “Investors love being able to visit the properties, to drive by and see them. It’s just like owning a building yourself,” says Lang. “The difference is that someone else is managing the property and you can go home smiling at the end of the day.”

Private REITs play a bigger role as investor needs evolve

The traditional 60/40 portfolio split no longer offers the same mix of growth, stability and income it was once known for, says Lang.

“It’s now more of a 50/30/20, where that 20% is allocated to alternatives providing alpha or income stability, depending on their goals,” he says. “Private apartment REITs offer a kind of buffer between the two. You get a mix of appreciation of the properties — your alpha — as well as that income stability, which comes from collecting rent and distributing it to unitholders.”

That said, Lang notes that careful consideration must be given to choosing a private REIT that’s right for one’s clients.

“It can be difficult choosing which REIT is the best, which one is the safest for their clients,” says Lang. “Making sure the company is implementing a corporate governance strategy before allocating is a must.”

To start, suggests Lang, ensure the fund manager has audited financials available on its website, is being as transparent as possible, has an independent board, and operates like a public company — even if it’s private. Lang adds that private REITs are well suited toward long-term investors with a three- to five-year hold. 

Equiton’s Apartment Fund is one such investment solution that targets 8% to 12%, net of fees. This includes 6% in monthly income and 2% to 6% in capital appreciation, explains Lang. 

“We’re tailored for those long-term investors who can ride on multiple market cycles and want that monthly tax-efficient income over time,” Lang says. “Private Canadian apartments haven’t had a negative year in over three decades, making them a great choice for this kind of investor.”

Click here for more information on Equiton’s Apartment Fund. 

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Accessed 4/23/2025