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

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Text transcript

Geoff Lang:

My name is Geoff Lang, Senior Vice-president at Equiton.

What are the benefits of private REITs?

Geoff Lang:

The benefits of private REITs are threefold, right? So there’s stability amidst market volatility, which is what we’re seeing today in the marketplace. And, there’s always going to be demand. Everyone still needs a place to live, so that provides that stability within the asset class. So that’s number one.

Number two is that stable and reliable monthly income that’s tax efficient. We invest in apartment buildings; our residents are paying rent. So that’s that stable monthly income that our investors are looking for.

And thirdly, you own a tangible asset. There’s something to be said about owning a physical building that you can touch. We know we’re an alternative, but the stock market, you’re not actually holding anything physical. So that tangibility of the asset class is also a major benefit. So that stability, that monthly income, and that tangible asset that you’re investing in provides a lot of stability for our clients.

Discuss how private REITs can offer returns in various market conditions like volatility, a low-rate environment.

Geoff Lang:

We all know there’s various market conditions out there in the economy, both macro and micro as well. Rewind three, four years ago, interest rates are increasing. We’re in that inflationary environment, right? So, in that inflationary environment, private REITs offer stability because when rates are increasing, so, too, does the rental income. So we saw in that inflationary environment rents increasing year over year, which provides a nice return for our end investors. Now, rates have started to come down. So what happens in a lower-rate environment, we can borrow for cheaper. That helps us with acquisitions. So no matter the market economy, there’s always going to be a benefit for private real estate. And when you have occupied properties — you know, our portfolio has an occupancy rate of over 97 percent — prices tend not to fluctuate like the stock market. So that shelters that blow we have been seeing in Q1 of 2025 so far to start the year. And that’s why the asset class has become a benefit for a lot of our investors to, sort of, be that all-weather-type strategy, no matter the market conditions.

Are private REITs a good source of income for clients?

Geoff Lang:

I think why a lot of investors invest in private REITs is that stability of the monthly income. We know there’s, you know, GICs out there — that’s your guaranteed income. But as rates have come down more recently — you know, your average GIC rate is around that 3 percent — a lot of investors are looking for more income in times of market volatility. So, as I mentioned earlier, we’re collecting rent from our residents. They pay us on a monthly basis, and we’re able to distribute at around a 6 percent yield. That’s tax efficient — we’re 100 percent return of capital, so very tax efficient. And this is why private REITs are so sought after. It’s not because of the alpha, the upside benefit. It’s that stable, reliable monthly income that’s tax efficient, that can get you higher than a GIC. And, in times where interest rates are coming down and those yields are dropping, it’s important to still achieve that monthly income that investors are looking for. And that’s why they look to private REITs in times of volatility and lower interest rates.

How can advisors discuss private REITs with their clients?

Geoff Lang:

So it’s important when discussing private REITs within your client base and just, sort of, the how-to. But one thing that’s a benefit is that Canadians just love talking about real estate, and it’s fairly easy to understand. And, you speak to clients and, you know, anyone out on the street, “How’s the real estate market doing? Is it good? Is it bad?” It all gets lumped into one bucket. We’re multifamily, but it’s very easy to understand because you’re collecting rent from residents or tenants, and then you’re looking for the properties to appreciate in value. So it’s very straightforward. Collect your rent, distribute it out to unit holders, and have the assets appreciate in value over time. And, I think Canadians have realized that it’s very onerous and there’s a lot of headaches to doing this yourself. Everyone loves the idea of having multiple rental properties collecting income, but it’s very difficult, very time-consuming. And if you have a full-time job, it proves very difficult. So that’s why you outsource it to the professionals where you can hold a portfolio, a basket of apartment buildings similar to our fund; you don’t have the headaches of, you know, doing renovations and taking calls late at night; and you have that upside potential with the monthly income. But, how advisors can discuss it is plain and simple. We’re an asset class. It’s an all-weather- type strategy, collecting monthly income and looking for the properties to appreciate in value because a lot of clients don’t want the stress of being a landlord. And, to look at it at a different perspective as well, that 60/40 asset class split of 60 percent equities, 40 percent fixed income — that’s no longer the case anymore. It’s now more of a 50/30/20, where that 20 percent is looking to alternatives to either how to generate alpha or add income stability to client portfolios. So we’re kind of a buffer between the two. We’re trying to get that alpha position for the appreciation of the apartments, but that income stability, collecting that rent, and distributing it out to unit holders. So I think we fit in that nice 20 percent bucket there.