Investment Basics

The Canadian REIT scene has received a lot of attention over the past decade. The sector has remained stable and profitable, and has avoided many of the shocks experienced in other markets during the recession. Real estate investment trusts are in a unique position: capital pooled to share risk, and a management team can actually improve the value of the asset in order to generate more revenues and therefor more payouts to investors.

So, it's no surprise that the leadership - the asset manager - plays a key role in reducing risk for investors and enhancing value. The asset manager is essentially the CEO of the REIT, and hire the staff such as acquisition manager who oversee various properties and who look after the daily operations of the trust. The asset manager is responsible for setting the strategic direction of the REIT, and this means constant focus on ensuring asset diversity in order to mitigate risk in an ever-changing environment.

Asset managers must be seasoned industry professionals who know all the ins and outs of the real estate market. Ideally they will have knowledge of commercial, industrial and residential properties, and how to increase the value of those properties by adding services, or by finding the right tenant. While these managers receive quarterly performance incentives, they also are governed by the REIT's Declaration of Trust, which provides yet another tool to mitigate risk for this unique investment vehicle.

The Declaration of Trust is a key document. By examining it, potential REIT participants can determine everything about the trust's policies: the criteria for purchasing and selling properties, the REIT's maximum debt capacity, as well as other obligations and restrictions. As a final safeguard, these trusts must conform to strict securities regulations. Yet it's really difficult for these syndicates to fail. Not only is there the benefit of a bricks and mortar investment, the goal is increasing the value of the property and therefore the rents, which means higher payouts to investors. These are all reasons why real estate investment Canada has prospered during the past few years.

Bob Kawasaki frequently writes on real estate investment Canada, with a special focus on Canadian REIT.