Market Updates & Insights

Founder & Executive Chairman’s End of Year Letter to Investors 2023

December 21, 2023

Dear Trez Capital Investors,

Another year has come and gone. It is hard to believe, this is Trez Capital’s 26th year in business.

I see opportunity on the horizon. This past year brought challenges, opportunities and a market environment reminiscent of the early 1980s. During that turbulent period, Treasury bills were at an astonishing 20% which was fueled by raging inflation. While we are not facing the exact same circumstances, it’s crucial to acknowledge the parallels and note the differences that are shaping today’s market. By doing so, an understanding of the market will arise that will allow for opportunities to present themselves.

In the current commercial real estate landscape, we find ourselves navigating a unique set of circumstances. Paired with persistently high-interest rates, investors are facing a scenario where securing funding has become more difficult, especially from the banks. However, amidst these challenges, there is a silver lining in the form of predictable real estate values and known capitalization rates. The cooling of inflationary pressures continues to contribute to the stability of the market. Notably, interest rates seem to have reached their peak. The shortage of housing units across North America presents the opportunity for financing and investing.

Looking ahead, the expectation that interest rates may decrease in mid- to-late 2024 underscored by the recent drop in the 10-year United States Treasury Rate to sub 4.0% signals a potential turning point in the real estate market.

Is history repeating itself?

It’s important to understand what the current market is indicative of to find the best opportunities. In 1979, the prime rate peaked at around 15.25% and then soared to its highest point in 1981 at 20%. Although we may not reach the extreme interest rate levels today, the issues we are confronted with today are high rates but unlike that period we are undersupplied in the residential sector. 

U.S. landscape for real estate investment

According to CBRE’s broader economic landscape forecast, they anticipated a significant impact from higher interest rates, resulting in a recession in 2023. However, the U.S. economy was more resilient than most expected, leading to an adjustment in Gross Domestic Product (GDP) growth forecasts.

Amid the prolonged higher interest rate environment, there are opportunities available for high-quality properties that meet the needs of today’s investors, home buyers and renters. The top growth markets, mainly the U.S. Sunbelt, have held strong over the past two years.

There was a drop in transaction volume across the U.S. this year. It decreased to $725 billion, compared to $800 billion in 2022, according to Urban Land Institute’s recent survey of real estate economists and analysts. It is likely that there will be a resurgence in transaction volume across the U.S., likely occurring in mid-2024. It is possible that the revival might not be as contingent on a Federal Reserve-driven reduction in interest rates as most assume. Individuals and investors are acclimating to the elevated interest rates and gradually transactions will resume despite the interest rate environment.

Tax incentives in Canada and the U.S.

In the early 1980s, because of various tax incentives, there was a huge overbuilding of residential rental properties. The tax subsidy had the aim of encouraging the development of rental housing, particularly in urban areas.

In the current market, the most significant difference is that we face a shortage of residential units both rental and ownership; a stark contrast to the oversupply witnessed over four decades ago and during the Great Financial Recession. A shortage of housing units is particularly evident in locations like Calgary where vacancies are virtually nonexistent and the U.S.  Sunbelt. Now is the time for investors to seize this opportunity.

In Canada, a new initiative was introduced this year, through the Canada Mortgage and Housing Corporation (CMHC), the Goods and Services Tax (GST) Rental Rebate which increases the tax rebate from 36% to 100% of the 5% GST amount. This is meant to incentivize the development of rental housing for Canadians. It is, however, important to note that this incentive is unlikely to be as impactful as the Multi-Unit Residential Building (MURB) program introduced 45 years ago.

Stay strategic

We see that this market presents opportunities for strategic investment. Education on the lessons of the early 1980s is key — this time, we face a shortage, not an oversupply. While rates may seem high, they are not excessive; it’s a new normal — and that adjustment was required. 

Trez Capital, under the steadfast guidance of John Hutchinson, Co-Chief Executive Officer & Global Head of Origination, Dean Kirkham, Co-Chief Executive Officer & President and John Maragliano, Chief Financial Officer & Chief Operating Officer stands strong. Our proactive management of cash, monitoring of borrowers and in-depth due diligence keep us in a favourable financing position.

We had a significant growth year in 2023. We have deep industry knowledge and expertise on our senior leadership team. The latest addition to the team is John L. Creswell, Executive Managing Director, Global Head of Capital Raising. John will lead the Toronto-based capital raising team, developing and executing the firm’s capital raising strategy across all distribution channels, including institutional, retail and private wealth, throughout all global markets. He has a proven track record of success in creating and implementing strategic initiatives to drive capital growth and attract new investors. 2024 will be another great year for Trez Capital, we know that the right leaders are in place to best serve our investors.

Our focus remains on key growth markets, striving to meet demand in thriving markets such as Calgary, Edmonton, Dallas, Houston, Phoenix, Florida and across the Sunbelt.

Finding Opportunity

Listening to market signals is crucial, and we especially hear the demand for residential units. We’ve learned from history; we have been through many different market cycles and there are many opportunities out there due to lack of supply. As we navigate these market conditions, we anticipate that rates will stay where they are into the new year. At Trez Capital, we know it is time for smart investments because strategic decisions will pave the way for sustained success.

Overall, I believe that now is the time to invest with Trez Capital. Drawing parallels to another market cycle in 1997 — when we were founded — the shortage of capital, high-interest rates and the return to stable real estate values mirror the current environment. We thank you for your trust and commitment and we look forward to navigating this landscape together.

Here’s to a successful and prosperous 2024!



Morley Greene, Founder & Executive Chairman

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