Unpacking Nicola Wealth Real Estate’s $8.5 Billion Portfolio with Alex Messina

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Ever wonder what it would be like to be part of a billion dollar plus portfolio of real estate and where and what you would buy?

This week Cory and Matt welcome Alex Messina, VP of Acquisitions for Nicola Wealth Real Estate which oversees over $8.5 billion dollars’ worth of some of the best real estate in North America.

From a growing self-storage portfolio to ground up development Nicola Wealth is involved in it all and to hear their strategy and where they are most excited about for 2023 is a must listen to event.

Tune in as Alex highlights some of the key focus points that have guided their portfolio over the past couple of years and where they see things head in 2023 and beyond. It’s a rare opportunity to hear firsthand from someone like Alex who has contributed to Nicola’s massive success over the past decade. Not just in BC, but all-over North America.

VP of Acquisitions, Alex Messina, sits down with us to share what makes a good deal, where the market goes in 2023, and how Nicola Wealth Real Estate has grown an $8.5 billion portfolio and counting!  

What is Nicola Wealth Real Estate? 

Nicola Wealth Real Estate is the in-house firm for Nicola Wealth Management, which is a Vancouver-based financial planning and investment firm, managing $13 billion in client capital. The real estate team has an $8.5 billion real estate portfolio across North America and across many asset classes. We cover a lot of ground buying assets on our own and with partners. 

What areas and asset classes does Nicola Wealth Real Estate operate in? 

We have quite a diverse portfolio in Vancouver where we’re based. We have office, industrial and a self storage brand called Advanced Self Storage. We have eight locations of Advanced Self Storage in BC and one coming in Ontario. It’s an asset class we really like and are looking to expand in.

We’re also looking to build up our multi-family projects in Vancouver and Victoria. We currently have 2,100 units in the pipeline.

Outside of BC, we have assets in Calgary (mostly industrial), Winnipeg (mostly industrial), and a large portfolio in Ontario (industrial and creative office).

In the US we own 20,000 residential rental units, mostly in the south and south east where there are no rental controls, great population growth and great job growth. So that would be markets like Houston, Dallas, parts of Florida, Atlanta, Raleigh, etc.

On the industrial side in the US, we’re mostly focused in Seattle, Denver, Phoenix, Las Vegas, Dallas and Minneapolis. We’re buying existing product and building new product.

How have you approached the last three years of uncertainty? Have you had to pivot?

A few years ago, we made a conscientious effort to change our fund composition and focus on three main assets:

• Industrial
• Multi-family rental
• Self storage

That played out very well during the pandemic. There was strong demand for all of these asset classes.

We don’t own a lot of office product, in fact we own no high-rise office product, and that’s by design. We see greater demand for low-rise, flexible office space. Coming out of the pandemic, we’ve seen the demand for office shift with the emerging work from home trend.

For us, it’s all about fund composition and being in the right market. Going forward, that strategy is prevailing. As cap rates rise, the only way to offset that is with higher rental rates. We think our portfolios are really well positioned to weather the rise in interest rates and cap rates. 

What makes a good deal? 

Our preference is to acquire off-market. There’s not less competition but we’re able to shine because we’re entrepreneurial and quick to react. We want to know how the deal plays with our overall strategy and how we can add value.

We don’t acquire assets where there’s nothing for us to do. We want to find an opportunity to add value, whether it’s repositioning or even on the financing side.

Nicola Wealth Real Estate has been involved in a lot of joint venture projects. Can you tell us about some past successes and any new projects in the pipeline?

On the development side, we have two approaches:

1. Merchant Development, where we’re building to sell
2. Build to Own, a longer term plan to keep assets 

On the Merchant Development side, we’ve had great success with partners developing strata industrial. Starting in 2015, we focused on small and medium bay product. We started in Vancouver and then began working in Kelowna, Victoria and Ontario.

On the Build to Own side, we’re building rentals in Vancouver and Victoria. We have a five person team focused on key projects, such as a site we have in Mount Pleasant on Main Street. It’s a 35,000 square foot site where we’re planning to develop two purpose-built rental towers. In the interim, it’s being used as artist studios, which is a great way for us to give back to our community.

We have another great opportunity at Cambie and 7th, which will be a 10-storey, mass timber office building, and the new home for Nicola Wealth. We’re hoping to start construction towards the end of next year.

Can you tell us about your partnership on an office project in downtown Kelowna?

It’s a very exciting project we have with Mission Group in Kelowna called The Block. It’s a 12-storey office building and we’re currently at the 10th level under construction. It also has a sister project which is a residential condo tower.

There hasn’t been a lot of office development in downtown Kelowna so we see a great opportunity to create a marquis building. We’re doing pre-leasing right now and it’s gone reasonably well.

What real estate markets are you most excited about in 2023?

Canada is easy because there aren’t too many big markets to choose from. We like Vancouver for all of the obvious reasons. We like Victoria and Kelowna a lot too because of the great population growth; both have major universities, hospitals and airports, which are great economic drivers.

And we really like Toronto. It’s the biggest market in Canada and has a big industrial market, great population growth and great employment drivers. In Canada, it’s Vancouver and Toronto. We’re also looking at Montreal and will eventually expand into that market.

In the US, there’s much more choice. Being western-based, we’re more western-focused. We like Seattle – there’s a great tech talent pool there. We also really like Phoenix, Dallas and Las Vegas. They’re all large markets with great industrial opportunities, located on major distribution corridors. Even as things quieted in 2022, the leasing opportunities in those cities were tremendous.

There’s slightly different drivers behind each of Phoenix, Dallas and Las Vegas, which has allowed us to diversify our portfolio. Phoenix has seen a lot of great growth in manufacturing. We’re seeing a diversification of these cities’ economies.

Is it full steam ahead for Nicola Wealth Real Estate this year?

Like everybody, we’re tapping the breaks. We had an active start to 2022, but did most of our work in the first half of the year. Everyone expected interest rates to rise but not as fast as they did. As they began to rise, we all began to slow down.

We’ve been looking at a lot of opportunities but a lot of development groups are feeling a capital squeeze. That will further constrain new supply, particularly for multi-family rental. Therein lies an opportunity.

We want to keep our multi-family rental projects moving forward, especially as other supply gets pushed to the sidelines.

Where does inflation go in 2023 in terms of construction costs? 

We’ve seen construction costs rise quickly over the last few years. We’re not seeing a major softening in prices but we are expecting prices to level off. That provides clarity.

A lack of clarity around costs, financing, interest rates and take up values has been a huge issue in development lately. So we’re starting to see signs that construction costs might level off, but it’s early days.

For the mom and pop commercial investors, what would you be looking to acquire? What asset class and in what location? 

I really like multi-family rental. The nice thing about that asset class is that it comes in different scales. With so many new projects pausing or never starting, we will see less supply. But with new students and immigration, demand isn’t stopping.

So it’s about picking good in-fill locations in Vancouver, Burnaby, the North Shore, etc. The closer you can get to the core, the better the long term appreciation. Picking strong neighbourhoods in and around Metro Vancouver is a very safe and rewarding strategy. 

Multi-family rental is all about growth. It’s not about the existing yield you’re buying into but your ability to sustain and grow that yield.

Will Nicola Wealth Real Estate be expanding their portfolio on Vancouver Island? 

We are really focused on major markets and strong secondary markets. We have projects in Victoria and really like Victoria. We have a couple of smaller projects in Nanaimo, two retail centres and one senior housing community. That’s another great market, but it’s asset-class dependent.

For Nanaimo, our interest is mostly in multi-family residential. We also have to think about scale. If we want to keep a multi-family rental long-term, we’re thinking about 100+ units. We could also look at Nanaimo for self storage.

What are your predictions for the real estate market in 2023 and beyond? 

It was slow coming into the start of 2023 and I think that’s going to continue. We need to watch interest rates: Will they continue to level off? If they do, that allows more clarity and confidence in opportunities. If they level off by the end of the year, transactions will pick up again.

Are we heading for a recession in 2023? I think here in Vancouver we may narrowly avoid a recession because we have a diverse economic base and a lot of growth happening.

We also have to factor in the capital squeeze that is happening. The nice thing about the Vancouver market is that there’s a lot of private capital and a lot of capital on the sidelines. So if interest rates level off and transactions resume, we may see a bit of a reset in seller expectations.

I don’t necessarily think prices will move dramatically. I think it will be more about moderating expectations. Sellers were used to unconditional offers and short timelines. But now buyers are more careful.

Pricing may come off 10-15% but the sky isn’t falling. There’s just so much demand. As soon as there’s clarity in the market, people will jump back in. That may result in prices not adjusting as much as some people are hoping for.

Beyond that, it’s hard to predict. I think there will be great growth in multi-family rental and rent prices due to population trends, the housing shortage and strong demand for strong markets.

The 6 Pack: Getting to Know VP of Acquisitions for Nicola Wealth Real Estate, Alex Messina 

Favourite vacation spot?

Maui, particularly Kaanapali. Before I had kids, I used to travel to more exotic places and couldn’t understand why anyone would want to go to Maui. But then I had kids and tried Maui. Turns out, it’s pretty nice!

What’s your last meal on death row?

It’s going to be a long meal! I’m Italian so I’ll go with really good pizza and Indian food.

Favourite band?

Pearl Jam. I saw them at The Gorge in Washington State and it was awesome. Great venue and great to see them in their home state.

What’s your go-to karaoke song? 

I probably shouldn’t be singing. But I’ll go with Don’t Stop Believing by Journey. I’m embarrassed to admit it!

One book you recommend? 

For something lighter, I’ll say Shantaram by Gregory David Roberts. It was recently made into a mini-series. It’s an amazing tale, but I’d encourage you to read the book first.

What advice would you give a first-time investor?

Be patient and look at things over the long run. Real estate is a long term investment; you need long term convictions and strategies. It’s not a business designed to make a quick profit.