New Wave of B.C. Real Estate Development Trusts Opens Doors for Small Investors

A growing trend in British Columbia’s real estate market is reshaping how large development projects are financed. Real estate development trusts (REDTs) are enabling smaller investors to participate directly in funding major urban towers and mixed-use projects traditionally the domain of institutional investors. This emerging investment vehicle offers attractive returns but also introduces distinct risks tied to the unpredictable nature of real estate development.

What Are REDTs and How Do They Work?

Unlike conventional real estate investment trusts (REITs), which invest in completed, income-producing properties, REDTs focus on developments still under construction. They function more like private equity funds, pooling capital to finance projects with the expectation of returns upon completion and sale or lease-up. Minimum investments are typically accessible to retail investors, often starting around $10,000, making these trusts a novel way for Canadians to invest in real estate development through registered accounts and financial advisers.

Recent Success Stories in B.C.

Last fall, Vancouver-based Anthem Properties Group raised $82 million through a REDT to fund the Citizen project in Burnaby’s Metrotown. This ambitious $600 million development will include 372 condos, 200 market rental units, 73 non-market rental units, hotel suites, and retail space, anchored by a 66-storey tower at a key transit hub. Anthem offered investors a projected pre-tax compounded annual return of approximately 18% over five years, highlighting the potential rewards of this financing model.

Rob McJunkin, Anthem’s CFO, emphasized the challenge of sourcing equity amid rising costs and shifting government policies. “The REDT concept was innovative and effective for raising the significant equity we needed,” he said, attributing success to the company’s strong reputation and the project’s compelling returns.

Opportunities and Risks for Investors

While REDTs open up real estate development investing to a wider audience, experts caution that they carry higher risks than traditional REITs. Tsur Somerville, a real estate finance professor at UBC’s Sauder School of Business, explains that REDTs are subject to project-specific risks, including regulatory delays, construction uncertainties, and market fluctuations. Unlike established properties with steady rental income, these trusts depend heavily on the developer’s execution capabilities and the project’s timely completion.

Growing Interest Across Canada

B.C. is part of a broader Canadian movement adopting REDTs. Toronto-based companies have launched similar offerings for residential developments in the U.S. and Ontario, raising tens of millions from retail investors. This suggests a growing acceptance of REDTs as an alternative financing tool capable of attracting diverse capital sources.

Looking Ahead: Student Housing in Surrey

The upcoming REDT planned by North Vancouver’s Pure Multi-Family Group exemplifies the continued expansion of this model. Set to launch this fall, the $330 million “education mega centre” in Surrey city centre will provide student housing, retail, and education spaces in a 49-storey tower near Simon Fraser University and SkyTrain. CEO Steve Evans highlighted the attractive yields relative to other asset classes, while acknowledging the elevated risk inherent in development-stage investments.

Impact on Housing Supply

While REDTs may not be a silver bullet for Canada’s housing affordability challenges, they represent a promising mechanism to bring more quality rental and mixed-use housing to market. “Any financing solution that facilitates new supply will have a positive effect over time,” Evans noted. Somerville, however, remains cautiously pragmatic, viewing REDTs as one tool among many rather than a primary solution.

Conclusion

Real estate development trusts mark an innovative shift in real estate financing, bridging the gap between developers’ capital needs and retail investors’ appetite for higher returns. For those willing to accept development risks, REDTs offer a unique opportunity to invest in transformative urban projects. As B.C.’s skyline evolves, these trusts may become a significant driver of future growth provided investors proceed with a clear understanding of the complexities involved.