Bob Dhillon- Mainstreet Equity

On the Canadian Equities podcast by Acumen Capital Partners, Bob Dhillon President & CEO of Mainstreet Equity shares his thoughts on real estate in Western Canada. For the full length version of the Canadian Equities podcast connect with us at acumencapital.com/podcast.

Transcript

0:01

Welcome to Canadian Equities, a short biweekly podcast series, where we speak with top business leaders and hear their perspectives on the industries in which they operate for the full length version. Find our link in the podcast notes or connect with us at acumencapital.com

Moderator 0:17

I'm your host Robert Cooper today. I'm pleased to be joined by Mainstreet equity founder. Bob Dhillon Mainstreet has pursued a value investment style buying up lower middle market multi-family housing in Western Canada. And with some value added renovations, they've been able to increase the value. Refinance and reinvest the capital into other opportunities. The result is that since 2000 Mainstreet has returned almost 20% annually, nearly double the rate of the TSX and 20% better than the S and P 500 Bob Dhillon. Welcome to the podcast.

Bob Dhillon 0:49

Thank you, Mr. Cooper, always a pleasure talking to you, and I'm a big fan of acumen.

Moderator 0:54

So Bob, if you've done dozens and dozens of acquisitions and from the outsider's perspective from that of an investor, All we get as a news release. And it says we bought a hundred units in X city for X dollars, but obviously there's a lot more work that goes into that. And investors never really see how the sausage is made. So can you discuss the anatomy of a typical main street deal, how it starts, what you look for in due diligence and then take it all the way to closing.

Bob Dhillon 1:22

So let's look at macro fundamentals than me. Look at micro. First of all, we pick the right city. So in my mind, Winnipeg, Calgary, Edmonton, Saskatoon, Regina Abbotsford Surrey, new west chiller rock. We're in Kamloops, Penticton, Vancouver island, all great cities in Canada where there's opportunities. So macro fundamentals. So let's look at what are some of the macro fundaments I'm going to just I'm not going to go into the big cities, but I just. Pick on Kamloops for one second is the total supply in Kamloops is less than 4,000 apartment units. The total a university student base is 14,000 out of which 4,000 are foreign students. Supply demand imbalance. So I won't dwell on it too much. These are the things we look for where there's going to be more demand than supply, so would push, rents up then, but then we look at geographic locations within the city. So let's look at the ice district in Edmonton. So that's down to four people for the audience who are not familiar with the ice district. It's like the downtown. Of Edmonton, which was going to transformation around 10 years ago. What do I mean by transfer transformation? It has three LRT lines, three universities. New arena, museums, entertainment, district hotels. So they're transforming the Kate's group did with the help of the city and other investors and infrastructure and the universities and colleges did transformed downtown Edmonton and downtown Edmonton, or the ice district had a lot off. Mid-market add value apartment building. So if you go into my website and you go look at the ice district map, we consolidated downtown Edmonton, and we have approximately 5,000 apartment units in downtown Edmonton. So we look at the macro fundamentals that we look, we focus on the geographic platform in each city, and I use the ice district as an example, then we look at the asset. So when we look at the asset, you say, okay, Can I add value through mainstream value chain? We reposition the building. We renovate the units. Can I increase the top line revenue by 30 or 40%? We underwrite based on if we can increase the top line revenue by 30 to 40% otherwise we don't buy the asset. So then we tie up the asset. Okay. One thing. I've got to let you know, I've been doing this for like over 20 years and we have the deal flow and we have an acquisition team, which is the best acquisition team you could ever think of globally. I think we get the best team and we go out there. And so a typical nuts and bolts of it. We do a roof report, mechanical environmental structural underwrite, market comps budget, our cap ex we do, we've got a whole check-off list on due diligence. And what the complex is going to look like, and everything checks out. We buy the asset and it goes into the, goes to the transformation stage, which takes 18 months. Okay. After it stabilized, it goes into the bucket one, no stabilize, a bucket, which is usually 90 to 92% of her assets. And we got 8% of her assets, which are unstabilized as going through repositioning because we only buy buildings that we can add value to.

Moderator 4:50

So that's great. Bob if you had one misconception about the real estate business or one clarification that you would pass on to outsiders looking at the business, what would it be?

Bob Dhillon 5:03

That's the toughest question anybody's asked me, Robert. I think the transition on real estate has become from individual ownership. Individual pride ownership to institutional. What I mean is a up in Canada, you saw family owned grocery stores at every corner or every second corner. And that is all now seven 11 or one of these franchises to neighborhood grocery stores, to Safeway, to mom and pop hotels to Ramada. And you saw all these franchises and institutional branding and that's, what's going to happen the last. Family owned entrepreneurial business and the transition is going to go institution and that's happening as we speak. I think that's one misconception that a lot of people that. At far away, maybe missing, what's going to go on in the ownership. And the residential market is going to all become branded. It's going to become like holiday Inn express. You're going to have 5, 6, 10, big companies owning. And that's also happening in residential real estate in USA that you will be, which I wouldn't have expected where it's. Residential homes are becoming an investment vehicle for big publicly traded companies. So I think that may or may not happen in Canada, but that's definitely going to happen in every segment of real estate. That's going to be owned. You wouldn't know who would be owning it behind the wheel.

Moderator 6:34

Bob Dhillon. Thanks for spending time with us today. Note that this podcast is not making an investment recommendation on any companies discussed. We welcome your comments on today's episode or any other episode. Connect with us at Acumen Capital dot com.