Unlike some real estate funds that invest in publicly traded securities, the funds managed by Ralf Dost invest directly in a mix of commercial, retail, industrial and multi-family residential properties.
"We look for institutional quality assets in major urban centres that offer long-term stability of cash flow, a broad pool of tenants and liquidity opportunities in the future," says Dost, executive vice-president of portfolio management and finance for Great-West Life Realty Advisors Inc.
Based in Toronto, Dost oversees three segregated retail funds with similar portfolios -- the $290-millionGWL Canadian Real Estate (G) A, the $213-millionGWL Canadian Real Estate (G) B and the $649-millionLondon Life Real Estate -- as well as the interests of institutional clients. In all, he manages some $7 billion in real estate assets.
"Real estate provides a valuable role in portfolio diversification, due to low volatility, steady returns and favourable correlation to other asset classes such as stocks and bonds," Dost says. He also notes that fund investors have daily liquidity through the purchase and sale of fund units, a feature they wouldn't have if they actually owned properties.
In analyzing properties, Dost looks at location, quality, occupancy levels, and the nature of leases. There is also a small component of land development activity in the portfolio, but all development projects are conservative and involve pre-leasing deals with future tenants.
Properties are concentrated in seven major urban centres -- Vancouver, Calgary, Edmonton, Toronto, Ottawa, Montreal and Halifax. In smaller, secondary markets, the most attractive properties tend to be retail, Dost says, since the market is not deep for office or industrial space.
"Real estate is a bit lumpy in terms of opportunities to buy, and although we have a diversification strategy, we also look at the opportunities out there," says Dost. "We may want a shopping center in Quebec to balance the portfolio, but if an industrial property in Ontario comes up, we will look at that. We are top-down investors in terms of diversifying by asset mix and geographic location but we are also opportunistic in terms of what becomes available."
Dost has been lead fund manager for real estate funds since he joined GWL in mid-2000. Previously, he was senior vice-president and chief financial officer for CIBC Development Corp. for 11 years. When the bank decided to divest its real estate assets in 2000, GWL acquired a significant portion of the portfolio and also hired Dost. "I was a chattel that went with the properties," he says.
Originally from Kitchener, Ont., Dost studied business at the city's Conestoga College before moving to Toronto in 1979, where he began working for a small soybean subsidiary of Procter & Gamble Co. while earning his Certified Management Accountant (CMA) designation.
He entered the real estate business when he joined the Cadillac Fairview Corp. accounting team in 1980. It was a time of big deals and exciting growth, and he worked his way through a number of senior financial positions in Canada in the U.S. over the next eight years before joining CIBC in 1989.
The funds managed by Dost have lagged the returns of some of their competitors in the Real Estate category. For example, for the five years ended Jan. 31, London Life Real Estate showed an average annual gain of 5.7%, compared with a median gain of 5.6% for Real Estate segregated funds and 14.6% for Real Estate mutual funds.
But Dost says the goal is to achieve predictable cash flow and a steady return with low risk. The maximum loan-to-property-value ratio is 35%, and currently the debt level in the portfolio is about 26% of property values. The portfolio has 56 properties across Canada.
Properties are acquired for the long term, and Dost does a 10-year analysis before buying. Every building has a business plan and an exit strategy. He may sell before 10 years if there is an opportunity to upgrade the portfolio, if an asset has "peaked out" or if something has changed in the market, such as the construction of new, competing buildings.
"We turn over about 5% to 10% of our assets every two or three years," he says. "But we'll sell sooner if we see an opportune situation. Sometimes we can add value by repositioning a building and selling quickly."
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