In the late 1980s, the heyday of Donald Trump, real estate was a glamourous business, one that held great appeal for impressionable young men such as Bob Dhillon. “The industry was simply magical,” he says.
Initially, the 19-year-old Calgary native just wanted to make money, and the timing was right. “Calgary was going through a rough patch, much like the United States was a few years ago,” he says. “We were in the midst of the biggest recession Alberta had ever faced, and an oversupply of real estate had led to lots of boarded-up homes. So I started fixing up and flipping homes.” Little did he realize, his small acts of beautification and rehabilitation would eventually lead to the revitalization of whole neighbourhoods and new opportunities for Canada’s middle class.
Hooked on real estate, Dhillon soon began flipping larger residential buildings and, in doing so, discovered a niche. “I’d like to say it was driven by market research and strategic planning, but that wouldn’t be true,” he says. “I simply stumbled upon a unique situation—apartment buildings that were (a) 30–40 years old and needed some TLC, (b) owned by fragmented mom-and-pops, making them in need of professional management, and (c) entire multifamily universe trading below replacement cost.”
By The Numbers
Increase in Mainstreet’s 10-year cumulative return
Consecutive quarters of growth in Mainstreet’s net operating income and funds from operations
Total units under ownership and management
Value of assets under ownership and management
Annual increase in rental revenue from continuing operations in the third quarter of 2013
Number of units acquired in 2013, as of October of that year
By consolidating a position in that market, Dhillon realized, he could build an empire. So, in 1999, he founded Mainstreet Equity Corp., a real estate owner and asset manager focused on acquiring and repositioning undervalued properties, renewing them to a higher standard. “There could be any number of reasons for the problem, but the end result is the same: a distressed asset that can be improved and turned into a revenue stream,” Dhillion says.
All in all, Mainstreet Equity—which began listing on the Toronto Stock Exchange in 1999—is doing quite well. By focusing on the acquisition of underperforming assets and generating substantial value for its organic growth through capital improvement and operational efficiency, it has grown its multifamily-residential-property portfolio from 272 units to 8,500 units (including the acquisition of 654 units for $66 million in 2013 alone). It has also expanded its market platforms from Calgary to Edmonton, Saskatoon, Toronto, and Abbotsford and Surrey, British Columbia. Additionally, it has increased the market value of its portfolio from $17 million to $1 billion, with limited equity dilution. Rental revenue was $1.8 million in 1998 and, at the time this article was written, was expected to exceed $70 million by the end of 2013.
“We’re offering a product that is otherwise nonexistent,” Dhillon says, explaining that his methodology involves providing a higher level of quality and service, from design to maintenance to cleanliness to security. “Sometimes a nice, well-priced product is all you need.”
Price, quality, and service? The conventional wisdom says a business can’t do it all, but Dhillon begs to differ. “Eighty percent of the total universe of apartment buildings in Canada is in the midmarket apartment space, and the institutional capital is chasing the other 20 percent, which leaves an opportunity to buy right in the midmarket,” he says.
Today, Dhillon’s efforts are about more than money; he and his management team at Mainstreet Equity pride themselves on improving the lives of middle-class Canadians. In addition to doing that building by building, they’ve taken their efforts a step further to do it neighbourhood by neighbourhood. “Once we get a toe into a community, we try to transform the whole community by buying many buildings,” Dhillon says.
Currently, the company is transforming Edmonton’s Arena neighbourhood through the rehabilitation of 80 buildings (totalling 2,266 units). “The situation reminds me of the time in the United States when you’d drive down a highway and see hotel after hotel, all owned by one individual,” Dhillon says. “Now it’s all superchains, and a similar transition is occurring in the western Canadian apartment market, in part as a result of our efforts.”