John Courtliff is partner, managing director and portfolio manager of ICM Asset Management.
Tell me a little bit about ICM Group. Its history, who you are and what you do?
Courtliff: ICM Asset Management is a firm that offers investors varying opportunities to invest in what are known as alternative investments. These include real estate, private equity, private debt and other investments that are less volatile than and have lower correlation with stock markets.
ICM’s founder, Bruce Timm, is a native Calgarian but initially founded the firm in Munich, Germany, in 2003 after having managed North American real estate investments for wealthy German families for a dozen years. He continued to manage ICM from Munich until 2010, when he moved his family back to Calgary and began positioning the company for growth.
Believing that ICM could be a great success, I joined the company in 2011 and was tasked with establishing and growing the company’s Canadian operation. When I joined ICM, I was the fifth employee in Canada and the first on the investment side of the business. We now have over 30 amazing people in our Calgary office and nearly 40 company-wide.
While our German clients continue to be substantial to our overall platform, we’ve been successful in more than doubling the size of the company’s investment portfolio since we first began raising money in Canada in late 2012.
We currently manage over $750 million of predominantly real estate assets in Canada, the United States and Mexico, and have over 5,700 clients across Canada. Every one of our clients invests with us in the belief that we can help them preserve and grow their wealth, which is something that we have been very successful at doing for both our German and Canadian investors for over 15 years now.
Our success stems from our belief that if we invest in things that we understand well and where we feel risk is manageable, and if we remain disciplined in that practice, that we will ultimately be successful in achieving strong risk-adjusted returns for our clients. Internally, we capture this philosophy with the phrase “Value. Discipline. Results.” It shapes our decision-making process with respect to every investment we make.
While my role at ICM has evolved over the years, it remains much the same in many respects. I’m the lead portfolio manager on our real estate investments and wear many other hats, including active involvement in establishing strategic direction of the firm and our investment themes, sourcing quality investment opportunities and supporting our capital raising initiatives.
The most significant addition to my role over the last few years has been to, along with my partners, ensure that we absorb the growth that we’ve experienced without changing the culture and philosophy of the firm that’s the foundation of our success. In that respect, I’m proud that we’ve been able to maintain ICM’s core values and resultant investment performance as we’ve transitioned from being a small firm to a larger and rapidly growing organization.
What projects do you have on the go in Calgary?
Courtliff: We have a number of real estate projects and other investments in the Calgary market, though I’ll highlight only a few.
In mid-2017 we invested in the construction of Marda Lyfe, a 135-unit purpose-built apartment building in the Marda Loop community with a strong regional developer. We are nearing construction completion and our property management team are ramping up to begin operating the building in the next few months. It’s a great project in a fantastic community and we’ve achieved greater pre-leasing results than we had believed we would when we invested in the project. We expect to hold the building for many years and deliver a fantastic apartment rental experience for the building’s residents.
We also have an industrial condo-conversion project underway in Calgary called Mayland Yards. We acquired a 50,000-square-feet industrial warehouse building located just off of Deerfoot Trail and Memorial Drive in late 2018 and are converting it into 2,000-to-4,000-square-foot bays for sale to companies looking for office space with a bay and a private fenced storage yard. We expect to start construction on this project in the spring and that the units will be delivered in the late summer.
Through our private equity group, we’ve made a couple of investments in growing Calgary companies that are beyond seed financing stage but are still too small for mainstream private equity investors to be paying attention.
PK Sound is an industrial technology firm that robotically adjusts speaker assemblies at concerts and events based on a venue’s unique acoustics. Their system is the product of choice for some of today’s largest and most acoustically demanding venues, such as Electric Daisy Festival, which draws over 100,000 attendees per day. The company’s sales are growing strongly both domestically and internationally and the company was just awarded the 2019 Readers’ Choice Award from Pro Sound Web for their Trinity 10 speaker system. We believe that they have a very bright future.
We’ve also made an investment in Nine Dynamics, an institutional-grade SaaS (software as a service) technology that provides a suite of risk management tools for public equity analysis and produces powerful market analytics with a user-friendly interface. The company has recently done a deal with a company that will give them access to a further 85,000 potential users.
We expect to continue to be active in the Calgary market in 2019, whether it be through our real estate, private equity or private debt activities.
What’s your sense of where the Calgary economy is at?
Courtliff: While we believe that the worst of the economic downturn is behind us, our feeling is that Calgary’s economy will remain challenged during 2019 and possibly beyond.
Public policy that has contributed significantly to persistent supply bottlenecks and discounts for less-refined product continue to mean that the commodity prices achieved by Alberta producers are well below those seen in much of the decade prior to 2015.
The strong growth during that period, when such factors were not providing headwinds, saw both Calgarians and Calgary companies become accustomed to large volumes of privately-funded capital projects that drove wages ever higher and encouraged residents to spend significant sums on both needs and wants.
Coming back down to earth has been painful and may continue to be for another period of time. We are big believers in Calgary’s long-term future but feel that the next few years present a period of material uncertainty.
What are the company’s future plans for the Calgary market?
Courtliff: Our belief in the trajectory of the economy is shaping our investment activities in Calgary. Our property investments will be restricted to especially compelling situations locally, focusing on opportunities in submarkets that we believe are resilient and where meaningful value can be created through the execution of specific strategies. We will not be buying property under the broad assumption that occupancy and rents are likely to rise meaningfully in the coming years, for example.
From a real estate equity perspective, we will be more keenly focused on deploying capital in markets south of the Canadian border.
With respect to our real estate lending platform, we feel that more local opportunity exists for us. Ironically, this is in part borne out of our own feelings with respect to the economy also being held by other investors. While we will remain focused on specific projects in specific submarkets, we feel more comfortable investing from an improved position in the capital stack and expect to be quite active over the coming years.
Our private equity activities, while focused in Alberta, will be focused almost exclusively on companies with revenue streams that are multinational or global in nature. So as to not sound too bearish, this has as much to do with wanting to invest in companies whose target market is larger than that of only Alberta, or Canada for that matter. We‘re encouraged by the growth and diversification in technology-focused businesses and we hope that the most successful of these will remain in Alberta.
Why has the multi-family market become such a popular housing trend in Calgary for consumers?
Courtliff: This could be the topic of a long essay. Our feeling is that this trend is a combination of several factors. At a national level, erosion of affordability resulting from rising interest rates and changes to mortgage rules is certainly playing its part. Another national/international trend is the continued migration towards larger metropolitan areas and urban environments therein. Despite the economic downturn in Alberta, for example, the populations of Calgary and Edmonton continued to grow.
Broadly speaking, more people will inherently result in higher density over time. In Calgary, this has been supported by municipal government policy focused on driving development into more urban areas over the last decade, which will have certainly contributed to the trend also.
That we’re not alone in having seen significant development of new purpose-built apartments over the last five or so years, however, suggests that greater forces are at work. In all cities, Calgary included, demographics and changes in preferences are playing the most significant role in driving this trend.
The millennial generation is the second largest cohort of Canada’s population and are at the stage of their lives where home ownership, irrespective of affordability, is a lesser priority to being at the centre of the action. This is further exacerbated by the multi-decade global trend of young people settling down and starting families later in life.
Combine that with the fact that much of the millennial generation would have recently moved out of their parents’ home for the first time, which itself is contributing to the trend of shrinking household size and more numerous households.
Lastly, the rise of adult-living multi-family properties, not including the growth in more traditional seniors housing, suggests that higher density living appeals to more than just the millennial generation. All told, numerous demographic ingredients align to support the recent strong growth in multi-family housing.
In some respects, it may also be that the trend is becoming a bit self-fulfilling. Very few purpose-built apartments were constructed in Calgary between the 1980s and 2014, with others being converted to condos in the 1990s and 2000s, which meant that the options available to would-be renters have been both limited and less desirable.
As new properties with high amenities have been built and have positively impacted residents’ quality of life, it encourages people to continue to live the lifestyle that such buildings afford them, whether by continuing to rent or acquiring a condo unit in a similar building and area.
As the vast majority of condo/apartment buildings in Calgary and other North American markets are one and two bedroom, an interesting question is arising about whether millennials will continue to choose multi-family living over single family homes as they begin to have one or more children.
– Mario Toneguzzi for Calgary’s Business