RioCan in no rush to build even as interest rates drop, CEO says
The landscape of real estate development is ever-changing, responding to myriad factors that influence when and how projects break ground. For RioCan Real Estate Investment Trust, one of Canada’s largest real estate firms, the current shifts in interest rates are just one part of a larger equation influencing their development strategy. Despite a more favorable interest rate environment emerging this summer, with the Bank of Canada lowering its benchmark rate twice already and hints at more cuts on the horizon, Jonathan Gitlin, CEO of RioCan, maintains a cautious stance towards launching new major developments.
In a recent interview, Gitlin shared insights into the complex decision-making process that determines the direction of RioCan’s investments and projects. Even as financial conditions seem to improve, with interest rates on a downward trajectory, RioCan is keeping a measured approach to starting new major constructions. “It will take more than just interest rates dipping lower for us to begin new major developments,” Gitlin explained, highlighting the multifaceted nature of the decision.
The reasons behind this careful approach are manifold. Although low interest rates can lead to reduced borrowing costs, which is, without a doubt, beneficial for real estate developers, other variables continue to influence RioCan’s strategy. “It’s really a question of how we decide to allocate capital,” said Gitlin. He elaborated that while lower interest rates, combined with potentially reduced development charges and construction costs, present a positive outlook for development properties, these factors need to be balanced against alternative uses of capital that might offer better returns to the Trust’s unit holders.
Gitlin addressed the other potential avenues for utilizing the Trust’s capital, including paying down debt, repurchasing shares, or acquiring new assets. Each of these routes offers its benefits and plays a role in RioCan’s strategic planning. The decision to proceed with development, thus, isn’t just about the immediate cost implications of lower interest rates but involves a deeper analysis of how best to enhance value for their unit holders.
This careful, strategic consideration illustrates the broader challenges and decisions that large real estate developers like RioCan face in the current economic environment. While lower interest rates may signal a green light for some developers to push ahead with projects, for RioCan, the approach is more nuanced. The Trust is carefully weighing all factors to ensure that any move they make aligns with their long-term strategy and the best interests of their stakeholders.
As the economic landscape evolves, it will be interesting to observe how RioCan and other major players in the real estate sector navigate these changes. For now, RioCan’s cautious approach underscores a disciplined commitment to strategic investment and sustainable growth, even in the face of potentially favorable economic conditions.
