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Olin said none of the valuations added up and points to a time in the fourth quarter of 2022 when there was 42 per cent delta between U.S. public and private REITs

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“Did that make any sense?” he said. “It was ridiculous. The question was who was right, and we said both. In some sectors, the stock market got it right, like the office. In other sectors, the market got it wrong.”

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Olin likes grocery-anchored retail space because the anchor tenant across the continent is usually a major chain such as Loblaws, and cautions that not all REITs are cut from the same cloth. “It’s defensive space, and it has growth,” he said of neighbourhood malls, which have more necessity-based tenants, such as grocers.

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So what’s next?

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“No question, the names in Canada are dwindling. But you know this can be cyclical,” said Olin, who points to Go Residential REIT, which is listed on the Toronto Stock Exchange but holds apartment assets in New York City and started trading last year, as a sign of growth.

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Adam Jacobs, head of research in Canada for real estate company Colliers, said he remembers attending a REIT conference less than two years ago, when everyone was complaining that no big deals were happening.

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“Now every week one of the deals happens. I guess the dam has broken,” he said. “There is this argument that the public REITs are undervalued and inherently worth more if you look at rent growth and value of assets, and people are ready to act on that.”

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But like Olin, he says asset class matters. And grocery-anchored retail is just something everybody wants right now.

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“This is just a portfolio that would be hard to transact one at a time,” said Jacobs, who compares the deal to a decision by Blackstone Group to buy Pure Industrial REIT, a 2018 deal that was based on the premise of rent growth.

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“Grocery-anchored retail might be at the same point in the cycle,” he said. “Really in demand, not much in development, and it’s really hard to buy.”

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The research head said there is a lot of what people call “dry powder” in the private market, looking to buy real estate and access to debt, which is critical for any transaction, has settled down, and interest rates have stabilized.

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“People are able to pull the trigger now. The debt component is significant,” said Jacobs.

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Carl Gomez, chief economist at Centurion Asset Management, which operates a private investment REIT, said publicly traded REITs will remain a target because of depressed prices.

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“They are trading below their intrinsic value, and that’s opportunity to scoop them up, especially those REITs with high-quality scalable portfolios,” said Gomez. “It’s just a great acquisition target.”

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Gomez said REITs are really just real estate wrapped up as a stock.

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”But the problem with the stock market is it just doesn’t trade on stock fundamentals, it trades on noise, rumour and a lot of stuff that amps up the volatility,” he said. “That’s the problem for some of the REITs now. I will say the public REIT market has (less desirable) product there too.”

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Another problem with the Canadian REIT sector is that it’s always been very small relative to its U.S.

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“You just can’t take the same type of sector bets,” said Gomez.

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Once First Capital disappears, there will be even less to bet or invest in the sector. But is it the end of the world?

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Certified financial planner Jason Heath noted income trusts were really popular in Canada, with about 260 trading publicly in 2006, but those numbers are down to 19 remaining in the S&P/TSX Income Trust Index, and they are mostly REITs.

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“For most investors, REITs should not play a meaningful role in portfolio construction. As a good yardstick, the S&P 500 in the U.S. has only a two per cent real estate weighting. The S&P/TSX has even less,” he said.

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An even better point he makes is that most of Canadians’ net worth is in real estate, a factor driven by high home-ownership rates.

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“Adding more real estate, especially Canadian real estate, is poor diversification,” said Heath.

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So, goodbye to another REIT. For long-suffering investors, getting out at a premium might not be such a bad thing.

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