A New Playbook for Dealmaking

The players shaping Canadian real estate dealmaking are shifting. As pension funds and public REITs pace new acquisitions more slowly, private capital is filling the void—and doing so at a time when emerging asset classes such as student housing and medical offices are scaling and need funding.

But success in this environment hinges on more than just having capital. It requires deploying it with speed and creativity. The ability to use innovative deal structures to bridge valuation gaps is a key element that will help separate the successful from the sidelined in the year ahead.

Traditional capital channels are under significant pressure, according to several interviewees. 

On the equity side, many public REITs are trading at a significant discount to their net asset value (NAV), making new equity issuance dilutive and unattractive. At the same time, Canada’s largest pension funds are pacing their real estate investments slowly, with some reducing allocations as real estate competes with other asset classes such as private equity.

Meanwhile, the availability of debt financing is bifurcated. For high-quality sponsors, debt remains accessible on favourable terms. But for others, bank underwriting is more rigorous, evident in lower loan-to-value ratios and a preference for shorter loan terms. Lenders also face profitability pressures, with one investment adviser noting that spreads on new loans are thin.

Against this constrained backdrop, opportunities are emerging that require new capital relationships. One investment manager observed that alternative assets such as student housing remain underserved, creating scaling opportunities that need funding. In this environment, property operators are expanding their relationships as they look for new capital sources. This is already evident in areas such as seniors’ housing, where one operator said they’re expecting increased capital allocation from investors who haven’t traditionally been active in the sector. 

Constraints on traditional channels are accelerating a shift in how real estate opportunities are funded. As a result, four distinct, though sometimes overlapping, sources of capital are gaining prominence.

Private REITs Tap a Growing Retail Channel

As one interviewee bluntly put it, “Everyone in the fund management business is choosing to or being forced to turn to retail capital.” This trend is underpinned by a structural shift in wealth management: the long-term decline of defined-benefit pension plans means a larger pool of retirement savings is now self-directed by individual Canadians.

Private REITs have become a key vehicle for this capital, offering an alternative to the recent volatility of public REITs. Underscoring this focus, one industry association noted that private REITs are increasingly targeting the professional wealth channels where this capital is managed, such as private banking divisions. Even so, these private REITs are not immune to broader market headwinds. Deep discounts in public REIT valuations are also making it harder for some private REITs to raise equity, according to one interviewee. In this environment, successful private real estate firms are leaning into their structural advantages. Their agility, for instance, lets them move quickly on distressed land and property sales, according to one REIT. Others are tapping debt markets, issuing notes and debentures as alternatives to equity. 

Family Offices Gain Visibility

Family offices are a significant source of capital in Canadian real estate. Following a global trend, they’re also refocusing on this asset class: their real estate investments accounted for 28 percent of their total deal volume in the first half of 2025—up from just 7 percent in that same period four years earlier, according to PwC’s Global Family Office Deals Study 2025. This has positioned them to step into opportunities that larger institutions may be slower to pursue. One interviewee predicted that family offices will play a larger role in affordable housing, a sector where efforts to expand supply are creating significant capital requirements.

This ability to move decisively is a key differentiator. While large institutions navigate complex approval processes, nimble family offices can underwrite and fund deals more quickly. To pursue larger opportunities, some are teaming up to pool equity. PwC’s Global Family Office Deals Study found 72 percent of Canadian family office transactions in the first half of 2025 were club deals. This highlights the opportunity to explore new ways of creating value through collaboration, an approach that can also help some family offices overcome their lack of deep in-house real estate experience.

Infrastructure Capital Crosses into Real Estate 

A third channel of capital is emerging from dedicated infrastructure funds. This trend is most evident at large, integrated investment platforms—both global asset managers and Canada’s own pension-backed real estate arms—that manage separate, well-capitalized funds for both infrastructure and real estate. They’re tapping these pools to finance real estate projects that have infrastructure-like qualities, such as long-term contracted revenues.

This trend is occurring as many institutions re-evaluate their real estate portfolios. Some investors are moving away from traditional office and retail and toward assets at the intersection of real estate and infrastructure. As one property owner and manager noted, there’s a continuing shift of institutional capital to data centres, student housing, manufactured housing, and self-storage. These sectors are moving into the mainstream, explained another interviewee, and feature both lower competition and high demand.

Private Debt Fills Financing Gaps

With traditional bank lending more disciplined, private lenders are stepping in to fill financing gaps, offering flexible solutions such as mezzanine financing, subordinated debt, and other forms of structured credit. 

For those providing the capital, the asset class offers attractive returns, according to one investment manager. This is leading some asset managers to explore formalizing their offerings by structuring their various debt products into a dedicated vehicle. But the strategy is not without its complexities, including the willingness to enforce loans against business partners and a market where slower transaction volumes mean fewer deployment opportunities.

While lower interest rates have improved investor sentiment, they haven’t spurred a broad-based wave of transactions. While some interviewees report that the gap in price expectations between buyers and sellers is closing, others say that vendor expectations have still not aligned with the market—a challenge compounded by a tight supply of high-quality assets for sale. In this environment, as one private equity investor explained, success now hinges on creative dealmaking.

To bridge this valuation gap, dealmakers are using a range of innovative structures. For land acquisitions, some are using performance-based pricing, where the final price is tied to development outcomes. These can function as earn-outs for landowners, who may also participate as equity partners. In other cases, dealmakers are using vendor take-back financing to make transactions work.

Another factor is also emerging in financing and deal structuring discussions: sustainability. Using sustainability during dealmaking to preserve and create value goes beyond environmental metrics and includes a broader range of factors, such as supply chain and reputational risks. Against this backdrop, a well-defined sustainability strategy—accompanied by clear metrics and transparent reporting—can lower a borrower’s cost of capital.

Looking ahead, several powerful trends are poised to reshape the Canadian real estate deals market in 2026 and beyond:

• Consolidation pressure on public REITs: With many public REITs trading at a discount to their NAV, several interviewees predicted a period of consolidation and public-to-private transactions. This trend is already playing out in the market, with recent high-profile privatizations of REITs in the industrial, office, and multifamily sectors. As one executive stated, the public REIT space will likely contract before it rebounds. 

• Opportunities for private capital in emerging asset classes: As traditional institutional investors remain selective, private capital may find increased opportunities in alternative asset classes that are scaling and need funding. This trend is already evident, with examples such as recent partnerships between universities and private investment firms to develop student housing. Investors are also exploring opportunities in assets such as medical offices and urgent care clinics that offer characteristics that appeal to both real estate and infrastructure investors. 

• The maturation of family offices: While Canadian family offices are currently a significant force in real estate, their long-term strategy may evolve. As they mature, some may further diversify into other asset classes. This potential shift could change the composition of real estate capital over the next decade. 

• Distressed assets accelerate developer consolidation: The current slowdown in the condo market, combined with rising construction and financing costs, is putting significant pressure on smaller developers—some of whom are unable to complete projects or are facing insolvency. Large developers with strong balance sheets and access to capital are stepping in to acquire these distressed or stalled projects, often at a discount. This trend is increasing market concentration as major players expand their portfolios by taking over projects that smaller firms can no longer sustain. With more distressed assets expected to come to market, this dynamic is likely to accelerate, further strengthening the position of large developers and reshaping the competitive landscape.