When borrowing costs rise and deal math gets tighter, real estate investors tend to split into two camps. Some chase appreciation and trophy properties in major cities, betting that values will bail them out later. Others focus almost entirely on what a building actually produces in cash today. Over the past two years, that second instinct has proved more resilient.
Josh Will, President of Virtus Capital Corporation, (the Asset Manager of Virtus Diversified REIT), has lived through that split firsthand. While several funds were trimming payouts or scrambling for liquidity, Virtus stuck to simple rules: buy where yields are higher, negotiate hard on price, and insist on tenants that pay reliably through the cycle. The result wasn’t magic, just discipline. It offers a useful lens for anyone thinking about how to position real estate holdings when easy money disappears.
When Borrowing Costs Rose
The past two years have been an uncomfortable stress test for commercial real estate. Borrowing costs jumped quickly after a long stretch of cheap money. Deals that once looked straightforward became much harder to refinance. At the same time, many funds faced growing redemption demands just as cash was becoming harder to find. Together, those pressures forced portfolio managers to make choices they had been able to avoid when rates were low and capital was abundant.
Managers who relied heavily on future price growth were more exposed when refinancing costs climbed or when investors asked for cash back. Those who had built portfolios around steady income were better positioned to meet distribution commitments and ride out volatility. The gap wasn’t about luck. It reflected how different playbooks responded when conditions turned difficult.
For Will, that backdrop clarifies why Virtus doubled down on cash flow rather than chasing big-city price gains. A cash-flow-first mindset became more than a preference. It became a practical way to manage risk in a market that no longer rewarded aggressive assumptions.
The Caledonia Property Deal
About two years after Virtus bought the property for roughly $4.8 million CAD, another portfolio manager approached Virtus with an unsolicited offer. Given the broader market conditions, Virtus initially assumed the bid would fall short. Instead, it came in at around $6 million CAD — high enough to force a serious look at the numbers.
After reviewing the economics, Virtus management agreed to sell, ultimately negotiating a slightly higher price. By that point, the property had already been generating returns for investors. The sale produced more than $1 million CAD in proceeds. The outcome reflected the flexibility that comes with buying at the right price: the ability to hold for income or sell when the market offers an attractive exit.
Why Secondary Markets Worked
The Caledonia sale was not an isolated outcome. It reflected where Virtus had been looking for opportunities more broadly. While many managers were competing for large, high-profile buildings in major cities, Will deliberately spent more time in secondary and tertiary markets — places like Sudbury, Timmins, and smaller Ontario communities.
“That’s where the math works for us,” Will says. “You get better pricing, less competition, and real cash flow.”
Those markets offered two practical advantages. First, yields were generally higher, which made it easier to buy properties that covered their costs through rent rather than relying on future price growth. Second, thinner competition meant less pressure to overpay. In bigger urban centers, multiple bidders often pushed prices up and squeezed margins. In smaller cities, Virtus could be more selective.
That dynamic explains why Virtus recycled the Caledonia proceeds into two multi-residential properties in Sudbury rather than pivoting back to a major urban market. The deals were close to assets the company already managed, which made them easier to operate, and the pricing still aligned with Virtus’s cash-flow discipline.
Performance Results
Virtus’s performance over the past year reflects how its cash-flow-first approach played out. The company’s net asset value rose by about 5%. Per-unit value for investors moved from roughly $10.53 at the start of the year to $11 by year-end. Including distributions, total returns topped 12%. Those outcomes did not come from a single blockbuster deal or a bet on rising prices. They flowed from a series of quieter decisions about where to buy, how much to pay, and how much risk to take on.
Those results also reflect the margin of safety that income-first underwriting provides. When borrowing costs jumped, portfolios built around rent-covering properties, reliable tenants, and disciplined pricing were better insulated than those dependent on appreciation.
Today, that same logic is shaping what the company does next. Virtus has roughly $50 million CAD in potential acquisitions in its pipeline and has hinted at a significant partnership that will help propel them further in this market. Those plans reflect how the company is reading the current market: as a moment when careful buyers with available capital can be selective. In a tougher financing environment, portfolios built around steady income, conservative leverage, and geographic flexibility may have more room to maneuver. Diversifying across different property types can further reduce reliance on any one sector.
What Comes Next
If financing costs ease later this year, the environment that rewarded cash-flow-first buyers could shift again. Lower rates would likely pull more capital back into big-city properties and compress yields in secondary markets. That would make it harder to find the kinds of deals Virtus has favored recently. In that scenario, an income-focused approach wouldn’t vanish — it would have to adapt, either by moving farther afield, leaning into different property types, or pursuing more value-add opportunities.
At the same time, a slowing economy would test the other pillar of this strategy: dependable tenants. Rising expenses or weaker demand could put pressure on rents and margins. Buyers who start with cash flow may be better positioned to absorb that strain than those who rely on appreciation, but they would still need to stay disciplined. The broader lesson is that a cash-flow-first mindset isn’t a shield from volatility. It’s a framework that offers more flexibility as conditions change, whether money gets cheaper or tighter.
About the Expert: Joshua Will is the president of Virtus Capital Corporation and Virtus Real Estate GP Inc. This Canadian real estate company manages a diversified portfolio of income-producing properties across multiple sectors.
This article is intended for informational purposes only and does not constitute legal, financial, or investment advice. The views and opinions expressed herein reflect those of the individuals quoted and do not represent an endorsement of any company, product, or service mentioned. Readers should conduct their own due diligence and consult qualified professionals before making any investment decisions.
