Uneven equity markets are driving the boom, writes Wyng Chow
Wyng Chow
Sun
A record $394.5 million worth of rental apartment buildings sold in 2002 in Greater Vancouver as investors discovered a safe haven from volatile equity markets, according to a commercial real-estate study released Wednesday.
Another major motivation is proposed new provincial rent legislation which, investors say, would “level the playing field” for landlords and tenants while providing property owners with “reasonable” returns.
“Rental buildings now make sense as investments,” said Vancouver real-estate entrepreneur David Andrews, who has formed a syndicate to go on a buying spree this year.
BC Assessment Authority data and Multiple Listing Service sales figures show 142 apartment buildings changed hands last year in Greater Vancouver. It was the highest number since 1992, when 134 properties — totalling about $309 million — sold during the hot market then fuelled by a flood of Asian investors coming to B.C.
The 142 transactions last year marked a 45-per-cent increase over 2001 when 98 units, valued at $190.5 million, were sold. The 10-year low was in 1998, when 51 units, totalling $130.7 million, changed hands.
“What’s equally impressive about the current bull market for apartment buildings is that everybody is getting into the act,” said Vancouver realtor David Goodman of Macdonald Commercial Real Estate Services, who compiled the study.
“Of the 13 buildings I sold in the last five months — representing over $30 million in volume — the buyers included first-time apartment investors, landlords adding to small and large portfolios, and offshore buyers,” said Goodman, an apartment specialist.
“If the sales volume of the past eight weeks is any indication, we will definitely see another banner year for 2003.”
He said the current buyer profile ranges from individuals to institutional investors such as giant GWL Realty Advisors Inc., to real-estate investment trusts (REITs).
“With the uneven performance of equity markets and historically low interest rates, investors are looking for the solid and steady growth offered by the apartment asset class, and this strong demand will likely continue,” noted Macdonald Commercial president Tony Letvinchuk.
Andrews and his Vancouver-based limited partnership, called Western Income Properties Corp., will be among those with insatiable appetites this year.
Since November, the group of 60 investors has snapped up four buildings — located in Burnaby, Coquitlam, Surrey and White Rock — totalling 231 units for $16 million.
“We intend to spend another $70 million to buy 1,000 more units this year,” said Andrews, broker-owner of Re/Max Real Estate Services. “We have enough offers out there to do that.”
Goodman conceded that while rental buildings don’t necessarily generate “spectacular” returns for owners, “they’re solid and provide a safe sanctuary for investors in a troubled [financial] world.”
Said Goodman: “Investors want long-term stability and predictability. They want to be able to sleep nights.”
Typical apartment capitalization rates range from 4.9 per cent to 6.5 per cent on Vancouver’s west side, and from 6.75 per cent to 7.5 per cent in locations such as Vancouver’s east side, Burnaby and the North Shore, he said.
Goodman’s market study included interviews with various property appraisers and his own proprietary research, which he cross-references with BC Assessment and MLS data.
Last fall, the provincial government proposed changes to the Residential Tenancy Act that tenant advocates fear could lead to rent increases of up to 20 per cent. In recent years, landlords have been allowed to routinely raise rents by only token amounts of about three per cent, without being required to show their financial records to tenants.
The amendments would permit landlords to introduce annual rent hikes of three to four per cent, in addition to increases in the consumer price index, currently hovering between 1.5 and 2.5 per cent. That could result in total rent hikes exceeding six per cent.
However, landlords would also be permitted to defer making rent increases for up to three years, which means that if a fourth-year hike was included, tenants could be hit with a sudden rise of more than 20 per cent.
The new law, expected to be enacted this spring, also forbids tenants from disputing a rent increase that falls within the limits set by the government. Currently, any rent hike can be disputed.
“This shows a clear direction by the B.C. government,” Andrews said.
“The upside of owning existing apartment buildings include rents going up, along with both population and job growth.
“Supply is also dropping as older buildings are being demolished to make way for new condos. [Developers] aren’t building many affordable rental buildings any more.”
© Copyright 2003 Vancouver Sun
