Kitsilano 74-unit rental building sells for $35.25 million

Western Investor Staff
Western Investor

The updated, well maintained 56-year multi-family property is close to Vancouver’s Kits Beach on a 0.87-acre lot.

Goodman Commercial, Vancouver, for Western Investor

 

Property type: Multi-family rental

Location: 2055 York Avenue, Vancouver

Number of units: 74

Property size: 48,128 square feet (rentable)

Land size: 38,312 square feet

Land size in acres: 0.87 acres

Zoning: RM-4

Sale price: $35.25 million

Brokerage: Goodman Commercial, Vancouver.

Brokers: Mark Goodman, Cynthia Jagger

 

© 2022 Western Investor

How many Canadians are bracing for a recession?

Ephraim Vecina
CMP

Recession fears are revealed

More than half of Canadians are anticipating any such recession to last at least a year

A significant share of Canadians now believe that a recession is looming just beyond the horizon, according to a bi-annual report released earlier this week by Manulife Financial Corporation.

The majority (87%) of the respondents in the latest Manulife Bank of Canada Debt Survey indicated a belief that the economy will soon enter a recession or is already in one. More than half (56%) are bracing for such a recession to last at least a year.

Approximately three out of five Canadians (62%) also said that they don’t feel financially prepared for a recession, while nearly all respondents admitted to harbouring anxieties about interest rates (85%) and inflation (94%).

“As the economic landscape is looking rocky, a large majority of Canadians are getting worried and that’s particularly telling when reviewing [these] results,” said Lysa Fitzgerald, vice president of sales at Manulife Bank.

Read more: What happens to Canada’s inflation next?

Canadians who are preparing themselves for the recession said that they are planning to spend less on leisure or entertainment (53%), shop with a limited budget (52%), avoid making major purchases or conducting home renovations (49%), drive less (38%), or delay/cancel travel plans (33%).

Only 8% of respondents said that they’re adjusting their financial plans, while 5% are adjusting their debt

repayment plans.

 

Copyright © 1996-2022 KM Business Information Canada Ltd.

Rising cap rates linked to strong cash flows, not weak demand

Peter Mitham
Western Investor

Income-producing properties are providing a hedge against rising costs

Cap rates on rising in B.C. but solid cash flows are so far supporting asset values.Chung Chow/Business in Vancouver

Rising cap rates point to the importance of cash flows in the current investment market, complicating what’s being described as a “price discovery” phase as interest rates keep rising.

During heated markets, demand drives prices higher and cap rates lower as capital flows in.

But in the current environment, where recovering occupancies was followed by rising costs, lease rates have moved higher even as assets stopped trading. This has refocused attention on cash flow as a key measure of value.

“Over the past few years where we’ve had that cap rate compression, a lot of that total return has been driven by the value increases and not so much from the cash flow,” Jaclyn O’Neill, principal, investments, with BentallGreenOak told the Vancouver Real Estate Strategy & Leasing Conference on November 3. “Now we’re undoubtedly seeing some cap rate decompression, so there’s certainly some headwinds there, so the focus for us definitely is on cash flow.”

According to CBRE Ltd., cap rates across office, industrial and retail properties inched up in the third quarter. Residential and hotel properties saw minimal change, but upward pressure is building.

The income-producing potential of a property is critical both to meet costs and support valuations. Any decline in annual income suggests a weaker property, making strong, dependable tenants key.

With topline vacancies rising and a greater volume of sublease space shifting the market in favour of tenants, seasoned leasing broker Jeff Rank, senior vice-president, leasing, for British Columbia with QuadReal Property Group, said owners will be more likely to offer inducements to tenants rather than compromise on face rates.

“Most of the institutions are going to be in a position and in a defensive mode to keep their valuations up and will be prepared to give away more on the inducement side to make deals happen,” he said. “We’re not seeing a $50 rent turn into a $40 rent.”

CBRE data indicate that A-class lease rates held steady in the first nine months of the year at between $46 and $47 a square foot downtown, and inched up from $28.61 to $29.54 a square foot in suburban markets.

The emphasis on cash flow was recurring theme for speakers at the Western Canada Lodging Conference in Vancouver at the end of October. Hotels are operating assets whose worth is measured by cash flow in any market, and the current relationship between cash flow and asset values was reason for optimism.

“We’re certainly starting to see upward pressure on cap rates, but it’s not really directly related to the hike in interest rates,” Cindy Schoenauer, vice-president, hospitality and gaming with Cushman & Wakefield, said. “It’s more related to the rapid [average daily rate] growth that we’ve seen year to date.”

Vancouver’s average daily room rates increased 49 per cent last year, according to HVS Canada, outpacing the national growth rate of 34 percent.

The cash made for better performance relative to asset values, which largely held steady.

“It’s not that values are going down at this point in time, it’s more that they’re being offset by ADR growth,” Schoenauer explained.

Cap rate increases typically follow interest rates higher, HVS Canada senior managing partner Carrie Russell said. But similar to offices, the current shift is unusual given the strong growth in property income.

“Cap rates have to go up in an increasing interest rate environment, but currently income growth has been able to keep pace with that,” she said, noting that rising cap rates don’t signal distress as the hotel sector recovers. “The only distress that’s out there is distress that was pre-COVID and got pushed to the side while there was a public health crisis.”

This has made hotels, and other real estate assets with strong cash flow, attractive to investors.

“It’s an industry that’s a hedge against inflation,” Ed Kehdiguian, senior vice-president, CCWB Franchise Finance told the lodging conference. “The positive tailwind to that will eventually lead to some liquidity returning to the market.”

It’s a similar story in other segments of the commercial real estate sector, at least in Vancouver, where the perennial shortage of purchase opportunities will remain acute as buyers hold on to income-producing properties in an environment where cash is king.

Rank sees investor demand remaining strong despite a drop in deal-making in the second half of the year.

“Be very opportunistic on the acquisition side, because given the nature of our owners here, they’re staying where they were,” he told the leasing conference. “It’s going to be awhile, I think, before you see a crack in the armour on the acquisition side for the Vancouver market.”

 

© 2022 Western Investor

Tech firms leasing office space in the suburbs

Tyler Orton
Western Investor

Some tech companies are taking a cue from their work-from-home staff and switching downtown costs for the savings and flexibility on the edge of town

Work-from-home is a stubborn trend that’s left downtown Vancouver in a “state of flux” after the pandemic rapidly shifted employee and employer expectations for the workplace, according to a new report from Avison Young (Canada) Inc.

The real estate services firm says the flight of tech companies from physical offices means the industry is responsible for 388,000 square feet, or 81 per cent, of all space available to sublease in downtown Vancouver. All other industries trail the tech sector by extraordinary margins with engineering coming up next at six per cent followed by mining at five per cent.

Avison Young found that small and medium-sized firms are now prioritizing operating cost-savings over the benefits of holding an office space. 

But larger tech tenants have the financial backing to maintain their downtown offices while also introducing working from home arrangements, according to the report.

There’s also the cold reality of the types of leases these larger tech firms have signed. The Avison Young report found many of these leases within newly built buildings are too long and too expensive to be taken up by other firms that can’t match those financial commitments.

“For industries like tech, it makes sense to work from home. Those companies that have gone 100 per cent remote and committed to that, what they’re doing now is they’re starting to hire across time zones and that’s really supporting their business,” Shauna Moran, founder and managing director of Operate Remote Coaching Ltd., told BIV.

Her Vancouver-based firm specializes in helping corporate leaders manage their remote and hybrid teams.

“Most people want some level of flexibility. They don’t want to have to commute, especially if they’ve moved out of cities over the last few years,” Moran said.

The Avison Young report found some larger tech companies like Electronic Arts Inc. and SkyBox Studios, the latter of which is owned by Microsoft Corp. have been expanding in Burnaby.

“Notwithstanding this renewed interest in the suburbs, many larger technology tenants are also continuing, and in some cases growing, their presence within downtown,” the report stated, noting Amazon.com Inc. is due to occupy another 1.1 million square feet of office space at The Post building on 349 West Georgia Street beginning next year and Microsoft will be expanding by 400,000 square feet at the B6 building at 1090 East Pender Street in 2023.

But Amazon began laying off thousands of employees across its global workforce last week, including some in Vancouver, and CEO Andy Jassy has warned more cuts were coming in 2023.

Facebook’s parent company, Meta Platforms Inc. occupies 34,000 square feet of downtown office space at Waterfront Centre at 200 Burrard St. The tech giant has also been laying off workers across the globe by the thousands this month.

“Only time will tell whether the larger technology tenants, who are increasingly reducing their expenses, will also attempt to sublease their spaces or instead decide to remain committed to the [central business district],” the report stated.

Downtown Vancouver is experiencing just 43 per cent of the visits it had prior to the pandemic, according to a July report released by the University of California, Berkley’s Institute of Governmental Studies.

That level of activity was low enough to rank it No. 57 out of the 62 North American downtowns examined.

Researchers used cellphone pings from 18 million smartphones across the continent between March 2020 and May 2022 to measure how much activity was returning to urban centres.

Downtown Van, formerly the Downtown Vancouver Business Improvement Association, has also used cellphone data to measure downtown activity. President and CEO Nolan Marshall III said this type of data can have significant limitations when comparing American and Canadian cities, owing to the latter’s stricter privacy laws.

“My experience talking to colleagues, my experience visiting other places, just runs completely counter to where I think that report ultimately had Vancouver ranked,” he told BIV in August.

Marshall said problems also arise depending on how one defines a visitor when using cellphone data to judge how active an area is.

Vancouver’s downtown peninsula is one of the most densely populated areas in Canada and the U.S.

“If you draw your data collection map across the entire downtown, you’re not identifying people who live within the area as a visitor,” Marshall said, “which is why we only do our cellphone data collection around our retail districts, and specifically so we can track how many people are going into those retail districts since they don’t have as many residents as the rest of downtown.”

 

© 2022 Western Investor

East Vancouver 5,100-square-foot retail site sells for $3.7 million

Western Investor Staff
Western Investor

The East Village parcel has three retail units, and the land offers development potential in an up-trending community.

Corbel Commercial, Vancouver, for Western Investor

 

Property type: Retail development land

Location: 2480 East Hastings Street, Vancouver

Number of units: 3

Size of land: 5,100 square feet (approx.)

Zoning: C-2C commercial

Sale price: $3.7 million

Brokerage: Corbel Commercial, Vancouver

Brokers: Marc Saul and Robert Tham

 

 © 2022 Western Investor

 

Cloverdale 1,498-square-foot strata office sells for $687 per square foot

Western Investor Staff
Western Investor

Sale price of $1.03 million nets fully renovated corner office strata in Pacific Business Park, Cloverdale area of Surrey, B.C.

Frontline Real Estate Services, Langley, B.C., for Western Investor

 

Property type: Office strata

Location: 201, 17660 65A Avenue, Cloverdale, Surrey, B.C.

Number of units: 2

Property size: 1,498 square feet

Date of sale: October 4, 2022

Sale price: $1.03 million

Brokerage: Frontline Real Estate Services, Langley, B.C.

Brokers: Todd Bohn, Alex Girling and Braydon Hobbs

 

© 2022 Western Investor

Outlook: multi-family rental buildings will attract big-ticket sales

Frank O’Brien
Western Investor

Third-quarter sales dip in B.C.’s multi-family market expected to in be in rear view mirror shortly as interest rates stable and immigration hits stride

Soaring rental and interest rates have flipped the script on British Columbia’s housing investment outlook, with rentals becoming the dominant play in the multi-family sector, a trend that could accelerate if B.C.’s new premier gets his way.

As of the end of September 2022, a total of 183 rental apartment buildings had sold for a total of $2.11 billion, but sales fell in the third quarter, down to just 14 transactions, the lowest level for any quarter in seven years, according to a survey by Marcus & Millichap of Vancouver.

The sales downturn is partially linked to the increase in lending rates, following sixth consecutive increases since February, including a 50-basis point hike by the Bank of Canada on October 26.

Mortgage rates for multi-family rental buildings insured by Canada Mortgage and Housing Corp.(CMHC) are among the lowest available, but they have more than doubled over the past year to 4.5 per cent for five-year and 10-year terms, said James Blair, senior vice-president of Marcus & Millichap, who prepared the Q3 report with senior vice-president Patrick McEvay.

“There has been a big change, “ Blair said, who noted that buyer equity requirements have increased substantially.

Multi-family investors, therefore, need higher down payments, and the cost of debt is moving higher than the capitalization rate, which had averaged 3.27 per cent so far this year.

“The cap rate is the key now,” Blair said.

The result, McEvay said, is that many investors are waiting to see if further rate increases are coming, since mortgage rates are the single most important input cost for landlords.

Still, existing B.C. landlords are reaping the highest rents ever seen in Canada and many owners are already locked into low-cost 10-year CMHC-insured financing.

November marks the second month in a row in which the top five most expensive cities to rent in Canada were all based in B.C.

A recent study from liv.rent shows that the average rent in Greater Vancouver for an unfurnished one-bedroom apartment increased from $2,256 in October to $2,317 this November. North Vancouver rent rose by 10.4 per cent, making it the most expensive city in Canada with an average of $2,760 per month.

According to Blair, rents for new and recently renovated one-bedroom apartments in the City of Vancouver now average $3,000 per month.

“There is still lots of demand from private buyers,” Blair said, which Marcus & Millichap note now represent 77 per cent of total Metro Vancouver sales as institutional investors “move to the sidelines.”

Action in the fourth-quarter 2022 suggests that investors are willing to spend big for older rental assets in prime locations, however.

On November 2, a 10-unit older multi-family rental building in Vancouver’s Kerrisdale sold for $4.08 million, according to brokage Colliers, Vancouver.

On November 23, Goodman Commercial, Vancouver, closed a $35.25 million transaction for a 74-unit rental apartment building near Kits Beach in Vancouver. That works to a price of more than $476,000 per apartment in the 56-year-old building.

Marcus & Millichap listed a “totally renovated” 12-unit older rental apartment building in Vancouver’s Cambie corridor in November at $666,000 per door.

The total dollar volume of apartment building sales through the first three quarters of this year was down 35 per cent from a year ago as the gap widens between seller’s expectations and what buyers are willing to pay.

However, for those who want to sell an older apartment building, where rents are considered “affordable,” the new B.C. premier has proposed a $500 million government fund to help First Nations and non-profits buy them.

Marcus & Millichap, however, believes it is a trio of strong trends, rather than questionable government policy, that points to robust multi-family market once interest rates level out.

These are:

• Immigration: With Canada increasing its immigration target in 2022 to 411,000 new permanent residence, and 500,000 annually by 2025, Metro Vancouver is expected to welcome roughly 55,000 newcomers per year. This influx of new people will continue to support robust rental demand as newcomers tend to favour the apartment market over ownership. (The federal government said it will ban foreign home buyers for two years beginning on January 1, 2023, which means new immigrants will not be able to purchase before they arrive.)

• High-priced housing: The benchmark composite home price in the Lower Mainland is now $1.09 million, the highest in Canada, and the typical Greater Vancouver condo apartment sells for more than $727,000. These high prices will keep potential homeowners on the sidelines and the rental vacancy rate near 1.5 per cent, among the lowest in the country,

• Strong labour market: Vancouver has added roughly 15,000 jobs so far in 2022 and the unemployment rate currently sits at a tight 4.3 per cent, similar to both Victoria and Kelowna. This strong labour market translates into healthy apartment demand as people earn wages sufficient to pay rent, but not enough to own, keeping them in the apartment rental market.

 

© 2022 Western Investor

 

Federal foreign buyer ban coming in January 2023

REBGV Staff
REBGV

At a glance (3 minute read):

• The federal ban on foreign buyers is coming January 1, 2023.
• The period will last two years.
• The ban will only apply to residential property.

The federal government’s ban on new foreign ownership of residential property becomes law on January 1, 2023, disallowing anyone who isn’t a Canadian citizen or permanent resident from buying residential real estate for two years.

During this period, the federal government plans to work with provinces and municipalities to develop a framework to better regulate the role of foreign buyers in the housing market to ensure housing is available for and used by Canadians.

The Liberal Party promised the ownership ban in the 2021 election and rolled it out in the federal Budget 2022: a plan to grow our economy and make life more affordable. The budget was clear on the government’s goals:

“We will do everything we can to make the market fairer for Canadians. We will prevent foreign buyers from parking their money in Canada by buying up homes. We will make sure that houses are being used as homes, rather than as commodities to be traded,” – Budget 2022.

To this end, the government tabled Bill C-19,  Budget Implementation Act, 2022, No. 1. It received Royal Assent on June 23, 2022. Section 235 of the bill is the Prohibition on the Purchase of Residential Property by Non-Canadians Act.

Who can’t buy residential property?

The act defines a non-Canadian as:

1. an individual who is neither a Canadian citizen nor a person registered as an Indian under the Indian Act nor a permanent resident;
2. a corporation that is incorporated otherwise than under the laws of Canada or a province;
3. a corporation incorporated under the laws of Canada or a province whose shares are not listed on a stock exchange in Canada for which a designation under section 262 of the Income Tax Act is in effect and that is controlled by a person referred to in paragraph (a) or (b); and
4. a prescribed person or entity.

Include:

• A temporary resident within the meaning of the Immigration and Refugee Protection Act; or
• A non-Canadian who buys residential property with a Canadian spouse or common-law partner if the spouse or common-law partner is a Canadian citizen or permanent resident, or person registered as an Indian under the Indian Act.

Includes any real property or immovable that is:

1. a detached house or similar building, containing not more than three dwelling units;
2. a semi-detached house, rowhouse unit, residential condominium unit or other similar premises, vacant land, where the land has been zoned for residential use or mixed use and is within a Census Metropolitan Area (having a population of at least 100,000) or Census Agglomeration (having a population of at least 10,000); or
3. any prescribed real property or immovable.

Non-Canadians found guilty of contravening the act are subject to a fine of not more than $10,000. If the federal government orders the sale of the property, the non-Canadian buyer won’t receive more than the amount paid for the property.

Property Purchased by a Non-Canadian Before January 1, 2023

The ban doesn’t apply if the agreement of purchase and sale of the residential property involving a non-Canadian is dated before January 1, 2023.

Future regulations will provide details on transactions deemed prohibited purchases, including whether exceptions apply to conditional contracts entered into before January 1, 2023, that become unconditional on or after January 1, 2023.

In a September 2022 consultation, the Canadian Real Estate Association (CREA) outlined its concerns with the then-proposed legislation. Concerns included:

• the compliance burden of implementation;
• the need for a quota system to provide provinces and territories some authority to tailor the ban as per their housing market requirements;
• the need for an exemption for international students on the path to permanent residency;
• exemption for foreign nationals with work permits; and
• the need for an exemption for recreational property.

 

© REBGV’ is a registered trademark.

Three of Canada’s top five ‘greenest’ cities are on the Prairies

Western Investor Staff
Western Investor

New research has revealed Canada’s greenest cities, with Prince Albert coming out on top.

Prince Alberta, third-largest city in Saskatchewan has been named Canada most green city with 28 hectares of parkland per person. | Submitted
A new study claims that three of the top five greenest cities in Canada, by the amount of greenspace per person, are all on the Prairies.
The study by real estate site Calgary.com analyzed parkland data for Canadian cities and scored them based on how much parkland, green area and gardens they have.
 The city of Prince Albert, Saskatchewan, population 34,000 (third largest in the province), came in No. 1.
The city has 28.1 hectares of park per 1,000 people, and 20 per cent of the city is made up of parkland, which gives it a ‘Green Score’ of 100 out of 100. It’s built on a transition zone between the aspen parkland and a boreal forest, so the city is embedded in nature, judges noted.
Coming at No. 2 is Edmonton.
It scored 80.26 out of 100 on the Green Score. While it may only have 6.2 hectares of park per 1,000 people and 8 per cent of parkland, the city boasts a whopping 104 community gardens, the most out of any city in the study.
Calgary ranked No. 5, coming in with a green score of 67.67 out of 100. This is due to there being seven hectares of park per 1,000 people in the city, 11 per cent of the city being parkland, and Calgary has 59 community gardens.
The Quebec city of Gatineau is No. 3 on the list, with a green score of 76.98 out of 100.
Toronto was ranked No. 4, receiving a green score of 74.57 out of 100. Parkland makes up 13 per cent of the city and there are 79 community gardens. Due to the city’s larger population, however, there are only 2.7 hectares of park per 1,000 people.
Vancouver cracked the top 10, coming in at No. 9, with a green score of 51.51 out of 100, with 2.1 hectares of parkland for every 1,000 residents.

© 2022 Western Investor

Half of variable-rate mortgages have hit their trigger rate, estimates Bank of Canada

The Canadian Press
Financial Post

The Bank of Canada estimates that about 50 per cent of variable-rate, fixed-payment mortgages have reached the point where additional payments may be needed. That’s about 13 per cent of all Canadian mortgages. Photo by JAMES MACDONALD/BLOOMBERG

OTTAWA — Bank of Canada senior deputy governor Carolyn Rogers says the adjustment to higher interest rates will be painful for recent homebuyers with variable-rate mortgages.

Speaking before the networking group Young Canadians in Finance in Ottawa Tuesday, the senior deputy governor says the share of households with a variable-rate mortgage has increased over the last year.

New research from the Bank of Canada finds that variable-rate mortgages now account for about one-third of total outstanding mortgage debt, up from about one-fifth at the end of 2019.

According to her prepared remarks, the senior deputy governor says mortgage costs have already gone up for some Canadians and warns they’ll likely go up for others as well.

In a research paper released with the speech, the Bank of Canada estimated that about 50 per cent of variable-rate, fixed-payment mortgages have reached their trigger rate, the point where additional payments may be needed. That’s about 13 per cent of all Canadian mortgages.

Rogers says risks around Canada’s financial stability are elevated because of high levels of household debt along with rising interest rates.

However, the senior deputy governor says the Bank of Canada expects the financial system as a whole to withstand this period of stress.

 

© 2022 Financial Post