Commercial sector to become more valuable after COVID-19 – CBRE

Acquisition of expansive properties has fallen to the wayside, but commercial real estate is poised to become an even more desirable choice for investment after the coronavirus pandemic, according to CBRE.

This will be particularly apparent in Toronto, CBRE’s recently released “Q1 2020 Canadian Cap Rates & Investment Insights” document reported.

“With internal operational issues consuming 100% of many firms’ time, new investment decisions have become secondary for the time being,” CBRE said. “Term, covenant and existing financing have become increasingly important across asset classes. These factors will continue to enhance or eliminate liquidity for firms moving forward.

“With risk-free interest rates approaching zero, the real estate sector is poised to be an even more attractive investment option once the markets begin to normalize,” CBRE said.

The Canadian office market is ideally placed to exhibit some of the better performances this year.

“After a strong 2019, the office sector had built considerable momentum going into 2020 and was on track to see robust investment activity prior to the market shutdown brought on by COVID-19,” CBRE said. “Given the strength of office fundamentals entering the slowdown, it’s expected that the asset class will be on solid footing when the economy begins to re-open later in 2020.”

Industrial real estate will also prove resilient against the worst economic effects of the current crisis.

“It’s expected that the implementation of social distancing and quarantine measures should increase demand for ecommerce offerings over the remainder of 2020,” CBRE said. “The critical role of industrial assets in omnichannel and global supply chains is only forecast to increase and will ensure the sector remains well supported by strong fundamentals, especially on a relative basis.”

Mortgage Broker News
by Ephraim Vecina
22 Apr 2020

Former niche CRE investment is now big business

Commercial real estate is frequently influenced by changes in the wider business world and one big change is driving interest in a formerly niche asset class.

Data centres are now a cornerstone of business and $100 billion has flowed into the asset class in the last decade according to a new report from Cushman & Wakefield.

These centres include those operated by the technology behemoths who dominate in the cloud platforms, Amazon, Google, and Microsoft. These three companies have impacted data centre sizing tenfold. The 10-megawatt (MW) data center that was impressive 10 years ago now pales in comparison to 30-MW leases now signed with increasing regularity.

“The speed with which the industry is shifting makes the creation of a data center strategy a complex and daunting task,” said Dave Fanning, Executive Managing Director and Leader or Cushman & Wakefield’s Data Center Advisory Group. “Investors must be able to assess the long-term potential of a data centre to hold its value and how easily it can be upgraded. All involved require access to capital and a clear understanding of objectives.”

Vancouver challenging the leaders
Ten cities maintain their statuses among the top 10 for data centres – Northern Virginia, Silicon Valley, Dallas, Chicago, New York/New Jersey, Singapore, Amsterdam, Los Angeles, Seattle and London – but Vancouver is one of those named by the firm as a contender.

“The top markets provide the greatest number of options to the greatest number of perspectives,” said Kevin Imboden, Director of Research for Cushman & Wakefield’s Data Center Advisory Group. “While one size sometimes does fit all, for certain specializations it’s important to review and understand the factors most important to the specific requirement and aim accordingly. Combined with those markets that have been overlooked and underutilized, there is great potential for niche development and secondary markets across the globe.”

 

by Steve Randall on January 30 Jan 2020

The Top 5 Commercial Real Estate Trends of 2019 – CBRE

It’s safe to say that 2019 marked the end of an unprecedented decade for Canadian commercial real estate.

Backed by strong fundamentals, transaction volumes reached a 15-year high of $49.3 billion in 2018, as cap rates compressed to 10-year lows.

While most property types have performed well, industrial has exceeded all expectations, as e-commerce demand continues to grow.

Office construction continues at a record pace, while a rapidly growing population has boosted demand for rental space and multifamily investment returns.

Want to know more? We’ve rounded up the top 5 commercial real estate trends of 2019 to put things in perspective.

1. THE POWER OF LAST-MILE DELIVERY

Canadians can’t get enough of e-commerce, which has seen double-digit growth in recent years. The result? A drastic shift in supply chains and the industrial real estate market.

Companies looking to deliver “last-mile” goods to major metros require distribution facilities in close proximity to downtown cores.

That poses a problem in cities like Toronto and Vancouver, where there is a lack of available industrial space, and what property is available is commanding historically high rents.

Some developers have turned to the concept of multi-storey buildings, first pioneered by cities like Tokyo, to meet demand.

How limited is the supply of industrial space? The national availability rate dropped below 3.0% for the first time on record in the third quarter, with historic market fundamentals in Toronto, Vancouver and Montreal.

And while development activity is ramping up, with an astonishing 28.0 million sq. ft. in the national pipeline, it’s still not enough. Projects under construction account for just 1.5% of existing inventory.

As tenants struggle to find the space they need, investors have recorded strong returns. The sector saw investment volumes total $3.1 billion in the third quarter of 2019 alone, which would be even higher if more owners were selling.

2. APARTMENT RENTAL DEMAND HITS NEW HIGH

Millennials represent 27.0% of the Canadian population and are forming new households at a record rate. But with home ownership costs outpacing income levels, many are opting to rent not own.

That’s good news for multifamily investors. With apartment buildings at or near capacity across the country, rent growth continues to accelerate.

Average rents for purpose-built rental units have grown by 4.4% for the last two years at the national level. That number jumps to 5.0% and 7.1% in Toronto and Vancouver, respectively.

Strong fundamentals – including a growing population, rising home ownership costs and a lack of rental supply – mean this trend is here to stay for 2020 and beyond.

The Top 5 Commercial Real Estate Trends of 2019

3. RECORD-LOW OFFICE VACANCY RATES

Strong job growth has propelled the Canadian economy in recent years, with a whopping 81,000 net new jobs in August alone.

In the 12 months prior, Canada added 471,000 net new jobs, compressing the unemployment rate by 30 basis points to just 5.7%.

These numbers are the backdrop for unprecedented demand for office space and historically tight office markets.

In 2019, Toronto and Vancouver continued their reign as the tightest downtown office markets in North America, with vacancy rates of just 2.3% and 2.4%, respectively.

Tenants are having to be creative with their space as they look to grow and expand, while owners are setting the terms of the leases in a landlord’s market.

As Toronto continues to attract record levels of talent, it seems unlikely that these conditions will change anytime soon.

4. “EXPERIENCES” NOT THINGS

While retail didn’t have the buzziest headlines in 2019, there is reason for optimism – and even excitement – in some areas of the sector.

Lifestyle and entertainment centres have been drawing investor attention, as owners and occupiers continue to reinvent and reimagine traditional spaces with “experiences” in mind.

From food halls to boutique fitness, consumers are drawn to stores that offer experiences they can’t find online.

Many online retailers have opened brick-and-mortar locations in the last year, a sign that shoppers are looking for a mix of in-person and online shopping.

Meanwhile, owners are continuing to combine their retail properties with other asset types from coworking spaces to community services.

5. MARKETS SHAPED BY TECH

Canada is attracting waves of tech talent, as global and domestic companies tap into the country’s tech ecosystem.

The result is record commercial and residential real estate demand and an office construction boom in several markets.

The tech industry has accounted for 17.1% of major-office leasing activity since the start of 2018, and there is 2.8 million sq. ft. of new build pre-leasing by tech firms in Toronto, Vancouver and Montreal.

The boom is putting pressure on already tight Toronto and Vancouver markets and will likely keep office vacancy rates in both cities low in the coming year.

Also benefitting are smaller cities that offer a lower cost of living and operating. Victoria, Hamilton, Oshawa, and Guelph are making major strides in growing their tech sectors and smaller markets are expected to continue to grow in 2020.

 

by CBRE, January 2020

Canadian CRE set to perform well overall in 2020

This year should be a good one for Canada’s commercial real estate sector with overall strong performance.

The 2020 Commercial Real Estate Sentiment Survey from Devencore and Transwestern Commercial Services surveyed brokers and analysts across 43 North American offices to gain insights for the Canadian and US markets in 2020.

South of the border, there is some concern regarding political outcomes, especially the presidential election; but overall expectation is positive driven by the e-commerce industry’s demand for industrial space.

There is also expectation that medical offices will help the office sector in the US to outperform the market.

Meanwhile, offices are expected to perform well in Canada with just over half of respondents predict leasing velocity and tenant prospects will pick up during 2020, with 86% expecting stronger rent growth over the year, especially in industries such as tech and the service sector.

“Similar to the U.S., Canadian commercial real estate markets also are expected to perform well in 2020, with mild concerns stemming from political and trade impacts as well as rising construction costs,” said Jean Laurin, President and CEO of Devencore. “Our economy is healthy and job growth is steady. With the exception of certain regions, major Canadian provinces like Ontario, British Columbia and Quebec all show robust conditions.”

For the industrial sector, Quebec and Ontario residents are renewing amid tight availability, while those in Alberta have more choice and are choosing quality. However, 64% of respondents expect overall industrial asking rents to rise due to limited availability in select markets.

Land costs are also expected to rise as the availability of prime sites continues to decrease. In this environment, the attraction for industrial investment by the capital markets remains high.

 

by Steve Randall  13 Jan 2020

Canadian commercial investment should begin looking further

Would-be investors in Canadian commercial real estate should begin considering markets beyond the usual hotspots of Toronto, Montreal, and Vancouver if recent trends south of the border are any indication.

The tech industry’s sustained hunger for Canadian offices is gradually depleting available urban office space. The examples set by some U.S. cities might provide a good answer to this quandary, according to the Computing Technology Industry Association (CompTIA).

“Something like a Charlotte, or a Kansas City, or an Austin,” CompTIA senior vice-president of research and market intelligence Tim Herbert told Postmedia in an interview.

“These cities [are] more affordable, [and] in some cases you can make an argument that there is a better quality of life.”

In its Cyberprovinces 2019 study, CompTIA noted that smaller cities can become more feasible investment options in the very near future. Last year alone, Canadian tech employment expanded by 61,000 new jobs, amounting to a 3.8% annual increase.

Overall, the tech workforce grew by as much as 249,000 new employees since 2010.

Herbert added that demand for Canada’s office spaces is “not just limited to technology companies, who are starting to take office space or build new headquarters, but a range of different company types are attracting tech talent.”

Data from Avison Young showed that the Canadian office market has seen the positive absorption of 9 million square feet (MSF) in the year ending June 30, 2019. This has massively outstripped the nearly 6 MSF absorption during the immediately preceding 12-month period.

The sustained popularity of the industry and the resulting demand upon Canada’s commercial real estate is impelled by the strength of its long-term employment prospects. In 2018, tech earnings clocked in an average of $78,070 – fully 51% higher than the average reading of $51,794 in the private sector.

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage.

 

 

by Ephraim Vecina | 24 Oct 2019

Why CRE investors should consider niche assets

Investors in commercial real estate should consider more than the mainstream asset classes and go niche.

That’s the takeaway from a new report from global real estate firm Cushman & Wakefield that highlights the benefits of investing in niche assets.

These assets include cold storage, data centers, medical offices, student housing, and senior housing.

The report says that transactions in niche assets have exploded in recent years and are now similar to retail and industrial. And changes in how we live and the aging population is set to drive volumes higher.

Niche assets have also outperformed the overall CRE benchmark in the two most recent recessions, suggesting that this could provide defensive exposure in future downturns.

Investors also gain exposure to secular drivers such as changes in demographics, affordable housing challenges, technology, and consumer behavior.

Complex operations
The report notes that institutional activity in niche assets could have room to expand from its current uneven pattern, which would “support pricing and liquidity in a virtuous cycle.”

However, it’s suggested that investors might be better buying an experienced operator in a niche or partnering with one, as niche asset strategies are “often operationally complex.”

By Steve Randall | last updated on the 22 Oct 2019

CMHC FINANCING

Lesser known available CMHC options for Apartment Building Owners

CMHC stands for the Canada Mortgage and Housing Corporation, which is a crown corporation of the government of Canada. Although apartment owners are usually familiar with the benefits of CMHC loan insurance and CMHC loan terms, there are many other CMHC financing options that are not well known and may be beneficial to apartment owners.
CMHC and Commercial Property
CMHC does not directly insure loans for commercial property such as office building or retail centers. However, CMHC does permit up to 30% of a multi-residential property to be used for commercial uses such as a gift shop, office space, etc. If the area of the commercial space is less than 30% of gross floor area or lesser than 30% of the total lending value, then the revenue generated from that commercial space can be included into the total revenue of the property. However, if the commercial space is greater than 30% of the total property area, then the income cannot be added to the total revenue of the property.
CMHC Top-up
Apartment owners may want to increase their loan amount at a minimal cost. The CMHC permits existing CMHC insured loans to be refinanced up to a 65% loan to property value ratio with a premium of 1.75% that is paid only on the new money.
CMHC Mortgage Financing
CMHC will insure second mortgages until the term renewal of the existing first mortgage, which doesn’t necessarily have to be a CMHC insured loan. Then, at term renewal, the two mortgages are combined into one new CMHC. This is beneficial in a rising interest rate environment because a CMHC insured the second mortgage provides a way to increase the loan amount during an existing loan term rather than waiting for the maturity of the first mortgage.
CMHC also insures loans for capital improvements to a maximum of 85% of property value.
CMHC also permits floating rate term loans for terms of at least 5 years. These situations would be beneficial when rates are decreasing or early repayment is anticipated.
Overall, many CMHC financing options are overlooked and not understood very well by apartment investors, so it is important to learn all of the different options available and see which ones can be beneficial.
By: Daniela Peeva |  June 2019

Why use Mortgage alliance Commercial

Top 5 Reasons to Use Mortgage Alliance Commercial Canada (MACC)

 

  1. MACC is Licensed across Canada with offices in Quebec, Ontario, Alberta, and BC
  2. MACC has maintained privileged relationships with all major lenders across the country to allow our clients to access better terms and conditions for their financing needs
  3. MACC simplifies and manage the entire process of any lending transaction from pre-screening requirements and options; completing loan underwriting and lender negotiations, through to the disbursement requirements, to ensure successful completion and funding.
  4. MACC is an approved CMHC correspondent and experienced in preparing and presenting applications directly to CMHC for underwriting and approval. This provides access to preferred rates and terms, and higher loan to value ratios. This includes multi-unit rentals, mixed-use, purchases and refinances. We pre-screen deals to determine potential loan amount available based on property information provided such as rent roll, and statement of income and expenses.
  5. MACC has over 20 years’ experience in the commercial broker industry and a significant track record in deal success covering all commercial industries. We are well-positioned to guide clients through the most complex transactions and obtain the best options in the market. See our website for just a few of the projects completed.  https://macommercial.ca/projects/

 

 

 

Marion Cook  | November 2018

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Commercial Mortgage Commentary – CMLS Mortgage Analytics Group

Making News

Overnight Rate
In late October, the Bank of Canada (“BOC”) announced the third 25 bps rate hike this year, which brought the overnight target rate to 1.75%. The increase comes after continued strength in economic figures and the negotiation of the “new NAFTA” trade deal with Mexico and the U.S. This pushed the prime rate of major Canadian banks to 3.95%.


GOC Yields
Spread premiums between the Government of Canada (“GOC”) 3, 5, and 10-year term bond yields remain extremely tight. Through Q3/18, the premium between 3-year and 10-year tightened by 4 bps, while the premium between 5-year and 10-year remained unchanged.

Investments
In Q3/18, Telus sold its Vancouver headquarters, Telus Garden, to a partnership of investors represented by Regina-based Greystone Managed Investments for an undisclosed amount. The property was built as a joint-venture by Telus and Westbank Corp. for $750 million and consists of an office tower and residential building in Downtown Vancouver. Telus is expected to generate approximately $170 million in profit on the sale.


Commercial Mortgages

Lenders and borrowers have maintained balanced supply and demand for the 5th straight month with commercial mortgage spreads staying flat. 5-year deals are pricing 145 bps to 160 bps over GOC bonds for top quality assets, while 10-year spreads are pricing at a 10 bps premium for similar risk. The liquidity premium of commercial mortgage spreads over BBBrated corporate bonds remained generally unchanged since our last report with the premium down slightly from 64 bps to 62 bps as a result of a slight increase in corporate spreads. This moves the liquidity premium away from the long-term average of 70 bps.


CMBS

The CMBS market continues to be challenged by unattractive profitability due to tightening commercial mortgage spreads relative to CMBS bonds. Recent weighted average breakeven mortgage spread for new CMBS issuance was approximately 225 bps and with current spreads around 190 bps, the prospects of profitability falls short by 35 bps. Until the commercial mortgage spreads move past the CMBS breakeven point, new issuance activity is expected to be thin.

Senior Unsecured Debt

In Q3/18, senior unsecured debt issuance slowed to $625 million, down from $1.65 billion in Q2/18. However, cumulative 2018 issuance is up 27% on a YTD basis and makes up 86% of the total issuance in 2017. Since our last report, Crombie REIT issued a $75 million, 2.9- year note with a 170 bps spread. Overall, spreads on BBB-rated unsecured debt decreased through Q3/18 to 145 bps. For now, spreads on unsecured REIT debt continue to receive cheaper investor dollars compared to conventional commercial mortgages with a difference of only 10 bps at the end of Q3/18.

CMHC

Spreads on multi-family CMHC-insured loans remained stable since our last report with spreads ranging between 80 bps and 105 bps over GOC on 5-year terms and between 85 bps and 110 bps over GOC on 10-year terms. This is partly due to the relatively unchanged spreads on CMHC-backed Canada Mortgage Bonds (“CMB”). 5-year CMB spreads only decreased 3 bps to 28 bps and the 10-year CMB spreads remained flat between July and September.


High Yield

In Q3/18 the British Columbia Securities Commission (BCSC) announced it will not be renewing the exemption that previously allowed Mortgage Investment Corporations (MICs) to operate in BC without engaging in the onerous registration process with the BCSC. The impact of this announcement will be felt in the local industry as many small MICs will now have to endure registration costs.

ABOUT CMLS MORTGAGE ANALYTICS GROUP
The CMLS Mortgage Analytics Group (“MAG”) is a division of CMLS and the leading provider of independent mortgage valuation, risk ratings, market research and software to the commercial mortgage industry in Canada. Our clients include some of the largest institutional asset managers and insurance companies with assets under management ranging from single digit billions to over $100 billion.