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Toronto needs to double rental supply to meet future demand

A new report from RBC Economics focuses on the rental housing deficit which is set to intensify in the coming years, especially in Toronto and Vancouver.

The report says that supply of new rental homes will need to pick up pace to meet future demand; in Toronto the pace must double. In the meantime, lack of supply is leading to “uncomfortable highs” for rents – which means those hoping to save up to buy a home are squeezed even further while high home prices have “crushed some homeownership dreams.”

RBC says that big cities must increase rental supply to have any hope of tackling affordability issues.

It notes that there are some positive signs in some cities, such as Montreal and Vancouver where has new waves of supply underway; and in Calgary where there are elevated rental vacancies.

But in Toronto, the report says supply will not come close to demand in the coming years and calls for specific targets and incentives to address the issue.

Deficit needs action
RBC Economics’ estimates of the supply needed to balance out supply and demand in the major markets as of late 2018 are: a deficit of 9,100 rental units in Toronto, Montreal had a 6,800-unit deficit and Vancouver 3,800 units.  Calgary carried a small surplus of 300 units.

This will be exacerbated by the estimated increase in renter-households of 22,000 in Toronto and 9,400 in Vancouver over the medium term, with Montreal averaging 8,200 per year on average.

The report estimates that Toronto will need 28,600 new rental units on average over a two year timeframe with 11,600 in Montreal, 11,300 in Vancouver and 4,150 in Calgary.

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 Steve Randall |  last updated on the 26 Sep 2019

 

Seven-building acquisition attests to Montreal’s rental strength

Late last week, Greybrook Realty Partners and Marlin Spring announced the acquisition of a Montreal portfolio comprised of seven apartment buildings with a total of 324 rental units.

Said properties are situated close to restaurants, shops, hospitals, grocery stores, two metro stations, the Université de Montréal, and hospitals like the Jewish General Hospital.

Greybrook Realty and Marlin Spring stated that they will also be in charge of renovating suites and improving the common areas across all the buildings.

“The close of this acquisition brings the total number of units within our value-add portfolio to 774. With asking rents currently below comparable products in the area, we believe an opportunity exists to improve both the product offering and revenue through execution of a value-add program,” Greybrook Realty executive director Jared Berlin said.

“With the success of our existing Montreal portfolio, supported by the City of Montreal’s strong rental market fundamentals, we believe these assets are a natural fit in our growing Quebec Multi-family Portfolio” Marlin Spring CFO Elliot Kazarnovsky added.

In recent years, strong population growth – especially immigration – has spurred sustained growth in Montreal’s rental housing market.

Figures from IPA’s Midyear Canadian Multifamily Investment Forecast Report indicated that by the end of June 2019, the city’s average rent increased 4.1% year-over-year, up to $797 per month. Average prices grew by 6% year-over-year, up to $154,400 per unit.

 

by Ephraim Vecina | 23 Sep 2019

Frenzied commercial development marks next phase for emergent metropolis

Montreal’s residential real estate market has grabbed all the headlines in recent years, but the city’s commercial sector is beginning to burgeon and it, too, will get its due.

Toronto-based Michel Durand, President and CEO of Multi-PretsMortgage Alliance Commercial, says that Toronto and Vancouver cast a pall on Montreal, but as those cities have begun topping out, the Quebecois metropolis is attracting international attention.

“The Montreal market is finally seeing its share of the Asian influence, which we saw in Vancouver about 10 years ago and then it moved to Toronto when things got overcrowded and overpriced. Now we’re seeing a lot of development money moving into Montreal, which we’ve witnessed over the last three years and which, I think, is a trend that’s going to stick for at least the next five years,” said Durand.

Of course, in Montreal, it began with an explosion of interest in residential, and with its success has come the next, if more lucrative, phase of the city’s real estate development.

“Residential is a catalyst for commercial development,” continued Durand. “Once investors and developers get a  taste of how easy it is on the residential side—we’ve seen a lot of condos and towers go up from Asian investors—which is where they start, then they go into commercial development, like office buildings and new retail plazas, by partnering with local players.”

Likely contributing to Asian interest in Montreal is the city finally has direct flights to Mainland China, added Durand.

“Flights would go China-Vancouver and China-Toronto, and that’s where the money stayed,” he said, “but a few years ago flights started going to Montreal directly and we immediately saw the effects on the commercial real estate side, which also includes residential—transactions that are completely investments.”

In tandem with an institutional partner, Kevric Real Estate Corporation recently announced its purchase of a major downtown Montreal office tower located at 600 de la Gauchetière West, for which it has big plans. The purchase is also the latest sign that downtown Montreal’s commercial real estate sector is getting a boost the likes of which it hasn’t seen since a bygone epoch in the city’s history when, as Canada’s largest city, it was the country’s economic engine.

In addition to updating 600 de la Gauchetière W.’s architecture and building a new lobby facing Square Victoria, it will try to attract companies from Montreal’s up-and-coming industries, including technology, knowledge, and media.

“This important acquisition allows Kevric to expand its offering of commercial real estate spaces for organizations which aim to distinguish themselves and will ensure the company’s growth in Montreal for years ahead,” said Richard Hylands, Kevric’s president. “Kevric is proud to continue fueling the evolution of downtown Montreal into a world-class Canadian city.”

Published on MortgageBrokerNews.ca

by Neil Sharma
31 July 2019

Canadian Mortgage Professional Young Gun of the year

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Fed announces interest rate decision

The Federal Reserve reduced interest rates for the first time since the financial crisis and hinted it may cut again this year to insulate the record-long U.S. economic expansion from slowing global growth.

Central bankers voted, with two officials dissenting, to lower the target range for the benchmark rate by a quarter-percentage point to 2%-2.25%. The shift was predicted by most investors and economists, yet will disappoint President Donald Trump, who tweeted on Tuesday he wanted a “large cut.’’

“In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the committee decided to lower’’ rates, the Federal Open Market Committee, led by Jerome Powell, said in a statement following a two-day meeting in Washington. It also noted that “uncertainties” about the economic outlook remain.

Officials also stopped shrinking the Fed’s balance sheet effective Aug. 1, ending a process that very modestly tightens monetary policy and was previously scheduled to come to a close at the end of September.

Policy makers appeared open to another cut as early as September when they next convene while sticking with wording in their statement that preserves their options.

“As the committee contemplates the future path of the target range for the federal funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion,” they said.

Kansas City Fed President Esther George and Boston’s Eric Rosengren voted against the cut. The statement said they “preferred at this meeting to maintain the target range for the federal funds rate.” It was the first time since Powell took over as chairman in February 2018 that two policy makers dissented.

Investors had forecast the Fed to continue easing monetary policy this year, with futures pricing the key rate to fall about another half-point by January. U.S. stocks rose to a record last week in anticipation of easier money, while the yield on two-year Treasuries has undershot 2% since May.

While the domestic economy has performed relatively well, the Fed cut amid concern that softness abroad threatens the decade- long U.S. expansion. Trump’s trade war with China is hurting foreign demand. Data released earlier Wednesday showed the pace of quarter-over-quarter growth in the euro area slowed by half in the latest three months to 0.2%.

In the U.S., after growing 2.5% last year, fuelled by now-fading tax cuts and higher government spending, the economy expanded at a 2.1% annualized pace in the second quarter. The trade dispute was blamed for a manufacturing slowdown and the first drop in business investment since 2016.

In their assessment of the US economy, officials made only minor changes to their statement language.

Powell has repeatedly said the Fed’s “overarching goal’’ is to keep growth going. Acting now, when the central bank has less room to pare rates than in past downturns, is partly aimed at getting ahead of any potential slump.

Lacklustre inflation also offered the Fed space and reason to ease. Its preferred price gauge, excluding food and energy, rose 1.6% in June from a year earlier and hasn’t met the Fed’s 2% target this year.

Trump is unlikely to be satisfied as he puts the economy at the heart of his re-election bid. He has broken with convention and undermined the Fed’s political independence by lobbying it to loosen policy and publicly questioning his nomination of Powell as chairman.

At his press conference, Powell will almost certainly be asked if the Fed buckled to that pressure. He may also be quizzed on whether the Fed, if requested, would join the U.S. Treasury in any effort to weaken the dollar given Trump’s complaints about the currency’s value.

Limited Scope

While Trump and some investors wanted the Fed to be more aggressive, its scope for doing so is limited. Stocks are high, unemployment is around the lowest in a half-century and consumers continue to spend. At the same time, a measure of business in the Chicago region fell this month to the lowest since late 2015.

The rate reduction was the first since December 2008 when the Fed dropped its benchmark effectively to zero as it battled recession and financial crisis. It began raising borrowing costs in December 2015, doing so another eight times. Officials indicated as recently as December they intended to continue to hike this year.

They dumped that plan in January as financial markets fretted monetary policy had become too restrictive.

Fellow central banks are set to follow the Fed. Those in IndiaSouth Africa and Australia are among those to have cut this year. The European Central Bank has indicated it will do so in September.

A worry for policy makers is that a decade of easy money leaves them short of ammunition for fighting a serious downturn. That likely means governments will face demands to do more if economies keep struggling.

 

Copyright Bloomberg News

by Bloomberg 31 Jul 2019

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

Thriving Tech and Ecommerce Sectors Drive Canadian Commercial Real Estate Records in the First Quarter

Industrial availability dropped to a record low in Q1 2019, while office markets across Canada had some of the best results in recent memory

Toronto, ON – April 1, 2019 – A flourishing tech sector and bustling e-commerce activity continue to re-shape the Canadian commercial real estate (CRE) landscape. Office and industrial property markets logged new records in the first quarter of 2019 and saw some of the strongest demand in recent memory, according to CBRE’s Canada Q1 2019 Quarterly Statistics report.

Canada’s office real estate recorded the most vigorous leasing activity in years, primarily spurred by a rapidly expanding tech sector. Overall, the national office property vacancy rate decreased by 40 basis points (bps) quarter-over-quarter to 11.5% in Q1 2019, the lowest level since Q2 2015. The amount of office product under construction nationwide in the first quarter reached 16.0 million sq. ft. for the first time since Q4 2015, as Vancouver saw an additional 1.4 million sq. ft. of new office development break ground this quarter.

The rise of online retail sales, and the associated warehouse space needed to keep up with consumer demand, has pushed the Canadian industrial market into overdrive. The national industrial availability rate dropped to a new record low of 3.0% in Q1 2019. To meet user demand for taller clear heights, larger door counts, and specialized warehouse configurations, 22.6 million sq. ft. of industrial space is under construction, the bulk of which is in Toronto and Vancouver. This is the highest level of national industrial development seen since 2015.

“Canadian office markets continue to gather momentum, in large part as a result of rapidly growing tech and co-working sectors. The remarkable office market momentum continues to build, but tenants have fewer and fewer options if they don’t plan ahead,” commented CBRE Canada Vice-Chairman PaulMorassutti. “Meanwhile industrial developers are responding to chronic space shortages with new construction, while tenants are opting to secure space prior to construction completion. In Toronto, all new supply delivered in Q1 2019 was pre-leased, and 77.6% of the 9.58 million sq. ft. under construction already has tenancies in place.”

Here are some of the other commercial real estate records logged in the first quarter:

  • Downtown Toronto office vacancy tightened another 10 bps, dropping the rate to a new record low of 2.6% in the first quarter.
  • Montreal’s downtown office vacancy now sits at 8.6%, the lowest it has been since Q4 2013, with tech company growth playing a key role in this decline. The downtown core has had 819,500 sq. ft. of new product delivered over the past eight quarters, with 998,139 sq. ft. of additional space under construction as of Q1 2019.
  • Calgary experienced 289,515 sq. ft. of positive net absorption of downtown office space in Q1 2019, the largest quarter of positive absorption since the oil downturn in 2014. Much of the activity came from tenants taking back space previously listed for sublease, spaces being converted to co-working uses, and landlords turning unoccupied supply into amenity space.
  • Toronto’s industrial market, which has had 16 consecutive quarters of positive net absorption, saw its availability rate hit an all-time low of 1.5% in Q1, with 2.2 million sq. ft. of positive net absorption.
  • Calgary’s industrial market, which has logged nine consecutive quarters of positive net absorption, had a further 649,080 sq. ft. of space taken up in the first quarter of 2019.
  • The Halifax industrial market had 50,465 sq. ft. of positive net absorption in Q1, the ninth straight quarter of positive net absorption for that city.

“In recent years, the Canadian real estate market had been somewhat polarized between areas of pronounced strength and areas facing challenges; however, this quarter showed more momentum for cities across the country, including hard-hit Alberta,” said Morassutti. “It’s worth noting that while overall office vacancy has remained stable quarter over quarter in Edmonton and Calgary, the amount of sublet space on the market – which serves as a bellwether for the office segment – decreased by 25.1% and 8.6% respectively. This is a promising indication that Alberta’s CRE conditions look to be improving at long last.”

For further details and insights, download CBRE’s Canada Q1 2019 Quarterly Statistics report here.

Residential Agents Can Hit Jackpot With Commercial Referrals

But synergy between the two sides is sorely lacking in the real estate industry, experts say.

Residential real estate professionals may be leaving money on the table by neglecting to send referrals to commercial practitioners. But agents on both sides of the business should partner with each other to expand their clientele and improve their bottom lines, a panel of brokers told attendees at the Coldwell Banker Gen Blue conference in Las Vegas.

Robert Pressley, president of Coldwell Banker Commercial MECA in Charlotte, N.C., demonstrated how lucrative these partnerships can be. He recalled working with a New York–based residential agent in August who had a client looking to place $100 million in cash in a 1031 exchange. “I was able to close on more than $70 million and sent the referring agent a $345,000 referral fee,” Pressley said. “That’s one way to make money.”

Synergy between the residential and commercial sides, though, goes largely untapped in the industry, which flummoxes Bob Fredrickson, CCIM, president of Coldwell Banker Commercial Danforth in Federal Way, Wash. Having worked on both sides of the business himself, Fredrickson said he’s always had commercial and residential teams working together. “We’ve seen the results,” he said. “In 2017, we had $86,000 in referral fees, and in 2018, we had $525,000 in referral fees on the residential side. That is powerful. We got [residential agents’] attention because they can add 10 to 20 percent a year to their incomes.”

Pressley cautioned residential agents against pursuing their clients’ commercial interests if they don’t have experience handling such transactions. It’s bad for the client and themselves if they do it wrong, and it’s better to hand it off to a commercial pro, he said. “It’s never the big-performing residential agents trying to do [a commercial] deal. It’s the newer agents that don’t have a lot going on, and the last thing they should be doing is a commercial transaction. I don’t want to hurt anybody’s feelings, but I have never sold a house in my life and never will. I will mess it up so fast.”

But his advice is conditional: In rural areas where commercial transactions are more infrequent, agents may be wise to learn both sides of the business so they don’t have to send a client to another market to find a commercial pro, Pressley said. But in larger cities with a wealth of both types of transactions, residential and commercial deals should be handled separately by knowledgeable agents.

Commercial pros, too, should understand when to seek the expertise of a residential agent, Pressley noted. Oftentimes, they must cooperate with one another in a leasing or multifamily transaction, and it’s wise not to assume either party misunderstands the other and can be taken advantage of. Residential pros can be helpful to commercial brokers because they’re good at developing client relationships and can offer advice on making deeper business connections, Pressley said.

Duff Rubin, president of Coldwell Banker Residential Brokerage Mid-Atlantic, said that many home buyers may also be entrepreneurs interested in leasing space nearby. “Everyone who has a home has a job,” Rubin said. “Every single person [residential agents] are speaking to and selling a home to is a buyer in a potential commercial lease. They need to pull the leads out of them.”

Pressley said that while commercial agents can get a lot of referrals from the residential side, it doesn’t necessarily work the same in reverse. He said that most times when he sends referrals to residential agents, it involves a commercial client who needs to find homes for relocating employees. But with so many more residential agents than commercial ones, there’s a lot of competition, he said.

 

March 25, 2019 | by Buck Wargo