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Front Yard, second largest single family landlord closed deal in $2.4 Billion Deal

Pretium, Ares to Purchase Front Yard in $2.4 Billion Deal

Patrick Clark and Prashant Gopal

Pretium and Ares Management Corp. have agreed to purchase Front Yard Residential Corp. in a deal valued at $2.4 billion that would create the second-largest single-family landlord in the U.S.

Front Yard shareholders will receive $13.50 a share, a premium of about 36% over the closing price on Friday, according to a statement on Monday. The equity value of the deal is about $800 million.

Shares of Front Yard surged 35% to $13.45 in New York.

Wall Street has been plowing money into the single-family rental industry in recent months, betting on the demand for homes with more space in the suburbs. While record-low mortgage rates have fueled a housing rally, that’s driven up prices, possibly pushing homeownership out of reach for many.

That has investors looking at single-family rentals, which give residents who can’t afford to buy access to backyards and extra rooms for home offices. Blackstone Group Inc., Nuveen Real Estate, and JPMorgan Chase & Co.’s asset management arm have all made fresh bets on rental houses since the pandemic started.

“Across the country, you can see rent growth in single-family rental, increased demand, and a significant reduction in available home supply,” Don Mullen, Pretium’s chairman, said in an interview. “That turbocharged our confidence.”

Mullen, a former former Goldman Sachs partner, founded Pretium in 2012. It was part of an early wave of Wall Street firms to invest in single-family rental homes in the aftermath of the U.S. foreclosure crisis, building economies of scale that made sprawling portfolios of rental houses easier to manage.

Roughly three-quarters of Front Yard’s rental houses are in markets where Pretium has an existing footprint, allowing the firm to add density to its portfolio that should translate to higher quality services for renters and better margins for investors, Mullen said.


Deal Nixed

Amherst Holdings had announced a deal to buy Front Yard back in February for $12.50 a share, or about $2.3 billion. But the deal fell apart in May as the coronavirus roiled real estate markets. That announcement sent Front Yard’s shares spiraling lower.

While other single-family rental landlords have seen share prices recover from market lows in March, shares in Front Yard languished, leading shareholders to call for the company to liquidate itself. The stock had dropped 19% this year and closed Friday at $9.96.

Front Yard put itself on the block last year after settling with an activist investor. The landlord owns roughly 15,000 homes, making it an attractive target in an industry where efficiencies of scale are key.

Pretium has more than $16 billion in assets under management across residential real estate, mortgage finance, and corporate credit. Last year, it completed a $1.5 billion recapitalization of more than 20,000 houses acquired through an early single-family rental fund.

The new combined company would own and operate more than 55,000 homes across the U.S., making it the second-largest landlord in the industry.

Invitation Homes Inc., which owns roughly 80,000 houses, recently announced a new joint venture with a Boston-based firm to deploy more than $1 billion, including debt, to buy and renovate homes.



© 2020 Bloomberg

Different predictions for Metro Real Estate market

Diverging predictions for Metro real estate market

Joanne Lee-Young
The Province

The Vancouver real estate industry reported another month of higher sales and prices in September and continues to defy dire predictions of a pandemic-induced downturn.

But some analysts point out fragile aspects of the market, such as a rising condo inventory and falling condo prices.

The number of real estate sales in B.C. year-over-year in September increased 63 per cent. The average residential price in B.C. increased by 15.3 per cent compared to last year, and set a monthly record of $803,210. Total sales dollar volume in August increased 88 per cent compared to last year, according to the B.C. Real Estate Association, which represents real estate agents.

The Canada Mortgage and Housing Corp. has been in a high-profile clash with some in the real estate industry over its prediction of double-digit percentage price drops in markets such as Vancouver.

The federal government housing agency, which has tightened underwriting policies for high-ratio borrowers, has also been vocal about the danger of fuelling the stress of home ownership in expensive markets for buyers with uncertain financial prospects in a weak economy.

Now, with sales and prices rising, there continues to be agreement about a housing market cleaving in half, but disagreement about where this could lead.

“The overall housing market system seems to be dividing in two, and this is where risks start to appear,” said Aled ab Iorwerth, deputy chief economist at the CMHC.

He and others think that while prices are holding and rising, there are nuances such as falling rents, a growing preference for suburban over city locations, and extended economic weakness that could hit the condo market and pull down other house prices too.

“I think it’s still too early to be doing the happy dance. Condo prices are declining while house prices are moving higher. The result is a higher average sales price as the composition of homes selling has changed. It’s very much a mixed market and the potential fallout from deferred mortgages has yet to be realized as these deferrals are only beginning to expire,” said Vancouver realtor Steve Saretsky.

Saretsky adds there will be a record number of new condos completing this year and next. These are projects that were started during the building boom which began in 2016.

“That new construction is finally completing at a time when condo demand has slowed, and the rental market has softened. These are obvious risks that are contending with the lowest mortgage rates we’ve ever seen and a sea of liquidity provided by the Bank of Canada. Hence, the short- to medium-term direction of the market remains very much in flux.”

Realtor Ian Watt, who specializes in downtown Vancouver condos, where rising inventory has been more pronounced, said the median price in September decreased 10 per cent from THE previous month, and the median price decreased 14 per cent from September 2019.

Housing starts across B.C. in September hit 25,308, down from 33,100 during the same period in 2019.

However, that is comparing housing starts in 2019 that ended up reaching a record high of 44,932, even though most forecasts had been for the number at the end of the year to be around 35,000.


© 2020 Postmedia Network Inc. All rights reserved. 

Canadian housing market facing a biggest housing bubble risk

Canada, home of North America?s biggest housing bubble risk, defies pandemic with price hikes across the country

Ari Altstedter

Median home price expected to reach $693,000 by the end of the year, a 7 per cent increase from the end of 2019
he median home price in Canada is expected to reach $693,00 by the end of the year, a 7 per cent increase from the end of 2019, according to a projection from brokerage Royal LePage. Photo by Peter J. Thompson/National Post files
Even a once-in-a-century pandemic isn’t enough to cool the Canadian housing market, with prices nationwide now forecast to end the year higher than where they started.
The median home price in Canada is expected to reach $693,000 (US$527,000) by the end of the year, a 7 per cent increase from the end of 2019, according to a projection from brokerage Royal LePage. The market continues to show strength across the country, with 97 per cent of regions reporting higher home prices in the past three months, the company said.
In Toronto, which UBS says has one of the greatest housing bubble risks of any major city in the world, the average price reached $975,980 by the end of September, up 11 per cent from the same period a year before.
The resilience of Canada’s housing market is not unique: home prices in many parts of the developed world have been defying the gloom of the COVID-19 recession. Buyers, able to borrow money at historically low rates, have looked to suburbs and smaller cities in the hunt for more space, driving up prices.

Still, with elevated consumer debt levels and a sharp slowdown in new immigrants, Canada’s real estate market stands out as vulnerable, with prices far in excess of what many workers can afford.
“Prices right now are rising at an uncomfortable rate,” said Phil Soper, president of Royal LePage, adding that growth will slow this winter after summer’s post-lockdown boom. “The economy and the social data in Canada right now is not boom time.”
In a sign the pandemic may be starting to shift homebuyers’ behaviour, the biggest price gains in Canada were seen not in Toronto but in suburban cities, including Oshawa, Hamilton and Mississauga, and in smaller cities like Windsor, Ontario, across the border from Detroit. Windsor had the biggest average price appreciation in the country in the last three months at 17 per cent.

Condo Trouble
Toronto’s condo market is trailing other kinds of housing in the city, with 4.9 per cent price appreciation in the July to September period. New data released last week showed a 215 per cent increase in condos listed for sale in the city’s downtown at the end of September, a sign that outright price declines may be on the way in some pockets.
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“The overall housing system seems to be dividing in two, and this is where risks start to appear,” said Aled ab Iorwerth, deputy chief economist at Canada Mortgage & Housing Corp., the country’s national housing agency. CMHC made one of the most bearish market forecasts in May when it said prices could fall between 9 per cent and 18 per cent this year.
While prices have gone the opposite way instead, ab Iorwerth points to falling rents, the growing preference for suburbs over downtown locations, and prolonged economic weakness as causes of potential softness in the condo market in particular, which could end up bringing down other house values too.
“All this suggests there’s going to be pressure on condo prices, and that can drag down other prices in the single detached or other types of housing units,” he said “So there’s a fragility there now.”

© 2020 Financial Post

Travel industry is among the highest affected industry in Covid-19

WestJet drops most Atlantic Canada flights after demand ‘obliterated’ by travel restrictions

Barbara Shecter

Eliminates almost 80 per cent of seat capacity from the Atlantic region — after airline boosted routes there
WestJet president and CEO Ed Sims: The demand for travel has been “severely limited by restrictive policies and third-party fee increases” on top of a lack of federal support for the industry. Photo by Gavin Young /Postmedia
In a clear sign of the impact the coronavirus pandemic is having on the travel industry, WestJet Airlines Ltd. said Wednesday that it will suspend many of its flights in Atlantic Canada indefinitely beginning Nov. 2, a move that will eliminate more than 100 weekly flights.
The Calgary-based airline, which was purchased by private equity firm Onex Corp. in December, is completely discontinuing service to Fredericton and Moncton, N.B.; Sydney, N.S.; Charlottetown; and Quebec City. It is also “significantly” reducing service to Halifax and St. John’s.
The suspension eliminates almost 80 per cent of seat capacity from the Atlantic region and the airline’s only route to Quebec’s second-largest city, a four-times-weekly flight from Toronto.
“It has become increasingly unviable to serve these markets,” Ed Sims, WestJet’s chief executive, said in a statement, adding that the airline has been working since the pandemic was declared in March to maintain essential air service to domestic airports.
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He said the company is now “out of runway” to maintain certain routes, with demand for travel “severely limited by restrictive policies and third-party fee increases” and in the absence of “sector-specific support” from government.
Canadian airline officials including Air Canada chief executive Calin Rovinescu have repeatedly called for an easing of 14-day mandatory quarantines after travel — which they say have decimated business travel — or bailout funds such as those given to airlines in the United States and Europe.
Canadian airline officials have also decried mandatory quarantines and periods of self-isolation for travellers to and from some regions within the country.
In WestJet’s statement Wednesday announcing the flight suspensions, the airline noted that it had been the only Canadian carrier to maintain its full pre-COVID-19 domestic flight network for this long.
“While we remain committed to the Atlantic region, it’s impossible to say when there will be a return to service without support for a co-ordinated domestic approach,” said Sims, adding that it would have to be “economically viable” to reinstate suspended flights.
Canada’s Atlantic region has been among the most successful at reducing the spread of COVID-19 by creating a “bubble” that requires visitors from outside the region to quarantine or self-isolate for 14 days, among other travel restrictions. There were fewer than 100 active cases in the region on Wednesday.
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It’s impossible to say when there will be a return to service without support
Ed Sims, CEO, WestJet
But that hasn’t been a boon to the airline industry, according to Morgan Bell, a spokesperson for WestJet. Rather, it has “obliterated” demand for travel to and from the region because each province has its own form of application and approval process, including fines for non-compliance or denial of travel without approved documentation.
“These patchworks of domestic travel restrictions and quarantine periods that are currently in place within our own borders are severely limiting Canada’s economic recovery and putting hundreds of thousands of jobs in our critical industry at risk,” Bell said.
Prior to the pandemic, WestJet had beefed up competition in Atlantic Canada by adding 28 routes either into or within the region in recent years. In addition, nonstop transatlantic flights to London, Paris, Glasgow and Dublin were introduced “to grow Halifax as the Atlantic gateway to Europe,” the company said Wednesday.
In addition to announcing the suspension and reduction of domestic flights in Atlantic Canada, WestJet said it would permanently lay off 100 corporate and operational support employees due to fading prospects for any near-term recovery as demand remains weak across its operations. The airline said an earlier reorganization triggered by the pandemic means the latest layoffs do not include staff from airports in Atlantic Canada.
In June, WestJet contracted out airport operations in all domestic airports except Vancouver, Calgary, Edmonton and Toronto, and consolidated call centre activity in Alberta.

© 2020 Financial Post

Lower rates cut might disrupt Canadian financial system – Macklem

Negative rates down the line are possible, says BoC’s Macklem

Ephraim Vecina
Mortgage Broker News

Bank of Canada Governor Tiff Macklem said in a video conference last week that further rate cuts remain an option in providing economic stimulus.

At present, the central bank’s policy rate is at a historic low of 0.25%.

“We are not actively discussing negative interest rates at this point but it’s in our toolkit, and never say never,” Macklem said.

The timing of the statement made perfect sense, according to Derek Holt, head of capital markets economics at Bank of Nova Scotia.

“He’s putting the concept back on the table if downside risks intensify,” Holt told Bloomberg via email.

This represented a softening in the governor’s stance. Upon taking the central bank’s helm earlier this year, Macklem said that sub-zero rates will significantly disrupt the Canadian financial system.

The possibility of negative rates was floated a few years back, when the bank was reviewing its options.

However, the policy steps taken so far to help the economy weather the pandemic have made the financial system more susceptible to future volatility, Macklem said.

“Without the fiscal and monetary policy actions, the economic devastation of the pandemic could have been much, much worse,” Macklem said. “[But] as much as a bold policy response was needed, it will inevitably make the economy and financial system more vulnerable to economic shocks down the road.”

Macklem said that the bank is keeping a close eye on the national credit environment, despite most Canadians having resumed regular payment schedules as banks’ mortgage deferral programs ended.

A potentially major failure point will be sufficiently large credit losses that will force banks to impose stricter controls on borrowing, Reuters reported.

“If this happens, our banking system would go from being a tailwind that supports recovery to being a headwind,” Macklem said.


Copyright © 2020 Key Media

Covid-19 challenge the real estate market will this be an indication of slow real estate market?

Will a pause in open houses slow Ontario’s raging real estate market?

Clayton Jarvis
Mortgage Broker News

 On Friday, the Ontario Real Estate Association called on the province’s realtors to put a temporary halt to open houses. The recommendation came just hours before the province announced that it had recorded 939 new COVID-19 infections, smashing the previous record of 797 set on Thursday.

“As we see the cases around Ontario continue to rise and that second wave starting to take hold, we wanted to make sure that Ontario real estate is doing its part to help keep people and their communities safe,” OREA president Sean Morrison told Mortgage Broker News by phone.

A pause in open houses is unlikely to impact business for the province’s realtors or mortgage brokers, many of whom were given a crash course in using technology to enhance business during the pandemic’s first few destabilizing months. From Zoom calls to e-signatures to 3D tours, real estate pro’s have already grown adept at using the kinds of tools that make open houses somewhat unnecessary, especially in Ontario’s most active real estate markets. These days, that’s practically all of them.

“I think, because realtors are so adaptive, we’ve already been shifting toward those digital tools. Under COVID-19, everybody had to make that shift a lot quicker,” Morrison says.

InTouch Mortgage Solutions broker Anthony Venuto doesn’t foresee a drop in business resulting from a lack of open houses, but he does hope realtors will see the next few days or weeks as an opportunity to provide better visual representations of homes online.

“If the industry adapts a higher standard of listings – not camera phone pictures of your listings – a client can look through those photos and narrow down from five or ten properties to just these two, or just this one,” he says. “Am I going to risk my life to go see a house if the photos aren’t really good? I’m going to pass.”

Venuto is quick to point out that open houses are not the only way for buyers to view a property. Private viewings are still permitted. But he says some sellers are only allowing viewings once an offer has been made. In that light, putting an end to open houses may actually speed up some buyers’ decisions.

“If you want to see a home, you can certainly book it with your local realtor and go through the home one-by-one,” Morrison says. “The concern here was the groupings of people running through open houses.”

Morrison says 3D renderings and virtual reality provide strong alternatives to open houses.

“You can still hold an open house virtually, which is something realtors have been doing throughout the pandemic and were starting to use even before the pandemic,” he says.

Community Trust’s Grant Armstrong is not expecting Ontario’s rising number of coronavirus infections to hinder the day-to-day operations of the province’s broker community, a large portion of which was operating remotely before COVID-19.

“Brokers and lenders have proven their resilience over the years to adapt to changes that are needed to support the industry,” Armstrong says. “This pandemic challenged the industry, and the industry stepped up to meet that challenge.”


Copyright © 2020 Key Media