Commercial strata gives investors more-regulated and complicated residential condo market


Real Estate Investing Part 4: commercial strata in B.C.

Frank O’Brien
Western Investor

 Main Street, Vancouver, strata retail at nearly $1,000 per square foot. |Corbel Commercial

Commercial strata gives investors an edge not seen in the more-regulated and complicated residential condo market

Geographically and historically, Metro Vancouver represents perhaps the best opportunity on the planet to make money in commercial real estate. Mortgage rates are at 100-year lows and the area has among the lowest industrial and commercial vacancy rates and highest lease rates in the country.

In this fourth of a four-part Western Investor series on real estate investing, we look at the commercial and light industrial strata market, where the opportunity to invest in commercial ‘condos’ can outweigh the potential of residential stratas.

In B.C., the provincial Strata Property Act does not differentiate between the commercial and residential sectors. While this provides some certainty, it also creates challenges in older mixed-use projects where four or five commercial owners can be out voted by the much larger number of residential strata owners. In B.C., a vote of 80 per cent of strata owners can force the sale of the entire project for re-development.

Most developers set up separate strata groups for residential and commercial sections to negate this. Investors are advised to check such separation is in place in any mixed-use project.

Commercial condos offer a route for investors to share in steady lease demand and Metro Vancouver’s proven price appreciation. As well, some B.C secondary markets, most notably Victoria and Kelowna, offer commercial strata opportunities with a lower entry price but similar income and yield potential.

Commercial strata investing generally involves buying a space, leasing it out for period of time, say five years, and then selling the unit to capture the increase in real estate values.

Commercial strata offers an advantage over residential strata in that tenants normally sign longer-term leases than in residential units, the property requires less maintenance and tenants are responsible for any improvements. Also, commercial rents are not subject to BC Residential Tenancy regulations which caps annual rent increases and can restrict evictions for non-payment of rent.

In Metro Vancouver, a well-positioned retail strata can return cap rates of 3.5 per cent to 5 per cent, with grocery-anchored malls and regional shopping centres ranging from 4 per cent to 5.5 per cent.

“What you can get on the street will beat the bank,” said an agent with Macdonald Commercial, who specializes in retail property sales and leases.

Metro Vancouver’s retail vacancy rate is 2.3 per cent, about half the current national rate of 4.1 per cent.

Prices for commercial strata, such as retail or light industrial, have increased sharply in the past year. It is not uncommon to see existing Metro Vancouver commercial stratas selling for upwards of $700 per square foot, with new product demanding $1,000 or more per square foot, similar to the residential condo market.

Retail lease rates range from lows of $25 to $60 per square foot in suburban and Vancouver secondary strolls to $150 per square foot in prime downtown shopping districts, like Robson and Alberni Streets.

Commercial rents are calculated annually. For instance, if you rent your 1,000 square foot retail strata for $50 per square foot it is generating $50,000 annually, or about $4,100 per month.

It is preferable to have commercial tenants pay triple-net leases, which means the tenant pays for all maintenance and property taxes, as well as for the space. In B.C., commercial real estate values – and property taxes – can increase dramatically if the site is rezoned for high-density residential. Having a triple-net lease in place protects you as an investor.

While Metro Vancouver is the hottest area for commercial strata investors, there are also enticing opportunities in Victoria and Kelowna, where some see a ground floor opportunity for commercial investors.

In Victoria major players, including Chard Properties, Nicola Wealth, Reliance Properties and the mammoth Jim Pattison Group have been buying up entire blocks in Victoria’s Old Town, the North Douglas Street zone and Harris Green neighbourhoods for large mixed-use developments. Harris Green near downtown alone has plans for2,200 homes in an eight-block radius.

“This is like buying into Vancouver’s Yaletown two decades ago,” an agent with William Wright Commercial noted. “As people move into these areas, you are going to see explosive demand for service-type retail.”

One new Victoria retail strata project recently sold out at $607 per square foot, all to Metro Vancouver investors.

Kelowna is also seeing both an influx of new residents and rapid development, most of it concentrated downtown where the University of B.C. Okanagan is expanding its campus and a series of new residential towers are rising.

Kelowna’s retail sector has seen the vacancy rate fall to 4.3 per cent, down from 5.5 per cent a year ago.

Kelowna strata retail space is selling from around $500 per square foot and downtown lease rates range from $35 to $50 per square foot. The result is a typical capitalization rate for retail investors of from 5.5 per cent to 6 per cent, which is higher than in most of Metro Vancouver.

 

© 2021 Western Investor



Big job opportunities when new mining aiming to open


Vanderhoof shares in B.C. mining potential

Nelson Bennett
Western Investor

About 450 full time jobs expected at just one of the new mines angling to open – if B.C.’s ‘sclerotic permitting system’ gets unclogged

Artemis Gold Blackwater site near Vanderhoof, B.C. | Artemis

About 450 full time jobs expected at just one of the new mines angling to open – if B.C.’s ‘sclerotic permitting system’ gets unclogged

Seven new mines could be built in B.C. in the coming years – an investment worth $4 billion that would generate 6,400 new construction and mining jobs.

But if the B.C. government wants those jobs, it needs to unclog its sclerotic permitting system, said Michael Goehring, president of the Mining Association of BC.

“Before any of these projects can proceed, and before the economic benefits can start flowing, they must be permitted by government,” Goehring said Wednesday in his annual address to the Greater Vancouver Board of Trade.

“I said this here two years ago and, unfortunately, I have to say it again.”

Goehring cited a couple of examples of new mines or mine expansions that are in the works. One is Artemis Gold Blackwater gold mine near Vanderhoof.

Artemis Gold bought Blackwater in August 2020 and plans to have project financing for work in the new mine by this fall. The production target is set for 2024.

“That project will boost the economy of B.C.’s central interior at a time when it desperately needs a boost,” Goehring said. “With this one mine, we’re talking 825 construction jobs for two years and up to 457 new jobs that will be created during operations.”

He added revenue sharing agreements with local First Nations would provide them with $200 million in benefits from the Blackwater mine.

Teck Resources is also planning an expansion of its Highland Valley Copper mine. The mine has only six years of life left. The expansion would extend it to 2040, Goehring said.

But B.C. risks a missed bonanza if it doesn’t fix its regulatory problems – a bonanza being driven in part by the global decarbonisation movement, which will require massive amounts of metals, like copper.

Copper prices are currently at an all-time high. And the demand for copper and dozens of other metals and minerals are expected to grow to meet the demand for new electric vehicles, batteries and renewable energy.

“Governments are making – or are poised to make – unprecedented investments in infrastructure and in clean tech,” Goering said. “And whether it’s copper for electric vehicles or metallurgical coal for the steel needed to build transit and bridges and wind turbines – we have it right here in BC.

“There is an urgency to make this happen. The time is now. This unique window of opportunity won’t be open for long.”

But high demand and prices for clean energy metals and minerals won’t necessarily translate into new mines being built in B.C. if the regulatory process is too onerous.

“Developing a new mining project in BC – or expanding an existing one – takes far too long and comes with too much uncertainty,” Goehring said. “Meanwhile increasing costs are hobbling our ability to compete in the world market.

“I simply can’t stress this enough. The permitting process in our province is too slow, too complex, and too costly.

“That said, we are encouraged and appreciative of the government’s ongoing review of the permitting process and look forward to an outcome that will lead to a permitting system that’s measured in months, not years.”

 

© 2021 Western Investor



National Bank Q2 jumps to 111% from the same period last year


National Bank’s Q2 results are in

Fergal McAlinden
Mortgage Broker News

 National Bank became the latest Big Six bank to release its Q2 financial results this week, reporting net income of $801 million for 2021’s second quarter – a 111% increase from the same period last year.

The bank said that its growth was fuelled by strong performances across the board, with increases in total revenues among most of its business segments and a significant reduction in provisions for credit losses.

That contrasted sharply with the second quarter of 2020, when provisions for credit losses had featured heavily in the bank’s results to reflect deteriorating macroeconomic conditions because of the pandemic.

Its net income for the six-month period up to April 30 was $1,562 million, an increase from $989 million in the same period in 2020. The bank also reported first-half diluted earnings per share of $4.40, an increase from $2.68 the same time last year.

Read next: National Bank sees double-digit net income growth

Before provisions for credit losses and income taxes, the bank’s income totalled $2,083 million for the six-month period ending on April 30, 2021. That represents a sizeable 19% year-over-year increase.

Louis Vachon, National Bank’s president and chief executive officer, said that Canada’s improving economic outlook had also laid the foundations for its “strong performance” in 2021’s second quarter.

“We continue to operate in an improving economic environment more conducive to business growth, with our Q1 momentum carrying over into Q2,” he said. “Our solid results once again reflect the fact that we have made the right strategic choices and have built a strong, diversified and agile franchise.”

Vachon added that the bank’s positive numbers were a good sign ahead of a possible post-pandemic recovery in Canada.

“With an industry-leading ROE, strong capital levels and prudent allowances for credit losses, we are well-positioned to selectively seize growth opportunities as we gradually exit the pandemic,” he said.

 

 

Copyright © 2021 Key Media



0.93 acres sells for $6.53 Million located at 53rd Avenue, Langley, B.C.


Six lot Langley land assembly sells for $6.53 million

Regent Park Realty Ltd.
Western Investor

The six single-family lots cover a total of 0.90 acres and were assembled for a potential high-density residential development.

Property type: Land assembly

Number of lots: 6

Location: 20120-20170 53rd Avenue, Langley, B.C.

Size of land: 39,385 square feet

Land size in acres: 0.90 acres

Zoning: Residential

Potential: RM3 (High-density residential to approx.. FSR1.7 or approx. 72 units)

Sale price: $6.53 million

Date of sale: April 14, 2021

Brokerage: Regent Park Realty Ltd., Vancouver

Broker: Suraj Rai

 

 

© 2021 Western Investor



2.79 acres sold for $44 Million located in North Vancouver City


North Van industrial site closes at $15.7M per acre

WI Staff
Western Investor

Largest North Vancouver industrial deal so far in 2021, $44 million sale includes four buildings and 2.79 acres with “phenomenal redevelopment potential”

Five North Vancouver industrial buildings sold for $44 million. | CBRE

Largest North Vancouver industrial deal so far in 2021, $44 million sale includes four buildings and 2.79 acres with “phenomenal redevelopment potential”

In the largest industrial real estate transaction on the North Shore so far in 2021, a 2.79-acre site with four contiguous buildings has sold for $44 million in North Vancouver City.

The deal closed on May 26.

The sold properties are at 945, 955, 961, 967 and 971 West 1st Street and have a combined size of approximately 1110,009 square feet. All of the space is currently leased.

North Vancouver has one of the lowest industrial vacancy rates in Canada, at 0.7 per cent, according to Matt Thomas, a principal at Avison Young, who acted as the seller’s agent in the transaction.

“This property features exceptional street exposure and is in proximity to several amenities including Capilano Mall, North Shore Auto Mall, and the newly-announced North Harbour development by Concert Properties,” Thomas noted.

CBRE vice-presidents Yashar Khalighi and Lawson Chu represented the buyer in the transaction.

Khalighi said the location, the size and the zoning of the properties makes them unique on the North Shore from an investment perspective.

The properties have holding income in place with strong tenancies and are under Special Industrial (M-3) zoning, which “offers phenomenal redevelopment potential,” Khalighi said.

 “The lack of new industrial supply over the past few years has severely impacted availability and vacancy rate levels. There is currently no new proposed supply for the near term for industrial product on the North Shore,” he added.

Metro Vancouver has the highest industrial lease rates in Canada, at an average of $13.87 per square foot, and North Vancouver has become one of the priciest markets.

“Much of the available [North Vancouver] industrial product is obsolete space as it was constructed in the 1960’s, 1970’s and 1980’s and warrants redevelopment. As a result, the asking net rent rates have reached levels on average around $18.00 per square foot , depending on the quality of product. Rates have netted over $20.00 per square foot on certain small bay quality industrial properties,” Chu said.

The price per-acre in the deal, at $15.7 million, eclipses the highest per-acre priced paid for Metro Vancouver industrial property in 2020, which was the $12.1 million per acre paid by developer Wesbild for a near five-acre site in the 8100 block of Manitoba Street in Vancouver last year, according to Avison Young data.

The recent previous highest price paid for North Vancouver industrial property was the $40.1 million paid by Nicola Wealth for a 4.3-acre site on Dollarton Highway in 2020.

 

© 2021 Western Investor



Seven-acre property listed for $24 Million located at Port Carling, Muskoka Lakes


Owning a cottage is becoming a pipe dream, even for Canada’s wealthy

Bianca Bharti
other

Vacation spots only the ‘one per cent of the one-per-cent’ can afford

The seven-acre property listed for $24 million just outside of Port Carling is more a mansion compound than a cottage — with two lodges, a swimming pool, home theatre and tennis court — that overlooks 629 feet of Lake Muskoka. Photo by Supplied

The mayor of the Township of Muskoka Lakes, Ont., one of the country’s most popular summer retreats, said the property market in his town has become unsustainable after prices surged more than 70 per cent in the last year.

Phil Harding’s warning carries extra weight because he’s setting aside his own self interest to sound the alarm: Harding’s full-time job is a real estate agent.

“Personally, wearing two hats is a struggle because it’s nice to say to a client, ‘I’m going to get you as much money as I can,’” Harding said in an interview with Financial Post. “And I feel bad for somebody who has overpaid for a property who will struggle to get out of it” when the market cools.

Harding’s comments followed the  relisting of a Muskoka home for $24 million, which is easily the top five priciest listings ever for the region, he said. The seven-acre property just outside of Port Carling is more a mansion compound than a cottage — with two lodges, a swimming pool, home theatre and tennis court — that overlooks 629 feet of Lake Muskoka. It’s a vacation spot only the “one per cent of the one-per-cent” will be able to afford, said Harding.

Still, the listing has become yet another symbol of Canada’s frothy housing market in which housing prices nationally have surged more than 20 per cent since the start of the pandemic, the Bank of Canada reported.

I feel bad for somebody who has overpaid for a property who will struggle to get out of it

Township of Muskoka Lakes mayor Phil Harding

Sales in Muskoka increased 267 per cent in April from a year earlier, according to the Canadian Real Estate Association. The median price for waterfront properties, at the same time, rose more than 70 per cent to $890,000, although Harding said listings tend to begin above the $1-million mark.

The desire for waterfront properties grew among Canada’s wealthy as pandemic-induced isolation measures kicked in. Both Harding and Richard Scully, the agent selling the $24-million lakefront property, said it’s normal to have anywhere from five to 25 offers on a property. Cottages tend now to stay on the market for no more than 10 days, when it used to take 40 to 50 days to close a sale, Harding said.

Muskoka’s new waterfront owners collectively last month dropped $279.3 million to gain access to a lake view — a 354-per-cent increase from April 2020. Those high-rollers are now reshaping Muskoka living.

The pool at the Muskoka home listed for $24 million, a vacation spot only the “one per cent of the one-per-cent” will be able to afford. Photo by Chris Blair/Grizzly Media

The town, which typically hibernates in the winter after teeming with cottagers all summer, stayed active during the most recent offseason as businesses stayed open to serve residents who decided to wait out the pandemic at their vacation homes. Harding and Scully said fancy burger joints, lobsters at the local grocery store, and cottage helipads for private helicopters are becoming commonplace.

However, even as demand for Canada’s lakefront living grows, snagging a million-dollar property is increasingly becoming a pipe dream for even the richest, due to the lack of available land to build new properties and the small amount of inventory coming on the market.

Even the children of cottage owners cashing out on the land their parents bought 50 years ago for $1,000 aren’t listing on the market fast enough, Scully said.

A buyer would be “hard-pressed” to find more than two or three properties with 300 to 400 feet of lake frontage, he said.

“We talk about a lot of people looking for cottages (but) we don’t have much to show them,” Scully said. A cottage with even a 400-foot view of the lake is worth between $4 million and $9 million, he added.

“If you’ve got a million-and-a-half dollars and you want to buy a cottage, you’d think that would be enough but it isn’t,” Scully said. “It gets tougher and tougher to (buy) … each day that goes by.”

 

© 2021 Financial Post