B.C. taxpayers Canada?s biggest hotel buyers

Frank O?Brien
Western Investor

 The British Columbia government was the largest single buyer of hotel properties in Canada during the second quarter (Q2), accounting for four of the 12 transactions and more the half the dollar volume.

The  fact the B.C. transactions  – all of which are for supportive housing – are the biggest deals in the country is indicative of a troubled hotel industry reeling from the effects of COVID-19.

“The second quarter was perhaps the toughest on record for hotel owners and operators across the country,” noted Colliers International in its INNvestment Canada hotel report for Q2 2020.

Colliers noted that the “thin levels of transactions” in the second quarter totalled $200 million with the sale of 12 properties across the country. This compares with 36 sales and a total dollar volume of $666 million in the second quarter of 2019.

Four of the transactions in Q2 were hotels in Vancouver and Victoria, bought by BC Housing to temporarily shelter homeless people. The province paid a total of $107 million.

BC Housing was also responsible for the single largest deal this year, with its purchase of the 110-room Howard Johnson hotel on Granville Street for $55 million, a price that pencils to about $500,000 per room.

At the start of the third quarter, BC Housing also purchased the American Hotel on Main Street, Vancouver, for $17.9 million.

For the first half of this year, hotel sales volumes in Canada totaled $500 million, down from $830 million in the first six months of 2019.

The hotel industry is suffering from pandemic-related travel restrictions that has seen international overnight visitors plunge 92 percent in the second quarter compared to a year earlier.

All conferences booked into hotels have also been cancelled or gone online since the pandemic began.

Nationally, the revenue per available room in Canadian hotels, a key industry metric, is down 54.9 per cent this year compared to 2019, Colliers reports.

Hotel occupancy levels fell to a record low of 12 per cent in April before recovering to an average of 28.9 per cent in early July, still about half of the rate a year earlier.

In 2019, 16.75 million non-residents crossed into Canada by car from the U.S., representing 67 per cent of total travel to Canada by US citizens. For the month of April 2020, just 46,596 non-residents crossed into Canada by automobile, down 97 percent from the 1.1 million visitors during the same period last year, according to Statistics Canada.

For first time since Canada’s confederation in 1867, the Canada-U.S. border was close to all but essential travel on March 31. The closure currently remains in effect until August 21, but it could be extended.

© Copyright 2020 Western Investor

Condo Pre-sales at the same as June last year

other

The pandemic drove Greater Vancouver new home sales off a cliff, but things have improved… a little. MLA Canada, a Vancouver-based real estate firm specializing in condo pre-sales, observed an increase in absorption for June. Despite unusual market conditions and a bump from lows, absorption is the same rate as last year. Although the current rate is likely being managed through inventory, and project delays.

Greater Vancouver Condo Pre-Sales Down 50%, But Off Pandemic Lows

Greater Vancouver condo pre-sales bounced from record lows, but still came short. There were just 36 units sold in June, up 51% from the month before. The number is a massive 50% lower than the same month last year. A bit of a surprise considering last year was one of the slowest Junes on record. This persistent slowdown is turning into a throttle for new project launches.

Greater Vancouver New Pre-Sale Real Estate Listings

The number of newly available pre-sale units of new homes across Greater Vancouver.

Over 57% of Pre-Sale Homes Expected Are Delayed

The extended slowdown in sales is leading to a lot less inventory than expected. Greater Vancouver saw 259 new pre-sales hit the market in June, up 8% from the month before. This works out to a drop of 50%, compared to the same month last year. It’s inline with the decline in sales, but it’s also 57% lower than the anticipated units for the month. That’s about 338 units delayed, that may pop up later, or be cancelled  – depending on future absorption.

Units are being absorbed at an incredibly low rate, but similar to last year. The sales to new listings ratio (SNLR) reached 14% in June, the same ratio as last year. Analysts generally believe prices will rise when the SNLR is above 60%, fall below 40%, and are priced correctly between those two.

Greater Vancouver New Home Pre-Sale Absorption

The ratio of sales to new listings of pre-sale homes across Greater Vancouver.

Greater Vancouver condo pre-sale absorption is unchanged from last year, but with a few caveats. Sales are significantly lower this time around, and so is inventory. Even more inventory has been delayed and throttled to get to this level. The market may actually be softer than absorption implies. Whether that matters depends on if developers can effectively control inventory longer than buyers wait.

Copyright 2020 Better Dwelling

Will Bill 197 make condos more expensive for Ontario home buyers?

Clayton Jarvis
Mortgage Broker News

Ontarians may still be wary of going back to the office, but the provincial legislature has had a very busy July. After passing the controversial Bill 184 on July 6, and the far less contentious Bill 159 eight days later, the Ontario government passed yet another bill last week that should be of interest to the province’s realtors, mortgage brokers, and home buyers.

While Bill 197 is unlikely to make headlines for its real estate components – it is an exceptionally broad piece of legislation – it could lead to increased costs for developers. Anyone who has dabbled in the new construction space will know what that means.

“At the end of the day, when they say ‘The developer has to pay this, and the developer has to pay that,’ there’s only one person who pays for that – that’s you and me who buy the house,” says Leor Margulies of Robins Appleby Barristers and Solicitors. “The developer doesn’t pay for anything. If the cost is too high, he doesn’t do the project. If the cost can be passed on in a purchase price, then the purchaser pays for that.”

Essentially a companion piece to the province’s much-touted Bill 108, aka the More Homes, More Choices Act, Bill 197 tweaks Bill 108 in three ways that could lead to higher prices in much of Ontario.

Increased development charges

In the mid-1990s, under Mike Harris’ Progressive Conservative government, developers were given a minor break on the development charges associated with new projects. While they were required to pay 100 percent of the expected hard costs – the infrastructure costs forced onto cities because of local population growth – developers were only asked to pay 90 percent of the expected soft costs – the money a municipality would require to provide services to that growing population, like social housing or libraries.

Bill 197 puts an end to that 10 percent discount.

“Now, developers pay 100 percent of the soft cost component of the development charge, which means that gets added to the cost, and that gets passed on to purchasers,” Margulies says. “That’s a big change.”

Section 37

Section 37 of Ontario’s Planning Act, which essentially allows cities to ask for benefits in exchange for density-increasing amendments to a development’s zoning, received a significant tweak.

Prior to Bill 197’s passing, Margulies says there was no formula in place to calculate what a developer owed a municipality under Section 37. The municipality may ask for money, day care facilities, art – whatever it wants, really, with no pre-set limits.

“There’s historical precedent, but it really is the wild west,” Margulies says, adding that the city of Toronto alone is currently sitting on around $600 million worth of unspent Section 37 collections.

Under Bill 197, 60 percent of the money collected must be spent or designated for spending every year. The bill also implements a formula for calculating what developers owe municipalities if their zoning needs change – a set percentage of the site’s total land value.

“What we don’t know is what that percentage is,” says Margulies. “We think it will be under 10. I think the industry feels two percent is correct.”

Either way, prices are likely to increase, particularly in municipalities where Section 37 funds were not previously being collected.

Parkland dedication fees

Once change contained in Bill 197 may actually benefit buyers.

Bill 197 contains significant changes to the province’s approach to calculating parkland dedication fees. In Ontario, developers are required to dedicate a certain percentage of the area they are developing to green space. For residential projects, it’s equivalent to five percent of the land in question. Because few developers in densely populated areas have the luxury of having that much extra space to play with, they have been given the option of paying cash instead.

But the cash option is by no means a lifeline for developers. Because of the formula used by the province to calculate the rate of parkland dedication fees, the equivalent of one hectare of land per 500 units, they tend to be brutally expensive. Margulies explains that in the 905 area code, parkland fees have ranged between $20,000 and $60,000 per unit.

“Developers have been fighting very hard with municipalities to cut them back,” he says.

Their calls for a more realistic formula for determining parkland fees are not reflected in Bill 197. But developers now have the option of appealing fees they find to be arbitrary and egregiously expensive – a definite win. Going forward, parkland development fees will need to be justified by a background study that explains a municipality’s future parkland needs.

But what form those studies take, and their eventual cost implications for developers and buyers, are anybody’s guess.

Copyright © 2020 Key Media

Retail REIT’s hammered but eye recovery

Frank OBrien
Western Investor

RioCan has posted a $350 million loss; Choice Properties saw its asset value drop by $380 million in Q2

Some of the largest retail landlords in Canada are facing huge losses and asset write downs as the COVID-19 pandemic continues to stalk shopping centres.
But companies say there are signs of improvement in the retail sector as more stores reopen and about 90 per cent of rents are now being paid.
RioCan Real Estate Investment Trust (RioCan REIT) Canada’s largest real estate investment trust, reported a $350.8 million loss in the second-quarter, down from a net income of $253 million a year earlier.
“This second quarter was undoubtedly the most challenging quarter ever for many of our tenants as non-essential businesses were mandated to close in mid-March,” noted Edward Sonshine, CEO of RioCan, which has a total enterprise value of approximately $11.9 billion.
The blow was not surprising to RioCan, which moved early to work with retail tenants with rent deferrals and other supports as the pandemic began.
“We’re planning for our revenue to be down as much as 25 per cent over the next 60 days, and I suspect it might be a little longer than that. And we can handle it,” Sonshine had said on April 8.
About 15 per cent of RioCan’s business comes from local stores such as nail salons and independent restaurants which were forced to close.  The majority of RioCan tenants, however, are major retailers, such as grocery markets and drug stores, who continue to make lease payments.
RioCan collected 86.8 per cent of rental income in the second quarter, including those tenants who received government funding and short-term rent deferrals, according to Sonshine.
Choice Properties REIT, which owns and operates more than 720 properties in Canada comprising about 65 million square feet of leased space, posted a $95.8 million loss in the three months ending June 30.
About 75 per cent of its tenants are food or pharmacy-based retail outlets. Stores owned by Loblaw Companies account for approximately 56 per cent of Choice revenues.
For the year, Choice has knocked $379.1 million off the value of its assets.
“We’re encouraged by some initial signs of things returning to normal,” Choice president and CEO Rael Diamond said during a second-quarter financial conference call with analysts “Every day, more business reopen and people find more ways to get on with their daily lives.”
Choice reported rent collections in the second quarter were 89 per cent of expected collections, and early July collections were at 94 per cent.
“This is an encouraging sign and our rent collections are steadily increasing each month as more tenants are getting back to business,” Diamond noted.

© Copyright 2020 Western Investor

Energy project jobs underpinning B.C.?s economy

Nelson Bennett
Western Investor

While Canadian unemployment has soared due to COVID-19, British Columbia’s mega energy projects continue to generated thousands of jobs.

The big energy story of 2022 will likely be the completion of the $12.6-billion Trans Mountain pipeline expansion, but B.C.’s economy will also be benefitting from the construction of three other energy megaprojects – the $17-billion LNG Canada plant in Kitimat, the associated $6.6-billion Coastal GasLink pipeline, and the $10.7-billion Site C dam.

By 2022, BC Hydro also hopes to have completed the $280/-million Peace River Electricity Supply project – construction of which is underway – that will link the LNG Canada and Site C dam projects by providing clean power to natural gas producers supplying the new liquefied natural gas plant in Kitimat. The idea there is to lower the greenhouse gas emissions intensity of LNG produced in B.C. by electrifying the upstream.

These big energy projects are already employing thousands of workers. There are about 1,600 people employed right now in Kitimat at the LNG Canada project. The workforce is expected to peak at about 4,500 throughout 2022 and 2023.

LNG Canada and its main contractors have already awarded about $2 billion in contracts to B.C. businesses and contractors, many of them First Nation businesses, said Susannah Pierce, director of corporate affairs for LNG Canada.

Close to 600 workers are employed on the associated Coastal GasLink pipeline, which is expected to have peak employment of 2,500, with completion slated for 2023.

Meanwhile, Site C dam employs just over 3,200 workers, but typical pre-pandemic workforce numbers for the project were around 4,000. It is slated for commissioning in 2024. The Site C dam project’s contribution to B.C.’s GDP has been estimated at $3.2 billion.

The $17 billion LNG Canada project’s economic impact in B.C. has been estimated by Central 1 Credit Union at 0.3 per cent to 0.5 per cent of B.C.’s total GDP. Once in operation, it is expected to increase revenues of natural gas producers by $5.8 billion, compared to what they earn through domestic sales and exports to the U.S.

To date, the LNG Canada site in Kitimat has been cleared and prepared, a workers’ village called Cedar Valley Lodge is being built to accommodate 1,500 workers and a major reconfiguration of marine terminals is underway.

By 2022, the Cedar Valley Lodge will be expanded to accommodate up to 4,500 workers, and the company expects the large LNG modules being built in Asia will start arriving around the same time.

The next two years will see the site become a beehive of activity, with the building of the LNG plant itself. The biggest challenge in 2022 may be finding enough qualified workers for all the big projects being built.

LNG Canada, Coastal GasLink and Site C dam alone will employ roughly 11,500 workers at peak construction. BuildForce Canada estimated that 13,000 new jobs would be added in B.C. in 2021, with LNG Canada and Site C dam being major drivers, although it also included projects like the Pattullo Bridge replacement project.

“Right now there’s competition for B.C. labour, and I can imagine into the future there will continue to be that competition for B.C. labour, and that’s something we’re very mindful of,” Pierce said. “It’s not necessarily a bad problem to have, if you’re looking at [making] sure that folks who are in the trades are employed in B.C., because there’s going to be lots of demand.

“We’re pulling people from all over the province to work on this project, as are the other ones, I’m sure. As we start to look at the onsite construction, there’s also going to be opportunity for workers as well as potential suppliers from all across the province.”

© Copyright 2020 Western Investor

Gold is surging, but silver could go ?parabolic? as precious metal ratio narrows

Victor Ferreira
other

Silver has risen 33 per cent in four months, and analysts see it hitting $30

The price of silver has shot up 34 per cent since the beginning of July in a whirlwind rally that has made some analysts more bullish on the precious metal than they are on its more beloved sibling, gold.

In truth, silver has been widely outperforming gold since the two bottomed in March, but it has received far less attention. Since March 18, the price of gold has rallied 33 per cent and grown in appeal for investors trying to hedge their portfolios against slow economic recovery, inflationary risk and currency devaluation. In that same period, silver prices more than doubled and rallied nearly 108 per cent to reach a trading level not seen since 2013.

“Silver has an opportunity to go parabolic,” Crescat Capital portfolio manager Tavi Costa said. “We’re far away from done in terms of the rally. I still think silver will outperform gold going forward and will be one of the best performing assets of the year.”

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Costa likes silver because it is a play on the same macro thesis, but offers investors more opportunity. Silver’s performance is directly linked to gold’s but is traditionally much more volatile because of lower trading volumes. And so an investment here could serve as a more levered bet on a continued gold rally, he said.

Costa also sees silver as having elements of a “catch-up trade.” The gold-silver ratio, a metric that shows how many ounces of silver are needed to buy one ounce of gold, is hovering around 79, when historically the average is closer to 50. That tells Costa that while silver has already had an incredible run, it still has a lot more room to grow in comparison to its sibling.

Investing in silver is also a play on industrial activity and clean energy, according to Goldman Sachs economist Jeffrey Currie. In a note published Tuesday, Currie wrote that the combination of the European Green Deal and U.S. presidential Democratic candidate Joe Biden’s plans to attack climate change should result in a doubling, every year, of solar panel capacity installations in the U.S. and Europe. Currently, solar energy projects account for 15 per cent of silver demand, Currie said.

In the note, Currie raised his price target on gold to US$2,300 per ounce. Should silver industrial demand grow by five per cent next year from 2019 levels, the gold-silver ratio would fall to 77. To reflect that change, Currie also raised his silver price target to US$30/oz.

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Citi analyst Aakash Doshi came to a similar conclusion in a note last week that suggested investor FOMO could easily drive silver prices to between US$25 and US$30.

“Positive momentum could quickly lift trading to US$25-30/oz over the next 6-12 months, per our bull-case scenario,” Doshi wrote. “Given the richening of silver skew and the outsized move in silver versus gold implieds, there is a clear sense that investors are adding topside silver structures both outright and perhaps versus gold.”

A move to $30/oz. may be likely, Blue Line Futures president and trader Bill Baruch said, but not before the rally cools down.

On a technical basis, silver hit resistance at just above US$26.20 late Monday before falling back to US$24.56, where it traded at 4:35 p.m. EST on Tuesday. Baruch is expecting the pullback to bring silver down to around US$21, its 2016 high, before the precious metal surges forward again.

“That would be constructive and lay the groundwork for a move to $30 early next year,” Baruch said.

Financial Post

© 2020 Financial Post

COVID-19 took a bite out of Canada’s startup M&A, but deals may be coming soon

James McLeod
other

Luxury Vancouver building prefers long-term lease buyers, but would consider monthly rental

Joanne Lee-Young
The Vancouver Sun

Developer Stanley Dee is marketing a visibly empty, super-high-end property in Vancouver’s West End.

Acting on behalf of the owners, he had been trying to figure out how to adapt to the cooling of the city’s once hot luxury real estate market, and now, with the pandemic, might shift gears again.

Recently, Dee says, he has been getting a burst of interest in the building for short-term, monthly rentals. Wealthy Canadians accustomed to going abroad by private jet are attracted to B.C.’s relative success in managing the pandemic and are considering the units as the ultimate vacation-in-Canada rental, said Dee.

The building’s dramatic, floor-to-ceiling windows face Beach Avenue at 1460 Bute St. Passersby along the part of the seawall that connects the Burrard Bridge to English Bay can peer up at the handful of units in the four-storey building. Two of them are 1,400 square feet each and there is a 3,000-square-foot, two-level penthouse with a 1,100-square-foot rooftop.

The units aren’t technically empty since they have caretakers who live in the units while paying a small amount of rent.

But since last summer, Dee been seeking high-paying residents befitting the combined $12.3 million assessed value of the units

A promotional email said all the units in the building are available together starting at $60,000 a month, with a single, smaller unit starting at $8,500. But Dee didn’t confirm these, only willing to say it would depend on the terms, whether someone wanted single or multiple units and the length of the rental period.

For him, there’s an opportunity cost in taking on short-term tenants because he might miss the original goal of finding someone willing to lease all three units for 30 years. Dee prefers to lease the entire building to a single group, such as a film studio, tech company, professional sports team or an international billionaire, for between 20 and 30 years.

But he knows prospects are less likely in an era of COVID-19 travel restrictions and less certain budgets.

Filling the building has been a challenge from the start, since the units have never been offered for conventional freehold strata sale. Instead, they are available as  leasehold properties where the owners keep ownership, but are essentially paid the rent upfront.

“There has always been a high propensity for investment money or secured money to be in Vancouver,” said Dee.

He founded Deecorp to develop the property for the owners, a family that bought the land in 2011 for its location and wants to hold it for future generations rather than sell it.

“The (object) is just to get an income stream, as much as possible, and to re-address things in about 30 years.”

Dee and the owners also thought a 30-year lease arrangement would appeal to wealthy foreign buyers turned off from making purchases by the various property transfer taxes, empty homes taxes and other anti-speculation measures that significantly slowed Vancouver’s luxury market, just as the building was completed in 2018.

Property leases under 30 years are exempt from the province’s property transfer tax of 20 per cent for foreign buyers.

Dee has not been willing to make public an asking price for those leases, except to say leasehold properties are generally about half the market value of a freehold strata property, and he would likely ask for above that because of the building’s unobstructed views of English Bay, its limited number of units and expensive furnishings.

© 2020 The Province

One million adults plan to move back home

Western Investor
Western Investor

At least 1.5 million adult Canadians have already or plan to move back home with their parents, according to a national survey by Finder.com released July 24.

B.C is among the provinces seeing the biggest  boomerang back home.

The findings could have ramifications for the multi-family rental sector, since the vast majority of those seeking shelter at home are renters.

Survey results reveal an estimated 2.8 million, or nearly 1 in every 10 Canadians, have seen their living situation change due to the COVID-19 crisis.

Approximately one million Canadians (4 per cent) said they are thinking of moving in with family. 

Of those moving, by far the biggest trend are grown adults moving back in with their parents. About 1.5 million Canadians have said they have moved home due to the COVID-19 crisis, and 860,917 parents have said their kids have already moved back in. 

Canada’s youngest generation (aged 18-24) are most likely to have already moved home (13 per cent), with men more likely to move in with their parents as compared to women.

Men are also 141 per cent more likely to be contemplating moving home, compared with women,

The provinces hit hardest by COVID-19, and with higher costs of living, saw the most moves with Ontario, Quebec and B.C. in the top spots. Ontario is the epicentre of Canada’s ‘Generation Boomerang’ with 10 per cent of people in the province saying they’d moved back in with their parents or had adult children move home with them. 

In British Columbia 10 per cent of those surveyed said they are experiencing a change in their living situation and another 5per cent are thinking about it.

Just 11per cent of those in the prairies are in a new living situation or thinking about it. Just 5 per cent of those in the Atlantic provinces are living in a changed living situation, with another 5 per cent thinking about moving back with family.

While young people moving back home with parents make up the bulk of this trend, it also works in reverse, just on a smaller scale, with 278,532 Canadians who have already moved in with their adult children and another 455,780 seriously considering it. 

Scott Birke, Publisher at Finder.com, a Toronto-based data research platform, said that Canada’s young adults are facing an uphill battle when it comes to establishing themselves during an uncertain recession.

“Between the high cost of rent in Canada’s big cities and a recession with record levels of unemployment, young people trying to launch or grow careers while paying the bills are now faced with challenges that may seem insurmountable, making returning home to their parents the most attractive option for many of Canada’s young adults.”  

“Our data reveals about a million Canadians who haven’t yet moved home with their parents are still seriously considering it, which tells us this trend is not just confined to the pandemic and could be a longer-term setback when it comes to young Canadian adults building wealth and establishing their careers”, said Birke.

He noted the reverse trend of Canadians parents moving in with their grown children could prove to be a silver lining to a stressful situation.

“It is safe to assume that many of the parents who moved in with their adult children are also grandparents who are helping to provide childcare for exhausted working parents of young children, who have limited or no childcare options until school begins.”

© Copyright 2020 Western Investor

One million adults plan to move back home

Western Investor
Western Investor