Lenders shy from retail, bullish on industrial and multi-family

WI Staff
Western Investor

While lenders may have taken a more cautious approach to 2021, capital for real estate is still expected to remain abundant, albeit more targeted in nature, according to the 2020 Canadian Real Estate Lenders’ Report from CBRE. There has been some moderation in market tone, but lots of liquidity remains and nearly all lenders are bidding on deals, albeit a bit more cautiously, the national survey found.

Nearly half of lenders are looking to reduce their 2021 lending budgets for retail, 34 .3 per cent for office and 28.6 per cent for hotel properties. But the survey found that 49 per cent of lenders plan to increase their exposure to industrial properties and a stunning 60 per cent are planning to increase lending in the multi-family market.

A significant number of lenders are still looking to maintain, or even increase, their budgets for most property assets.

For borrowers, this means that while financing capital is readily available, it might not necessarily come with the exact loan terms they want. Lenders have altered their real estate strategies, with most respondents applying tighter lending discipline as well as improved property type selection in their underwriting. However, an important note is that the pandemic has not forced many lenders to wholly exit secondary markets, refuse new borrowers or outright reduce their real estate lending loan books.

Despite the economic environment, very few lenders are looking to decrease their real estate lending allocations in 2021, the survey discovered. In fact, 57.1 per cent of lenders are looking to maintain their existing real estate allocations with 40 per cent aiming to further increase allocations in 2021. While the majority of lenders are expecting to deploy 10 per cent of net new capital over the next year, one in five lenders had plans to add 30 per cent or more net new capital to the market, the survey found.

 

© Copyright 2020 Western Investor

Investors will continue to favour multi-family

WI Staff
Western Investor

We predict 2021 will be a very active and positive year for the multi-family sector as investors continue to be drawn towards defensive real estate assets.

2020 started off strong as momentum and strong investor demand for multi-family assets from the second half of 2019 carried over into the first quarter (Q1) of 2020. 

Between January 1 and March 30, 2020, 16 rental apartment properties transacted, accounting for more than $362 million in total sales value throughout Metro Vancouver. Of note, two of the 16 sales were large-scale concrete rental properties that accounted for a large percentage of the total sales volume in Q1, as both high net-worth private and large institutional buyers were attracted by strong market fundamentals and low interest rates.

As the COVID-19 pandemic reached British Columbia in mid-March, the strong sales activity that took place in the first quarter came to an abrupt halt as investors and owners alike took a pause in order to concentrate on taking care of their families, the safety of their employees, assisting and working with their tenants and the continued operation of their properties and businesses.

In order to curb the virus, governments implemented stay-at-home orders and international travel bans for the safety of residents. The lockdown led to a large number of businesses being forced to make layoffs with their revenues significantly compromised. To help support businesses and residents, the federal government committed nearly $400 billion in fiscal stimulus programs. These stimulus programs assisted many Canadian impacted by the pandemic with $2,000 stimulus checks on a monthly basis. These monthly checks and the later addition of rental subsidies assisted many tenants with the ability to pay their monthly rent during this very challenging time.  

Pandemic’s impact

In order to gauge the impact of COVID-19 on the multi-family asset class, CBRE surveyed a cross-section of private and institutional owner and operators. Participants were asked to provide insights on their portfolio or buildings performance, level of vacancy and turnover and the percentage of total rent collection. The majority of landlords indicated that vacancy rates withing their portfolios or buildings had not been significantly impacted over the first five months of the pandemic. In addition, landlords had indicated that rent collection over the same time period consistently averaged in the 96 per cent range with no discerning downward trend from month to month.

As of Q3 2020, total multi-family sales across Metro Vancouver was close to $700 million and is expected to reach close to a billion dollars by year end. Although this estimated sales volume is off from the 2019 year-end sales figure, multi-family assets still remain the envy of all other asset classes, with possibly the only exception being the industrial asset class.

Immigration

At this time last year, the Metro Vancouver vacancy rate was fluctuating in the range of 0.7 per cent to 1 per cent. As we move closer to the end of 2020 the market in general is experiencing higher than average vacancy rates due in part to the lack of students who would typically be renting suites throughout the province, in addition to the approximate 40,000 net new residents who would typically be arriving in the Lower Mainland seeking rental accommodation. On a positive note, the federal government recently announced plans to bring in more than 1.2 million immigrants over the next three years; which would be an increase of about 50,000 new residents each year into the Vancouver region. The aim is to compensate for the shortfall this year due to the pandemic. Increased migration into Metro Vancouver combined with the return of the student population in 2021 should absorb the excess vacancy that we’re currently experiencing and return the overall vacancy rate to normalized levels.

Price trends

As the market started to get more active, the challenge coming into the third quarter for most asset classes was where the new cap rates would be and how property values would be affected. For the multi-family sector, however, there seems to be a little more clarity around these questions. While sellers did put a pause on bringing new listings to the market, the general uncertainty around selling their multi-family assets have now largely dissipated. Given the resiliency of multi-family properties thus far, price expectation for the most part has not differed from pre-pandemic levels. In fact, pricing is now even higher in some cases for certain properties. We expect the combined impact of favorable market conditions and historically low borrowing rates could be the catalyst in further compressing capitalization rates for multi-family properties in 2021.    

–      Lance Coulson is the executive vice-president of the national apartment/ investment properties group team, Vancouver, for CBRE.

 

© Copyright 2020 Western Investor 

Listings shortage will push Canadian home prices higher in 2021: RE/MAX

Sean MacKay
Livabl

Here’s what a $6.2 million penthouse floor plan in West Vancouver looks like

Michelle McNally
Livabl

If you’re in the market for a condominium suite with panoramic views and a massive amount of outdoor space, then one high-end project in West Vancouver has the perfect penthouse in mind.

Penthouse 1 – 701 in Courtenay has 1,310 square feet of private terrace space on the top level of this luxury hillside development on Burfield Place. This penthouse is the last suite available in the 39-unit mid-rise collection developed by British Pacific Properties.

On three sides of this grand three-bedroom-plus-den suite, the future owner will have access to a wraparound outdoor terrace with stunning views of the Vancouver city skyline and ocean.

The largest portion of the terrace, which winds around the unit’s southwest corner and along the southern side, can be accessed from the chef’s kitchen, living area and master bedroom. Architectural drawings show that the terrace can easily accommodate an outdoor dining space and seating areas.

On the penthouse’s eastern side, an exterior courtyard leads into the main entryway, surrounded by what looks to be raised, landscaped gardens.

The suite’s 3,713-square-foot interior boasts plenty of lavish features, including a separate spice kitchen, laundry room and a large dressing room off of the master bedroom. Integrated Miele appliances, a full-height wine fridge and in-floor heating in the master bathroom are a few of the high-end features and finishes each penthouse will provide, along with engineered hardwood flooring and quartz countertops.

According to the most recent data from BuzzBuzzHome, Penthouse 1 – 701 is priced at $6,250,000.

Currently under construction, Courtenay will reach completion by the end of 2022. Residents will have a host of on-site amenities and services at their disposal, including an electric car share program, a fitness room and access to the neighbourhood’s forest trail network.

 

 

© 2020 BuzzBuzzHome Corp.

Here’s what a $6.2 million penthouse floor plan in West Vancouver looks like

Michelle McNally
Livabl

Vancouver home sales just had best November since 2015

Sean MacKay
Livabl

Vancouver region home sales rose past the 3,000-transaction mark last month as buyer demand showed no sign of slowing even after months of record or near-record-breaking activity in the market.

There were 3,064 homes sold across the region in November, according to data released today by the Real Estate Board of Greater Vancouver (REBGV). That’s more than 22 percent above November 2019’s total and was the best November performance for the market since 2015.

 

Last month’s total was also 24.6 percent higher than the 10-year sales average for November, but down nearly 17 percent from October’s total.

“Home buyer demand has been at near record levels in our region since the summer. This is putting upward pressure on home prices, particularly in our detached and townhome markets,” said REBGV President Colette Gerber, in a media release.

Detached and attached homes saw the largest annual sales increases, at 28.6 percent and 40.1 percent, respectively. Condo sales rose by a relatively calm 12.2 percent.

In her comments accompanying the new data, Gerber flagged a mismatch in surging buyer demand and declining new listings. Over 4,000 homes were newly listed in the Vancouver region last month, 36.2 percent higher than the previous year, but a 27 decline relative to October’s new listings total.

“The supply of homes for sale is a critical factor in understanding home price trends,” Gerber said. “The total number of homes for sale in Metro Vancouver is lagging behind the pace of demand right now. This trend favours home sellers in today’s market.”

The “upward pressure” on prices was evident in November’s gains, with the benchmark price for detached homes rising 9.4 percent to $1,538,900 while attached homes increased 5.6 percent to $814,800.

As has been the case through most of the post-spring rebound period, condos saw more modest price gains, with the benchmark rising 3.4 percent to $676,500.

 

© 2020 BuzzBuzzHome Corp.

B.C. strata insurers to end ‘best terms pricing’ scheme by Jan. 1

Jennifer Saltman
The Vancouver Sun

The practice was identified in a report this summer as one of several factors inflating strata property insurance premiums in B.C.

Condominium buildings in downtown Vancouver. Photo by Darryl Dyck /The Canadian Press

Stratas and property owners stand to see major savings on insurance premiums when the practice of “best terms pricing” is eliminated at the end of this year.

However, those in the industry say the change is just one more step toward rehabilitating the strata insurance market in B.C., which was described as “unhealthy” in a recent B.C. Financial Services Authority interim report.

“This is great news — if it works — and really time will unfold to see what the effects are,” said Tony Gioventu, executive director of the Condominium Home Owners Association of B.C. “I think it’s an additional tool that will help to make the insurance industry more competitive and will help to ease the pressure on costs for consumers.”

The Financial Services Authority, which is responsible for regulating the private insurance sector in the province, has identified best terms pricing as one of many factors inflating premiums.

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According to data the authority collected from properties that buy strata insurance, 94 per cent were negatively impacted by best terms pricing, and overall premiums were 27 per cent higher than they would be if a different pricing method was used.

The increases trickle down to owners in the form of higher strata fees. About half of Metro Vancouverites live in strata properties, and all B.C. stratas must have insurance.

To insure strata properties, brokers gather quotes from multiple insurers who share the risk of insuring properties that can be worth millions of dollars and expensive to repair. This is referred to as a subscription policy.

Each insurer submits a bid, but under best terms pricing instead of the cost of the premium being based on an average of the bids, it is based on the highest bid, even if most quotes were lower.

The authority has received assurances that the practice will be phased out by Jan. 1. This will give insurers time to adjust their computer systems so they can accommodate different prices for each insurer. Stratas will still be on the hook for paying their current insurance premiums, but will likely notice a difference when they renew their policies.

Chuck Byrne, executive director of the Insurance Brokers Association of B.C., said the devil will be in the details, which are few at this point.

“The insurance companies that are active in the strata market are the ones that are setting the pricing terms and other related policy terms, and if they’re willing to go to this split-rate approach then obviously that’s battle one, that’s the whole story, and it’s a matter of seeing how that will work in practice,” Byrne said.

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However, there is concern among brokers that the change could deter some insurance companies because it is an added complexity.

“Again, it’s fear of the unknown. It’s not knowing how this will all work and how it will be accomplished. Hopefully, those details can be worked out really quickly and easily,” Byrne said.

B.C. Financial Services Authority vice-president of regulation Frank Chong said he sees this as a positive step by the insurance industry and believes it will be positive for British Columbians.

However, he added, “I would caution generally that while removing best terms pricing will alleviate some of the pricing pressures, it’s not the core reason for the increase.”

Among the other factors named in the authority’s report is claims costs, with insurers losing money because of minor claims due to poor building maintenance and bad construction.

“Our industry recognizes the challenges consumers have faced in the strata space over the past year. As it relates to best terms pricing, many insurers never entertained that practice and those that did, in light of the consumer concerns, have certainly moved away from it in conjunction with the regulator,” said Aaron Sutherland, a vice-president with the Insurance Bureau of Canada.

“We believe at its heart these concerns are a symptom of the challenges and we really need to attack the disease, which is claims costs as it relates to strata corporations in this province.”

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Byrne said he would like to see a standard unit definition included in B.C.’s strata regulation, which would clarify situations when the building’s or the unit owner’s insurance applies, and a cap on loss or deductible assessments. He believes those changes would go a long way to stabilizing the strata insurance industry.

The B.C. Financial Services Authority is expected to release a final report on the province’s strata insurance market, which will include next steps, by the end of this year.

The government has already made two changes to the Financial Institutions Act around renewal notice for strata corporations, insurance agent commission and referral fees for strata property managers.

 

© 2020 Vancouver Sun

Scotiabank reports fall in profit and revenue

The Canadian Press
Mortgage Broker News

Bank of Nova Scotia’s president and chief executive says he’s “cautiously optimistic” about the economy’s ability to bounce back from COVID-19 next year.

Brian Porter told analysts Tuesday that he is feeling reassured by countries that have doled out billions in pandemic relief, cut interest rates and offered wage support.

“We are seeing clear evidence that the stimulus is having the desired impact across our footprint,” he said on a conference call to discuss the bank’s latest financial results.

“In Canada, retail spending has reached pre-pandemic levels, the housing market is experiencing robust growth and auto sales have largely recovered.”

Porter hadn’t factored in the potential rollout of a COVID-19 vaccine, but if Pfizer, Moderna or AstraZeneca get the go-ahead to inject people with their early vaccine candidates, he said his optimism would grow even more.

His remarks came as most of the bank’s consumer relief programs that targeted Canadians hit hard by the pandemic are expiring and as the bank topped analyst expectations in its latest quarter.

Scotiabank reported a fourth-quarter profit of $1.9 billion or $1.42 per diluted share, down from $2.3 billion or $1.73 per diluted share in the same period a year earlier.

On an adjusted basis, the bank earned $1.45 per diluted share for the quarter ended Oct. 31, down from an adjusted profit of $1.82 per diluted share last year.

Analysts on average had expected Scotiabank to earn and adjusted profit of $1.22 per share, according to financial data firm Refinitiv.

Revenue totalled $7.5 billion, down from nearly $8 billion in its fourth quarter last year.

The bank was weighed down by record levels of support it offered through mortgage, credit card and personal loan programs, and funds it had to stow away in the event that customers can’t pay off their loans.

Throughout the pandemic, Porter said the bank doled out $120 billion in support for customers, who increased their adoption of digital offerings by 90 % in the last year.

Scotiabank’s provisions for credit losses – money it puts aside to account for potential bad loans – in its latest quarter totalled $1.1 billion, up from $753 million a year ago, but down from nearly $2.2 billion in the third quarter.

Scotiabank executives indicated that they expect such provisions to continue to sink as the bank and economy rebound.

“We expect 2021 will be a transition year toward a return to the full earnings power of the bank,” said Porter.

“The bank’s capital position is strong and will remain so in 2021 as the focus shifts from capital adequacy to capital deployment. I am confident we are well-positioned to take advantage of opportunities as they arise.”

 

Copyright © 2021 Key Media

Small-biz loans receive top up of 50 per cent

Barbara Shecter
The Vancouver Sun

The federal government is boosting the size of its interest-free loan program for small businesses by 50 per cent to help them weather the pandemic, with half of the top-up forgivable if the loan is repaid by the end of 2022.

The new loans were announced in Monday’s economic update and are on top of other sector-specific aid for the hardest-hit industries including tourism and hospitality.

The Canadian Emergency Business Account has already provided loans of up to $40,000 to more than 790,000 non-profits and small businesses ranging from dental practices to delicatessens. The $20,000 top-up of loans, provided through financial institutions and Export Development Canada, will be rolled out in December and can be applied for through March 31.

“Small businesses have been hit hard and have worked hard to stay afloat — through the first wave and now second wave,” the government said in its 237-page economic update Monday.

“These enhancements demonstrate the government’s commitment to stand by small businesses to ensure they can continue to support families and communities across the country.”

Up to $10,000 of each tranche of the loan is forgivable if the loan is repaid by the end of 2022.

Small businesses have been particularly hard hit by government-mandated restrictions to help control the spread of the virus that causes COVID-19.

On Monday, the government announced regionally targeted support for businesses and additional funding for innovative businesses to ensure that “intellectual property rich firms have the support they need to face the challenges presented by COVID-19.”

To that end, the Liberal government proposed adding $250 million over five years, beginning next year, to the Strategic Innovation Fund, which supports “large-scale transformative” projects.

The added funds “will help Canada’s most innovative firms and industries weather the pandemic and grow into world leaders that will help drive growth and create jobs in the Canadian economy,” the government said Monday.

Meanwhile, a top-up of up to $500 million is earmarked for the Regional Development Agencies and the Community Futures Network of Canada, bringing total funding to more than $2 billion in this fund. The feds are also proposing up to $3 million for the Canadian Northern Economic Development Agency that would go toward “foundational” economic development projects to support small businesses in Canada’s territories.

Alla Drigola, director of parliamentary affairs and small business policy at the Canadian Chamber of Commerce, said she was pleased to see the Canadian Emergency Business Account loan program extended and expanded alongside other regional supports.

“The CEBA loan program has been one of the government’s most successful support programs for small businesses,” she said, adding that the funds and liquidity targeted at specific regions and hard-hit sectors including tourism and hospitality “will go a long way towards helping these businesses weather the storm.”

Dan Kelly, president of the Canadian Federation of Independent Business, also welcomed the top-ups and extensions for “key COVID-19 support programs for small business” that “will provide a greater ability to plan for the very uncertain next few months.”

However, he said his association is disappointed the federal government did not include fixes for new businesses and self-employed Canadians, “who remain ineligible for nearly all of the key support programs.”

What’s more, the CFIB is asking the government to delay an upcoming Canada Pension Plan premium increase as small businesses “are in no position to take on new costs at the start of 2021,” Kelly said.

On a smaller scale, the economic update recognized that many Canadians are working from home during the pandemic, and the government has pledged to make it easier to claim home-office deductions. Workers are “taking on increased household expenses to do their jobs,” the document said, adding that many may not be familiar with rules to make such claims or want to take on the administrative burden.

The Canada Revenue Agency will allow employees working from home due to the pandemic to claim up to $400, based on the amount of time working from home, without the need to track detailed expenses.”

 

© 2020 Vancouver Sun