US headed for a Commercial RE Crash
- Thread starter Nir
- Start date
QUOTE (investmart @ Mar 19 2010, 07:15 PM) Are we next? ...
no .. but expect CAP rates to increase on industrial, retail and especially office properties. Combine this with lower rents, higher vacancies, higher mortgage rates and you will see commercial values flat-line or decline in Canada, too !!
So tread very careful into the commercial space as special expertise is required !
no .. but expect CAP rates to increase on industrial, retail and especially office properties. Combine this with lower rents, higher vacancies, higher mortgage rates and you will see commercial values flat-line or decline in Canada, too !!
So tread very careful into the commercial space as special expertise is required !
I`m not into betting
If I was I`d put $5 that multi-family values in many area`s in Canada are the same in 2015 as today.
Cap rates will increase, NOI will increase, values will stay sticky, so more profitable from operations on non leveraged basis in future at purchase price.
Thomas - Your posts imply you don`t see this for multi-family - care to discuss?
QUOTE (ThomasBeyer @ Mar 19 2010, 10:15 PM) no .. but expect CAP rates to increase on industrial, retail and especially office properties. Combine this with lower rents, higher vacancies, higher mortgage rates and you will see commercial values flat-line or decline in Canada, too !!
So tread very careful into the commercial space as special expertise is required !
If I was I`d put $5 that multi-family values in many area`s in Canada are the same in 2015 as today.
Cap rates will increase, NOI will increase, values will stay sticky, so more profitable from operations on non leveraged basis in future at purchase price.
Thomas - Your posts imply you don`t see this for multi-family - care to discuss?
QUOTE (ThomasBeyer @ Mar 19 2010, 10:15 PM) no .. but expect CAP rates to increase on industrial, retail and especially office properties. Combine this with lower rents, higher vacancies, higher mortgage rates and you will see commercial values flat-line or decline in Canada, too !!
So tread very careful into the commercial space as special expertise is required !
QUOTE (housingrental @ Mar 20 2010, 11:05 AM)
I'm not into betting
If I was I'd put $5 that multi-family values in many area's in Canada are the same in 2015 as today.
Cap rates will increase, NOI will increase, values will stay sticky, so more profitable from operations on non leveraged basis in future at purchase price.
Thomas - Your posts imply you don't see this for multi-family - care to discuss?
love to:
CAP rates are usually about 1.5% to 2% over the 5 year bond rate. (i.e. why take risk with a building if I can get X % risk free with a bond)
CMHC insured rates today are 3.5% to 3.8% .. so CAP rates should be 5.0% to 5.5% .. but they are already higher .. taking into account future rate increases. I expect CAP rates to stay FLAT in big cities, like Edmonton around 7% ..
UNLIKE commercial mortgages which trade at 5 to 5.5% today .. 1.5% to almost 2% higher than residential mortgages.. and as such CAP rates of comparable retail or office towers are too low today as they should trade 2.5% to 3% over the mortgage rate due to risk .. bu often they don't.
For example: Yorkton, SK. We own 5 assets in that town .. and LOST on a 58 unit bid because we aimed for 6.5% CAP rate .. and it sold SUB 6% !! go figure.
Assuming 3% inflation, rents will be 15% higher in 5 years .. at least .. and thus: value.
So, buy an asset with 25% down .. and plow all cash-flow back into asset, so assume no cash-flow for 5 years .. value up 15% in 5 years .. = 60% ROI cash-on-cash .. PLUS mortgage is paid down 10% .. another 7% (over 25% down) .. so total ROI is around 80% in a very low growth market ... not so shabby is it ?
No, they will not be flat in 5 years. Will they / have they come off the peak of 2007/2008: of course .. in most markets .. but are already on the rise again. Too much money sitting around in cash collecting less than 1%. So why not buy an asset in N-Vancouver or Calgary or GTA with a 4% CAP rate in cash ? You can't lose .. or do better in smaller markets with some leverage .. so buy @ 6% CAP rate (aka yield) with 4% money .. and make money all day long ...
2nd reason: cost to build is 50% of older assets. No one is building new rentals until prices of old and new converge to maybe 25-30% to allow for age/quality.
What do I not see that you do Adam (or was it Andy ..) ?
Related posts:
50 Year house price view: http://myreinspace.com/rein_members_only1/Members-Only_Discussion/81-6621-50_Year_Calgary_House_Price_View.html
Equity Gain not the only way to make money in RE: http://myreinspace.com/public_forums1/Real_Estate_Discussion/62-10711-Equity_is_not_the_only_way_to_make_money_in_real_estate.html
I'm not into betting
If I was I'd put $5 that multi-family values in many area's in Canada are the same in 2015 as today.
Cap rates will increase, NOI will increase, values will stay sticky, so more profitable from operations on non leveraged basis in future at purchase price.
Thomas - Your posts imply you don't see this for multi-family - care to discuss?
love to:
CAP rates are usually about 1.5% to 2% over the 5 year bond rate. (i.e. why take risk with a building if I can get X % risk free with a bond)
CMHC insured rates today are 3.5% to 3.8% .. so CAP rates should be 5.0% to 5.5% .. but they are already higher .. taking into account future rate increases. I expect CAP rates to stay FLAT in big cities, like Edmonton around 7% ..
UNLIKE commercial mortgages which trade at 5 to 5.5% today .. 1.5% to almost 2% higher than residential mortgages.. and as such CAP rates of comparable retail or office towers are too low today as they should trade 2.5% to 3% over the mortgage rate due to risk .. bu often they don't.
For example: Yorkton, SK. We own 5 assets in that town .. and LOST on a 58 unit bid because we aimed for 6.5% CAP rate .. and it sold SUB 6% !! go figure.
Assuming 3% inflation, rents will be 15% higher in 5 years .. at least .. and thus: value.
So, buy an asset with 25% down .. and plow all cash-flow back into asset, so assume no cash-flow for 5 years .. value up 15% in 5 years .. = 60% ROI cash-on-cash .. PLUS mortgage is paid down 10% .. another 7% (over 25% down) .. so total ROI is around 80% in a very low growth market ... not so shabby is it ?
No, they will not be flat in 5 years. Will they / have they come off the peak of 2007/2008: of course .. in most markets .. but are already on the rise again. Too much money sitting around in cash collecting less than 1%. So why not buy an asset in N-Vancouver or Calgary or GTA with a 4% CAP rate in cash ? You can't lose .. or do better in smaller markets with some leverage .. so buy @ 6% CAP rate (aka yield) with 4% money .. and make money all day long ...
2nd reason: cost to build is 50% of older assets. No one is building new rentals until prices of old and new converge to maybe 25-30% to allow for age/quality.
What do I not see that you do Adam (or was it Andy ..) ?
Related posts:
50 Year house price view: http://myreinspace.com/rein_members_only1/Members-Only_Discussion/81-6621-50_Year_Calgary_House_Price_View.html
Equity Gain not the only way to make money in RE: http://myreinspace.com/public_forums1/Real_Estate_Discussion/62-10711-Equity_is_not_the_only_way_to_make_money_in_real_estate.html
I see multi-family sales, especially the smaller sized plex's, in the 6% (and sub) range, even for a questionable quality of product... and deferred maintenance...Ie there's many buyers willing to pay near top dollar for even the poorest of managed property...
I'm not seeing a lot of sales around 7% cap rates.
I see floods of money available for RE from perception of low potential returns in other investment choices...
I'm concerned about the potential for:
higher financing costs
increased requirements to obtain financing
and most importantly money flowing out of RE to alternate investment classes over the next 2 years pushing up cap rates
I'm looking to expand. So far I've sold 2 locations this year and about to sell a third. I've never sold a place before and have a mindset that it generally makes sense to never sell a good real estate investment... it was a tough choice... hopefully it turns out well, time will tell.. I've only picked one location up as replacement so far last month, looking for more but its a challenge... A frustrating environment for an investor.
That being said it's really tough betting against real estate values. Over the long term you'll almost always be wrong, prices are often sticky even when fundamentals justify a downturn, and accurately judging timing is best left to psychics.
"What do I not see that you do Adam (or was it Andy ..) ?" A nice touch
/smile.gif" emoid="
">
QUOTE (ThomasBeyer @ Mar 20 2010, 12:17 PM)
love to:
CAP rates are usually about 1.5% to 2% over the 5 year bond rate. (i.e. why take risk with a building if I can get X % risk free with a bond)
CMHC insured rates today are 3.5% to 3.8% .. so CAP rates should be 5.0% to 5.5% .. but they are already higher .. taking into account future rate increases. I expect CAP rates to stay FLAT in big cities, like Edmonton around 7% ..
UNLIKE commercial mortgages which trade at 5 to 5.5% today .. 1.5% to almost 2% higher than residential mortgages.. and as such CAP rates of comparable retail or office towers are too low today as they should trade 2.5% to 3% over the mortgage rate due to risk .. bu often they don't.
For example: Yorkton, SK. We own 5 assets in that town .. and LOST on a 58 unit bid because we aimed for 6.5% CAP rate .. and it sold SUB 6% !! go figure.
Assuming 3% inflation, rents will be 15% higher in 5 years .. at least .. and thus: value.
So, buy an asset with 25% down .. and plow all cash-flow back into asset, so assume no cash-flow for 5 years .. value up 15% in 5 years .. = 60% ROI cash-on-cash .. PLUS mortgage is paid down 10% .. another 7% (over 25% down) .. so total ROI is around 80% in a very low growth market ... not so shabby is it ?
No, they will not be flat in 5 years. Will they / have they come off the peak of 2007/2008: of course .. in most markets .. but are already on the rise again. Too much money sitting around in cash collecting less than 1%. So why not buy an asset in N-Vancouver or Calgary or GTA with a 4% CAP rate in cash ? You can't lose .. or do better in smaller markets with some leverage .. so buy @ 6% CAP rate (aka yield) with 4% money .. and make money all day long ...
2nd reason: cost to build is 50% of older assets. No one is building new rentals until prices of old and new converge to maybe 25-30% to allow for age/quality.
What do I not see that you do Adam (or was it Andy ..) ?
Related posts:
50 Year house price view: http://myreinspace.com/rein_members_only1/Members-Only_Discussion/81-6621-50_Year_Calgary_House_Price_View.html
Equity Gain not the only way to make money in RE: http://myreinspace.com/public_forums1/Real_Estate_Discussion/62-10711-Equity_is_not_the_only_way_to_make_money_in_real_estate.html
I'm not seeing a lot of sales around 7% cap rates.
I see floods of money available for RE from perception of low potential returns in other investment choices...
I'm concerned about the potential for:
higher financing costs
increased requirements to obtain financing
and most importantly money flowing out of RE to alternate investment classes over the next 2 years pushing up cap rates
I'm looking to expand. So far I've sold 2 locations this year and about to sell a third. I've never sold a place before and have a mindset that it generally makes sense to never sell a good real estate investment... it was a tough choice... hopefully it turns out well, time will tell.. I've only picked one location up as replacement so far last month, looking for more but its a challenge... A frustrating environment for an investor.
That being said it's really tough betting against real estate values. Over the long term you'll almost always be wrong, prices are often sticky even when fundamentals justify a downturn, and accurately judging timing is best left to psychics.
"What do I not see that you do Adam (or was it Andy ..) ?" A nice touch
">QUOTE (ThomasBeyer @ Mar 20 2010, 12:17 PM)
love to:
CAP rates are usually about 1.5% to 2% over the 5 year bond rate. (i.e. why take risk with a building if I can get X % risk free with a bond)
CMHC insured rates today are 3.5% to 3.8% .. so CAP rates should be 5.0% to 5.5% .. but they are already higher .. taking into account future rate increases. I expect CAP rates to stay FLAT in big cities, like Edmonton around 7% ..
UNLIKE commercial mortgages which trade at 5 to 5.5% today .. 1.5% to almost 2% higher than residential mortgages.. and as such CAP rates of comparable retail or office towers are too low today as they should trade 2.5% to 3% over the mortgage rate due to risk .. bu often they don't.
For example: Yorkton, SK. We own 5 assets in that town .. and LOST on a 58 unit bid because we aimed for 6.5% CAP rate .. and it sold SUB 6% !! go figure.
Assuming 3% inflation, rents will be 15% higher in 5 years .. at least .. and thus: value.
So, buy an asset with 25% down .. and plow all cash-flow back into asset, so assume no cash-flow for 5 years .. value up 15% in 5 years .. = 60% ROI cash-on-cash .. PLUS mortgage is paid down 10% .. another 7% (over 25% down) .. so total ROI is around 80% in a very low growth market ... not so shabby is it ?
No, they will not be flat in 5 years. Will they / have they come off the peak of 2007/2008: of course .. in most markets .. but are already on the rise again. Too much money sitting around in cash collecting less than 1%. So why not buy an asset in N-Vancouver or Calgary or GTA with a 4% CAP rate in cash ? You can't lose .. or do better in smaller markets with some leverage .. so buy @ 6% CAP rate (aka yield) with 4% money .. and make money all day long ...
2nd reason: cost to build is 50% of older assets. No one is building new rentals until prices of old and new converge to maybe 25-30% to allow for age/quality.
What do I not see that you do Adam (or was it Andy ..) ?
Related posts:
50 Year house price view: http://myreinspace.com/rein_members_only1/Members-Only_Discussion/81-6621-50_Year_Calgary_House_Price_View.html
Equity Gain not the only way to make money in RE: http://myreinspace.com/public_forums1/Real_Estate_Discussion/62-10711-Equity_is_not_the_only_way_to_make_money_in_real_estate.html
Forgot to add I can relate. Too many wonky sales in Waterloo at hard to stomach price points. The smaller properties are even worse, at 2% helocs everything starts to look great.
I think its time to start petioning REIN to drop it from #1 to off the list of top cities in Ontario
"For example: Yorkton, SK. We own 5 assets in that town .. and LOST on a 58 unit bid because we aimed for 6.5% CAP rate .. and it sold SUB 6% !! go figure."
I think its time to start petioning REIN to drop it from #1 to off the list of top cities in Ontario
"For example: Yorkton, SK. We own 5 assets in that town .. and LOST on a 58 unit bid because we aimed for 6.5% CAP rate .. and it sold SUB 6% !! go figure."
QUOTE (housingrental @ Mar 21 2010, 11:32 AM) ..A frustrating environment for an investor...
Let`s call it "more searching or analysis is required" .. deals are out there but yes they are not easy to find !
Let`s call it "more searching or analysis is required" .. deals are out there but yes they are not easy to find !