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Alberta - Where is the opportunity ?

Thomas Beyer

Thomas Beyer

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Aug 30, 2007
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ALBERTA - WHERE IS THE OPPORTUNITY ?

If you have followed my facebook page or other various blog entries you may have noticed I became rather bearish on Alberta this year, not mainly due to low oil prices but especially since May when the socialists - voted in by a minority due to vote splitting on the right - arrived inside the gate, and started raiding Alberta's wealth disguised as investments into climate, healthcare, fair share of oil wealth, and improved labour standards for farmers and minimum wage experiments.

So, rather than lamenting the continued slide into recession in Alberta due to low oil and continued and systematic wealth destroying public policy I'd like to ask this assembled brain trust here on this esteemed real estate blog where the UPSIDE lies, i.e. the opportunity in the upcoming years.

I see five

a) green energy i.e. solar power plants, solar roof top installations, home retrofits for energy efficiency and wind related investments, even oil&gas related retrofits to make it more "green"

b) public sector related construction such as new hospitals or expansions, new LRT lines, more public buildings such as schools, either brand new or enhanced / upgraded / expanded, arenas (such as in Edmonton or Calgary) or highways such as the SE ring road / Stoney Trail extension from COP via Elbow River to S-Calgary.

c) tourism, due to low $ as we saw this last summer in Banff, Canmore and Jasper which was packed

d) divorce lawyers, as the stress of layoffs, falling house prices and rising debt level strains families, especially those used to six digit paycheques that are now gone, possibly forever.

e) foreclosed properties in good locations where through court action or lending one can buy great assets at a discount

But of course, there may be far more. Where ?

Is Alberta still a decent place to invest, live and work, and if so, where AND WHY ?

Love to hear especially from folks that live there, folks that have significant investments there or from younger Gen Y folks trying to get a decent sized or increasing pay cheque !

If you feel you'd rather not share your view in public I'd appreciate a personal message on where Alberta is headed in your view and where the UPSIDE and OPPORTUNITY lies !
 
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A few general observations on the Edmonton market... AB concerns outlined well above:

The LRT opportunity is usually very outsized in my opinion. It is pretty obvious that having the option of LRT is better than no LRT. Many TOD developments in Edmonton have fallen face first (TOD = transit oriented development). Station Point and Century Park are prime examples. Want to own around Fort Road? Who sees that as a regendrifiying neighborhood? It's received millions of dollars from the city. Zero chance I would buy around there. We will see if the city does any better with Blatchford.

What about around Century Park LRT station? What is going to change in values when the parking lot relocates and now there is a park and ride bus instead? Procura is a sophisticated developer and this project has had many challenges getting off the ground.

How about the LRT along 114 street in Edmonton? How do you feel about having your tenants drive across the intersections every day waiting 10 minutes each trip? Valley Line is going to have the exact same above-ground problems.

Understanding that people will sometimes use the LRT is so incredibly, blatantly obvious that every home in that surrounding area is going to be more expensive. The question isn't that it has more value, the question is how much value and how much of a lower yield does it make sense to accept to have that advantage. Car travel is a reality in Edmonton and that is not going to change any time soon. In some cases, better access to arterials is going to get you a better premium than proximity to LRT. Not all LRT station locations are equal. This is a big, big problem when only secondary research is gathered to make primary market conclusions. You need to gather your own primary data.

Opportunity: Whyte Ave / downtown and zero parking provisions (such as Crawford Block). This is a desirable neighborhood where no parking actually makes sense. This is a slowly changing attitude with city council and planners and there is good reason behind the transition. Condo conversions in downtown & area neighborhoods with zero parking. Brewery District and Oliver. Some developers have purchased and boarded up homes along 109 street and on east portions of Whyte. With the weaker market, some of these developments will be up for sale. Banks are going to be a lot pickier with providing funding for construction development and they are well aware of deteriorating conditions in the real estate market. Mayfair and Edgewater were not originally planned as rental building but due to worsening conditions were transitioned. Same for Corners on Whyte. Banks are not going to continue believing $2,000 for 2 bedroom units....

Before you go "buy around the arena" take a drive around the arena! There isn't a property seller in Edmonton who isn't aware there is an arena being built a couple blocks away. Kind of a hard to miss sort of thing.
 
We own multi-family in Calgary and we haven't seen any good opportunity in Calgary in the multi-family sector despite the fall in rents and rise in vacancy. Most people who own multifamily in Calgary have owned for a while, aren't overly leveraged and have a healthy balance sheet so they can handle the tougher times. With interest rates so low many groups have a ton of cash and are looking to reinvest but there isn't much for sale so prices are still high. I think there are better opportunity in single family then multifamily investing in Calgary.

Edmonton has a lot more apartment buildings then Calgary and smaller investors so i'd imagine there will be greater opportunity in Edmonton because more groups will be over-leveraged.
 
Developer said:
We own multi-family in Calgary and we haven't seen any good opportunity in Calgary in the multi-family sector despite the fall in rents and rise in vacancy. Most people who own multifamily in Calgary have owned for a while, aren't overly leveraged and have a healthy balance sheet so they can handle the tougher times. With interest rates so low many groups have a ton of cash and are looking to reinvest but there isn't much for sale so prices are still high. I think there are better opportunity in single family then multifamily investing in Calgary.

Edmonton has a lot more apartment buildings then Calgary and smaller investors so i'd imagine there will be greater opportunity in Edmonton because more groups will be over-leveraged.
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That is a fair assessment.

Better opps also in land development, semi-constructed projects, industrial, commercial, retail or hotels .. all severally strained with lower demand and plummeting lease rates. So if you have cash then a semi-vacant hotel or 3/4 empty industrial warehouse, or a semi-framed 8-unit TH project will be available all over the place.
 
Developer said:
We own multi-family in Calgary and we haven't seen any good opportunity in Calgary in the multi-family sector despite the fall in rents and rise in vacancy. Most people who own multifamily in Calgary have owned for a while, aren't overly leveraged and have a healthy balance sheet so they can handle the tougher times. With interest rates so low many groups have a ton of cash and are looking to reinvest but there isn't much for sale so prices are still high. I think there are better opportunity in single family then multifamily investing in Calgary.
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Great assessment and this has been my experience as well. The city is moving ahead with several projects... Green Line, Arena etc. Great fundamentals in single family / small multis in these areas. There are also tonnes of vacancies in office buildings and the owners won't stand for it forever... hopefully they will reduce rates and we'll see some diversification in corporate Calgary as a result.
 
SweetZone said:
A few general observations on the Edmonton market... AB concerns outlined well above:

The LRT opportunity is usually very outsized in my opinion. It is pretty obvious that having the option of LRT is better than no LRT. Many TOD developments in Edmonton have fallen face first (TOD = transit oriented development). Station Point and Century Park are prime examples. Want to own around Fort Road? Who sees that as a regendrifiying neighborhood? It's received millions of dollars from the city. Zero chance I would buy around there. We will see if the city does any better with Blatchford.

What about around Century Park LRT station? What is going to change in values when the parking lot relocates and now there is a park and ride bus instead? Procura is a sophisticated developer and this project has had many challenges getting off the ground.

How about the LRT along 114 street in Edmonton? How do you feel about having your tenants drive across the intersections every day waiting 10 minutes each trip? Valley Line is going to have the exact same above-ground problems.

Understanding that people will sometimes use the LRT is so incredibly, blatantly obvious that every home in that surrounding area is going to be more expensive. The question isn't that it has more value, the question is how much value and how much of a lower yield does it make sense to accept to have that advantage. Car travel is a reality in Edmonton and that is not going to change any time soon. In some cases, better access to arterials is going to get you a better premium than proximity to LRT. Not all LRT station locations are equal. This is a big, big problem when only secondary research is gathered to make primary market conclusions. You need to gather your own primary data.

Opportunity: Whyte Ave / downtown and zero parking provisions (such as Crawford Block). This is a desirable neighborhood where no parking actually makes sense. This is a slowly changing attitude with city council and planners and there is good reason behind the transition. Condo conversions in downtown & area neighborhoods with zero parking. Brewery District and Oliver. Some developers have purchased and boarded up homes along 109 street and on east portions of Whyte. With the weaker market, some of these developments will be up for sale. Banks are going to be a lot pickier with providing funding for construction development and they are well aware of deteriorating conditions in the real estate market. Mayfair and Edgewater were not originally planned as rental building but due to worsening conditions were transitioned. Same for Corners on Whyte. Banks are not going to continue believing $2,000 for 2 bedroom units....

Before you go "buy around the arena" take a drive around the arena! There isn't a property seller in Edmonton who isn't aware there is an arena being built a couple blocks away. Kind of a hard to miss sort of thing.
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I agree. You cant paint a clear picture just based on proximity to public transit. There's a huge number of factors. I've been stuck in traffic in the university area and Kingsway area well the LRT makes its rounds. I would have no desire to live anywhere near there. Makes for noise, congestion and inconvenience.

On the flip side, close proximity to a non imposing bus terminal in a commercial shopping centre (Ie. Namao Centre on 97st) could be a big draw for potential tenants, or maybe it's just a short bus ride to a LRT station? It could be the difference between a potential tenant selecting your property over another (especially if your target demographic tends to use public transit (students, young professionals who want to take the LRT to the office, "new Canadians", etc.)

As for resale, I guess it depends. If you're selling a single detached home for 600k chances are, potential buyers are established and commute to work ( not all but most ). If you're selling a 1 or 2 bdrm apartment, I don't think it will increase value all that much, if at all, but again, it may be the difference between a purchaser selecting your place over option b.

I too put more stock into proximity to main roads and arteries (such as the A.Henday) as it is a important factor to a larger demographic of people.
 
May be a fair bit of distress sales, assumable mortgages, foreclosures, etc. Just a matter of timing. I've been told Edmonton economically is about 18 months behind Calgary. So once we see some signs of recovery down south, may be time to act. We've been trying to sell our acreage, build on our lot then pull the equity and buy a couple up n down suites. Just trying to gain some guidance and understanding from the knowledgeable folks here before taking the plunge. Better to be proactive than reactive.
You're right, probably lots of opportunity in public sector related construction with the federal liberals ramping up debt to "stimulate" the economy. Too bad the government doesn't encourage efficient operation or I might have some faith in that plan. In the private sector, if you don't operate efficiently and economically you go bankrupt. In the government, you just raise taxes and/or blame someone/something else.
 
Yes and in other exports like agriculture & equipment exporting firms. Also good for tourism.

Imports like certain cars, fruit, mechanical parts or cheeses and vacations to Hawaii will be more expensive though.
 
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This is interesting: (From RBC http://www.rbc.com/economics/economic-reports/pdf/provincial-forecasts/prov_fiscal.pdf). You will probably need to click the images to view them properly.
Program expenses per capital for Alberta
AB_net_debt_per_capita.png

Net debt per capita

AB_program_exp_per_capita.png
 
If you are looking at investing in one of the smaller Alberta towns, Alberta Seniors puts together a very solid report on Apartment Vacancy & Rental Cost. It will provide you with one of the better community profiles available. The Alberta Seniors portfolio looks after housing in Alberta. Not sure why that is but it is. Some interesting information in report:
  • average rents in community and range of rents
  • average vacancies by age of building
  • vacancy rates 2004 - 2014 by community
2014 Report: http://www.seniors.alberta.ca/documents/AVS Report 2014.pdf?v=2

Information:
The Government of Alberta annually conducts the Rural Apartment Vacancy and Rental Cost Survey of multi-family dwellings in Alberta's rural communities between the months of May and August.
The survey identifies building type, unit type, number of units, rental rates (including utilities) and the number of vacancies in Alberta communities with populations between 1,000 and 9,999 that have at least 30 or more rental units.

ab_weighted_avg_2014_rents.png
 
It would be nice to get the sample size as well. For example, Bruderheim has 1b rent at $1695-1695 and 2b at $1895-$1895 which makes it look like a sample size of 1 (or something else at play here).
 
Rickson9 said:
It would be nice to get the sample size as well. For example, Bruderheim has 1b rent at $1695-1695 and 2b at $1895-$1895 which makes it look like a sample size of 1 (or something else at play here).
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haha, ya! Well, that is something I like about this report. They were very forthcoming with the data collected. 30 units surveyed. Not a terrible sample for a small community. The requirements of the report is that the community is over 1,000 people in population and 30 rental units. Bruderheim barely made the cut.

Source: http://www.seniors.alberta.ca/documents/AVS Report 2014.pdf?v=2 (page 104)
Bruderheim.png
 
Nice. Still a remarkably tight rental range for 30 units. Thanks for posting.
 
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