Canadian Multi-Family Investment Property Inventory Discussion
- Thread starter Darr
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It's nearly impossible to buy in Calgary. Very little product to begin with, so those buildings that hit the market all have 'stories'.
With rents increasing in the last year it's further tightened things. There is more new construction, but not a lot. We're kind of in that tough spot where committed buyers either have to pay a little too much to get a building, or take the plunge of development which yeilds a cost per door that's higher than the resale cost of a similar (albeit older) building.
I had lenders and other investors telling me I was overpaying for my 36 unit building purchased in May of last year at 133/door. Similar comparables are now at ~165 for concrete construction.
Again it comes down to the investors timeframe and purpose of the investment. If you are looking for legacy cash flow - IE you never plan on selling - then concern yourself less with the numbers today and more with how the investment looks when you'll really need the income. If you need solid return numbers on day 1 (or even day 366) then this town might not be for you right now.
With rents increasing in the last year it's further tightened things. There is more new construction, but not a lot. We're kind of in that tough spot where committed buyers either have to pay a little too much to get a building, or take the plunge of development which yeilds a cost per door that's higher than the resale cost of a similar (albeit older) building.
I had lenders and other investors telling me I was overpaying for my 36 unit building purchased in May of last year at 133/door. Similar comparables are now at ~165 for concrete construction.
Again it comes down to the investors timeframe and purpose of the investment. If you are looking for legacy cash flow - IE you never plan on selling - then concern yourself less with the numbers today and more with how the investment looks when you'll really need the income. If you need solid return numbers on day 1 (or even day 366) then this town might not be for you right now.
[quote user=RedlineBrett]It's nearly impossible to buy in Calgary. Very little product to begin with, so those buildings that hit the market all have 'stories'.
Same here in Montreal, most properties listed on MLS have a 3-5% ROI when doing the proper calculations, when something with better return comes out, their is a story to it, problem tenants or similar.
Same here in Montreal, most properties listed on MLS have a 3-5% ROI when doing the proper calculations, when something with better return comes out, their is a story to it, problem tenants or similar.
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Many current owners are reluctant to sell. They can only get 2% on their money at the banks, so why sell is a common comment. The rents are moving up and vacancy is down, so cash flow is very good if your asset is mortgage free. Or they have remortgaged for new investments, as rates are so low.
Available inventory is limited. Well managed properties seldom sell. Poorly managed and poor-fair condition is norm.
Great properties are sold very quickly at a fair price.
Available inventory is limited. Well managed properties seldom sell. Poorly managed and poor-fair condition is norm.
Great properties are sold very quickly at a fair price.
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[quote user=brentdavies]Many current owners are reluctant to sell. They can only get 2% on their money at the banks, so why sell is a common comment.
Good point. Moreover, that 2% gets watered down by inflation where cap rates do not.
We now need comments from:
Vancouver & Victoria
Toronto & Hamilton
Ottawa-Gatineau
Winipeg
Halifax
and Others
Good point. Moreover, that 2% gets watered down by inflation where cap rates do not.
We now need comments from:
Vancouver & Victoria
Toronto & Hamilton
Ottawa-Gatineau
Winipeg
Halifax
and Others
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CAP rates in Vancouver are around 4%, or lower even. A building that just sold in Kitsilano, for example, sold for 28 times annual rent .. twice what you'd pay in Edmonton .. say 12-14 ..
CAP rates in Calgary are around 5%, and in Edmonton 5.5% to sub 6%, similar to Burnaby, New Westminster or N-Vancouver.
Many good condition assets or in good locations are not for sale or below that CAP rate, in the 130-150/door in Edmonton and 165 to 200/door range in Calgary. An asset we bought in Dec. 2010 went from $14.65M to close to $20M not even 2 years later.
Sub 100/door in any major city in AB is usually garbage unless you get lucky. We're buying an asset in a B area in B condition for high 90's/door next month. Little decent inventory around but still far better cash-on-cash return with lower risk than stock market, and higher than bonds.
An asset we bought for 30's/door in Fox Creek, AB in 2005 and sold for 70's/door in 2007 with a triple digit cash-on-cash ROI is now listed in the 80's/door .. in a town of not even 2500 people halfway between Edmonton and Grand Prairie.
Everyone (like pension funds, REITs, high net worth individuals, retirees, ..) is scrambling for decent, sustainable, long term yields with low risk, and apartment buildings in good locations, impeccably managed provide that !
I expect CAP rates to drop further, Calgary to around 4% and Edmonton to 5%, as interest rates will stay low for a while. Long term CMHC insured money is at 2.4% and without CMHC at around 3%. So, it makes sense to borrow and buy an asset with a yield that is 50-70% higher (i.e. 4 to 6%).
I am not too familiar with GTA, Ottawa, Winnipeg or Halifax, but would expect quality assets there to be between 5 and 6% CAP rates also, about a percent higher in dubious locations.
With the tightening of mortgages for single family units more people chose to rent, or longer; thus lowering vacancies and driving up rents and rental properties values - an unintended, but expected consequence. Thank you, Jim Flaherty !
CAP rates in Calgary are around 5%, and in Edmonton 5.5% to sub 6%, similar to Burnaby, New Westminster or N-Vancouver.
Many good condition assets or in good locations are not for sale or below that CAP rate, in the 130-150/door in Edmonton and 165 to 200/door range in Calgary. An asset we bought in Dec. 2010 went from $14.65M to close to $20M not even 2 years later.
Sub 100/door in any major city in AB is usually garbage unless you get lucky. We're buying an asset in a B area in B condition for high 90's/door next month. Little decent inventory around but still far better cash-on-cash return with lower risk than stock market, and higher than bonds.
An asset we bought for 30's/door in Fox Creek, AB in 2005 and sold for 70's/door in 2007 with a triple digit cash-on-cash ROI is now listed in the 80's/door .. in a town of not even 2500 people halfway between Edmonton and Grand Prairie.
Everyone (like pension funds, REITs, high net worth individuals, retirees, ..) is scrambling for decent, sustainable, long term yields with low risk, and apartment buildings in good locations, impeccably managed provide that !
I expect CAP rates to drop further, Calgary to around 4% and Edmonton to 5%, as interest rates will stay low for a while. Long term CMHC insured money is at 2.4% and without CMHC at around 3%. So, it makes sense to borrow and buy an asset with a yield that is 50-70% higher (i.e. 4 to 6%).
I am not too familiar with GTA, Ottawa, Winnipeg or Halifax, but would expect quality assets there to be between 5 and 6% CAP rates also, about a percent higher in dubious locations.
With the tightening of mortgages for single family units more people chose to rent, or longer; thus lowering vacancies and driving up rents and rental properties values - an unintended, but expected consequence. Thank you, Jim Flaherty !
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Getting back to your original question, there's been sweet tweet for new multi-construction here for the past 20-30 years. We're just now seeing a handful of multi-family projects in Edmonton and there's a few failed condo projects that ended up as rentals. The majority of our very small (~2000 building) inventory is 1960-1980's construction.
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Was looking forward to your thoughts on this thread Thomas. Thanks for sharing.
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[quote user=ThomasBeyer] Thank you, Jim Flaherty !
Jim Flaherty is simply following orders from the head of Canada's banking syndicate. The PMO answers directly to Marc Carney.
Let's continue the discussion about inventories in Canada and thanks for sharing your views.
Jim Flaherty is simply following orders from the head of Canada's banking syndicate. The PMO answers directly to Marc Carney.
Let's continue the discussion about inventories in Canada and thanks for sharing your views.
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The only way inventory ever increases is with construction of the new rental stock. Is that happening in other markets? There has been some rental oriented construction here in Calgary, but the vast majority of new multi-family going up right now is condos. One example of rentals being constructed here is this 70 unit building between Banff Trail and University LRT stations, near McMahon Stadium.
http://www2.canada.com/calgaryherald/news/newcondos/story.html?id=05a57977-b004-43ba-88bf-8bcd87e39c84&p=1
Notice where it is in the paper: the "new condos" section.
Regards,
Michael
http://www2.canada.com/calgaryherald/news/newcondos/story.html?id=05a57977-b004-43ba-88bf-8bcd87e39c84&p=1
Notice where it is in the paper: the "new condos" section.
Regards,
Michael
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Michael - Yes. Waterloo has had, and has currently, a lot of cranes.
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[quote user=housingrental]Michael - Yes. Waterloo has had, and has currently, a lot of cranes.
Is that mainly for student housing or rental housing of all types? Just curious, as the project I linked to in Calgary would be considered very student friendly, but most of the other cranes are for condos.
Regards,
Michael
Is that mainly for student housing or rental housing of all types? Just curious, as the project I linked to in Calgary would be considered very student friendly, but most of the other cranes are for condos.
Regards,
Michael
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Great question and sadly one of the few that pertain to larger multi family on this board.
Halifax is my stomping ground, or rather, secondary markets around it. I don't pay attention to cap rates a whole lot though as its all about the cash on cash for me. I like safety and don't buy at less than 10 %.
Having looked full time for a year now, there is not much to find but there seems to be opportunity still in smaller towns or something you find off market. In Halifax the few properties offered openly go to an auction style process. A few months ago I offered 40/door for 40 units (about 25 % vacant) in 2 buildings expecting to spend another 10K each unit on one of the worse streets here. Didn't even get an anwer. B assets in Halifax in a B area would be at least 70K/door but there's so little to compare with I'm not even sure.
I do have a 22 unit townhouse deal under contract for 850 K that was built maybe 30 years ago. Its in a stagnant but not declining small town of 3000 and isn't even a secondary market but rather a tertiary. It cashflows well even at a worse case 25 % vacancy so I'll probably buy it as I expect further cap rate compression even in tiny towns and plan to sell that one to a LP I have to start setting up!
Good discussion.
I think that input on US multi fam cap rates is pertinent though. If you're getting on a plane to go see your property it doesn't matter if its Edmonton or Albuquerque! The point is to go where the deals are, and there is WAY more opportunity down south. Dec 31 is when a lot of bank REO officers have to close their books on a lot of foreclosed multi family mortgages - which directly impacts their Christmas bonus! There will be great deals to those who know how to look.
Halifax is my stomping ground, or rather, secondary markets around it. I don't pay attention to cap rates a whole lot though as its all about the cash on cash for me. I like safety and don't buy at less than 10 %.
Having looked full time for a year now, there is not much to find but there seems to be opportunity still in smaller towns or something you find off market. In Halifax the few properties offered openly go to an auction style process. A few months ago I offered 40/door for 40 units (about 25 % vacant) in 2 buildings expecting to spend another 10K each unit on one of the worse streets here. Didn't even get an anwer. B assets in Halifax in a B area would be at least 70K/door but there's so little to compare with I'm not even sure.
I do have a 22 unit townhouse deal under contract for 850 K that was built maybe 30 years ago. Its in a stagnant but not declining small town of 3000 and isn't even a secondary market but rather a tertiary. It cashflows well even at a worse case 25 % vacancy so I'll probably buy it as I expect further cap rate compression even in tiny towns and plan to sell that one to a LP I have to start setting up!
Good discussion.
I think that input on US multi fam cap rates is pertinent though. If you're getting on a plane to go see your property it doesn't matter if its Edmonton or Albuquerque! The point is to go where the deals are, and there is WAY more opportunity down south. Dec 31 is when a lot of bank REO officers have to close their books on a lot of foreclosed multi family mortgages - which directly impacts their Christmas bonus! There will be great deals to those who know how to look.
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[quote user=TangoWhiskey]I think that input on US multi fam cap rates is pertinent though. If you're getting on a plane to go see your property it doesn't matter if its Edmonton or Albuquerque! The point is to go where the deals are, and there is WAY more opportunity down south. Dec 31 is when a lot of bank REO officers have to close their books on a lot of foreclosed multi family mortgages - which directly impacts their Christmas bonus! There will be great deals to those who know how to look.
A quick snapshot of some of the multi-unit apartments in Phoenix.
https://docs.google.com/open?id=0Bwb1PD4476rPdWJJSjFLQzk3dms
Edit: I received a few requests to share this document. My bad. I didn't set the appropriate sharing privileges. It's been fixed now!
A quick snapshot of some of the multi-unit apartments in Phoenix.
https://docs.google.com/open?id=0Bwb1PD4476rPdWJJSjFLQzk3dms
Edit: I received a few requests to share this document. My bad. I didn't set the appropriate sharing privileges. It's been fixed now!
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Most student housing - there's also been a few non student condo buildings
A lot of student housing buildings - Most people from out of area are shocked to see the amount that have been built recently. I'm not aware of any similar sized town anywhere that has had the same amount in the last few years.
[quote user=bizaro86][quote user=housingrental]Michael - Yes. Waterloo has had, and has currently, a lot of cranes.
Is that mainly for student housing or rental housing of all types? Just curious, as the project I linked to in Calgary would be considered very student friendly, but most of the other cranes are for condos.
Regards,
Michael
A lot of student housing buildings - Most people from out of area are shocked to see the amount that have been built recently. I'm not aware of any similar sized town anywhere that has had the same amount in the last few years.
[quote user=bizaro86][quote user=housingrental]Michael - Yes. Waterloo has had, and has currently, a lot of cranes.
Is that mainly for student housing or rental housing of all types? Just curious, as the project I linked to in Calgary would be considered very student friendly, but most of the other cranes are for condos.
Regards,
Michael
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Adam's last observation was insightful as usual - how many cities are seeing large purpose built student housing developments? If Waterloo is seeing massive development in this area, to me that says that pension fund or other insitutional money has really woken up to the outsize returns in student housing. I think there are REIT's that only target student housing in the US.
This is a great discussion that I would bet is a first outside of much bigger RE players.
I noticed Centurion (private apt REIT - my personal end state goal - based in Toronto) has entered that market JV'ing with other very large partners as 25 % shares and Derek Lobo from Rock also seems to be really pushing it as an idea at a very large dollar value level. It only makes sense - student housing is a great way to overcome the current gap between financing value and cost to build. Its really smart with the right large insitutions (say UoT or even better in a small rapidly expanding secondary market) nearby and barriers to entry for most other players.
There's a strategy - do small scale student housing development of 12's or 24's on lots next to or near high reputation local community colleges that have really high end manufacturing or other sought after programs - computer animation - so it just goes to show student housing can be done on a very professional level in a manner close enough to multi family that you can still secure financing at the higher valuations that always seemed to be one negative of that investing type. And you wouldn't even have to think about putting elevators in with a young profile.
So how many places are seeing new multi family starts being specifically geared towards or near a large student body?
Sorry for the deviation from the initial questions but it is a useful discussion that only Thomas would read and reply to if it got posted on the main space!
This is a great discussion that I would bet is a first outside of much bigger RE players.
I noticed Centurion (private apt REIT - my personal end state goal - based in Toronto) has entered that market JV'ing with other very large partners as 25 % shares and Derek Lobo from Rock also seems to be really pushing it as an idea at a very large dollar value level. It only makes sense - student housing is a great way to overcome the current gap between financing value and cost to build. Its really smart with the right large insitutions (say UoT or even better in a small rapidly expanding secondary market) nearby and barriers to entry for most other players.
There's a strategy - do small scale student housing development of 12's or 24's on lots next to or near high reputation local community colleges that have really high end manufacturing or other sought after programs - computer animation - so it just goes to show student housing can be done on a very professional level in a manner close enough to multi family that you can still secure financing at the higher valuations that always seemed to be one negative of that investing type. And you wouldn't even have to think about putting elevators in with a young profile.
So how many places are seeing new multi family starts being specifically geared towards or near a large student body?
Sorry for the deviation from the initial questions but it is a useful discussion that only Thomas would read and reply to if it got posted on the main space!