First Quarter Commercial Real Estate Sales Up in US Too

After posting yesterday about the tremendous year over year increase in City of Peterborough commercial real estate sales (Yeah, I know it's a small number -> 8 vs 3 sales, but this isn't a major metropolitan area either!), this tidbit was released today on nreionline.com:

Q1 CRE Sales: Change in Attitude

Apr 26, 2010 1:55 PM, By Ben Johnson, a special to NREI from OKCREview

What a difference a year makes. You hear that a lot around the commercial real estate industry today, especially when it comes to the overall investment sales market.

According to new data from New York-based researcher Real Capital Analytics (RCA), sales volume reached $15.4 billion, which is a 50% increase from the first quarter of 2009. More good news: Every property type registered higher volume.

Surprisingly, despite the huge overhang of distressed properties, it was core rather than distressed sales behind the volume gains. Sharp declines in cap rates were recorded for certain assets due to competition among buyers and the rapidly improving debt markets that are allowing buyers access to low interest rates.

Let the good times roll....I can dream can't I?


Source: http://bit.ly/8XQ2gF

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Point of Capitulation Reached in U.S. Commercial Real Estate

Great video from CNBC on the state of commercial real estate according to Barry Gosin, CEO of Newmark Knight Frank.



Of particular interest to me were his words, "The market has, for the most part, capitulated." This is important because it reflects the words of some of my clients - they have been looking for this 'capitulation' so that they can get back into the market and start buying again.

Do I agree with them that they needed to wait for this point of capitulation?  Not at all.  A good deal is a good deal is a good deal regardless of what everyone else is doing and it's always the right time to buy if the fundamentals of that particular deal make sense.

Why am I happy to hear this kind of talk then?  It means that the market is catching up with common sense and we can get back to business!  Don't wait any longer to look at investing in commercial real estate.  Let's get back at it!

If you're ready to get started, call me.

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Have We Learned Anything From The Meltdown?

TORONTO, Dec. 15 /CNW/ - A new Ernst & Young report reveals that a shifting and vastly different post-recession real estate landscape has executives grappling with lingering challenges.

Top 10 lessons learned in real estate: Ernst & Young

Below are 10 lessons from change that have emerged for the sector, which are also quickly becoming trends for 2010. According to the report, those who take heed of this advice are more likely to continue to adapt and grow in an increasingly global and competitive real estate market:

1. Focus on capital preservation - Most real estate executives are and will continue to be concerned with stabilizing their organizations and enhancing their ability to access capital and improve the flexibility of their balance sheets. Maintaining liquidity is paramount to capitalizing on future opportunities.

2. Form strategic alliances and/or partnerships with foreign investors - Partnerships will be formed to acquire assets on a scale never seen before. Expect Canadian companies with strong balance sheets to venture into foreign markets.

3. Provide more effective risk management and protection of asset values - Real estate companies are revamping their framework to more effectively manage risk. Pricing risk appropriately will define future growth.

4. Provide an increased focus on tenants - Property owners are becoming more diligent in evaluating the creditworthiness of tenants to determine who might present a risk. In light of this, underwriting will become even more stringent.

5. Evaluate supply chain and contractors - Corporations who hire developers and construction contractors are evaluating the risks of having financially troubled contractors/suppliers who could file for bankruptcy and stop work on a project.

6. Prepare for increased taxes and government regulation - Companies are preparing for regulatory framework - around private equity investment funds in particular, as well as arranging for fuller disclosure of investment plans, asset verification and other information of interest to shareholders.

7. Control costs and streamline operations - Companies are improving their overall performance, with issues such as tying executive compensation to performance resurfacing.

8. Look at Canada's relationship with the US - While there are noticeable differences between Canada and the US in terms of macro-economic structure and real estate fundamentals, don't overlook the influence and effect of our largest trading partner.

9. Accelerate decision-making - Decisions are being made more quickly to take advantage of shorter windows of opportunity and to respond more quickly to adverse developments.

10. Concentrate on long-term growth - Real estate executives are thinking about the future. They're looking at extending their company's market reach, building relationships, thinking creatively and strengthening their management capabilities.

From my perspective one of the most important lessons on this list is number nine, accelerate decision-making. Why? As more and more opportunities come back onto the market it'll become even more important than in the past to be able to make quicker acquisition decisions because there WILL be more competition for those assets. Slow decisions were a problem in the last boom when even well heeled tenants, investors and developers seemed hamstrung by indecision and this will continue to be a challenge going forward.

How do you see your company reacting to new opportunities as they become available? Have you got a plan to be able to streamline your acquisition process when deals are put on your table?

Source: Top 10 lessons learned in real estate: Ernst & Young

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HST Has Builders Sprinting

HST has builders sprinting - Yourhome.ca

"We've had a lot of customers sitting on the fence, but because of the tax they're much more willing to seal the deal," says Bazely, owner of Barrie-based Gregor Homes and president of the Ontario Home Builders' Association.

"We've ramped up production so we can close on our homes before the HST takes effect next year."

Bazely says he recently talked to his trades and suppliers to ensure they are ready for winter.

"Every week we lose, we get closer to that July deadline."

The new tax, which combines the PST and the GST, will have an impact on homes worth more than $400,000.

It would add, for example, $6,000 on a $500,000 home – enough money to upgrade to a better kitchen or floors, and a good incentive to close early for many consumers.

A $1 million dollar home gets hit with $36,000 in extra taxes.

An EXTRA $6,0000 on a $500,000 new home! Incredible! How in the world can anyone say that this is good for the economy?

In the GTA a $500,000 new home is not out of the ordinary. The Province will be cashing in on the backs of hardworking Ontarians and our fragile economic recovery is likely to take a serious hit when this ill planned and ill conceived new tax hits the road next year. How can they stick to the story that the average person will only see an increase of $79 per year in spending as a result of this new tax? Do they honestly think we're that stupid?! I hope everyone remembers this when it comes to election time.

McGuinty and his band of *insert expletive here* need to go!

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Canadian Real Estate Sentiment Survey Results

“We’re in the third round of a five round boxing match, but in the first two rounds nobody threw a punch. At some point somebody’s gotta throw a punch.”

Source: REALpac / FPL Canadian Real Estate Sentiment Survey, Fourth Quarter 2009, Released November 3, 2009

I'm sensing a recurring theme on this blog about getting into the game. The time is right to get back into the investing game. Money is flowing, and the economy isn't floundering as badly as some had thought it might still be. Granted, the past 12 months haven't been all peaches and cream, especially in the brokerage world, but contrary to popular perception, the sky hasn't fallen on the Canadian commercial real estate market.

In fact, REALpac just released their Q4 Canadian Real Estate Sentiment Survey and found that, overall, investor sentiment is improving in Canada. It shows that overall sentiment about the market has improved, on their index, from 50 to 68 from Q3 to the beginning of Q4 2009. An impressive improvement to say the least.

So why doesn't the overall market reflect this survey? At least in my corner of the world, Peterborough, Ontario, transactions are WAY down relative to 2008. I did a quick bit of research and found some interesting results.

I compared all MLS® sale transactions recorded by the Peterborough and Kawarthas Association of REALTORS® from January 1 to November 4, 2008 vs. the same period in 2009 (it's an odd time frame, I know, but it seemed like a good idea at the time!). I only looked at transactions over $150,000 in order to weed out the business sales that did not include real estate, and leases that sometimes get recorded as sales.

2008 Number of sales: 39
2009 Number of sales: 26
2008 AVerage sale price: $494,437
2009 Average sale price: $357,385
2008 Average sale to list price ratio: 88.46%
2009 AVerage sale to list price ratio: 73.93%

Of note, there were four transactions over $1M in 2008, including one that was over $2M and only one transaction above $1M in 2009. (Remember, this is a small market with a combined city and county population of only about 135,000 people.)

So what do I see in these numbers?

First, there is an obvious trend toward fewer and smaller deals, including a drastic reduction in transactions over $1M. Secondly, and this is my subjective opinion, there isn't really a lack of interested buyers, rather there's been a significant lack of faith in the market in general on the part of would-be buyers. The perception has been that there ought to be more 'good deals' out there, and that by waiting it out, these 'saavy' buyers will be able to cash in on the distressed assets that must surely be just about ready to come onto the market.

But there haven't been that many distressed properties in Canada. I beleive that a lot of the poor sentiment is spill-over from the US media coverage of the severe slide they've seen in their market. In a recent article on globeinvestor.com, Kirk Kuester, managing director of Colliers was quoted as saying,

"There hasn't been that much distress [in the Canadian market], and if companies do find themselves in a bit of a pinch, it's not that difficult to raise equity on the market."

From the same article:

Brookfield Properties Corp. and its partners have an unexpected problem: They have $5-billion to spend on commercial real estate, but markets have recovered so strongly that they can't find the juicy deals they hoped would lead to 20-per-cent returns.

The stock market's resurgence from March lows has allowed many of the world's most challenged real estate companies to issue stock or sell bonds to solve financial issues brought on by lower rents and higher vacancies. Meanwhile, the sector is showing signs of recovery in Canada, further encouraging landlords to hang on to buildings that had caused concern through the recession.

"There really hasn't been that much out there," said chief executive officer Ric Clark. "When we first started thinking about this, we had many companies on the list as potential targets - the public markets have been so efficient that many have been able to solve their problems."

Brookfield set up a $5-billion real estate investment fund in September with Brookfield Asset Management Inc. and dozens of major institutional investors. The plan was to buy malls and office towers from owners that were struggling to keep tenants and pay mortgages.

While the U.S. market is still going through a historic upheaval (7.9 per cent of lease holders are behind on their payments and one in 10 shopping mall stores sit empty), things have stabilized enough that the consortium is rethinking its ability to score its targeted 20-per-cent return on any investment.

In fact, in the hunt for deals, many Canadian REITs have gone out and raised warchests to buy distressed assets that haven't materialized thus creating the real potential of reducing their stock prices. From theglobeandmail.com:

But what if the market isn't all that distressed? Third-quarter statistics from RealNet Canada Inc. hinted that a rebound is taking hold in Canadian commercial real estate markets after 18 months of contraction. If there aren't deals to be found, the REITs may have watered down their shares without giving shareholders any reason to hope for better payouts in the future.

"Most REITs have taken advantage of the open capital markets," said Mark Rothschild, an analyst at Genuity Capital Markets. "Most management teams have expressed confidence this capital will be used to take advantage of distressed opportunities - we believe that there will not be many extremely accretive acquisition opportunities and ultimately many of the recent offerings will prove dilutive."

I know I'm starting to sound like a broken record, but why aren't investors, large and small, private and institutional, looking at the cost of NOT investing? What is the real cost of inaction and hence lost opportunity? Waiting for the market to become more active and therefore more competetive means that there will only be even higher prices and reduced opportunities in the future.

What will you do? Sit on the ropes, waiting for your oponent to wake up and realize you aren't in the game, and be surprised when you get K.O.'d? If you're ready to get started and need some direction, please drop me a line. Get ready, round 4 is coming up!

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Why Peterborough Retail Rents Are Cheap!

via MSN Money: The world's most expensive shopping districts.

According to real estate advisor Cushman & Wakefield, it costs an average of $300 USD per square foot to set up shop along Bloor, the street that stretches through the heart of the city.

Often, when asked about retail rents in Peterborough, we're surprised when the reaction we get is one of disbelief, "You get how much?" As if $16-22 per foot for new retail space in Peterborough, Ontario is some kind of out of this world number that can't possibly be correct.

You haven't seen anything yet!

Check out some of these statistics as gathered by Cushman & Wakefield in their Main Streets Across the World Report (registration required, but free):

$300 - Bloor Street West, Toronto
$110 - Queen Street West, Toronto
$200 - St. Catherine West, Montreal
$50 - Sussex Drive, Ottawa
$50 - 17th Avenue SW, Calgary
$210 - Robson Street, Vancouver

Still think $16 is expensive?

Now, I know that the naysayers among you will cry, "But there's a heckuva lot more money passing through the doors along Bloor West, than Peterborough!" And to a point, I'd agree. There is more money passing through the tills on Bloor Street - but enough to justify a rental rate increase of 1,838%?! Are the retailers selling 1,838% more per foot? I think not. (Note: If anyone can find some research on sales per foot in Toronto vs. Peterborough, I'd love to see it.)

Retail spending in Peterborough, on a per capita basis, has averaged over 16% higher than the provincial average for the last 6 years according to the most recent GPAEDC Community Profile.

Construction costs are lower in Peterborough, but only slightly. Using rsmeans.com Quick Cost Estimator, I found that a 10,000 foot retail store would cost about $132 per foot to build in Peterborough versus $139 per foot in Toronto - only a 5% difference that doesn't come close to making up the difference in lease rates.

Land is far cheaper in Peterborough though, and this does go a long way to making retail space much more cost effective both for tenants and landlords. But that's not my point...

My point...

Peterborough, like a lot of other mid sized towns around Ontario, is a bargain!

Regardless of what it costs to buy land and build in a given community, from the retailers perspective, the sales forecast for each store on a 'dollars per square foot' scale should be the true measure of a retailers success in a given marketplace. All other expenses, including rent, come out of this top line revenue number. If a retailer can sell $500 worth of product in Peterborough and it only cost $210 to do so vs. $490 in Toronto - which is the better location?

Let me know if you need a little help with the math... :)

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Stop the Presses! Deal Reached on Peterborough Site!

Bill and I are proud to announce that we have successfully negotiated a conditional agreement to sell the former Eastern Pentecostal Bible College to the Peterborough Housing Corporation. There has been a lot of interest in this property since we listed it on behalf of the owners, and we are pleased that we have reached an agreement with such a well respected local organization.

This process has been very rewarding for us on a professional level and we thank our clients, Master's College and Seminary and the Peterborough Housing Corporation for allowing us to contribute.

PRESS RELEASE:
August 25, 2009

Master’s College and Seminary, formerly Eastern Pentecostal Bible College has reached a conditional agreement to sell its former residential campus at 780 Argyle Street to the Peterborough Housing Corporation (PHC). The Argyle Street property is a 114,000 square foot facility on 6.3 acres located on the west side of George Street adjacent to Pioneer Park, north of Parkhill Road. Master’s College and Seminary is pleased that Peterborough Housing Corporation will now breath new life into the complex. Bill Pyle and Doug Lytle of Century 21 United Realty have partnered with both Master’s and the PHC in order to create this unique community initiative.

Peterborough Housing Corporation has a vision to create an intergenerational centre in this outstanding facility. The property will be used to create approximately 90 units of supportive housing units for seniors with the balance of the space reserved for public-service uses such as a day nursery or health facility. The facility is large and so PHC will use approximately 80,000 – 90,000 sq ft of floor space to create the residential housing units for seniors. The residential units are intended to be a mix of affordable and market priced units, with the balance of the floor space devoted to a community partner(s). The objective is to create a truly rich neighbourhood asset.

PHC has submitted a proposal to the Housing Division of the City of Peterborough for Federal- Provincial funding under the Affordable Housing Program. PHC has been instrumental in partnering with agencies that can bring operational support to the living experience of seniors, as demonstrated by PHC’s newest project in Lakefield where Community Care will be locating its offices on the site.

It is the intention of the Peterborough Housing Corporation to hold an information/open house meeting for the neighbourhood in the beginning of September. The proposed uses for 780 Argyle Street will ensure that this landmark site and quality educational and residential facility will continue to serve the community for many years to come.

Edit:
Story is being picked up by the media:
Peterborough This Week
The Peterborough Examiner

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Canadian Commercial Council of REALTORS® Installs New Board of Directors

I'd like to join CREA in congratulating the new Board of Directors for the Canadian Commercial Council. The new board consists of the following great lineup who will each serve a two year term:

Jim Gammer - Chair
Peter Sardelis, CCIM - Ontario Director
Allan Corbett, RI - British Columbia/Yukon Director
Guy Bélanger, FRI, B.A.A. - Québec Director
Karen Barry - Chair Elect
Mark St. Pierre - Prairie Director (MB, SK, AB)
Hodges Hamm - Atlantic Director (NS, NB, NL, PE)

The Canadian Commercial Council of REALTORS® was founded in 1994 and represents commercial real estate specialists from Boards and Associations across Canada. The Council provides a strong interactive network for real estate practitioners who specialize in industrial commercial and investment real estate.

Way to go guys! Looking forward to good things over the next couple of years.

Further Links:
howcommercialrealtorshelp.ca
icx.ca

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New Listing

Edit: This listing has been removed from our roster.

Our first listing taken as a result of the economy. We just listed this marina between Buckhorn and Bobcaygeon, Ontario. Oak Shores Marina is being sold under power of sale through a court appointed receiver, and we've been chosen as the listing brokerage.

The property has a 3 bedroom house, restaurant, quonset structure, 32 slips, and gasoline sales. Located on Little Bald Lake, this marina has access to the Trent System and some of Ontario's best waterfront playgrounds. Visit this page to see more of the property.

Edit: June 30, 2009 - New price as of today, the price has dropped from $479,000 to just $429,000!

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