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Kitimat may be Canada’s best investment play

Small northwest B.C. town appears prime for real estate investors as giant project begins

When LNG Canada announced in October 2018 that it would be moving forward with the biggest infrastructure project in Canadian history, the Kitimat real estate market caught fire. With newly built properties set to be the only option, investors are looking to capitalize on what could be similar to Fort McMurray 20 years ago.

LNG Canada, a joint venture between Shell, Petronas, PetroChina, Mistubishi and Korean Gas, will build a colossal new liquefied natural gas (LNG) facility in Kitimat, British Columbia. 

With a $40 billion price tag and an estimated construction time of six to seven years, it will be the largest private-sector development Canada has ever seen.

In the first three months from the announcement, LNG Canada had already signed contracts worth close to $1 billion.

Kitimat, a northwest B.C. community of just over 8,000, has largely gone ignored. No longer. LNG Canada projects that construction of the Kitimat facility will employ up to 10,000 workers and will result in approximately 500 full-time direct permanent positions once construction is complete in 2025. 

While many of the employees involved in the construction of the facility will be housed in temporary camps, the project management teams, corporate executives and other highly skilled specialists will be expecting quality accommodations for themselves and their families, something Kitimat is woefully short on. The single-family market is tapped – 77 of the available 87 residential properties in the city were under contract by October 3 – and hotel occupancy is already at close to 80 per cent. It will be newly built properties that these workers will have to turn to. With the cost of construction anticipated to increase between 10 per cent and 20 per cent annually they can expect to pay a premium.

Riverbrook Estates will be the first and largest new housing development to open in Kitimat. While up to 350 homes are planned, the first phase of 47 townhomes breaks ground in March 2019 and opens early in 2020, to coincide with the arrival of the first wave of 1,100 construction workers. 

Kitimat is no stranger to huge construction projects and the spinoff demand for housing. During the four-year retrofitting of the Rio Tinto aluminum smelter, a $4 billion project that kicked off in 2012, 700 workers lived in a decommissioned ferry for months on end.

Even then, with the LNG project still an opaque concept, a major industry player leased 10 rental units for $3,500 each for five years with a built-in 3 per cent increase in rent per annum.

With the LNG Canada project 10 times bigger than Rio Tinto, it is possible that Kitimat apartment rents could be as high as $4 to $5 per square foot by 2022 or 2023. This is higher than even the city of Vancouver.

Another of Canada’s boom towns, Fort McMurray, Alberta, provides a lesson in what investors can possibly expect in Kitimat.  Fort McMurray exploded from a population of 13,000 to 80,000 in less than 15 years.

While there will be work camps built for LNG Canada construction crews, it is estimated that at least 15 per cent of workers will prefer to live in town. 

There is also rental demand from supply and contract companies securing accommodation for their key workers. These people are not going to want to live in the 50-to- 60-year-old townhouses in town.They will want something that’s built well, that’s new, that they can have their families in. 

Think about this: the other current 100 largest infrastructure projects in Canada total $189 billion combined. This number doesn’t include LNG Canada, which is equal to nearly a quarter of the total value of the other 100 biggest projects in just a single town.  

It’s almost unfathomable, but here is an indication: the budget just for ladders and scaffolding for the LNG Canada project is worth approximately $300 million, according to construction estimates.

For real estate investors, Kitimat could represent a lifetime’s ladder to success. 

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