The sale of an aging four-unit rental building on West 13th Avenue in Vancouver underlines the startling math that now characterizes multi-family rentals in Canada’s hottest housing market.
Sutton Group West sold the aging property for $873,750 per suite. Three blocks east, a 60-year old triplex on a single-family lot is listed for $660,000 per rental suite. HQ Commercial has a century-old six-unit building for sale in the West End for $415,000 per suite. Multiple bids are likely.
As these deals indicate, Vancouver’s multi-family market is no longer tied to earning yield from rental income, according to Avison Young, a leading commercial real estate firm.
“The acquisition of multi-family assets is now more about wealth preservation or long-term redevelopment potential than earning a return,” the company states in its mid-year B.C. Multi-family investment report.
“The competition is intense,” added Avison Young principal Rob Greer.
In Vancouver, the per-suite prices is now $333,000 per suite, up 10 per cent from 2015, according to the Goodman Report, published by David and Mark Goodman of HQ Commercial.
While there have been some big deals with real estate investment trusts (REITs), mostly notably the $170 million sale last year of a 19-building portfolio to Toronto-based Canadian Apartment Property Real Estate Investment Trust, most Metro apartment buyers are private investors.
In the over $5 million category, Greer estimates 16 per cent of these buyers are from mainland China.
“Metro Vancouver’s rental universe is characterized by smaller, older buildings and “mom and pop” owners and does not provide the scale that REITs and institutional investors require, Greer explained.
But it is alluring to smaller investors.
Don Campbell, founding partner and senior analyst with the Real Estate Investment Network, said the typical capitalization rate on a Vancouver rental property is often tiny: in the 3.2% range. But landlords can secure mortgages secured with Canada Mortgage and Housing Corp. (CMHC) insurance for around 1.7%, which is lower than the annual rental increase allowed under B.C. residential tenancy rules. “The money is free,” Campbell said.
As well, with Metro Vancouver’s 0.8% rental vacancy rate – the lowest in Canada according to CMHC – and with many tenants priced out of home buying, landlords are virtually guaranteed full vacancies, Campbell added.
Greer said the math has altered the profile of both buyers and sellers. Families who have held rental properties for decades are now cashing out at what they perceive as peak values. “They never thought they would see prices like these,” Greer said.
Multi-family by the numbers
0.8% Metro Vancouver rental vacancy rate
1.7%-2.2% Insured mortgage rate for rental investment (5 suites or more)
$1 billion Estimated value of Metro Vancouver apartment building sales, 2016
$173,620 Average per-door price for rental building, B.C.
$330,000 Average per-door price for Vancouver rental building.