The week’s top stories cover major commercial real estate sales across Western Canada, and what they mean for their respective markets. A Calgary-based company has sold all their theatres to a Belgium-based cinema investment company in the hopes it will rejuvenate and expand business. A major Canadian REIT has recently made news after selling a sizable chunk of its retail properties, perhaps signifying a shift from commercial to residential investment. Meanwhile, an analyst on Greater Vancouver home prices suggests that Vancouverites sell now and buy in four years when prices are expected to decline. In Victoria, a developer has come up with an innovative answer to the city’s growing unaffordability – but not without a catch.
Here is Western Investor’s pick of the top four stories published this week.
RioCan’s $2 billion sale raises question about future of retail properties, says confidential report – Financial Post
The Canadian real estate trust RioCan has recently disposed of up to $2 billion in retail assets. The Financial Post took a closer look at a confidential report that suggests the company is moving away from retail investment.
“This type of stock repurchase strategy is a clear move towards a hawkish view of the retail market in general; whereby RioCan is narrowing its ownership strategy to key assets in key markets,” said Hennigar, noting the planned sale is a reduction of one-third of the company’s portfolio of 299 assets.
The RioCan plan is to focus on transit oriented development opportunities and intensify its existing portfolio which includes the diversification into the residential sector.
“In essence, RioCan is moving away from retail as a focus and is now looking to become entrenched in the type of live/work/play lifestyle centres that have been topical over the past number of years; not least of which because of the potential headwinds that retail may face, and the common expectation that millennials will be likely to rent accommodation in such locations,” the report states.
The strategy has been fuelled by strong housing demand, high prices and traffic congestion but one key consideration, said Hennigar, is whether these locations need to be downtown or can they sprout up anywhere.
The report points out the increase in population in downtown Toronto was 24.3 per cent from 2011 to 2016, driving 42,860 more residents to these areas. By comparison, Hennigar points out that over the same period of time, growth in the entire GTA was 344,976. Downtown central areas ultimately contributed 12.4 per cent all growth.
“These statistics may call into question the validity of a singular view of the future for growth in metropolitan areas,” said Hennigar. “However, in the case of RioCan, the company is concentrating on holdings in only the six largest markets in Canada, where the growth in the downtown core areas of these markets averages 7.4 per cent, or 79,127 of the total population growth in these cities of 988,992 over the period 2011 to 2016.”
The report concludes that while online retailers have made “inroads in the retail landscape” the penetration has not had any material impact in many cases.
“It is reasonable to think that the assets that RioCan will be selling are well tenanted properties in secondary markets; the type of assets that will draw a higher yield than those in the largest markets in Canada,” said Hennigar, noting there will be temptation to buy those properties because of the high return.
“The question is: will the retail market get as bad as some pundits may suggest, or are we at the point of maximum pessimism on the backs of the Sears and Toys R Us receivership announcements?”.
A developer in Victoria is offering price cuts of 8 per cent – but it may not be a good option for investors, who won’t be able to rent out the discontinued the units for two years.
The developer of a new downtown Victoria condominium tower will offer a price discount, but the deal hinges on favourable construction financing from BC Housing and comes with some strings attached for buyers.
“It is a risk-reward situation for us,” said Byron Chard, chief financial and acquisitions officer with Chard Development Ltd. of Victoria, of its 20-storey Vivid at the Yates mixed-use residential project.
Chard Development, which is an active Victoria developer, approached BC Housing with the proposal, Chard said.
“We are receiving construction financing with 100 per cent of our costs covered through BC Housing at a preferred interest rate,” he said.
The savings on the $50 million in financing, he explained, are being passed on to the buyers in the 135-unit tower as a means for the company “to give back to the community.”
Chard Development began working with BC Housing a year ago under the former BC Liberal government, Chard said of the first such initiative in the capital city. Chard will offer one- and two-bedroom condominiums exclusively at a discount of 8 per cent below current market value. All purchasers must commit to living in the suite for a minimum of two years and must demonstrate a household income of less than $150,000, with preference given to households with income less than $125,000. Buyers must also put down a 10 per cent deposit and demonstrate sufficient financing.
According to the Victoria Real Estate Board, the benchmark price of a Victoria condominium apartment has increased 21 per cent in the past year, with a typical resale condo in the city now selling for $421,400.
Chard will offer Vivid at the Yates one-bedroom condos from about $275,000, with two-bedrooms from about $550,000, Chard said. “This will attract what we are calling workforce housing – individuals who work and live in downtown Victoria.”
Analysis provided by real estate agent Dane Eitel suggests that Greater Vancouver home prices will follow a traditional pattern that will see price declines by 2019. He suggests that buyers sell their assets now but wait four years to re-enter the market.
By looking at 40 years of Greater Vancouver detached-house sales and average price cycles, Eitel is confident that a trading pattern is established that will play out over the next five to seven years.
He noted that the last long-term cycle began in October 1987 and ran to 1996, during which time average house prices increased 190 per cent and peaked at $286,000 in February 1995. The average price then dropped 19 per cent to bottom out in December 1996.
Prices did not recover to the earlier price peak until November 2002, six years later.
We are seeing a similar pattern today, Eitel said.
“The current Vancouver detached-housing market has been on a long term uptrend line established during the 2008-09 recession,” he said. “We have tested this long term uptrend line six times since its inception in November 2008, which was the bottom of that cycle. At that time the average sale price was $750,686. In each of the six instances, the line has held true and propelled the market higher.
“This time, however, we will be seeing a similar event as during the 1990s, with a growth percentage of 144 per cent over the uptrend, which started from the low point in November 2008 and topped out in May 2017. By 2019 we will be on another collision course with two divergent trends converging on middle ground of the trading range to see which one will win out. This time we do have such downtrend occurrence positioning itself, eerily similar to the ‘90s. The time is upcoming for another long-term [downward] trend of more inventory, less volatility and lower average sale prices,” he explained.
Eitel claims that residential investors can use technical charting to successfully time the market.
From all data collected from the Real Estate Board of Greater Vancouver [REBGV] dating from January 1977, the real estate market has acted in a predictable manner. This has not been noticed to date as a prevalent factor in the real estate community. Equity markets have been using technical charting all over the world on a daily basis. While this may come as a shocking revelation to some in the real estate community, the fact remains that technical charting works.”
Eitel noted that his theory of technical forecasting dates back to Charles Dow, who founded both the Wall Street Journal and the Dow Jones industrial average more than 100 years ago. Dow, Eitel said, proved that “history repeats itself and human psychology for buying and selling in a marketplace could be prognosticated using technical analysis.”
All of Landmark’s 49 cinemas across Canada have been sold to a Belgian firm that already has considerable presence in Europe. The company hopes to expand Landmark’s business in Canada, through their three-prong approach.
Belgian firm Kinepolis Group is acquiring Canadian movie theatre chain Landmark Cinemas in a $123-million deal.
The deal includes Landmark’s 44 cinemas with a total of 303 screens across Western Canada, Ontario and the Yukon. The transaction is expected to close by the end of the year.
Landmark management and staff will remain in place.
Kinepolis Group is located in Ghent, Belguim and has acquired 48 cinemas across Europe since 1997. The company holds a total of 500 screens in their home country, Netherlands, France, Spain, Luxenbourg, Switzerland and Poland. This is the firm’s first North American acquisition.
Kinepolis also deals in film distribution, movie marketing and advertising.
"Combining with Kinepolis will provide Canadian movie lovers with greater access to world class cinema experiences,” said Neil Campbell, chief executive officer of Landmark Cinemas Canada.
Kinepolis believes “the combination of the Kinepolis three-pillar strategy of being the best cinema operator, the best marketer and best real estate manager,” will enhance the Landmark customer service experience.
Landmark Cinemas has ten cinemas in Alberta, 15 across in B.C. and five in Manitoba.