The week’s top stories focus on the industrial and multi-family sectors – more specifically, the cannabis industry’s affect on industrial demand and B.C. budget changes relation to rental building sales. Strata sales are also covered, particularly in prime redevelopment areas of the Lower Mainland, begging the questions: Do you sell unit-by-unit of hold off and sell has a whole?
Here is Western Investor’s pick of the top commercial real estate stories published this week.
With legalization coming down the pipe, marijuana production companies are making big buys, including True Leaf’s $3.3-million purchase of 40 acres of land for custom-built facilities.
A Vernon-based medicinal marijuana company is breaking ground on a 25,000-square-foot cannabis facility after purchasing 40 acres of land in Lumby in December 2017.
True Leaf Medicine Inc. will be constructing a 16,000-square-foot hydroponic grow building and a 9,000-square-foot building housing laboratory services, extraction and post-processing, to break ground on March 2nd, 2018. The two buildings are phase one of construction plans for the site.
The groundbreaking ceremony will be attended by True Leaf chairperson and former B.C. Premier Mike Harcourt and True Leaf CEO Darcy Bomford.
“The company is pleased with the completion of our offerings and the purchase of the land and we can move forward in our pursuit of growing what we hope will be the best quality medicinal cannabis in the world,” Bomford said in a statement.
The company’s first crop will be required to pass a Health Canada inspection in order for True Leaf to be granted a license to grow medicinal cannabis.
True Leaf purchased the Lumby parcel for $3.3 million and expects to produce 2,500 kilograms of dried cannabis each year.
Blue-collar towns could benefit as B.C. marijuana industry gears up for legalization, Western Investor Frank O’Brien believes.
B.C cannabis growers will turn to blue-collar towns and the Agricultural Land Reserve to find millions of square feet of industrial space needed to meet demand for recreational marijuana, studies suggest.
“The legalization of marijuana is expected to drive up the cost of commercial real estate in all major provinces across the nation,” said Gaurav Mathur, Toronto-based research manager, capital markets, with JLL Canada.
JLL’s Rolling the Good Times study, released February 15, found that Canada’s top eight medical marijuana companies by market capitalization will need at least eight million square feet of industrial space by 2020 – and demand will ramp up after recreational weed becomes legal, expected this summer.
The study showed that, based on large projects underway, more than half of the short-term demand will be in Alberta. Ontario is forecast to require about three million square feet, with the rest in Quebec, Saskatchewan and New Brunswick.
None of the big growers – all licensed medical marijuana producers – had projects underway in Metro Vancouver, which JLL Vancouver suggests is due to a 1.9 per cent industrial vacancy rate, the second-lowest in North America. In 2017’s fourth quarter, more than 722,000 square feet of industrial space was sold or leased in the region, and prices have hit record highs.
Vancouver-based Aurora Cannabis Inc., for instance, has bypassed B.C. and is building an 800,000-square-foot facility, the world’s largest indoor marijuana grow-op, next to the Edmonton International Airport in Leduc, Alberta.
Aside from inventory challenges, there has also been “pushback” from some Lower Mainland municipalities against marijuana grow facilities, according to JLL.
Ben Wedge of JLL’s Vancouver office expects much of Metro’s cannabis demand will be for smaller distribution space, not production. Such companies, he said, are looking for 20,000 to 30,000 square feet of space in a stand-alone building that could be secured.
Good luck finding that, noted Chilliwack commercial agent Rick Toor of HomeLife Glenayre Realty, who said the industrial shortage extends well out into the Fraser Valley. Inventory is scarce and prices are rising, he said, pointing to a new 15,000-square-foot industrial building in Chilliwack recently listed at $4 million.
Chilliwack council is considering rezoning an industrial site to allow Medigreen Wellness Products Ltd., a Vancouver-based medical marijuana producer, to proceed with a 25,000-square-foot grow-op.
In Delta, a 24,000-square-foot marijuana production facility has been approved for an industrial site on Annacis Island.
Ontario-based Canopy Growth, Canada’s largest cannabis company with a market cap of $5.3 billion, is converting Delta greenhouses for commercial marijuana cultivation. Delta greenhouse growers are also planning a switch from vegetables to cannabis.
One bid from grower Emerald Health and Delta greenhouse owner Village Farms could see more than four million square feet of greenhouses switched to commercial marijuana.
Not everyone is on board with the plan.
“Agricultural land is a hell of a lot cheaper than buying land in a commercial/industrial park, but I think it’s a real shame we’re replacing tomatoes, peppers and cucumbers with marijuana,” said Delta councillor and Delta South Liberal MLA Ian Paton.
Properties with four or more rental units will be exempt from the new school tax announced on B.C. Budget 2018, The Goodman Report team confirmed.
The B.C. Finance Ministry has clarified a section of the February 20 provincial budget that levied a special school tax on luxury homes valued at $3 million or more, based on BC Assessment.
The ministry has confirmed that the tax will not apply to residential apartment buildings, which it defines as properties with four or more rental units.
Before Western Investor was advised of the clarification by Ministry communication staff February 28, members of the rental industry had complained that the tax would increase rental rates as landlords passed on the extra tax.
The school tax, to start in 2019, will be applied at .02 per cent on values from $3 million to $4 million, with .04 per cent on values above $4 million. Basically it means $2,000 for every $1 million in value from $3 million to $4 million and then $4,000 per every million dollar in value above $4 million.
Using the example of a Vancouver rental building assessed at $12 million, David Goodman of HQ Commercial, a specialist in apartment building sales, said the owner would be subject to annual taxes of approximately $34,000.
The clarification from the Ministry appears to be the first time that residential rental buildings are not be included in the Class 1 residential classification used by BC Assessment. For instance, the foreign-buyer tax, which was increased from 15 per cent to 20 per cent in the new budget, applies to homes and rental apartment buildings of any size.
The exemption of four rental units from the school tax could prove beneficial to some Vancouver residential investors, since city zoning now allows up to four rental units on a single-family detached lot.
In the Grandview-Woodlands area of East Vancouver, where denser RT zoning – "residential two dwellings" as opposed to RS, "residential single dwelling" – is in affect, up to four rental units are now permitted on larger detached lots. This could include, for example, a main house with three rental units and a detached laneway house that is also rented. According to a Finance Minister spokesman, the owner does not need to live on the property to qualify for the rental tax exemption.
Cynthia Jagger, an agent with of HQ Commercial noted that the residential luxury tax does apply to residential lots assembled for multi-family properties, which she suggested would increase the cost of purpose-built rentals and could lead to higher rental rates.
Expert recommends that Burnaby condo owners should hold off for a collective deal if they're approached by developers, The NOW reports.
Condo owners in Metrotown shouldn’t rush to sell despite high property assessments and a recent mass rezoning of the neighbourhood.
That’s the advice of Tony Gioventu, the executive director of the Condominium Home Owners Association of B.C., who said a number of association members from Metrotown have been approached by developers.
“There is economic pressure in the sense that, if you’re an attractive piece of property with an attractive location, with a higher density bump, somebody’s going to come along and at some point offer you some money you can’t refuse,” he told the NOW.
Gioventu said stratas need to “stick together” and sell as a whole, rather than individually. He said owners are likely to get at least 50 per cent more for the value of their property if they sell as a collective. (In B.C., strata corporations can terminate or “wind up” with an 80 per cent vote of all owners. The threshold was previously 100 per cent.)
“Individually, they’re going to get picked off one at a time for whatever people are willing to sell for,” he said.
Gioventu noted it’s important for stratas to find an exclusive commercial broker, as well as good legal counsel.
“The broker can’t be representing developers or other parties. If the agreement is not exclusive, go to someone else. That’s happening a lot. It’s happening much more frequently than anybody realizes,” said Gioventu.
“You need to make sure your broker’s agreement and your agreements for sale with your developer are very well reviewed by your legal representative who is experienced with dealing with this,” he added. “I’ve come across a few lawyers who are dabbling in this, and they’re not doing a great job. Find someone who has been doing liquidations and who knows the ins and outs of this process.”
There’s no rush either, he said.
“Sure, market values and property conditions will change, but when we have a high-density area, you’re going to have premium property. Take your time.”
Last July, Burnaby city council passed the controversial Metrotown Downtown Plan.
The plan – an update to the 1977 version – aims to create Burnaby’s first-ever downtown and has changed the land-use framework to allow for more density.
Housing critics have argued replacing lowrise walk-ups with towers will displace thousands of people who can’t afford to rent in the new buildings.
The city has maintained it’s planning for future growth and that many of the lowrises are nearing their end of life.
Rick McGowan, a strong opponent of the downtown plan, owns two condos in Metrotown.
He uses one as his primary residence and rents the other one.
Right after the plan was adopted, McGowan said every owner in his rental building got mail from developer CBRE, urging them to talk to the strata about selling.
“Prior to that, you got things from Realtors saying they’ll sell your property really quickly. So many Realtors are even interested in the property themselves that they’ll tell you, ‘Oh, I’ll buy your property if it doesn’t sell,’” said McGowan.
The Burnaby resident is fearful many Metrotown owners are unaware of their property’s value and how the downtown plan has changed things.
“Every time I bring it up to someone, they’re either not aware of it or they don’t fully comprehend what they’re entitled to,” he said.
According to Gioventu, one of the key questions condo owners need to ask themselves before voting to wind up is whether it’s enough money – enough money to relocate in the area or move elsewhere.
“That’s one of the questions that people in strata communities are not asking because they’re getting all these sale pitches,” he said.