The week’s top stories focus primarily on apartments, from asset management in Alberta paying off, to sales decreases in Metro Vancouver, to policy in Victoria aimed at ensuring a percentage of affordable units in new projects. Meanwhile, details on the Telus Garden sale last month have been made available.
Here is Western Investor’s pick of the top commercial real estate stories published this week.
Avenue Living Asset Management has secured more than $1 billion in real estate assets in a dozen years with a simple buy, fix and hold strategy.
In a seven-month period this year, Avenue Living Asset Management of Calgary raised $130 million, blowing past its forecast for the year and giving recognition to a homegrown Alberta investment company that has amassed $1.1 billion in assets in just 12 years.
The company had targeted on raising $75 million by the end of 2018, but what co-founder Anthony Giuffre calls “an accelerated capital injection” will put Avenue Living on an acquisition fast track. The capital growth came with the support of anchor investor Westcourt Capital and a number of smaller investors across its three different investment vehicles.
“We are already deploying the new capital,” Giuffre said, with the company both optimizing its balance sheet and sourcing new acquisition opportunities. Those include recent strategic buys in Calgary and smaller Alberta centres such as a 235-unit rental building in Red Deer.
Avenue Living was co-founded in 2002 by Giuffre, his brother Dr. Michael Giuffre and Carl Diodati. Its first purchase was a 24-unit residential rental building in Brooks, Alberta, for $3 million. This project set the tone for Avenue Living’s basic strategy: buy mid-level multi-family projects, improve the property through renovations and better management and raise the rents.
“We don’t like to sell,” Giuffre said, explaining Avenue Living has sold only one building since it started. “We chase yields.”
Today Avenue Living holds more than 320 buildings in its portfolio, including 7,350 residential rental units, 400,000 square feet of commercial space and 20,000 acres of Saskatchewan farmland. With the exception of a single 24-storey, 253-suite highrise in Winnipeg that it bought for $10 million and is upgrading, all of the company holdings are in Alberta and Saskatchewan and many of them in secondary markets.
That Avenue Living has accomplished what it has during two downturns – the industry-wide financial crisis of 2008 and the oil price collapse that cratered Alberta’s economy in 2014 – should be encouraging for other western investors.
Unlike many investors over the past few years, Giuffre looked to smaller Alberta centres for opportunities.
The “secret sauce,” he told Western Investor, is finding towns that are regional trading hubs and have a diversified economy and solid infrastructure. The type of towns, for instance, that may have already attracted a Walmart or a Costco. “Not a one-horse town,” he explained, that has its economy reliant on a single industry.
Alberta centres that fit the profile include Brooks, Red Deer, Medicine Hat and Lethbridge, where the company recently acquired two industrial properties. This year marked Avenue Living’s first acquisition in Calgary, with the purchase of an 80-unit multi-family rental complex.
It could prove prophetic. According to the Conference Board of Canada, Calgary’s 2017 GDP growth led major cities across the country at 4.6 per cent, and it is forecasted to regain a dominant position in economic growth between 2018 and 2021.
Noted Avison Young in a first-quarter report on Calgary’s multi-family rental market, “Improvement in rental demand has outpaced the number of new purpose-built rental units added to the market. As a result, the overall primary rental vacancy rate saw the largest annual decline in vacancy since 2010.”
Avenue Living is also active in the Saskatchewan cities of Saskatoon, Moose Jaw, Regina and Yorkton.
Despite Manitoba rent controls, Avenue Living would also look at opportunities in Brandon, Giuffre added.
When asked about British Columbia, he said parts of the B.C. Interior hold promise, but higher prices and stiff competition have so far kept Avenue Living east of the Rockies.
Overall benchmark prices are still higher than a year ago, but they're on the slide, with detached home values dropping most.
Although a lull in the residential sector is expected in August, last month showed a particularly sluggish market, as the latest Real Estate Board of Greater Vancouver data reveals.
MLS home sales in the region totalled 1,929 in August, a 36.6 per cent decrease from August 2017, and a 6.8 per cent decline compared with July 2018.
The total number of transactions was 25.2 per cent below the 10-year sales average for the month.
This slowing of sales is combining with a rise in active listings to give a much more balanced market for buyers than was seen in the past few years.
As of August 31, there were 11,824 homes listed for sale on the MLS® in Metro Vancouver, which is 34.3 per cent more than in August 2017.
Overall, Metro Vancouver is now in a balanced market, with a sales-to-active listings ratio of 16.3 per cent.
However, it varies by property type, with a market favouring buyers at 9.2 per cent in the detached home sector, townhomes just creeping into a balanced market at 19.4 per cent, and condos still in a seller’s market at 26.6 per cent.
Phil Moore, REBGV president, said, “Home buyers have been less active in recent months and we’re beginning to see prices edge down for all housing types as a result. Buyers today have more listings to choose from and face less competition than we’ve seen in our market in recent years.”
Home prices have been sliding since May this year, although they remain a little higher than a year ago. The composite benchmark price for all home types in Metro Vancouver is currently $1,083,400, which is 4.1 per cent more than in August 2017 but a 1.9 per cent decrease since May.
Sales and prices by property type
As ever, markets vary wildly depending on both the home type and area – and for buyers looking to get into a detached home, the market is certainly improving. There were just 567 sales of single-family homes in the region in August, a 37.1 per cent decrease from the 901 detached sales recorded in August 2017.
Detached houses are the only property type to see benchmark prices now standing at lower than one year ago. The benchmark price for detached properties is $1,561,000, which is a 3.1 per cent decrease from August 2017.
Again, though, it also depends where you are. West Vancouver and Vancouver West saw the biggest annual detached home price declines, with values dropping by 11.2 per cent and 10.3 per cent respectively from a year ago. However, single-family home prices in Whistler, on the Sunshine Coast and in Maple Ridge were all up more than eight per cent year over year, with Pitt Meadows houses up 7.4 per cent.
The region’s townhome sales last month were also slow, at 337 units, which is a 36.3 per cent decrease over the sales in August 2017. The board has pegged the current benchmark price of an attached home at $846,100, which is a 7.9 per cent increase over August 2017 and a 0.8 per cent decrease since May 2018.
Proposed "inclusive housing" policy hopes to provide homes to people being priced out of Victoria market.
Between 10 and 15 per cent of units in new Victoria condo projects would have to be built as affordable rental units under a proposed “inclusive housing” policy.
The idea is to provide housing in new strata developments for working people who are being priced out of the Victoria housing market, said Jonathan Tinney, the City of Victoria's director of planning.
“This isn’t supportive housing where these are high-needs folks,” he said. “These are just households that happen to make a little bit less money than some of the people living as their next- door neighbours.”
City staff estimate demand for below-market-price rental at 124 units a year — 20 per cent of the anticipated annual housing demand of 520 units.
Those 124 units would include 74 for singles earning between $20,000 and $55,000 a year and 50 family units of two or more bedrooms, affordable to those earning between $35,000 and $85,000 a year.
Mayor Lisa Helps called the recommendations “a good start,” noting she would like to see more focus on the provision of affordable three-bedroom units.
Helps would like council to consider allowing 10 per cent more density in downtown developments than spelled out in the Official Community Plan in exchange for additional affordable units.
“Overall, this is the direction we need to move,” she said.
“Victoria is an inclusive city, and, if we want it to remain that way, we need to ensure that regular working people have homes here.”
The inclusive housing policy would replace the city’s bonus density policy, making affordable housing units a priority over other amenities. Bonus density is an incentive-based tool applied in rezoning that allows developers to build more floor space than normally allowed in exchange for helping to achieve public policy goals.
The proposed changes follow council’s direction to staff last July. The existing density bonus policy has brought in contributions of $5.1 million toward heritage improvements and $3 million to a variety of city reserves since it was last revised in 2016. It has also led to construction of 97 affordable rental and supportive housing units, and 359 market rental units.
The new policy would apply to strata developments only and not to market rental projects.
“The analysis shows that purpose-built rental simply can’t support that and it’s important that we don’t disincentivize purpose-built rental through this policy,” Tinney said.
The proposal would provide developers of projects with fewer than 40 units the option of making a cash contribution in lieu of including affordable units.
In developments of 40 units or more, the affordable units would be required.
For a project being built in the core, 15 per cent (six of the 40 units) would have to be affordable. In city neighbourhoods outside the core, 10 per cent (four of 40 units) would have to be affordable.
The proposal recommends rental rates for new affordable units be set at 80 per cent of Canada Mortgage and Housing Corp. average rents at the time of application. Based on current rents, that would be $684 for a studio, $793 for a one-bedroom unit, $1,058 for a two-bedroom and $1,374 for a three-bedroom.
A partnership of investors represented by Regina-based Greystone Managed Investments Inc. is the new owner of Telus Garden, sold last month.
Greystone dials in
A partnership of domestic institutional investors represented by Regina-based Greystone Managed Investments Inc. is the new owner of Telus Garden, which sold August 8.
The purchase price has yet to be disclosed. Telus Corp., which partnered with Westbank Corp. on the mixed-use development, expects to reap proceeds of approximately $170 million from the sale.
Those proceeds will be funnelled to what Telus described in a note to BIV last week as “crucial social purpose initiatives.”
“The distinct purpose behind the sale is that we can take our gain and reinvest it in the creation of a sustainable funding model in support of our crucial social purpose initiatives,” it said. “We look forward to sharing more information regarding this inspiring philanthropic initiative in the months to come.”
In the meantime, Greystone itself is the target of a purchase. On July 11, TD Bank Group announced an agreement to pay $792 million for Greystone’s parent company, Greystone Capital Management Inc. Pending regulatory approval, the new firm will be known as TD Greystone Asset Management.
Real estate (construction as well as sales and leasing) is often cited as the biggest component of the B.C. economy, with Statistics Canada estimating its share at 26.8 per cent last year. This was on par with 2016, despite the cooling effects of a heightened property transfer tax on foreign purchases of residential real estate in Metro Vancouver.
Now, with details pending of further measures to cool foreign and speculative participation in B.C. real estate markets, a CoStar Group Inc. report underscores the impact policies aimed at cooling the local real estate market are having.
Year-over-year employment figures show relatively strong 2 per cent growth for Vancouver, but CoStar points out that employment declined 1.9 per cent in the second quarter of 2018 versus the first.
“Much of this weakness is due to the slowdown in the real estate markets,” the report states.
Overall, employment growth is expected to slow this year to just 1.2 per cent, combining with high living costs to dissuade new arrivals from making a move to the city (now ranked second most livable in Canada, after Calgary, according to the Economist Intelligence Unit).
Canada Mortgage and Housing Corp. (CMHC) reports that housing starts stood at 2,157 in July, down 10 per cent from a year earlier. While starts year-to-date for Metro Vancouver total 14,719, up 0.3 per cent from last year, starts are on a slower growth track than initially expected. Annual starts have steadily dropped in recent months, and CMHC now estimates them at 24,141 for the year in Metro Vancouver if current patterns continue.