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Partners Real Estate Investment Trust

Phil Butler — Thu, 10 Jan 2013 14:31:49 +0000

With hurdles to credit and lack of consumer confidence still low in the US, is Canada the investment Mecca for Baby Boomers and the monied middle class? This question has to, or at least should be, in the minds of all those looking for a stable property investment. If you Google “Canadian Real Estate Trusts”, the trail of money being put into commercial there may just astound you.

Canada REITs, the new wave of moneymaking? – Courtesy © Anna – Fotolia.com

News about US real estate and the markets has been a mixed bag for some months now. The elections, the recent Fed news, many variables have played their role in tempering what should be a boom for buying property. At least this is one view of a property sector made of price constraints so minimal demand should be blossoming. We spoke this week with the President and CEO of a key Canadian firm, Adam Gant Partners Real Estate Investment Trust, about just these issue and more. But first, let’s just run down a few headlines on Canada investing:

The Huffington Post - Canadian Real Estate Above $1-Million Still Finding Buyers: Sotheby’s Canada Report (Luxury)
CBC News - Record year for St. John’s real estate market (Commercial – condos)
TD Tower stake swap sets new high mark for commercial property market (Commercial shift)
CBC News - Canada Pension Plan’s investments see ‘explosive’ growth
Financial Post - Portion of condo apartments in rental market on the rise across Canada (vertical demand – see below)
Bloomberg - Canada Consumer Confidence Rises on Real Estate: Nanos

And on, and on, and there are the occasional mentions of an “overheated market”, the sluggish residential side, and so forth, but in general Canada’s real estate market overall is a relative boom compared with some areas of the US. A herd of investment trusts are approaching “opportunities” there from every angle, Adam Gant’s Partners REIT is tightly focused on the commercial end of things, shopping centers and commercial space, with a look into what Gant suggested could be a Canada gone vertical and low maintenance (meaning managed condos etc.). I asked Gant about things interested investors would want to know.

On the stability of commercial in Canada, Gant was straightforward, the Partners REIT noted:

“Canada is very stable and seeing positive inward migration and population growth from other countries as our borders are very open right now to skilled workers of all levels. Unemployment is low historically but we are growing at a moderate pace.”

With this, key variables such as unemployment, reduced barriers to credit in many cases, a lot less red tape in the Canadian system of things, and greater investor confidence, all these and more play a role in propping up a Canada real estate market seemingly capable of a “balance” for positive growth. What I mean here is, consumer and investor confidence in the US kills a commercial market just as it does the residential one. Meanwhile, relatively uninhibited investors in Canada make possible a commercial market that can and does counterbalance a sagging traditional residential market. Gant and I spoke on “new options” emerging for Canada investors:

“We have seen a significant turn around over the last 3 years in the credit markets in Canada to the point now where there are more new options for financing than there were even back in 2007. There has not been a re-emergence of the conduit lending activities and the securitization that we experienced back in 2006-2007 so the loan to value levels are still conservative and more reasonable than they grew to at the height of the peak in 2007.”

With this, you have to be asking; “So why is the Canada market really so attractive?” The answer is pretty simple really, the confidence to invest money is there. I asked Adam why he thinks the US market is still so jammed up, even with prices so low? Even people who do have money to invest are scared to death because of the ineffectiveness of government to solve problems. This is what Gant iterated to me, and it makes so much sense. And he should know, if success is any baromter, since Gant took over at Partners, the firm has been catapulted into the limelight and the profit beam. As of October Gant moving the fund to the TSX board has resulted in a 6X market cap.

After doing their research, it seems pretty clear too, any diligent investor will have weighted Partners REIT as at best a “sure thing” return getter, and at worst a low risk break even proposition. Wanting to know, as some readers may, the complexion of the investor in this sector, I asked Gant about “who” has put their money in so far:

“Partners REIT, as I mentioned, is great for both a Canadian resident and a US Resident because 100% of the distribution is deferred and considered return of capital for tax purposes which also means that there is no withholding tax for a US investor on the income paid out. We are at a 86% payout ratio and are currently trading above an 8% yield.”

Gant has answered the next set of logical questions too. Namely, whether or not US investors should take advantage of Canada commercial, but what said investors might expect to return on their money. Deferred and other tax incentives, plus the aforementioned stability factors, could spell a sort of Northward migration of American dollars.

The video below from Partners REIT shows Gant talking about the firm’s early moves in 2o12 such as the market cap then having been doubled. As we stated, that same market cap has now more than tripled from then. What’s even more significant here is that Gant’s firm is not the only one showing such powerful ROI cards. In fact, the demand for REITs was termed “insatiable” by The Financial Post early last year, and things have not changed much.

Take Away

It remains to be seen whether or not the “stable” factors Gant discusses will hold true. This is the first and last question most investors will want to ask. Looking at the video from him, and speaking with him about where all those “Baby Boomers” are putting their savings, the term “essentials based” properties comes to mind from our conversation. These kinds of commercial centers will always be a sort of “last bastion” for negative economic situations. People will almost always go to McDonald’s, its true, but the bread store and drug store are even more concrete entities.

Will any Canada investment boom hurt US entities? Of course. Much needed investment for growth in the US, this is another topic Gant and I discussed. In fact, investment is the only way in which the US and other economies can emerge from the ongoing economic situation. People need jobs, jobs come from investing.

Let us hear your views on this. Meanwhile, we’ll keep you updated on all investing news.

Average Canadian Prices Declined by 2% in July, Dragged down by Vancouver

Allison Halliday — Thu, 16 Aug 2012 08:09:12 +0000

The national average home price in Canada declined by 2% in July compared to July 2011, due to price falls in Vancouver, as most markets saw slight increases. Figures from the Canadian Real Estate Association showed the average price for a Canadian home sold in July 2012 was $353,147.

If Greater Vancouver is taken out of this equation then the national average price saw an increase of 1.1% compared to the same month last year. Although prices in Greater Vancouver and Greater Toronto have declined from recent peaks, prices in most markets have risen since the same month last year. Sales figures remained largely unchanged in July compared to June, declining by less than one 10th of a percentage point. While some local housing markets saw activity levels increase on the previous month this was balanced by the number who saw activity levels decline. Activity was up in Calgary, Chilliwack and Kingston, but there were fewer sales in Newfoundland & Labrador, Edmonton and Toronto.

Mortgage regulations were recently changed in Canada and this latest data confirms the effect on sales in Greater Vancouver and Greater Toronto. Shortened amortization periods mean some first-time buyers are now having difficulty in qualifying for mortgage financing, and of course this will have a knock-on effect on the rest of the market as it will take longer for those at the bottom of the chain to sell their current home.

The number of new listings fell 3.3% in July compared to June, and declines were seen in over half of all local markets including the Fraser Valley, Vancouver, Toronto, Montréal, Edmonton and Calgary. In spite of slowing conditions the market is still very much in the balanced territory as sales activity is still stable. The ratio of sales to new listings was 53.4% in July, up from 51.6% in the previous month. The national number of months of inventory stood at 6.1 months at the end of July, unchanged from the previous month. This level has been largely the same since the end of 2010.

Fears of Real Estate Bubble in Vancouver Are Apparently Overrated

Allison Halliday — Fri, 18 May 2012 13:30:58 +0000

There has been a lot in the news recently about the possibility of a real estate bubble in the Canadian housing market, with Finance Minister Jim Flaherty warning that Canadians are taking on too much debt and that they could face problems once interest rates begin to rise.

Vancouver is "safe" from a real estate bubble, say the experts © Lijuan Guo - Fotolia.com

However a report from the Canada Mortgage and Housing Corporation doesn’t think this is the case, and hasn’t found any real evidence for a property bubble, even in Metro Vancouver. Vancouver’s property market has been red hot over recent years, but there’s no denying it’s slowing down right now. There’s been an increase in listings combined with a drop in sales, and according to data from the real estate board of Greater Vancouver, property sales are down by 19% compared to the same period last year.

This might seem a huge decrease, but it’s important to remember these figures are being compared to a time when there was a high point in activity in the real estate market, due to changes in the federal government mortgage insurance criteria. Although sales may be down by 19% prices are up by nearly 4%, but even this figure can be confusing as the numbers can quickly change on a month-to-month basis depending on the number of multimillion dollar houses sold in West Vancouver.

The article in Global BC points out that the Canadian economy is still in pretty good shape, all things considered, and there’s a good supply of homes combined with low interest rates. While the number of sales may be falling, prospective purchasers are warned property prices might not follow suit.

Canadian Olympians Oppose New Ski Resort in British Columbia

Allison Halliday — Fri, 11 May 2012 15:01:56 +0000

Apparently several Canadian Olympians have signed a letter opposing the development of a huge ski resort in British Columbia. They are against a planned development near Invermere in British Colombia, Canada.

Skistar Trysil via flickr.com

The potential development of the $1 billion ski resort has caused controversy in the local community, as some see it as needless destruction of the wilderness, and are concerned it could negatively affect the grizzly bear population, while others see it as being good for the local economy.

The letter has asked people to recognize limits on development, especially as the province has already agreed to the development which is right in the heart of an important grizzly bear range, and is in an area of melting glaciers. The government in BC agreed to the resort project last year, and there are 1,400 condos planned, as well as 23 lifts which would give access to the glacier allowing year-round skiing. Although the government has agreed to the project, it isn’t signed and sealed as the development is in an un-zoned area, and needs to be rezoned before the development can begin. The local council has opposed the project, but the provincial government has the power to overrule this opposition and can designate the area as being a resort municipality.

The article in the Vancouver Sun newspaper said Olympians opposition is based on the fact that they don’t believe another resort is necessary, and that the environmental impact doesn’t merit it.

The developers have emphasised the main selling point as being the fact that the Canadian Alpine ski team has trained there during the summer, but apparently this has been possible for some years as it simply too warm during the summer months to ski on the glacier. Over the last 40 years the glaciers in Europe have deteriorated, and many glacier resorts have shut down during summer, or have marketed themselves as being a year-round resort concentrating on summer activities during these months.

Canadian Real Estate Prices Rise at Slower Rate

Allison Halliday — Mon, 30 Apr 2012 10:43:19 +0000

Latest statistics released by the MLS® Home Price Index, the chief sales index in Canada, showed prices rose in March, year on year, but gains have been slowing. The sales increase seen in March was the slowest since June 2011, rising by just 5.1% compared to March of the previous year.

Wayne Moen, CREA President, explained that the latest figures show that Canada’s real estate sector is almost certainly slowing down:

“Overall price trends show that Canada’s housing market continues to moderate. Price increases have been shrinking since last fall. While that trend paused in March, it may reflect an early spring in many parts of the country, resulting in increased competition among buyers. That said, headline numbers mask some important differences in price trends among local housing markets and housing types.”

Moen further stressed the need for buyers and sellers to seek expert advice from their local realtor on price trends in their area before going ahead with any transation.

In all of the five markets being tracked, the MLS® HPI is above its level a year earlier, with Toronto showing the biggest gains of 7.3%. Prices are above the previous year’s levels in all housing categories tracked, with two-storey single family homes showing price gains of 6.8%. Compared from February 2012 to March 2012, the MLS® HPI rose by 1.3%.

Gregory Klump, chief economist for the CREA commented on these figures saying “The index typically experiences these types of month-over-month gains in the spring, which coincides with when the balance of supply to demand is tightest. With that in mind, it’s important to look at month-to-month movements in the context of how they compare to the same period in previous years, it masks slowing price momentum in the Lower Mainland area of British Columbia. Slower price gains there were offset in March by a modest acceleration of price gains in Calgary, Toronto, and Montreal.”

Toronto prices have seen the largest price gains since the middle of last year, and the rise in Toronto’s composite MLS® HPI is a full 2% more than the increase in Vancouver’s composite index, and this price gap may widen even more in coming months as the Vancouver market shows signs of slowing down, while sellers in Toronto are benefiting from a lack of supply.

Growing Worries over Sub-Prime Mortgages in Canada

Allison Halliday — Wed, 18 Apr 2012 12:59:05 +0000

The large Canadian banks have always lent responsibly, and even now are tightening lending conditions, but this doesn’t appear to be the case with Canada’s growing sub-prime mortgage industry.

According to latest figures from the Canadian Real Estate Association, the number of home sales rose by 2.5% in March, with the average Canadian property selling for $369,677 which is slightly less than figures seen a year ago. However the last two years have seen strong gains.

The worry is that much of this growing boom has been due to more money being lent outside the major lenders. Most Canadian mortgages are insured by the Canada Mortgage and Housing Corporation (CMHC) which is a Crown Corporation set up to oversee the Canadian housing market. In 2010 and 2011 the Department of Finance changed the rules over who could qualify for a CMHC insured mortgage, and responsible Canadian banks won’t touch any loans that can’t be insured by the CMHC.

It’s thought the number of borrowers who are failing to qualify for CMHC insured loans could be as high as 20%. This has led to a growth of other lenders such as Equitable Group, Home Capital Group, and Counsel Corp who are stepping in to fill the gap, giving out the so-called sub-prime mortgages. At the end of last year the housing market in Canada was worth around $1.1 trillion according to Bank of Canada estimates, and it’s thought the sub-prime mortgage market could be as large as $85 billion, or nearly 10% of the market. Others put this figure even higher and think it could be as much as 20% of the market.

People applying for these types of mortgages include the self-employed, those without any credit history, and recent immigrants, and their numbers are growing. Some people think such mortgages aren’t strictly sub-prime, as many people running successful businesses would still fail to qualify for mortgage. Although Canada’s sub-prime mortgage market could be the same size as seen in the US in 2004, Canada is unlikely to be at such a high risk of the market imploding as mortgage securitization isn’t nearly so widespread.

Construction of Toronto Premium Outlets Begins on April 25th

Allison Halliday — Wed, 11 Apr 2012 05:42:32 +0000

Simon Property Group, Inc, and Callaway Real Estate Investment Trust has announced that the construction of Canada’s first upscale outlet center will begin on April 25 with a ground breaking ceremony, with the first phase of the 500,000 ft.² center due to open by the summer of next year. The project which is called “Toronto Premium Outlets”, is a joint-venture between Callaway and Simon.

The premium outlets will be located in Halton Hills on Highway 401 at Trafalgar Road, adjacent to highways 401 and 407. It will have sufficient space for more than 100 high-quality outlet stores, and is expected to be the Canadian entry point for selected upscale US retailers and designer brands.

John R Klein, President of Simon’s Premium Outlets Division, commented on the project:

“Toronto Premium Outlets will feature an outstanding collection of many of the finest brands, offering value, quality and selection all in one convenient location. We already welcome large numbers of Canadian visitors to our centers in the US and look forward to serving these valued shoppers closer to their home. We see tremendous opportunity to introduce our top merchants to the Canadian market.”

Simon Property Group’s outlet portfolio comprises of 70 premium outlet centers, 57 of which are in the United States, while eight are in Japan, two are in Korea, one is in Mexico, and one is in Puerto Rico. Most of the centers in the United States are in or near major metropolitan markets such as Boston, Chicago, New York, and Los Angeles, as well as visitor markets such as Las Vegas, Palm Springs, and Orlando. Each Premium Outlet property is designed to be an architecturally distinct village, and offers a mix of leading designers and name brands selling direct to the consumers at significant savings.

SmartCentres worked on behalf of Simon and Callaway to secure the necessary approvals and permits for the project to proceed the spring. Simon is providing the leasing, management and marketing services.

Al Mawani, President and CEO of Callaway said “Callaway is proud to be Simon’s partner as they expand their portfolio into Canada. The Canadian retail landscape is evolving and Toronto Premium Outlets will be the first of its kind in the country.”

The project is expected to create more than 500 full and part-time jobs, as well as hundreds of local construction jobs over the next 16 months. Gary Carr, Halton Regional chair is quoted as saying “Businesses are choosing to locate in Halton due to both the quality of infrastructure and high quality of life.”

Simon Property Group, Inc. is an S&P 100 company, and the largest real estate company in the world.

Callaway is one of Canada’s largest real estate investment trusts with an enterprise value of approximately $6 billion.

SmartCentres is a privately held Canadian company which has developed more than 300 shopping centers in provinces throughout Canada.

Royal LePage Survey shows Fort McMurray Prices Are Balanced

Allison Halliday — Fri, 06 Apr 2012 12:06:05 +0000

The latest Royal LePage House Price Survey which was released yesterday shows the real estate market in Fort McMurray is balanced. During the first quarter of this year detached bungalows achieved an average price of $635,000, while two-storey homes sold for an average of $710,000. Condominiums achieved an average price of $370,000.

According to Marion Berry, broker and owner of Royal LePage True North Realty, “Market activity in the Fort McMurray area is balanced and consistent with levels from last year. Continuous growth in our region’s job sector and growing migration levels has helped fuel our real estate market-a trend we expect to continue throughout the coming months.” She went on to explain that in spite of strong demand due to the local economy, inventory levels are slightly higher compared with last year, although they’re still in line with seasonal averages, and are sufficient to meet the demand.

Market activity nationally was unusually high for the first quarter of 2012, resulting in declining inventory levels and strong price appreciation in most major cities. Sellers have chosen to list property earlier than normal due to the unseasonably warm weather, and buyers continue to be attracted to the market by historically low mortgage rates. During the first quarter of the year the average price achieved for a standard two-storey home increased by 5% year-on-year to $398,282. The price of detached bungalows increased by 4.4% to $356,306, and the average price for a standard condominium rose by 2.2% to $243,153.

Fort McMurray is best known for being associated with the oil sands industry and the town is considered by many to be right in the heart of Canada’s oil production hub. This has attracted large numbers of people from all over Canada and throughout the world to move to Fort McMurray.

Canada’s Royal LePage Launches New Commercial Program

Allison Halliday — Wed, 04 Apr 2012 09:08:11 +0000

Canadian real estate agents, Royal LePage have just launched their new storied Commercial brand to support the company’s nationwide network of commercial real estate practitioners and clients. The new program will provide dedicated commercial practitioners with a complete set of tools and resources to help them better meet the needs of business and investment clients.

Phil Soper, president and chief executive of Royal LePage Real Estate Services says “I am convinced that the positive turn to the economic cycle will be supportive of our re-emergence into the commercial market. We believe the time is right to capture significant market share in the under-serviced Canadian commercial brokerage industry’s mid-market.”

Royal LePage has introduced a new commercial logo alongside a dedicated website designed to benefit owners and those hoping to buy commercial real estate. The new website includes listings, postings from buyers and profiles of all dedicated practitioners.

Soper went on to say “This new offering is an exciting development that builds on our company’s leadership history in Canada’s commercial real estate market. Canadians have come to expect the highest level of service and expert advice and counsel from Royal LePage professionals. This program boldly extends our brand promise into the commercial real estate services industry.”

Royal LePage Commercial has been serving the commercial real estate needs of Canadians since the 1950s, and has a nationwide network of dedicated commercial sales practitioners. Royal LePage supports these commercial sales practitioners by providing a suite of services, helping them to meet their client’s needs.

Royal LePage has been serving Canadians since 1913, and is one of the leading providers in the country. It has a network of 14,000 real estate professionals in more than 600 locations nationwide. It’s the only real estate company in Canada to have its own charitable foundation which is the Royal LePage Shelter Foundation. This foundation is dedicated to supporting women and children’s shelters, and educational programs aimed at ending domestic violence.

TD Bank Warns Canadian House Prices Are Overvalued by up to 15%

Allison Halliday — Fri, 30 Mar 2012 10:34:33 +0000

The Toronto-Dominion Bank, the second largest bank in Canada is worried Canadian house prices are overvalued by between 10% and 15%, and its chief economist thinks the government should be taking measures to slow down lending growth.

TD Bank thinks if the residential market were to somehow become unstable, then the price correction could be worse than the market crash seen in the early 90’s. Other experts think the risk is being overstated.

Latest reports have the Bank of Canada beginning to raise interest rates towards the end of this year, and small increases could cause a small price correction, but Canada’s history of conservative lending is likely to help avoid any dramatic price crashes. It won’t come as any surprise to hear Vancouver is considered to be at the greatest risk due to the influx of foreign buyers, as is the condo market in Toronto along with the housing markets in Montréal and Québec City. How much effect it would really have is uncertain as many foreign buyers pay for property in cash and aren’t affected by any interest rate changes.

Over the last five years real estate prices in Canada have increased by an average of 28.7%, according to the most recent Knight Frank Global House Price Index, and during the same period interest rates have changed substantially. It’s these longer-term statistics that are attractive to overseas buyers, alongside opportunities in Canada, and the Canadian lifestyle in general.

But there are concerns about increasing levels of household debt in Canada. This is already being monitored by the banks, and it could be that in the future the maximum amortisation period is shortened from 30 years to 25 years so householders would pay far less money for loans over the longer term.

Although the Bank of Canada is concerned about rising levels of household debt and house prices, as long as the US Federal Reserve is holding its rates down, Canada is unlikely to be able to increase its rates substantially as the Canadian dollar is already at near parity with the dollar, and strengthening it further could slow economic growth.