With deal activity down, the definition of trophy real estate has changed in the market. There’s a greater emphasis on fundamentals, so while high-priced and highly amenitized properties are trophies in an aspirational market, today’s aspirations come down to cash flow.
Sure, trophy listings exist, such as Engel & Völkers’ recent listing of 2363 Sasaler Road on Gambier Island, an 11-acre waterfront property with a seven-bedroom residence featuring finishes milled from locally harvested trees. There are also private islands and ranches for sale.
But as Steve Saretsky of Oakwyn Realty recently remarked in a newsletter to clients, the luxury condo market in Vancouver has slowed to a standstill thanks to domestic restrictions on foreign ownership and policies designed to save housing for locals and straitened conditions in China.
“The local market for $3 million condos in downtown Vancouver is thin, and without the foreign bid we are seeing losses compound,” Saretsky remarked. “Net of fees, million-dollar losses on recently completed luxury high-rise condos are not unheard of.”
Those circumstances won’t win any property a trophy, and underscore the focus on fundamentals not only in BC but across the West.
Alberta’s relatively strong market has seen cash flow into multifamily and retail properties, while a pause on industrial development has laid the foundation for an uptick in land values.
With strong roots in natural resources, the fundamental use of real estate to house people and support jobs makes these uses the cash-flow kings of the West.
British Columbia
B.C. is home to some of Canada’s most expensive properties, and as markets normalize following the pandemic and await the impact of lower interest rates to flow through, what happens here is a bellwether for activity elsewhere.
Big deals during the first half of the year include the sale of a 21-acre industrial site in North Vancouver for $145 million to Hydrogen Technology & Energy Corp. and Bosa Properties Inc.’s purchase of Fama Business Park in Surrey for $93 million, the latter at a 40% premium to the price CanFirst Capital Management of Toronto paid to acquire the property in 2019.
But so far as trophy assets, Deka Immobilien Investment GmbH’s purchase of 401 West Georgia Street and 402 Dunsmuir Street, a two-building asset totalling 415,000 square feet, set the pace for the city and Western Canada.
The deal closed in May for a price in the range of $300 million, giving investors a read on where commercial values currently lie.
“In a stabilized market it’s a good benchmark, and in markets that are oversupplied – and vastly oversupplied like Calgary … it defines a benchmark on which to calculate your spread,” said Tony Quattrin, who was involved in the deal as co-director of CBRE’s National Investment Team.
Alberta
With strong population growth of more than 200,000 people last year, Alberta has the fundamentals needed to drive cash flows through a wide range of assets.
Strong demand for rental units has driven appetite for multifamily properties, with the sale of the landmark Edmonton House tower at 10205 100 Avenue trading at the end of April for $51 million. It was among the most prominent multi-family deals in the province this year, driven by a tightening rental market that saw June rents rise 14 per cent versus a year ago to $1,564 a month, according to Rentals.ca.
All those people are driving demand for retail goods, and in turn space to sell them. Strip plazas in Calgary are nearly fully tenanted, Re/Max reported in its annual overview of commercial markets earlier this year, while in Edmonton, Nike, recently opened its largest store in Canada at West Edmonton Mall in response to the strong economy.
This has made retail assets a good bet, with investors scouting opportunities even in the furthest corners of the province as institutional investors such as Artis REIT look to redeploy capital.
“We’re seeing [institutions] … selling those properties in order to move forward with developments elsewhere,” said Paul Richter, director, Western Canada market analytics with CoStar. “They’re finding buyers in within the local private investment community, who are encouraged to make these buys based on the population growth and stability of retail spending within the province.”
Saskatchewan
Trophy deals in Saskatchewan are few and far between, except for farmers eyeing land deals. With its wealth in natural resources, land is the prize asset for many investors in Saskatchewan versus commercial properties.
"The market remains slow and high-quality assets aren't being put up for sale other than in a handful of special cases due to high interest rates and the bid-ask gap,” said Susan Thompson, associate director, research, with Colliers.
Similar to other markets, multi-family properties are among the biggest trophies for investors seeking income-producing properties delivering strong cash flow.
A new benchmark was set with the March sale of the Heritage Heights, a three-building multi-family portfolio with 248 units. Built in 2020, the property sold for $57.5 million, an average of approximately $231,855 per door.
The strong value reflects a tight vacancy rate in the city and the potential for ongoing cash flow. Canada Mortgage and Housing Corp. reports that vacancies in purpose-built rentals in Saskatoon are just 2 per cent while Rentals.ca reported monthly rents up 17 per cent in June versus a year ago to an average of $1,371 a month.
“Buyers are encouraged particularly by the interprovincial migration, the demand that is putting on rental housing,” Richter said. “Without rent control, landlords can maintain their rents much closer to prevailing market rates than other jurisdictions.”
Manitoba
While the Manitoba market is small by national standards, Indigenous groups are major players in commercial properties. The acquisition of assets in the core aims to revitalize and refresh the city’s crown jewels.
The Southern Chiefs' Organization is developing its vision for the historic Hudson's Bay building, while last fall’s deal for Wawanesa’s property at 200 Main Street bolstered the Manitoba Metis Federation’s stake in the core following on its purchase of the landmark Bank of Montreal building at 355 Main Street in 2020. Last month, it announced purchase agreements for two more office properties at 333 Main Street and 191 Pioneer Avenue.
True North Real Estate continues to work through plans Portage Place mall from Vancouver’s Peterson Group, recently seeking an extension on the purchase to September. The sale and redevelopment would represent a $650 million investment in Winnipeg’s core if it proceeds.
Trophy assets in a smaller market such as Winnipeg are those with “a strong historical legacy within the city, or one of a significant stature that would really move the needle economically,” said Paul Kornelsen, managing director with CBRE Ltd. in Winnipeg.
The acquisitions by First Nations groups certainly fit that bill, as well as the more recent acquisition of the Fairmont Winnipeg hotel by the Richardson Group with a view to renewing the 340-room property.
“It’s exciting for downtown to see a group like Richardson be willing to put an investment like that in downtown,” Kornelsen said.
Back at the ranch
A big spread is a trophy that defines the West, where big skies and freedom are part of the spirit.
Some big ranches hit the market this summer in B.C., including a collection of 31 titles near Cache Creek totaling 74,716 acres. Originally ranched by the Parke family, CLHBid.com is marketing them as the Hat Creek Ranch Collection with a starting bid on August 15 of $5.9 million.
The offering follows CLHbid.com’s July 24 auction of a 5,565-acre ranch and grain farm in the Peace, capable of running up to 1,000 cow-calf pairs. With bids starting at $4.9 million, strong demand from across Western Canada led to a final sale price of $5.65 million.
“Because they’re so unique, there’s no comparables,” said Roy Carter, president of CLHBid.com.
A Fort St John investor with multiple farm properties was the successful bidder for the property, he added.
Besides the land itself, every buyer will have a different vision for what they want to make of their slice of heaven.
“You can buy a lakefront property and the boat and all that, but at some point some [buyers] are looking to involve family more and work together to maybe build something while they’re playing together,” Carter said. “It becomes a legacy, and there’s some pretty deep value there.”
