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City’s affordable housing plan a positive move, but ‘action’ needed

Brian Morton, Vancouver Sun
September 27, 2012

It’s a lofty plan to promote affordable housing, but only time will tell if it works.

That’s how Cameron Muir, chief economist at the B.C. Real Estate Association, responded to Wednesday’s city staff report on affordable options for Vancouver housing that’s too expensive for low and middle-income families.

“Increasing densities should have an effect,” said Muir. “And it will have some impact on the neighbourhoods in question. But overall, it’s yet to be seen if these measures should have an impact on overall affordability in Vancouver.”

Among the priority recommendations of city staff are “thin streets” pilot projects and zoning changes to boost density along main streets and close to major bus and SkyTrain routes.

Muir, noting that 80 per cent of all housing starts are now townhouses and condos, added that Vancouver’s limited land supply puts upward pres-sure on costs and that the thin streets project will increase densities and promote afford-able housing.

Peter Simpson, president and CEO of the Greater Vancouver Home Builders’ Association, said the staff recommendations make sense, but that “we need to see it put into action.”

Simpson, whose organization represents Metro Vancouver’s residential construction industry, applauded the “outside of the box” thinking that resulted from the task force process.

He predicted there would be neighbourhood resistance to parts of the city plan, but said the “shrill minority who don’t want any change” should be ignored.

“You have to engage existing residences (who) don’t like encroachment. But if it’s sensitive to the needs of reasonable residents, it’s a positive thing. You need high densities along arterials and secondary roads. It allows young people to live where they grew up.”

Apartment broker David Goodman, co-owner of HQ Real Estate Services and author of the Goodman Report, a Metro Vancouver apartment building market review, feels that the task force report doesn’t adequately address the issue and is more of a “piecemeal solution to a very big problem.”

He said the city has a “crying need” for more rental buildings and there are plenty of developers who’d love to build them as the condo market softens. That said, Goodman added, the return on investment for constructing rental buildings is small.

“It’s difficult to make the numbers work,” added Good-man, who suggested the elimination of development cost charges for constructing purpose-built rental buildings would help.

“It’s extraordinarily difficult to line up the stars and make a rental building work.”

However, three new highrise rental towers with 614 rental units will be built beside Rogers Arena by Aquilini Developments and Construction, with the last of the towers in the $300-million project completed in the spring of 2016.

Robyn Adamache, Canada Mortgage and Housing Corporation’s senior market analyst for Metro Vancouver, said recently that there were 1,755 rental units built in Metro Vancouver in 2011, up significantly from the 447 built in 2009. The average number of rental units built per year from 2002 to 2011 was 871 in Metro Vancouver.

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Rental Investors

The rental apartment market is even tougher for small investors. The average price of an apartment building in Vancouver this year is $227,000 “per door,” up 28 per cent from a year ago, according to David Goodman, a multi-family specialist with HQ Realty Services Ltd. In the suburbs, the average rental apartment in an older walk-up rental building sells for more than $166,000, a 12 per cent jump from last year. Meanwhile, the capitalization rates for rental apartment buildings are at record lows, not uncommon to be below 3 per cent.

It is hard to make money with those numbers, said Walter Shultz, manager of business development with TD Commercial in Vancouver. Schultz said he discourages novice investors from buying Vancouver-area apartment buildings because the prices are too high and returns are too low.

“There are no more deals in the rental apartment market,” he said, adding that smaller investors are left with what REITs and other big players have already picked over.

Schultz said investors should look at secondary markets, where prices are lower and yields are higher. Good examples in B.C. could include Chilliwack, Nanaimo and Kamloops, he suggests.

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Small-town malls overtake apartment buildings as potential income-producing investments

Peter Mitham, Western Investor
September 2012

Small-town malls overtake apartment buildings as potential income-producing investments.

The rebound in commercial real estate markets over the past two years is making B.C. secondary markets a desired hunting ground for real estate investment trusts (REITs), which are looking everywhere from Courtenay to the Kootenays for deals – primarily retail properties.

While properties in the Lower Mainland are an essential component in the portfolios of all the major investors, the lack of supply that keeps asset values strong and cash flow steady also limits the opportunities for buyers to acquire additional properties.

Winnipeg-based Temple REIT picked up the 126-room Inn at the Quay hotel in New Westminster this spring for $17.3 million, but it was the one hotel deal by a REIT in a province that was home to several such transactions – primarily in northern B.C. – at the height of last decade’s real estate boom.

“I know more would like to be here,” said Tom Andrews, senior vice-president with Colliers International Hotels in Vancouver, regarding REIT involvement in the B.C. hotel market. The opportunities to purchase hotel assets are few and far between, however.

Meanwhile, strong demand for multi-family properties in the Lower Mainland has pushed most of these assets out of the range of consideration for REITs, whose investors want to see healthy dividends on a regular basis.

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Apartment building sales on par with 2011

Brian Morton, Vancouver Sun
July 28, 2012

Metro Vancouver apartment building sales are on par with last year, although values have soared in the central city, according to a report released Friday.

“They [buyers] are buying tired buildings that haven’t been kept up and then spending a lot of money on renovating them,” said apartment broker David Goodman, co-owner of HQ Commercial Real Estate Services and author of the Goodman Report, a Metro Vancouver apartment building market review.

The report concluded that in the first six months this year, 53 buildings changed hands compared to 52 by this time last year, with 28 of the 2012 sales in the city of Vancouver and 25 in other municipalities.

However, the 2012 dollar volume in Vancouver rose 98 per cent to $216 million from $109 million in 2011, although suburban areas saw a five-per-cent increase to $202 million in sales value compared to $193 mil-lion last year.

As well, the report noted, “the total number of suites sold in the city of Vancouver for 2012 was 778, 54 per cent more than 2011, while the city’s average price per unit was $277,135, a 28-per-cent increase from $216,450 in 2011.”

Goodman said that much of the city’s sharp increase in dollar volumes came from a single sale of a 214-suite building at 1323 Haro for $78.6 million.

But he also noted major renovations are playing a part, with buyers – mainly local – purchasing buildings and upgrading them extensively before selling again.

“It might have sold for $150,000 a suite four years ago and is now [selling for] $200,000 to $250,000 a suite because they’ve been modernized.”

Goodman said that while rents are usually higher in the modernized buildings, renters still get good value compared to newer condos rented out by investors.

Meanwhile, Goodman said three new highrise rental towers to be built beside Rogers Arena by Aquilini Developments and Construction – approved by Vancouver city council this week – will be good news for downtown renters.

“I think it’s a wonderful addition to our city,” said Goodman of the $300-million plan, which will see 614 one-, two-and three-bedroom rental units built in stages with the last of the towers completed in the spring of 2016. “It’s a long-term hold for the Aquilinis. They won’t make money overnight on this.”

Goodman feels there will be little trouble renting out the units – rents will range from $1,100 to $2,200 a month – because they will be modern suites.

The Goodman Report, which noted that low vacancies, lack of available product and low interest rates are contributing to the growth in sales, also concluded that municipalities are increasingly motivated to promote purpose-built rental projects.

Robyn Adamache, CMHC’s senior market analyst for Metro Vancouver, said recently that demand for rental housing is strong in the region.

Adamache said there were 1,755 rental units built in Metro Vancouver in 2011, up significantly from the 447 built in 2009. The average number of rental units built per year from 2002 to 2011 was 871 in Metro Vancouver.

Read the full Vancouver Sun's article

 

Number of apartment building sales stay flat – but value doubles

Nelson Bennet, Business in Vancouver
July 2012

Low vacancy rates, high land costs, new mortgage restrictions, a lack of federal incentives for new purpose-built rental housing and steady income have made rental buildings in the Greater Vancouver area a solid investment vehicle, which explains why building owners are sitting tight.

The number of sales of apartment buildings in the Greater Vancouver area in the first six months of 2012 barely moved compared with the same period last year, according to David and Mark Goodman of Real Estate Services.

However, the value of those sales nearly doubled to $216 million in the first half of 2012, up from $109 million in the first half of 2011.

The numbers were skewed by two large sales – a 31-suite building at 2001 Beach Avenue that sold for close to $19 million (about $609,000 per suite) and a 214-suite strata at 1323 Homer Street that sold for close to $79 million (approximately $367,000 per suite).

Mark Goodman said new buyers are usually opting to renovate, which increases the rent they can charge and gives them a good return on investment in a short period of time.

“The payback is four years, roughly,” Goodman said. “A strong majority of new buyers see the opportunity in upgrading and renovating their suites. Most [existing] owners aren’t as aggressive.”

So far this year, 53 apartment buildings have sold – 28 in Vancouver and 25 in suburban areas – according to the Goodman report. That’s one building more than sold in the same period of 2011. The average price per unit increased 28%, from approximately $216,000 in 2011 to $277,000 in 2012.

The areas of greatest activity were Vancouver’s West End and East Side, New Westminster and Burnaby.

Vancouver’s rental vacancy rates have hovered below 1% for the past few years, largely because there has been no new purpose built-rental housing built here for nearly four decades. Goodman does not expect to see those rates easing any time soon.

“With the Government of Canada’s recent tightening of mortgages to 25-year amortization from 40 years, fewer buyers are able to qualify for home purchases,” the Goodman report states. “Expect landlords to become the prime beneficiaries as tenants stay put for longer periods.”

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