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CRE opportunities, challenges in mid-sized cities

Mid-sized Canadian cities have been among the best commercial real estate performers during the p...

IMAGE: Byron Chard is the president and chief executive officer of Chard Development. (Courtesy Chard)

Byron Chard is the president and chief executive officer of Chard Development. (Courtesy Chard)

Mid-sized Canadian cities have been among the best commercial real estate performers during the pandemic, and a Dec. 2 Real Estate Forum panel featured executives from companies focused on these markets.

Larger investors and developers are now taking a closer look at mid-sized cities in search of value and growth, which is increasing competition for companies with longer and deeper roots in the smaller centres.

Adam Kilburn, senior vice-president of capital markets for JLL Canada, moderated the five-person panel and asked questions that addressed a number of topics. Following is an overview of each company and some of the issues they are dealing with:

Chard Development

Chard Development creates residential and commercial real estate projects in Greater Victoria and Metro Vancouver. The family-owned, Vancouver-based company was founded in 1994, has completed 1.3 million square feet of development and has 2.1 million square feet of multiresidential and commercial construction underway or about to start.

President and CEO Byron Chard said Victoria has gained population during the pandemic and has an employment rate that leads Canada.

Chard said Victoria has slower condo unit absorption than Vancouver and its investors are OK with that. The city is also attracting more attention from larger, outside real estate investors, but Chard can often gain an advantage from its local knowledge.

“When we see new entrants come in, maybe we know where we sit on a land price a little bit better due to the soil conditions that we work in,” said Chard. “The seismic codes in Victoria are very stringent for a very good reason. It’s understanding those different underlying fundamentals of how to make that pro forma work.”

Chard said his company’s local knowledge is increasingly in demand by institutions and national pension funds interested in creating partnerships.

The major recent flooding in B.C. has not only disrupted supply chains, but also caused a labour shortage.

“When we have natural disasters such as that, it makes me worry about where we’re going to get the labour to even repair the Coquihalla Highway right now, let alone the struggles we’re having getting labour on to our sites,” said Chard. “Labour is the biggest issue we’re going to have, let alone inflation.

“I think the federal government should very much be focused on bringing in skilled labour to target housing.”

East Port Properties

East Port Properties is a development, leasing and property management company operating in Nova Scotia, New Brunswick and Newfoundland and Labrador, primarily in the industrial and office asset classes. The Halifax-headquartered firm primarily represents REITs and pension funds, but also some local investors.

President Judy Wall said East Port sees growing interest in Atlantic Canada, particularly from companies that want warehouses and supply centres closer to end users.

“Our issue here (Halifax) is that we have a shortage of land at the moment because our industrial parks are owned by the municipality. As a result of that, we’re out of land,” she said. “The demand is only increasing and the supply is not there.”

Other challenges include supply chain issues, labour shortages and increased costs, Wall said.

“Assessments are going up, which means that taxes are going to go up. On the other hand, we’ve extended our rent controls for another year or so. There are conflicting policies that are causing a number of issues. It’s defeating what we’re trying to achieve.”

Halifax has had a population boom due to two per cent immigration increases in each of the last five years, which has caused a need for more housing.

“We’re starting to see some of the older downtown office towers, where some of the ownership has changed and the new owners are looking at converting downtown office to residential,” said Wall. “That’s actually a good thing because it’s time for some of those buildings to be rejuvenated and perhaps be made more sustainable.”

Wall noted there were $15-per-square-foot net rents for industrial space in St. John’s 10 years ago, while rents in the Greater Toronto Area were around $6 per square foot. As industrial rents have increased in other areas across the country, she said rents at East Port’s properties don’t seem as expensive as in the past.

Wall said East Port has recently developed three fully leased, net-zero industrial buildings.

“We have a lot of international tenants coming from Europe, where they’ve had sustainability policies built into their operations much longer than we’ve had here in North America.

“The clients that we’re building for want sustainability built into their developments going forward. That’s our mandate and those are our marching orders, and we’re more than happy to comply.”

Harvard Developments

Harvard Developments is an integrated, full-service company that develops, manages and leases its own properties. The Regina-headquartered firm also has offices in Calgary, Edmonton and Winnipeg. Its portfolio encompasses about 10 million square feet of office, retail and residential space in Alberta, Saskatchewan and Manitoba.

“We like to operate in markets that we’re familiar with,” said managing director and chief operating officer Rosanne Hill Blaisdell. “When it’s in our back yard, we have comfort.

“Western Canadian cities from Alberta to Manitoba have many of the same characteristics. They’re stable generally and generally have economic diversity. They’re slow and steady.”

Hill Blaisdell said most competition for acquiring properties in Manitoba and Saskatchewan is local, but Harvard also partners with institutions based in other cities.

“Our focus has been on developing out our current assets as opposed to looking for new deals at this point in time,” she said. “Economists and a number of individuals think Alberta is poised to rebound very dramatically.

“We are seeing a lot of additional interest in this market on a whole bunch of different fronts and in different industries. ”

Hill Blaisdell said Harvard’s retail properties have had dramatically increased sales of late and, while it has solid office leases in place, people are thinking differently about how they work. She said Harvard owns about five million square feet of office and determining how to manage it will be a major challenge.

“We’re looking very hard at trying to infill some of our properties and diversify the asset classes from single properties to mixed-use so that they are less exposed and there’s less risk.”

Private Pension Partners

Private Pension Partners is a private equity real estate investment firm headquartered in Winnipeg, where all of its properties are located. CEO Don White said it has raised more than $200 million from high-net-worth families and institutional accounts, and has about $725 million in AUM and development.

Private Pension Partners’ Apartment Plus REIT owns approximately 80 per cent purpose-built rental and 20 per cent street-front commercial properties. Its Feeder One LP owns and controls four residential and commercial development assets.

Private Pension Partners is looking to expand beyond Winnipeg into cities of at least 250,000 people, to ensure more long-term liquidity. It’s interested in markets with jobs that can contribute GDP growth, including healthcare, manufacturing, education and transportation.

Private Pension Partners also likes development-friendly markets. White said Winnipeg is accommodating in entitling sites and has no development charges.

“When you build, you have an economic advantage already because we’re not absorbing massive development charges,” he said. “Some regional cities in Canada just feel warmer and feel easier to do business in.”

Private Pension Partners’ biggest competitors for product have traditionally been private locals.

“One of the hardest things for big institutional accounts and others that want to break into the city is that local capital is very deep and very activated and it’s obviously on the ground.”

That makes it difficult for these investors to get involved without opening an office or working with a local developer.

“We’re probably way more under-demolished than we are overbuilt,” said White. “That’s why there’s so much action here.”

Winnipeg has an infrastructure deficit for waste, sewage, water and roads, according to White.

“The value of zoned and serviced land is going through the roof,” he said. “There’s going to be a rush for some of these infill sites where services and zoning exist. That will change the dynamics over the next three years.”

Skyline Group of Companies

Skyline Group of Companies is a fully integrated asset acquisition, management, development and investment firm offering services in real estate and clean energy. Based in Guelph, it offers four funds: Skyline Apartment REIT, Skyline Clean Energy Fund, Skyline Commercial REIT and Skyline Retail REIT.

Skyline has more than $5 billion of AUM in more than 150 communities.

Skyline was the only company on the panel with a Canada-wide portfolio, and co-founder and CEO Jason Castellan said that diversity is important. It likes university towns, retirement communities, blue-collar cities and farming communities to spread the risk.

“It goes back to our original philosophy, which was very crude, but we believe in Junior B and Junior A hockey centres,” said Castellan. “Those exist across the country and they have shopping, hospitals and a lot of characteristics that we’re looking for.”

Skyline used to see its biggest competition for acquiring properties valued at $5 million to $10 million, but it’s now also become tougher to buy assets in the $30-million to $50-million price range.

“That used to be a space that we could happily operate in,” said Castellan. “It was a little under what the big institutions wanted and bigger than what smaller individuals could take on.”

Skyline is looking to develop in more than 100 communities across Canada and will focus on those that are most supportive of infrastructure investment and increased development, according to Castellan.

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