Killam Apartment REIT (KMP-UN-T) has continued its recent spate of acquisitions and dispositions, selling a 102-unit Ottawa apartment building to a private buyer. It’s the third non-core asset sale for Killam in the past two months as it focuses on recycling capital into newer assets.
The transaction for 1090 Kristin Way, located in East Ottawa along the Montreal Rd. corridor near the city’s Montfort Hospital, closed on Tuesday. Killam divested the longtime asset for $17.85 million.
The seven-storey building includes a multilevel parking structure, and was constructed in the 1960s.
It’s the second Ottawa asset Killam has sold, having also divested 266 Bronson Ave., a 43-unit apartment building, for $9.8 million in March.
Killam sold the 108-unit The James in Halifax for $33 million a few weeks ago.
Investment market slow - in most sectors
The transactions come amid a slowdown in investment activity in most sectors across Canada – although the multiresidential sector has remained robust.
A combination of renewed interest rate uncertainty, already higher rates than over the past decade, and general economic uncertainty are combining to impact the market, according to Justin Salazar, co-founder and principal of Anzar Group in Ottawa, which brokered the Kristin Way transaction.
The multires sector has been up-and-down since.
“Last year around June or July things slowed down pretty significantly when the (interest) rates kind of skyrocketed,” he told RENX, noting the impact was different from that seen in the single-family residential market.
In that sector, he said, things generally slow down or speed up over a period of months. On the multires investment side of things, it can happen much more quickly.
“For us everyone takes a step back and says, ‘where do we want to see the market, where do we want our spreads and returns to be based on these new interest rates?’
“Once October and November hit, it’s the busiest we’ve ever been. It just hasn’t slowed down.”
That is likely about to change, however, though it might only be for a short time.
“The general consensus right now is it’s pencils down for a lot of the REITs and private guys. What they’re saying is, ‘let’s get through the acquisitions or dispositions that we already have on the table, and let’s revisit newer opportunities late summer.’
“The timelines we are getting are late July or early August.”
Recent apartment transactions in Ottawa
Kristin Way is similar in scale to several other transactions in the Ottawa market recently, including the February sale of Eagle Pointe apartments at 800 Eagleson Rd. in the west end to CAPREIT (CAR-UN-T).
The Eagle Pointe property contains 143 residential suites and was approximately 95 per cent occupied at the time of sale. It is also close to another newly built property CAPREIT purchased in 2022.
One major difference between the CAPREIT acquisitions and the Killam dispositions, however, is that both were newly constructed. This also reflects a trend Salazar is seeing in the sector.
“What we’re seeing is a lot of these publicly-traded companies, the REITs or even the private guys, they’re getting out of these buildings that were built in the 1960s or ’70s.
“There’s kind of two reasons. It’s either not enough scale for them anymore or the cap-ex coming up is quite significant. They are saying, ‘we’ve already made a really good return based on the numbers we are getting on the cash flow and resale side, so let’s get out of this.’
“Let’s pay down the debt or jump into a newer stabilized asset that we don’t have to worry about as much over the next 10 to 15 years.”
CAPREIT, Killam repositioning portfolios
CAPREIT has been repositioning its portfolio with newer assets and development, and Killam is employing a similar strategy. CEO Phillip Fraser discussed that in comments about the Halifax apartment building sale.
"We continue to explore accretive disposition opportunities as we make progress towards our strategic target of recycling over $100 million of non-core assets in 2023," Fraser said at the time.
During 2022 Killam invested $63.2 million into development, including Latitude (208 units) and Luma (168 units) in Ottawa, both joint ventures with RioCan Living. The third project was The Kay, a 128-unit building located in Mississauga.
It has two active projects totalling 181 units which it expects to complete this year, and a 139-unit project expected to complete in 2024.
Looking ahead in the multifamily sector, Salazar said deals still being done often involve mortgage assumptions and other financial arrangements to lower the overall borrowing costs.
“Sometimes deals are still happening when they are assuming mortgages,” he noted. “If they are assuming something, a product that has an interest rate at 1.6 per cent, the seller might get a better price than if you are just having to get new financing right now.”
He said Anzar is working on a couple of these types of transactions.
“The reason they are able to make those numbers work is because there’s assumable mortgages on both properties at sub-two per cent interest rates for at least another seven years. The vendors are also doing VTBs to help.”