A surplus of buyers and a lack of willing sellers (or significant new construction) will mean that the multi-residential market in Canada will remain hot and hotly contested for the foreseeable future, observed Aik Aliferis, a principal of Primecorp Commercial Realty Inc.
Aliferis, who will be a panelist at the Canadian Apartment Investment Conference (CAIC) on September 14th discussing the topic of “Where Will the Multi-Res Market Surge Next?” said the market has been propelled by a number of factors:
Capital inflows. “The equity available in the marketplace is probably as big as it has ever been if not bigger,” he said.
The attractiveness of the asset class. “The gravitation to secure assets like multi-res is hard to replace and replicate in other sectors so a lot of that money that is looking for a safe good long term growth, hold position is really liking the multi-res sector for both leverage and non-leveraged buyers.”
Lack of supply. “The other guys that have the assets don’t see anywhere to put their money so they are not selling….and the growth on the buyer side is continuing to grow and the supply side is actually diminishing.”
Aliferis, who deals with sellers across the country, has seen a change in the attitude of potential sellers of multi-residential properties. “Even the ones that were considering selling seem to be leaning to not selling once they think about it. That is causing the availability in the marketplace to continually go down.”
What does it take to make reluctant owners sell? Looming retirement, management issues or capital issues, he said. “Some people have to spend a lot of money on their buildings to keep them going forward, those guys have to make a decision: do I invest more capital or do I just take my gains and move on?” Those situations, however, are becoming “fewer and farther between.”
The CAIC conference will also feature a panel dealing specifically with the issues related to capital expenditure deferment and the pressure that it is putting on the sale process.
Recent years have witnessed the consolidation of the multi-residential asset class from smaller private owners into the hands of institutional and larger investors with deal sizes rising accordingly. “We are seeing some of the major players in the market prepared to pay prices that we thought probably wouldn’t be paid a few years back,” he said. “So we are continuing to see benchmarks being broken. That is what is really driving the cap rates down and the prices up.”
While 2011 has a few months left in it, it has been marked by major transactions, most notably the 13-building, 2,326-unit Cherryhill Village in London, Ontario. The $215-million deal, which included the 150,000 square foot Cherryhill Village Mall and a 30,000 square foot office building, was touted as being the biggest sale of an apartment complex in one location in Canadian history.
For its part, Primecorp ended the second quarter of the year with a total of more than $100 million in deals including a 315-suite apartment portfolio in Toronto and Mississauga purchased by TransGlobe Investment Management and a 819-suite apartment portfolio in Kitchener and Brantford, Ontario from Homestead Land Holdings.
Much of the commercial real estate activity is centered on the GTA. Avison Young estimates real estate investment in the office, industrial, retail, multi-res and land sectors reached $45 billion, matching a previous peak not seen since the first half of 2007. The multi-residential sector has seen more product coming to market for sale and in the first six months of the year, investment sales totalled $565 million, a 30% increase over the second half of 2010 and about 50% over the first six months of the prior year.
Ottawa-based Primecorp is beefing up its Toronto presence and recently moved to new office space to better position itself in the fast-paced commercial real estate market. “We are hiring new people, expanding our reach and expanding our brand,” said Aliferis. “We are hoping to continue our presence in the market and continue our growth and continue to be the leaders in the sectors that we are in.”