St. Petersburg, Florida, is one of those winter havens for snowbirds from Eastern Canada, but some West Coast capital is finding a haven among the real estate there, too.
Second City Capital Partners II, a private equity fund being raised by Vancouver-based Second City Capital Partners – a venture of Sam Belzberg and Bosa Properties Inc. – acquired City Center, a 242,115-square-foot office tower in downtown St. Petersburg, last month for US$16.5 million. The tower, a class-A building, is 72% leased to top-tier office tenants.
But it’s the second-tier nature of St. Petersburg that attracted Second City’s attention.
Real estate in major centres such as New York and Chicago has started to benefit from strengthened balance sheets and rising confidence among the U.S. lenders, but second-tier cities continue to struggle from pinched owners and cautious lenders.
Second City has been scouting commercial investment opportunities in smaller U.S. centres where banks remain cautious about prospects even on A-class properties.
“We’re looking at a lot of really nice assets in less crowded cities,” said Ryan Dunfield, portfolio manager for Second City. “It’s really a lot of the cities that flew under the radar a bit during the credit crunch, where they still had these unbelievable assets built.”
Unfortunately, ongoing financing just isn’t there because lenders remain spooked.
“That’s where we come in as the strategic [partner],” Dunfield said.
The property in St. Petersburg is a case in point, where Second City has partnered with the property and leasing manager. Second City holds a 90% stake.
U.S. properties have attracted the interest of other companies, too. Winnipeg-based Artis REIT, which has been active in Metro Vancouver, recently entered an agreement to acquire three properties in Florida, New York and Arizona for US$52.9 million, citing the “opportunity to acquire great assets at very reasonable prices.”
Second City expects to close its current fund at the end of January.
The construction sector will outstrip all other sectors of the provincial economy in its growth prospects this year, according to the latest forecast from Central 1 Credit Union.
Rising investment in residential and private non-residential construction (as opposed to publicly funded projects) is projected to drive the construction sector to 4% growth this year and 7.1% growth in 2012. The increase tops that for all other domestic industries this year, and 2012’s outlook is bright, but the Vancouver Regional Construction Association remains cautious.
Commenting last week on Statistics Canada’s report that total investments in non-residential construction in Metro Vancouver last quarter topped $615.4 million, an increase of 7.2% (seasonally adjusted) from the previous quarter, VRCA president Keith Sashaw noted that spending remained comparable to 2005 levels.
“At this point it’s too early to conclude that a turning point has occurred and investment spending is headed higher on a sustained basis,” he said.
Indeed, Metro Vancouver total non-residential building construction dropped for the second straight year in 2010, falling 15.8% from $2.8 billion in 2009 to $2.3 billion in 2010.
On the plus side, housing starts for 2010 topped 15,217 in the Vancouver metropolitan area, according to Canada Mortgage and Housing Corp. figures, up 82.5% over 2009. Provincewide, starts were up 70.6% in urban centres, reaching 23,594. Central 1 pegged total residential investment in the province at $18.1 billion. It forecasts residential investment to be $19.6 billion this year, rising to $21.2 billion in 2012.
Ottawa is continuing to tighten homeowners’ access to credit with an announcement last week by Finance Minister Jim Flaherty of several changes to federally backed mortgages this spring.
Starting March 18, those mortgages may have amortizations of no more than 30 years. And, in moves designed to preserve home equity, homeowners won’t be able to borrow more than 85% against their equity as part of a government-insured mortgage refinancing after March 18 while government insurance of home-insured lines of credit will cease April 18.
The federal announcement anticipates the expected increase in interest rates later this year, said Cameron Muir, chief economist with the B.C. Real Estate Association. He expects the new policies to have the same effect on the purchasing power of buyers as a half-percentage-point increase in the prime rate.
“It pulls some purchasing power out of their pockets,” he said.
Muir expects some buyers with pre-approved mortgages will jump into the market before the new regulations kick in, pulling some home sales forward into the first quarter.
While a moderate increase in activity in 2010’s third quarter led Muir and other observers to be sanguine about pricing in 2011 (most recently, Royal LePage forecast a 3.7% increase in Vancouver house prices this year), the changes to mortgage policies now leads Muir to believe prices will move little.
“It will certainly temper any kind of price increases in 2011,” he said.