Despite economic uncertainty left over from 2008’s global economic crisis, B.C.’s commercial real estate investment market saw record transaction dollar volumes in the first half of 2010.
Building momentum from the strong sales at the end of 2009, sales dollars for the market climbed over $1 billion from 45 completed sales in the first six months of 2010.
Neil McAllister, senior vice-president of retail of DTZ Barnicke Vancouver Ltd., handled two of 2010’s biggest retail commercial property sales. The first sale was completed April 1, 2010. The 550,000-square-foot Brentwood Town Centre in Burnaby was sold to Shape Properties Corp. and Healthcare of Ontario Pension Plan from OPB Realty Inc. for $96.7 million.
A couple of months later, McAllister brokered a second OPB Realty deal selling Lougheed Town Centre, also in Burnaby, to Shape Properties and Greystone, this time for $132.8 million. It was the largest commercial property sale in the first half of 2010 and ranks number 3 on this year’s Top 100 Biggest B.C. Real Estate Deals list.
McAllister, a senior member at DTZ, has a team of seven that specializes in commercial retail investment properties. He recently spoke with Business in Vancouver.
We were retained in 2009, on an exclusive basis, by OPB Realty to seek proposals for both Brentwood and Lougheed Town Centres. We have a very long history with them, going back over decades, and have consulted for them and advised them with their real estate holdings.
So when they decided it was time to sell the property, what we did then is an underwriting. We got all of the information and all of the leases. And then we put packages together and we put out a tendering to parties that we know across the country and internationally who would be interested in purchasing the asset.
It was difficult because the market was very unstable and the appetite for investment products had softened considerably from the peak in July 2008. The dramatic decline in the economy was still very fresh in everyone’s minds, and traditional buyers for this type of product were on the sidelines.
The buyer for both Brentwood and Lougheed town centres was a local Canadian private investor, Shape Properties.
No. We had a number of offers.
For Brentwood the initial deal came together in the third quarter of 2009, and subjects were removed in December 2009. The deal subsequently closed in April 2010. As for Lougheed, once the dust had settled with Brentwood, Shape started due diligence in the first quarter of 2010 and closed in June 2010.
There’s really no standard. But there’s a lot of due diligence that purchasers have to go through before they know what they’re going to be buying and verifying all of the information that we’ve provided. There are just a number of items that have to be resolved. Of course, the bigger the property, the more time it takes typically.
These deals are certainly among the largest we’ve transacted and among the largest for the industry as a whole in recent years.
Market conditions in 2009 and early 2010 were very trying times. As we’ve climbed out of the recession, sales volumes have returned. Compared to previous years, the market has rebounded considerably, and cap rate compression has resulted from insatiable demand that’s seen the supply of investment product diminish.
Secondary markets will see more activity as confidence grows and the competition for Metro Vancouver opportunities intensifies.
Grocery-anchored shopping centres and street-front retail properties will be key property types in 2011.
All commercial investment products will remain in demand fuelled by private capital, real estate investment trusts and foreign capital looking for a safe haven in hard assets.
All of Metro Vancouver will remain popular, with Vancouver, Richmond and Surrey being key.
As was the case last year, the greatest challenge is the limited supply and increasing demand fuelled by low interest rates and abundant capital looking for a home.
The initial impact of a rate increase would be a modest increase in cap rates, which may motivate reluctant vendors to market their properties. But, current market sentiment is rates will remain down, owing to a slowdown in global growth.