Upward bound
While the rise of the U.S. dollar has some residential investors, not to mention cash-strapped snowbirds, mulling the sale of their U.S. properties and repatriating capital, commercial investors remain bullish on U.S. properties.
A forthcoming Jones Lang LaSalle report on global capital flows is set to underscore the leading role investors from Canada are playing in U.S. deals. The first quarter alone saw a fivefold increase in aggregate deal values from the same quarter a year ago, with US$3.6 billion worth of trades.
Office deals led the way with Ivanhoé Cambridge’s US$2.2 billion purchase of 1095 Sixth Avenue in Manhattan and, a few blocks away, Bentall Kennedy’s US$360 million purchase of 757 Third Avenue, as well as Canada Pension Plan Investment Board’s acquisition of 1455 Market Street in San Francisco and a host of lesser deals by Vancouver investors Pure Industrial Real Estate Investment Trust and Nicola Crosby Real Estate.
“The press picks up on the Chinese story, but actually the Canadians remain, in office, the largest investor,” said Lucy Fletcher, the Vancouver-based director of Jones Lang LaSalle’s international capital group. “The strength of the U.S. dollar hasn’t slowed down the pace of acquisition of real estate in the U.S.”
Whatever residential investors feel, commercial investors see steady strengthening for their properties.
“The strong U.S. dollar has resulted in a number of high-net-worth investors lowering their interest in additional U.S. real estate,” said Jamie Farrar, CEO of City Office REIT in Vancouver. “However, this has been less common with institutional investors who are looking for higher long-term return potential than is available in Canada.”
It’s a view Fletcher shares.
“[Canadian investors] continue to look for diversification, capital preservation,” she said. “The U.S. is the largest market globally, and it still offers a good return proposition on a relative basis to the domestic market.”
Upward pressure
Meanwhile, the latest forecasts for B.C. point to strengthening activity and prices in 2015.
BC Real Estate Association (BCREA) numbers point to 57.1% more sales in March 2015 compared with March 2014, with activity surpassing even the heady days of March 2007, when sales surged following a breather in 2006 and prior to the downturn of late 2008.
But why?
Reviewing reports from industry and the media, one could finger surging single-detached home prices – up 40% in some neighbourhoods, by all accounts – and the ill-defined “foreign buyer,” or, if you prefer, “investors.”
This has made condos, in the words of Royal LePage, “the only option for buyers looking to own property in the region.”
BCREA chief economist Cameron Muir doesn’t buy it, however.
“If it’s so unaffordable here, how come there were so many sales last month? What do you think? There were all these foreign buyers buying in Coquitlam and Burnaby and Surrey and New West? C’mon,” he said. “The vast majority of sales are going to people who live, work and raise their families here. Which is – surprise, surprise – what [drives] most real estate markets.”
While sales of multimillion-dollar homes have the potential to skew averages, Muir maintains that those homes were always unaffordable to the majority of the population. Meanwhile, the rest of the market chugs along.
“It looks like it’s going to be a very strong year for home sales,” Muir said. “I think we’re going to see a significant amount of unit sales, and it’s not just in Vancouver.”
BCREA expects resale property values to increase this year.
Discount dealing
A discount on first-year mortgage payments for buyers in Langley-based WestStone Properties Ltd.’s latest project in Surrey recently helped move 300 units in a single day, but was it necessary?
Prices in the 35-storey, 406-unit Evolve tower to be built just west of the Surrey Central SkyTrain station started at $93,900, and the first-year discount enticed buyers with the prospect of mortgage payments of less than $1.50 a day on several units.
“It was the icing on the cake for us that helped us solidify everything, but really and truly, the basis of the sale was well-designed product,” said Bill Morrison, president of Macdonald Realty Platinum Project Marketing. “I think if we didn’t even do that we would have had a fairly big success. The product is designed to maximize affordability.”
