True dough
A tide of red ink flowed across print media in the aftermath of last week’s federal election as the Liberals under Justin Trudeau swept to power.
But the market shrugged, and even the Bank of Canada held the course with its benchmark interest rate, leaving it unchanged for yet another round.
That’s all good news for real estate investors, who seem set to continue enjoying untrammelled access to capital for the remainder of the year.
Speaking at a recent event valuation firm HVS Canada hosted in Vancouver, managing director Carrie Russell told participants that the financing climate is temperate, even better than it was a year ago.
“Things are fairly stable, maybe a little bit healthier in the debt markets in terms of financing,” she said.
While terms remain tight, many lenders are comfortable with loan-to-value ratios averaging 65%, with prime projects able to get loans equivalent to 75% of a project’s value. Projects in secondary markets, on the other hand, might be eligible for a loan equivalent to just half the value.
But they’re also keeping a close rein on terms.
Those prime projects, for example, have access to debt only if they’re being undertaken by trusted clients and have the branding and location that give lenders the assurance they’re fail-safe (all things being equal).
Russell said many lenders are also insisting on shorter amortization periods in view of interest rates that are running as low as 4%. Rather than allowing extended payback at favourable rates, a shorter payback window that returns their money to them sooner is favoured.
“While you may be able to get up to 25 years,” she said, “you’ll often have lenders asking you for 15 years.”
Aquilini looks east
Speaking of secondary markets, the Aquilini Investment Group is again looking east with plans for a $20 million hotel in Fredericton.
The project will have approximately 120 rooms and operate under the Hilton Garden Inn banner when it opens in late 2017. Fredericton city council has approved $2.2 million in direct and indirect financial support to encourage the project, which is to be located on Queen Street adjacent to the Fredericton Convention Centre.
The deal isn’t the first in the province for the Aquilini family, which owns the Crowne Plaza hotel and other properties in Moncton.
Aquilini’s plans underscore the opportunities in Eastern Canada highlighted in the Urban Land Institute and PwC annual Emerging Trends in Real Estate (2016) survey.
Smaller budget-oriented hotel properties such as a Hilton Garden Inn are identified among the top five asset types for purchase in 2016, and, in the case of markets with limited opportunities for purchase, building from scratch makes a lot of sense. •
