Cynthia Jagger, a principal with Goodman Commercial Inc., summed up the anomaly that is now Metro Vancouver’s multi-family rental market during her address this September to an annual apartment investment conference in Toronto.
“There are lots of sellers and lots of buyers,” said Jagger, who, with partner Mark Goodman, brokered 34 apartment buildings worth nearly $600 million in 2021’s first 10 months.
The eager sellers are mainly those who have owned rental apartments for decades and are chafing under provincial rent controls that restrict the income and control of their assets.
After nearly a year-long rent and eviction freeze due to COVID-19, B.C. landlords are now allowed to raise rents by just 1.5% in 2022 for existing tenants, while the official inflation rate is north of 4%, and standard expenses, such as property taxes, maintenance and utilities are soaring.
Landlords are also dissuaded from doing repairs under “renoviction” legislation, though the average Metro apartment building is 64 years old. Insurance costs have skyrocketed, in some cases tripling over the past two years.
For many mom-and-pop owners, incomes are insufficient to cover expenses, Goodman said. Some have grandfathered tenants still paying less than $700 per month when the average rent in Metro Vancouver is $2,573, the highest in Canada and up 11% from a year ago, according to Bullpen Research & Consulting’s October National Rent Report.
Then there are tenant conflicts.
Scott McGregor, who heads the first compliance and enforcement unit for B.C.’s Residential Tenancy Branch, estimates B.C.’s 168,000-unit rental universe annually generates an average of 20,000 hearings on landlord-tenant disputes, 83% of which are launched by tenants.
Yet, since the unit was formed two years ago, there have been only 10 investigations that resulted in a monetary penalty.
“Some landlords are so exhausted,” Goodman said.
Yet demand remains high for apartment buildings – both older stock and brand-new purpose-built rentals.
Buyers are attracted to Metro Vancouver because it has the lowest vacancy rates, highest rents and potential price appreciation in the country, and landlords can access the cheapest mortgage money in commercial real estate, because Canada Mortgage and Housing Corp. (CMHC) will insure the loans. Also, the CMHC now requires owners taking equity out of their buildings to reinvest it back into housing through either the construction of new rental, the acquisition of existing rental or the repair of rental properties, which has contributed to the volume of capital being placed in multi-family real estate.
“There are opposing forces on either side to sell or buy,” Goodman said. “This has created the most liquid and active market in Metro Vancouver history.”
The result was a record-smashing 94 apartment transactions across the Metro region in 2021’s first half, valued at $1.64 billion, with an average price per unit of $491,019, Jagger noted.
That six-month sales volume eclipsed the totals for virtually every year during the past decade.
“A hedge against inflation has become a huge driver in the apartment market,” Goodman said.
But he cautioned nascent local investors that being a multi-family landlord is not a passive-income play.
“It is a lot of work. It is a tough business and it is getting a tougher.”
“Unprecedented demand”
However, many investors across B.C. want to get into the business, a trend not expected to slow in 2022.
“Unprecedented demand for B.C. multi-family assets in the first six months of 2021 led to an astonishing 78 sales valued at more than $1.98 billion, obliterating the previous annual record of 85 sales valued at $1.51 billion set in 2018,” Avison Young noted in its British Columbia Real Estate Investment Review (Mid-Year 2021). The review tracked only asset sales worth $5 million or more.
B.C. transactions through the first half of this year exceeded the total annual number of sales in both 2019 and 2020, the review found.
Institutional and real estate investment trusts (REITs) are active this year, accounting, respectively, for 15% and 13% of total apartment building sales in the province. This includes the $292.5 million multi-family portfolio sale in Vancouver to Crestpoint Real Estate Investments and InterRent Real Estate Investment Trust, and the purchase of portfolios in Vancouver, West Vancouver and Victoria by Starlight Investments.
Private buyers are the biggest players, but most deals were under $25 million.
Rob Greer, a multi-family specialist and principal with Avison Young in Vancouver, said that institutional buyers and REITs are now acquiring assets in secondary B.C. markets such as Esquimalt, Langford, Kamloops and Kelowna. Prices are lower in the smaller cities, he noted, while yields are higher than in the Lower Mainland.
Land values
Current prices and momentum of residential land sales indicate that values of all types of housing will remain high, analysts say.
Of the five largest sales of residential land in Metro Vancouver in 2011, the per-acre price averaged nearly $9 million, according to Avison Young.
The BC Real Estate Association is forecasting that provincial housing sales will decline 15.4% in 2022, compared with this year, but that average B.C. housing prices will increase 2.7% to $938,900, with the Greater Vancouver composite home price rising 1.6% to $1.2 million. •
