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Victoria commercial real estate grows

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Value for money and a strong return on investment will continue to drive activity in Greater Victoria’s commercial real estate market, according to a new report from CBRE Group.

The commercial real estate firm said there is still strong demand for good office space from the provincial government and the private sector, while investors and developers see the region as a relatively good bargain.

“We still see a tremendous appetite for investment product in Greater Victoria and I think the same can be said for development properties,” said Ross Marshall, vice-president with CBRE Victoria. “Investors and developers see value in Victoria [because] it didn’t get over-inflated like Vancouver.”

Marshall said there are some “game changing” real estate deals in the works involving Lower Mainland players.

“The lion’s share of transactions are now with Vancouver-based investors and developers,” Marshall said.

Marshall said both groups have been looking at moving money from other markets into the capital region to add to their property portfolios.

He said they see Victoria as a safe and secure environment.

“And our yields are higher than Vancouver, and everyone is chasing yield, so we are a pretty attractive place,” Marshall said, noting strong demand from tenants has driven up rental rates across property classes.

According to Colliers International, downtown Victoria office vacancy was at 6.4 per cent overall in the fourth quarter of 2018, down from 7.2 per cent in the fourth quarter of 2017. That drop came despite the addition of 280,000 square feet of new office space to the mix.

Marshall said there was a flight to quality, with professional firms and government moving to Class A space, freeing up Class B and C space in the region, with some of that taken up by the growing high-tech sector.

Given the region’s strong fundamentals — low unemployment and a strong, diverse economy — there’s no reason to expect developers and investors to back away from the region anytime soon, he added.

Marshall said he has fielded inquiries from the Lower Mainland, across Canada and the U.S. expressing interest in some of the larger properties available in the region.

“They have a lot of confidence in the fundamentals evident in Greater Victoria,” said Marshall, who sees demand outstripping supply for the next couple of years. “The reality is a lot of these groups are looking for vehicles to invest in, and the West Coast and, in particular, Vancouver Island, [is] shining.”

One of his biggest challenges has been to find large enough properties to suit some of the investor groups.

But even in rosy conditions, the cost of construction, increased development fees, approval delays and other factors could affect the appetite for development in the downtown core.

Marshall said in some cases, it has spurred developers to explore other municipalities that might be keener on development.

The report also noted that Victoria’s industrial market is experiencing historically low availability, while land constraints have led to upward pressure and record-high lease rates.

Greater Victoria’s industrial vacancy rate fell to a decade-low of 1.7 per cent in 2018, according to Colliers, which noted that Department of National Defence contracts, technology companies and manufacturing “have all contributed to the thriving industrial marketplace.”

Colliers added that most of the major industrial parks in the municipality of Victoria are now at capacity and have no additional land available for development, leaving many companies contemplating acquisitions in alternative markets such as Westshore.

Capitalization rates on Greater Victoria industrial property will remain in the 5 per cent to 5.75 per cent range in 2019, the same as last year, CBRE forecasts. This compares with cap rates from 3 per cent to 4.75 per cent in Metro Vancouver.

There are three key developments that could increase the performance and the appetite for industrial and commercial development in the Victoria region, Marshall said.

These are the $85 million McKenzie Interchange on the TransCanada Highway in Saanich that will unknot the No. 1 bottleneck on Vancouver Island when it opens this summer; the near-$20 million upgrade to Victoria International Airport that completes next year; and the $100 million redevelopment of the historic Customs House on Victoria’s Inner Harbour. This Cielo Properties project, which completes a year from now, includes 16,000 square feet of upscale retail and a selection of luxury residences.

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Blackstone raises $20.5 billion for largest ever real estate fund

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U.S. private equity firm Blackstone Group Inc said on Wednesday it has raised the largest ever real estate fund, amassing $20.5 billion to be invested in property assets around the world.

Large buyout firms such as Blackstone have been attracting a lot of capital from investors seeking higher returns not available in public markets.

The capital ready to be deployed has swollen to over $2 trillion, according to data provider Prequin, driving up asset prices and deal making activity.

Blackstone said in a statement the fund, named Blackstone Real Estate Partners IX (BREP IX), has already made its first investment: the purchase of U.S. industrial warehouse properties from Singapore-based logistics provider GLP for $18.7 billion.

The deal, in which BREP IX co-invested with other Blackstone funds, was announced in June and is expected to close in coming weeks, the company said.

Blackstone is the world’s largest alternative asset manager and one of the biggest property investors, with $154 billion in real estate assets under management. (Reporting by Chibuike Oguh; Editing by Sandra Maler)

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Real estate lessons to live by Pattie Lovett-Reid

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Real estate lessons

Disclaimer: I’m not a real estate expert but I am a real estate junkie.

I’ve often thought about the many ways there are to make money – and there are many. Throughout the years, we have created side hustles, worked hard at our jobs, built an investment portfolio and we have bought and sold a lot of real estate.

We love real estate, and over the past 25 years, we have bought and sold six principle residents and six recreational properties. The majority of our housing transactions made money, and we broke even on a couple. There have also been lessons learned along the way.

Here are a few.

1. Listen to the experts. They are qualified in their field so believe them when they say location sells. Try not to be the most expensive house on the street and don’t let your emotions drive your buying or selling decisions.

2. Don’t fall in love with your assets, or in this case, your home. Sometimes you need to make tough decisions financially and that may mean selling the family home. Your assets will never love you back but your family will.

3. When selling, don’t be greedy. If your home isn’t selling, it is priced too high. Listen to what prospective buyers are silently telling you as they move on and check out the next listing.

4. Get your home ready to sell as soon as you move in. Life has a funny way of throwing you a curve ball when you least expect it. Curb appeal matters but the inside likely matters more. This is where you live. Keep it neutral and up to date. Look at your home as a prospective buyer would.  Small changes can yield big financial results.

5. Avoid concentration risk. Don’t put all your money in the real estate basket.

6. Take the time to save up the down payment. Consider all-in and all-out costs such as insurance, appraisals, real estate, moving, land transfer costs and the dreaded unknown repairs. There will always be something that requires your financial attention.

7. Don’t buy beyond your means. I’ve been there and it isn’t fun. No one wants to be 100 per cent house poor. You aren’t expected to be flush with cash when you are new homeowner but you also don’t want to live life worrying about the next mortgage payment each month.

8. Buy low and sell high. Even if you love real estate you are always scouting out new opportunities, this investment mantra still must hold true.

9. Focus on your stage of life. Do you really want to be building your dream home for your family as your children head off to university or are beginning to build their own lives under their own roof? Just because you want your family there doesn’t mean they will be. Buy for reality not dreams.

10. Put in offers earlier in the week. You are more likely to have less competition and more likely to get a deal if you do. Everyone is out   looking on the weekends. Don’t follow the herd mentality.

11. Take advantage of the capital gains exemption on your principle residence. This is one of the best tax-savings opportunities to create wealth I know.

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B.C. Real Estate Association forecasts lower mortgage rates in 2019

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The cost of borrowing for a home is predicted to get a little cheaper this year.

That’s according to the latest mortgage rate forecast from the B.C. Real Estate Association.

“The average contract rate for 5-year mortgages has declined about 30 basis points from its peak in 2018, reaching 3.44 per cent in March,” the BCREA states in a two-page report. “Unfortunately, this still means a stress test rate of 5.44 per cent, even for the highest quality borrowers.”

However, the association points out that if five-year bond yields remain at the current level, “a 5-year qualifying rate of under 5 per cent should follow suit.”

The contract rate refers to the interest percentage listed on the face of a note or a bond.

The qualifying rate refers to a lender’s determination of what a borrower can afford. This takes into account a person’s income, debt obligations, utility, and living costs, as well as the amortization period and mortgage rate.

The qualifying rate is forecast to fall to 4.99 percent in the second quarter and 4.84 percent in the third quarter, before rising to 4.99 percent in the fourth quarter.

“While there is an outside chance of a rate cut from the Bank of Canada, our baseline is for the Bank to remain on hold for 2019,” the BCREA states. “Therefore, we are forecasting no change in the prime rate, from which variable rates are discounted.”

The BCREA predicts that the qualifying rate will rise to between 5.14 percent and 5.34 percent in 2020.

Metro Vancouverites carry large debt loads

According to the Canada Mortgage and Housing Corporation, Metro Vancouver leads the country in the ratio of liabilities to annual income at 242 percent.

The mortgage debt-to-interest ratio in this region is 178 percent, which is three times the figure in St. John, New Brunswick, which has the lowest rate in the country.

CMHC released this chart in December, showing that Metro Vancouver residents, on average, have the highest debt-to-income ratio in the country.
Canada Mortgage and Housing Corporation

In October 2017, the Office of the Superintendent of Financial Institutions announced that the minimum qualifying rate for uninsured mortgages to be the greater of two figures:

* the five-year benchmark rate published by the Bank of Canada;

* or the contractual mortgage rate plus two percent.

This meant that many homebuyers could not take out as large a mortgage, reducing the value of what they could afford to purchase.

That, in turn, is one of the factors cited in the monumental slowdown in the Metro Vancouver housing market in 2018.

The BCREA report questions whether these new mortgage stress-test rules can continue to apply to Canadians with more than 20 percent in home equity.

That’s because the association maintains that they “will be stress tested at a rate much higher than what we estimate as a long-run equilibrium mortgage rate”.

“Given the disruption caused in Canadian housing markets by the stress test at the presently lower rates, the stress test is not likely to be sustainable in the long-run as currently constituted,” the BCREA declares.

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