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Bid/ask price gulf slows Canadian CRE investment: JLL | RENX – Real Estate News EXchange

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Scott Figler, JLL’s national manager, research, capital markets. (Courtesy JLL)

Investment volumes in Canada in the first half of 2020 reached $16 billion, down by about 20 per cent from 2019 as buyers and sellers generally remain far apart on asset pricing, according to JLL‘s Canada Investment Outlook – Mid-Year 2020.

“Most sellers are well-capitalized and unwilling to sell in a downturn or to offer a ‘COVID discount’,” the report states. “The very logistics of touring assets has been a challenge and contributed to friction in the marketplace. The resulting lack of comparables makes it even more difficult for groups to assess and agree upon value.”

The report says acquisition lending activity has slowed in line with the slowdown in overall investment activity. However, this has been offset by an increase in refinancing activity by borrowers looking to take advantage of lower mortgage loan rates.

Moving into Q3, JLL said lenders are increasingly open for business after largely halting new commitments in the second quarter.

Allocations continue to view multifamily, industrial, and essential retail (grocery- and pharmacy-anchored) as favourable, while lenders are reluctant to finance hotel and non-core retail.

Canada’s CRE market “on pause”

“I would describe (the commercial real estate market) as on pause, but I would also say that there’s definitely pent-up pressure for things to start happening,” said Scott Figler, JLL’s national manager, research, capital markets, in an interview with RENX.

“I see the investment market like the stock market, where values might fall but at some point someone’s going to look at the value of a building and say, ‘Wow that’s really a heck of a deal.’ I think we’re approaching that point.

“There’s a lot of investors that are wanting to buy. The main issue right now is that buyers are expecting a discount and sellers are not expecting to give a discount and they’re just wanting to ride it out.

“The sellers think that asset prices, like the stock market, are going to reach their market peak very soon so they don’t see any incentive to sell at a discount.”

IMAGE: Matt Picken, managing director and national lead, capital markets, JLL Canada. (Courtesy JLL)

Matt Picken, managing director and national lead, capital markets, JLL Canada. (Courtesy JLL)

Matt Picken, managing director and national lead, capital markets, JLL Canada said plenty of capital is chasing “beds and sheds” – multifamily residential assets and industrial real estate.

“Amazon and other e-commerce giants are really expanding their footprint,” said Picken.

“In multifamily, people need places to live and if things get really bad I would suggest that people will turn to renting more than ownership. Those are the most resilient sectors. I would call those green lights.

“Red light right now would be hotels. It would include enclosed retail in which there aren’t many anchors or big covenants. It would be certain seniors properties. . . . Yellow light would be office. When I say yellow light, it’s because we just don’t know what the future of office is going to look like.”

Record expansion comes to end

The JLL report said 2020 has ended the longest market expansion since the Second World War.

Figler said total Q1 2020 investment was about $9 billion, with about $7 billion in Q2 when the COVID-19 pandemic took hold. In the last few years, total annual investment in Canada was in the $47-$50 billion range.

“Just from our conversations with investors, a lot of people want to get into the game right now,” he said.

“I think we’re going to start seeing that things are going to thaw a little bit. It’s hard to say where we’re going to end up, but I think we’re pretty optimistic about the third and fourth quarters of the year.

“We’re starting to see this geographic split in the country where Western Canada has really kind of slowed down. It used to be just Alberta but the last 12 months we can probably throw the Vancouver market in there.

“When you look at the panorama of the country, it really is kind of Eastern versus Western Canada right now.

“Montreal continues to be a pretty hot investment market and the reason is that you can get assets at really good fundamentals, fairly low vacancy, strong demand.

“You can get that in Montreal at cheaper pricing than you can find in Toronto.”

He said many institutional investors want to remain active in Ontario and Quebec.

Here’s a 2020 retrospective of Canada’s six largest urban markets:

Toronto    

Investment sales in the Greater Toronto Area reached $5.5 billion for the first half of 2020, about half the pace of the previous three years. The most heavily traded property type was development land, with $1.7 billion in liquidity.

“We should point out that most 2020 sales are based on agreements reached before COVID, so the full impact on the investment market is only beginning to be reflected in the data,” said JLL.

“There is ample appetite on the buyer side, especially from private groups who see the downturn as an opportunity to gain a foothold in Toronto’s highly competitive investment market.

“However. owners are reluctant to sell, as many are confident that pre-COVID values will be restored at some point.

“At any rate, many owners are focused less on portfolio culling than on asset management, as they reconfigure their spaces to comply with social distancing guidelines and work with tenants on rent collection agreements.”

Montréal

Despite being the hardest-hit Canadian city during the pandemic, JLL predicts Montréal will continue to appeal to investors looking for an attractive blend of fundamentals and yields.

“Population growth is expected to be flat for the next two years, but with a highly diversified economy and a young and educated labour force, Montréal is in position to absorb the shock better than most major North America cities,” said the report.

“Montréal is coming off a record year that saw its investment market hit nearly $9 billion in liquidity, almost doubling the previous record. So far this year, the market is showing its resilience with over $2.8 billion in investment volume halfway through the year.

“Office continues to be the most coveted sector with over $1 billion in sales. Multifamily ($580 million), industrial ($540 million) and retail ($425 million) are following suit.”

Vancouver

The JLL report says investment volumes in Vancouver totalled $2.3 billion so far, with the most liquid sector being land ($747 million), followed by industrial ($497 million), multifamily ($382 million) and office ($380 million).

“Vancouver has now gone four consecutive quarters with investment volumes falling well below its 10-year quarterly average of $1.6 billion. Inflated asset values combined with the uncertainty of the pandemic have dramatically slowed the city’s investment market,” said JLL.

While there is uncertainty in the short term, in the long term Vancouver remains well-positioned, it added.

Ottawa

Investment volumes in the nation’s capital reached $670 million for the first half of 2020. Ottawa’s three-year run of topping $2 billion in total sales will probably come to an end, said JLL.

Overall, however, conditions continue to attract attention.

“On an encouraging note, several high-profile transactions closed in the second quarter, suggesting that investors are not scared away by the pandemic,” it said.

Calgary

Calgary’s commercial real estate market continues to struggle with a double whammy – the economic fallout of COVID and low oil prices.

At the midpoint of 2020, investment volumes in the city reached only $890 million. Industrial ($325 million) and development land ($170 million) have led the way.

“In this current dynamic, 90 per cent of Alberta’s oil rigs are sitting idle and many won’t be recertified. Calgary’s tourism industry is also facing immense challenges through the pandemic.

“With international passenger traffic on hold, resorts in the Rocky Mountains have seen their clientele shrink dramatically,” said JLL.

Edmonton

Investment in commercial real estate in the first half of 2020 was driven on the most part by a strong multifamily sector, pushing sales to over $1 billion.

“Edmonton city council has voted to eliminate minimum parking  requirements for new projects, giving developers more discretion and paving the way for more walkable development patterns,” said the report.

“This move has been widely cheered by a broad coalition of stakeholders: developers are happy to have more control and more income-generating floor area, while urbanists applaud it as a measure that will create more walkable spaces and mitigate traffic congestion.”

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Entrepreneurship and investing as social good – TechCrunch

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2020 has been a year of social upheaval. Around the world, society is identifying different problems in our culture and pushing for widespread change. While there are notable steps we can all take, from altering exclusionary company policies to signing action-oriented petitions, the VC and investment world has another, often overlooked option: Investing in change-the-world startups.

Increasingly, angel investors and institutional funds have begun allocating a portion of their funds to startups focused on diversity and social good, whether focused on democratized access to healthcare and education, or larger scale issues like climate change.

Initially, shifting funds to empower social good may seem like a hefty feat, however investors can embrace this mindshift in three simple steps: (1) redistributing stagnant investments; (2) leveraging democratized access to change-making startups; and (3) identifying founders tracking toward success.

Allocating more investments to foster change

Most of the world’s money is tied up in stagnant places. Whether invested in real estate, bonds or other traditional vehicles, this capital typically often shows conservative returns to investors — and has negligible impact on society. The intent isn’t malicious.

Most family offices and private wealth managers strive to minimize losses and these sorts of uniformed portfolios are safe. Even the most seasoned investors should incorporate more variety into their portfolios, determining where they can make profitable investments that yield higher returns while advancing societal good. Investors can take small steps to get more confident in expanding their strategies.

To start, reframe your thinking into seeing the potential opportunity rather than the risk. A good way to do this: Look at how high-risk public equities performed over the last five years and compare it to ventures within tech. Investors will see a significant disparity and the opportunity to make different returns.

The idea is not to put an entire profile in a single venture. Rather, an investor should take a portion of their portfolio in a high-risk investment sector, like public equities or fund structures, and put it in a similar risk profile with a better return. Gradually increasing these increments, starting at 15% and slowly scaling up, can help investors to see outsized returns while making a difference in the process.

A world of passion at your fingertips

For startups of all sizes, democratized access to investors will accelerate the use of capital for social good. Until recently, only the world’s wealthiest people had exposure to premium capital, but crowdfunding and accelerator programs have ushered in new opportunities, forging connections that might not have otherwise been possible.

These avenues have opened new doors for investors and startups. Access to developed networks or innovation hubs like Silicon Valley are no longer make-or-breaks for those looking to raise capital. Extended global opportunity for startups also means investors have more options to find promising ventures that align with their values, regardless of their location.

But while crowdfunding and accelerators have made the world more accessible, they come with sizable challenges. Despite making early-stage investment more obtainable, crowdfunding often does not bring the most valuable investors to the table.

Crowdfunding also inundates platforms with poor-quality deal flow, making it more strenuous for investors to connect with fruitful opportunities. Meanwhile, various accelerators and incubation platforms have emerged, which have advanced global connection, but tend to be quite noisy.

To succeed, entrepreneurs need more than capital. Rather, they need strategic support from experienced investors who can help them make decisions and scale in an impactful way. With a world of ideas at their fingertips, investors should take time to sift through their options and find the ideas that move them the most, prioritizing quality deals and looking toward platforms that curate promising connections.

Empowering entrepreneurs poised for success

Now is the right time to invest in startups. People who innovate during the pandemic have triple the hustle of those who build in safer economies. But while the timing is right, it’s equally important that the fit is right. I’m a big believer in investing in potential: Ambition, unwavering tenacity and empathy are desirable qualities that can help bring game-changing ideas to fruition.

If an investor funds a passionate leader with a strong vision and ability to attract talent, then the groundwork is laid to build something meaningful. When considering the change-makers to invest in, ask: Is this the right person to be building this company? Do they have the ability to attract and lead talent? Is the market big enough, and is there a significant enough problem to build a company around?

If the answer isn’t yes to all of these questions, it’s important to gauge if you can see a theoretical exit, or if the company is pre-seed or Series A, if they have the ability to scale to a decent size.

Despite this, investing in startups, no matter how good their intentions, can scare investors. One way to overcome trepidation is to invest in larger-stage startups that seem less risky and then wade into earlier-stage startups at your own pace. Special purpose acquisition companies (SPACs) are also becoming an interesting investment option.

SPACs are corporations formed for the sole purpose of raising investment capital through an IPO. The proceeds are then used to buy one or more existing companies, an option that could decrease anxiety for risk-averse investors looking to expand their comfort zone.

Any strategy an investor chooses to embrace social good is a step in the right direction. Capital is a tangible way to fuel innovation and bring about impactful change.

Democratized access to startups yields more opportunity for investors to find ventures that align with their values while diversifying their profiles can provide tremendous results. And when that return means disrupting the status quo and empowering societal change? Everyone wins.

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Canada's CarbonCure to receive Climate Pledge Fund investment from Amazon – Daily Commercial News

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CarbonCure Technologies of Dartmouth, N.S. has attracted more high profile financial investment, this time from a group of global high-tech companies under the banner of Amazon’s Climate Pledge Fund. The Canadian company is one of five technology companies to receive the first tranche of what Amazon says is a new $2 billion venture capital initiative.

The other investment recipients announced this month by the Climate Pledge Fund include a technology company that verifies carbon capture in forests; a developer of commercialized technologies to recycle end-of-life lithium batteries into high value metals and chemicals; an EV delivery vehicle manufacturer; and a manufacturer of energy efficient motor systems for use in building infrastructure.

Amazon’s commitment confirms CarbonCure as a recognized leader in global carbon dioxide reduction (CDR).

“The fact that this investment is being led by big tech companies signals a broader change for industries and governments across the board,” CarbonCure said in a media release.

Amazon’s Climate Pledge Fund partners include Bill Gates’ Breakthrough Energy Ventures (BEV).

BEV had previously announced its own investment in CarbonCure back in June 2019. In addition to Gates, BEV investors include Michael Bloomberg and Sir Richard Branson.

The patented CarbonCure process involves redirecting CO2 headed into the atmosphere and instead embedding it into concrete used for construction. CO2 emissions are collected from local industrial emitters, purified using the company’s technology, and injected into the concrete at the point of manufacture, after which it is transported to local project sites.

The process has a measurable, positive impact on carbon reduction.

During a recent webinar, Ryan Cialdella, vice-president of research at Ozinga, a major U.S. ready mix concrete supplier, presented performance data collected by his company as a result of using CarbonCure’s technology. The data indicated an average Global Warming Potential (GWP) reduction of 6.2 per cent due to CO2 mineralization across a variety of psi specifications.

GWP is a “measure of how much energy the emissions of one ton of greenhouse gas will absorb over a given period of time relative to equal emissions of carbon dioxide,” as defined by the Environmental Protection Agency.

In addition to removing carbon permanently from the atmosphere, CarbonCure’s CO2 compound actually strengthens the concrete mix, reducing the amount of material required to meet a project’s performance specifications. That reduction in turn offsets the bottom-line costs associated with including the CarbonCure product into the concrete manufacturing process, Ozinga executive vice-president Paul Ozinga explained during the same webinar.

CarbonCure has already gained recognition around the world and claims their technology represents 90 per cent of the current permanent carbon dioxide removal market. The company says that to date seven million cubic yards of low embodied carbon concrete have been supplied across its global network of nearly 300 producers.

The Climate Pledge Fund’s commitment is important for CarbonCure, allowing it to further accelerate its product distribution around the world, said company CEO and Co-Founder Robert Niven.

“The latest investment presents a wonderful opportunity for the global concrete industry to capitalize on the increasing demand for sustainable concrete.”

Matt Peterson, director of Amazon’s new initiatives and corporate development, explained the tech giant’s reasoning behind the creation of the $2 billion venture capital fund in a recent Axios interview.

“This all has to do with Amazon meeting its own corporate goals of being zero carbon by 2040. We are asking, ‘What does Amazon need as a company to de-carbonize?’ We are finding companies that produce those products and investing in them that way. The purpose of the Climate Pledge Fund is to put money behind companies building those solutions. It’s not just what we can do today to de-carbonize but what we can do in the future.”

It should not be forgotten, however, that Amazon is a huge, profit-driven company with investments in a variety of technologies.

“We are not doing this as a charity,” said Peterson. “This is meant to be an investment program that returns on investment.”

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New report finds VC investment into climate tech growing five times faster than overall VC – TechCrunch

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VC and corporate investment into climate tech grew at a faster rate than overall VC investment as a whole between 2013-2019, according to a major new report — to the tune of $60 billion of early-stage capital.

The new research by PwC (“The State of Climate Tech 2020“) found that although it’s still early days for climate tech in terms of the overall VC market (approximately 6% of total capital invested in 2019), VC investment into the space is growing at a clip: it increased from $418 million per annum in 2013 to $16.3 billion in 2019. According to the report, that is approximately three times the growth rate of VC investment into AI over the same period, and five times the average growth in VC.

The reasons are, predictably, to do with market economics. It’s quickly becoming more capitally efficient to prove and scale the technologies involved, and carbon-neutral or even carbon negative solutions have fewer costs than carbon-producing ones.

Nearly half of this venture cash ($60 billion) went to U.S. and Canadian climate tech startups ($29 billion), while China comes in second at $20 billion. The European market attracted $7 billion. The majority of investments for the U.S. and China go to mobility and transport solutions.

Climate tech startup investment in the San Francisco Bay area, at $11.7 billion, was 56% higher than its nearest rival, Shanghai, which reached $7.5 billion. Europe is more invested in renewable energy generation (predominantly photovoltaics cells) and batteries.

Celine Herweijer, global leader, Innovation & Sustainability, PwC UK, said in a statement: “The analysis shows the urgency of the opportunity, and gap to close, to support and scale innovative technologies and business models to address the climate crisis. Climate tech is a new frontier in venture investing for the 2020s.”

“Some of the technologies and solutions critical to enabling this transformation are proven and need rapid commercialization, which is why venture capital is key. It will not need trillions invested in startups to make a difference. But for the trickier technologies and markets it will need targeted support, including from governments, to make it through research and development, and the early stages beyond which capital increasingly is lining up,” she added.

The biggest drivers for growth in climate tech, according to the report, relate to mobility and transport, heavy industry, and Greenhouse Gas (GHG) capture and storage. These are followed by food, agriculture, land use, built environment, energy and climate and Earth data generation.

Anyone who reads TechCrunch will be well aware of the electric scooter and e-bike wars that have broken out in recent years. And sure enough, the report finds that investment in these micromobility startups has grown dramatically, recording a CAGR of 151%, and representing 63% $37.4 billion of all climate tech funding over the past seven years.

Azeem Azhar, senior advisor to PwC UK, founder of Exponential View, and co-author of the report, said: “The climate tech market is maturing. As a society we are seeing more entrepreneurs launch startups, more investors back them, and an increasing number of larger funding rounds for later-stage high-potential deals. But PwC’s analysis shows the ecosystem is still nascent, with key gaps in the depth and nature of funding available to founders and tricky structural hurdles for them to navigate as they scale their businesses.”

Where is the investment coming from? From a wide range of sources: traditional VC firms and venture funds specializing in sustainability, corporate investors, including energy majors, global consumer goods companies and big tech, government-backed investment firms and private equity players.

The report found that corporate venture capital (CVC) looms large in the sector, especially startups typified by high capital costs aimed at disrupting incumbent industries with high barriers to entry, such as in energy, heavy industry and transport. For mobility and transport, 30% of the climate tech deals include a CVC firm, and in energy, 32% of capital deployed came from CVCs. Overall, nearly a quarter of climate tech deals (24%) included a corporate investor.

Herweijer said: “The involvement of corporates will be key to the continued success of climate tech – both in terms of their net-zero commitments driving demand for new solutions, and their investments into commercializing innovation. It’s not just the financial means they bring, but the commercial know-how, and industry knowledge to help startups navigate how to rapidly deploy and scale new innovations into the market.”

Amongst the top 10 cities for climate tech startup investment — outside of the U.S. and China — are Berlin, London, Labege (France) and Bengaluru, India, attracting $1.3 billion, mainly across energy, agriculture and food and land use.

The sections perhaps most relevant to a TechCrunch audience occur on page 44 onwards, which shows that the climate tech market is starting to behave like the high-growth tech startup world. Where barriers existed before, such as technical risk, product risk and market risk, these are being addressed. Recognizable VC names such as Sequoia, GV, Kosler, Horizons, YC, USV are all getting involved.

And although almost 300 global companies have committed to achieving net-zero emissions before 2050, “with just ten years to reduce by half global greenhouse gas emissions to limit global warming to 1.5C, climate tech needs a rapid injection of capital, talent and public-private support to match its potential to build and accelerate faster, bolder innovation,” added Herweijer.

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