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Big opportunity to develop 'small apartments' in Canada: Lobo | RENX – Real Estate News EXchange

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IMAGE: Derek Lobo is the CEO of of SVN Rock Advisors Inc. (Courtesy SVN Rock Advisors)

Derek Lobo is the CEO of of SVN Rock Advisors Inc. (Courtesy SVN Rock Advisors)

B.C. and Alberta have proportionately more apartment transactions and more new apartment construction than Ontario and Quebec. The reason, SVN Rock Advisors Inc., Brokerage CEO Derek Lobo said, is 45 years of rent controls in the latter two provinces which have deterred development and contributed to affordable housing shortages.

“The industry collapsed because of rent controls and, now that it’s experiencing reinvigoration, it’s the bigger players with deeper pockets that are coming to the market,” Lobo said during the recent Affordable Housing and New Apartment Development conference in Toronto, which was billed as the first significant in-person commercial real estate event in Canada since the pandemic struck.

“But at the end of the day, I think there’s a significant opportunity to build small apartments. That’s historically what we’ve built and hopefully that will return.”

That regional disparity is evidenced in transaction activity, which might surprise those not closely involved with the sector.

Lobo said Edmonton has had 45 apartment transactions valued at $3 million or more from 2007 to 2021. Montreal is next with 25, followed by Vancouver with 23, Toronto with 16, Halifax with 15, Quebec City and Langford, B.C., with 14, Calgary and Ottawa with nine, and Granby, Que., Dieppe, N.B., London, Ont., and Spruce Grove, Alta., with seven.

During that same time frame across Canada, there have been 100 apartment transactions of less than $10 million, 83 of $10 million-$20 million, 60 of $20 million-$30 million, 46 of $30 million-$40 million, 30 of $40 million-$50 million, 14 of $50 million-$60 million, nine of $60 million-$70 million, five of $70 million-$80 million, and 11 of $100 million or more.

Small apartment buildings dominate market

The majority of apartment buildings in Canada are relatively small and Lobo said about 18,000 of the 25,000 in Ontario have fewer than 50 units.

London has had more apartment construction activity than any city in Canada, but just seven transactions as developers are holding on to their properties. The same is the case in Toronto, where large institutions are responsible for much of the recent apartment development.

Lobo estimates there are about 250 apartments being built and about 750 being planned across Canada. The average transaction price has been steadily increasing in this century and Lobo has noticed more interest in building apartments in secondary and tertiary markets since the pandemic started.

“The apartment sector is a strong sector,” said Lobo. “It’s recession-proof, it’s virus-proof, but it’s not government-proof.

“We really have to think about legislation that can happen in the future that can hurt our industry. One of the problems we have in our industry is that we don’t have a national association of apartment builders. Almost every large group has some representation in Ottawa, but there is no apartment-building group.”

Lobo also said he’d be interested in being part of a group to lobby for apartment developers federally, provincially and municipally.

What’s being built

SVN Rock Advisors, which organized the event, is a Burlington-based commercial real estate and consulting company with an exclusive focus on the apartment sector.

Before building an apartment, Lobo said developers should do a feasibility study to find out: if they should build; what they should build; how much rent they can charge; the depth of the market; how much money they can make if they build and sell; and how to minimize the tax paid on disposition.

Four-storey, wood-framed apartments with surface parking pencil out at the highest yield, according to Lobo.

He’s seeing more five- and six-storey apartments made with cold-rolled steel and hollow cores, which take about 15 months to build.

He said they work well as part of a campus, particularly in smaller markets, where you can build four 60-unit buildings in phases instead of one 240-unit building – because there’s less risk and you don’t have to build them all if they’re slow to lease up.

Many eight- to 15-storey pre-cast apartments are being built in Southwestern Ontario, said Lobo, who has seen fewer 20-plus-storey concrete apartments built in the past two years.

Infill and intensification opportunities

Lobo said many “tower-in-the-park” apartments were built in Canada in the 1950s and ‘60s, and they offer opportunities for infill and intensification. Adding a new apartment building with modern amenities to an existing site will also increase the value of the original apartment because they can share the new facilities.

“There may be opportunities for developers to work with longtime apartment owners, many of whom are now in the second and third generation and are wealthy families that don’t develop anymore and could work with a partner,” said Lobo.

Locations, unit design and size, amenities and a good property management platform drive rents, with amenities being more critical in downtown areas than in suburban areas, according to Lobo.

SVN Rock Advisors had no shopping centre clients 20 years ago. That group now comprises its largest percentage of clients, because owners are looking to redevelop sites since many of them have three quarters of their space dedicated to parking.

For retail owners looking to create a mixed-use community by adding apartment buildings, Lobo cautioned a good retail area isn’t necessarily a good apartment area, and vice versa.

“You may need to give up some of your prime retail space for a good rental entrance,” Lobo added. “In the rental business, the arrival experience is what your residents need to have to pay top rents.”

No concerns about apartment overbuilding

Lobo said there’s demand for new apartments and room to construct them, without concerns about overbuilding in most Canadian cities.

With some office buildings hit hard by COVID-19 and experiencing increased vacancy rates, Lobo said there’s a possibility of converting them to apartments.

“You need to price in the risk, but the reward can certainly be there . . . maybe office buildings are going to become cheaper in certain areas in certain cities.”

Now isn’t the time to be in the build-to-rent single-family rental business in Canada because the housing market is so hot, Lobo said.

However, there’s a definable, scalable and increasingly institutional business in the United States where developers build houses in subdivisions and then rent them. The model also provides the owner with the flexibility to sell individual houses.

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Grand real estate sales on pace to set record in 2021 – Sky-Hi News

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This year is on track to see record real estate sales in Grand County, driven by a high demand for mountain properties and limited availability.

Data from the Grand County Board of Realtors shows that October was the 115th month of gains in median sales prices compared to the same month of the previous year, while the available inventory has dropped consistently during that same period.

In October, the one-year change in the median sales price for all properties was up 11.8% while the number of active listings was down 14.4%, according to the board of Realtors.



“Due to the lack of inventory and the need for housing up here, when properties do get put on the market, they’re just going so fast,” said Lindsey Morrow, an agent with Keller Williams Top of the Rockies. “This has been a really strong year for real estate in general.”

The September report from the Land Title Guarantee Company shows the average sales prices for single family and multi-family properties are at their highest reported rates with single family homes reaching an average of $876,425 and multi-family properties going for $510,367 on average.



So far this year, real estate sales have totaled more than $861 million, which is a 41.7% increase over the same time frame last year, according to the Land Title Guarantee Company.

Last year saw record sales with more than $994 million in transactions.

The high demand for property in Grand County can be credited to a number of factors, including more people working from home, low interest rates, rising sales prices in surrounding mountain communities and recreational opportunities.

“Grand County is only an hour and a half from Denver … we have the infrastructure and internet for people to (work at home), and I think people are realizing that Grand County has a great work-life balance,” Morrow said.

A majority of the buyers are from the Front Range, which has accounted for 61% of sales so far this year, per data compiled by Land Title Guarantee Company.

All the demand means that active listings go quick.

Properties sold in October saw a 52% decrease in the number of days on market compared to October 2020. The average townhouse or condo sold after only 48 days and single-family homes sold at 72 days, according to the Grand County Board of Realtors.

Morrow said the demand has slowed toward the end of the year, though it remains comparatively high when held up to previous years. Demand is the highest for properties priced below $600,000.

“It’s definitely calmed a little bit compared to the summer where there were multiple offers and properties spent two or three days on market,” she said. “Though as soon as you get into those properties in the $400,000 or $500,000, which are desirable, those are going off within five or six days.”

According to the Grand County Board of Realtors’ data, a majority of properties sold so far this year range from $600,000 to $999,999.

Inventory below $600,000 in Grand County is increasingly rare with only 13 single-family homes currently on the market.

On top of the incredible demand and low inventory, external factors such as rising building costs, labor shortages and problems in the supply chain have also contributed to the extreme sale prices.

Single-family properties going for $1 million to $1,999,999 in 2021 have increased by 52-55% increase compared to last year, GCBOR data shows.

However, there are still opportunities out there for buyers.

With rental rates increasing, Morrow urged interested buyers to reach out to a lender while interest rates remain favorable

“If people are willing to spend $3,000 per month on rent, that could potentially get them a $600,000 or $700,000 house, which there is inventory for,” she said.

Morrow said the market is sustaining itself so, unlike the 2008 market, it’s unlikely there would be a crash and current trends will likely continue until more inventory is available.

“Appraisal values of properties are still coming in at or above contract price,” she added. “The biggest thing is we don’t have the inventory for people moving into the community.”

Building permit numbers indicate that Grand County is picking up the pace on construction with 2021 seeing a record number of permits for single family homes, according to Steve Jensen of the Grand County Builders Association.

Not including construction in Fraser, Granby or Winter Park, Grand County has issued 237 permits for single family homes so far this year compared to the same period in 95 in 2020 and 108 in 2019. Of the permits issued this year, 89 are fire rebuilds.

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More Bad News For China’s Sorry Real Estate Market, UBS Says – Forbes

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The hits keep on coming for China’s economy.

This time the news is the country’s already beleaguered real estate sector is set for more bad news.

“Property activities are likely to fall further in the coming quarters, and without policy easing, property sales and starts could fall 20% or more by 2022,” states a recent report from Swiss bank UBS.

The current and near-future prospects for China’s property sector is the result of spillover from the Evergrande debt debacle earlier this year, policy tightening by the Chinese government, and shifts in domestic demand, the report explains.

In turn, a real estate slowdown could hit the broader economy hard slowing growth to 4% or even lower. That’s a standstill from China’s perspective.

In other words, China’s economy is likely headed for a hard landing soon if its government doesn’t take swift action.

“Our baseline forecast is for gradual policy easing, but there is a substantial risk for policy easing being delayed or insufficient,” the UBS report states.

Policy easing would likely mean lower cost of borrowing for domestic Chinese companies and or easier loan standards.

Still, the news comes on the back of a sharp contraction in China’s steel production earlier this year, at the same time when the world’s other top steel producers were seeing growth in output.

It doesn’t augur well for China’s economy overall so investors in Chinese or Hong Kong stocks might want to be cautious for the immediate future.

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Research: Small-business real estate lenders for San Francisco North Bay – North Bay Business Journal

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The latest North Bay Business Journal research (Lists.NorthBayBusinessJournal.com) focuses on lenders certified to handle U.S. Small Business Administration program loans for real estate.

A list of SBA 504 lenders (certified development companies) is ranked by the value of debenture portion placed in Sonoma, Marin, Napa and Solano counites from Oct. 1, 2020, through Sept. 30, 2021. Other information provided includes the number of loans made in each county.

Detailed information from the list is available for purchase as a spreadsheet via the links above.

Want to have your company surveyed for this and other lists? Contact Research Director Michelle Fox at michelle.fox@busjrnl.com or call 707-526-8682.

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