President Joe Biden’s revocation of the March 2019 permit enabling the construction of the Keystone XL pipeline will likely result in more crude-by-rail volumes, according to industry observers. But how much volumes will increase could largely depend on the price that heavy crude oil can fetch in the global market. “The cancellation of the Keystone pipeline project was inevitable once the government changed. Despite its merits or drawbacks, it is now a deflated political football,” said Barry Prentice, University of Manitoba supply chain management professor and former director of the Transport Institute there. “This means that more crude will have to move by rail. The huge investments in the oil sands will not be abandoned, and the oil has to go somewhere.” But crude-by-rail “has been problematic because with the low price for oil, and the relatively higher price for rail transport, nothing looks very appealing. The problem is not oil supply, it is the reduced demand during the pandemic. Once we come out of this period, demand will return, and $100-per-barrel oil will, too,” Prentice said. Indeed, the oil markets serve as one highly visible factor determining how much crude gets produced and shipped. For the production and transport of heavy crude oil from western Canada and the U.S. to be profitable, the pricing spread between a heavy crude product such as Western Canadian Select (WCS) and a light, sweet crude such as West Texas Intermediate (WTI) needs to be favorable. WCS crude is typically priced at a discount against WTI crude because of its lower quality and its greater distance from the U.S Gulf Coast refineries. The COVID-19 pandemic was among the factors that contributed to WTI crude oil prices’ tailspin in 2020. Why the interest in crude oil production and transport? The oil market isn’t the only factor that dictates crude oil production and its subsequent transport. Another is the vast oil reserves and the amount of investment already directed into crude oil production, as well as crude oil’s export prospects. According to the government of Alberta, the province’s oil sands represent the third-largest oil reserves in the world, following Venezuela and Saudi Arabia. Its reserves equal about 165.4 billion barrels, and capital investments to the upstream sector have equaled as much as $28.3 billion in 2016 and $26.5 billion in 2017. Furthermore, according to Natural Resources Canada, 98% of Canada’s crude oil exports in 2019 went to the U.S. Those investments and vast oil reserves have also resulted in significant investments in other areas of the energy sector, including investments in pipelines. The pipelines bring Canadian heavy crude south to U.S. refineries because American refineries were built and optimized to mostly handle heavier crude oil, according to Rob Benedict, senior director of petrochemicals, transportation and infrastructure for the American Fuel and Petrochemical Manufacturers Association. Crude oil pipelines from Canada to the U.S. have been viewed as an efficient way to transport large amounts of Canadian heavy crude oil to U.S. Gulf Coast refineries. TC Energy’s 1,210-mile Keystone XL pipeline would have had a capacity of 830,000 barrels per day with crude oil originating from Hardisty, Alberta, and heading to Steele City, Nebraska, where it would then be shipped to U.S. Gulf Coast refineries. Had construction continued, the pipeline would have entered service in 2023. But TC Energy abandoned the project after Biden revoked an existing presidential permit for the pipeline in January. “TC Energy will review the decision, assess its implications, and consider its options. However, as a result of the expected revocation of the Presidential Permit, advancement of the project will be suspended.The company will cease capitalizing costs, including interest during construction, effective January 20, 2021, being the date of the decision, and will evaluate the carrying value of its investment in the pipeline, net of project recoveries,” TC Energy said in a release last month. The Keystone XL pipeline “is an essential piece that would have allowed Canada and the U.S. to continue the very good relationship they have with transporting energy products across the border,” Benedict said. However, suspending pipeline construction doesn’t necessarily translate into a one-for-one increase in crude-by-rail volumes, according to Benedict. “The gist of the story is, it’s going to have some impact on crude-by-rail. It’s not going to shift all 830,000 barrels per day onto the rails, but any additional amount is potentially going to have some impact,” Benedict said. Several factors will influence how much crude moves by rail. In addition to the WCS/WTI price spread, the railways’ capacity to handle crude-by-rail is crucial. Not only are there speed restrictions for crude trains and possible social ramifications, there also capacity issues. The Canadian railways have reported record grain volumes over the past several months, and crude volumes must compete with grain, as well as other commodities, for the same rail track. There are also other pipelines between Canada and the U.S. that could take some of the volumes that would have been handled by the Keystone XL pipeline, Benedict said. Those include Endbridge’s (NYSE: ENB) Line 3 pipeline, which runs from Canada to Wisconsin; Endbridge’s Line 5 pipeline, which runs under the Strait of Mackinac and Lake Michigan to the Michigan Peninsula; and the Trans Mountain pipeline that’s under development in Canada. It would run from Alberta to the Canadian West Coast and then potentially south to U.S. refineries. And one other factor that could influence crude-by-rail is how much crude oil volumes go into storage, Benedict said. “It’s not just a simple question of, does one pipeline being shut down ship all to rail? It’s complex because you have to consider all the different nodes of the supply chain, including storage that would come into play,” Benedict said. The Canadian railways’ views on crude-by-rail For their part, Canadian Pacific (NYSE: CP) and CN (NYSE: CNI) have both said they expect to ship more crude volumes, but neither has indicated just how much volumes will grow. CP said during its fourth-quarter earnings call on Jan. 27 that it has been seeing increased activity as price spreads have become favorable. The railway also expects to begin moving crude volumes from a diluent recovery unit (DRU) near Hardisty, Alberta. US Development Group and Gibson Energy had agreed to construct and operate the DRU in December 2019. As part of that agreement, ConocoPhillips Canada will process the inlet bitumen blend from the DRU and ship it via CP and Kansas City Southern (NYSE: KSU) to the U.S. Gulf Coast. “These DRU volumes will provide a safer pipeline-competitive option for shippers and will help to stabilize our crude business into the future,” CP Chief Marketing Officer John Brooks said during the earnings call. CP President and CEO Keith Creel also said he sees U.S. actions on the Keystone pipeline as benefiting crude-by-rail and the DRU volumes. The actions “bode for more strength and more potential demand for crude. We think it creates more support for scaling up and expansion of the DRU. So, we’re bullish on that opportunity,” Creel said. He continued, “We still see the short-term, not long-term … pipeline capacity [eventually] catch up [but] we just think there is a longer tail on it right now. So, we think there’s going to be a space for some potential upside in both spaces.” Meanwhile, in a Jan. 27 interview with Bloomberg, CN President and CEO JJ Ruest called crude-by-rail a “question mark” in terms of what energy outlook the railway is seeing for 2021. Ruest said low oil prices, decreased travel and the Keystone pipeline cancellation are among the factors influencing CN’s energy outlook. However, crude-by-rail could be a “slight positive bump on the rail industry,” Bloomberg quoted Ruest as saying. CP and CN declined to comment further to FreightWaves about crude-by-rail, and CN directed FreightWaves to the Bloomberg article. Subscribe to FreightWaves’ e-newsletters and get the latest insights on freight right in your inbox. Click here for more FreightWaves articles by Joanna Marsh. Related articles: Social risk trumps financial risk for Canadian crude-by-rail Transport Canada issues new speed restrictions for trains hauling dangerous goods Construction of Alberta crude unit expected to start in April Commentary: Railroad tank cars take a hit See more from BenzingaClick here for options trades from BenzingaForward Air Doubles Down Amid Heightened Interest From ActivistsDrilling Deep: Reviewing Q4 Earnings; How Did Werner Do So Well?© 2021 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Toronto and GTA Rental Real Estate Market in 2021 – RE/MAX News
For years, it’s been a tough battle for renters living in Toronto and the surrounding municipalities. Rents have only been on an upward trajectory as supply was limited and demand was through the roof. But after a year of the COVID-19 public health crisis, Toronto and GTA rental real estate is now a renter’s market.
The turning point was last spring, when the coronavirus pandemic crippled the nation and forced governments to institute a plethora of new rules and regulations. One of the first items on the chopping block? The short-term rental market, affecting condo investors who relied on Airbnb and other short-term rental arrangements. The other factor was immigration restrictions, which have led to seismic drops in the rental market.
After a year of the COVID-19 public health crisis, Toronto and GTA rental real estate looks very different. Tenants have negotiating power and more options, which was unheard of before the housing boom in North America’s fourth-largest city. At the same time, condo owners are either selling their units or renting their apartments below the cost of their mortgage, resulting in both “seller’s fatigue” and “handcuffed sellers.”
A wide range of reports estimate that the monthly rent of a one-bedroom apartment in Toronto has fallen as much as 23 per cent year-over-year, with prices coming down as low as $1,500 in some of the most appealing locations in the city. Although this is still relatively high compared to the rest of the Canadian real estate market, it is a welcomed relief for renters who have been paying sky-high prices for the privilege of residing in a red-hot urban centre.
Right now, is it even worth it to buy a property when rent is at a multi-year low?
According to Canada Mortgage and Housing Corporation (CMHC), households are paying large premiums to own instead of rent. The crown corporation suggested that condo owners are paying 86 per cent more to own than rent in a purpose-built building. This is the highest premium paid in any housing market of the country, including Vancouver (56 per cent) and Victoria (13 per cent).
This begs the question: will the Toronto and GTA rental market return to pre-pandemic conditions in 2021?
Toronto and GTA Rental Real Estate Market in 2021
When it comes to the COVID-19 pandemic, there is light at the end of the tunnel in Ontario. New cases seem to be declining, more people are getting vaccinated, and the economy is starting to reopen. Even if a third wave strikes amid South African and British variants, the province and many of its sectors have shown their resilience to adapt, survive, and thrive.
Once the Greater Toronto Area returns to some semblance of pre-pandemic life, which officials are optimistic could happen in the third quarter of 2021, the rental real estate market could be one of the first beneficiaries. From restrictions being lifted at the Canadian border and students returning to the classroom, to the short-term rental market being given the green light again, the Toronto and GTA rental real estate industry could rebound.
PricewaterhouseCoopers recently released a report on the outlook for Canada’s housing sector. The multinational professional services network of firms predicts that the rental market will see benefits from a slowdown in home ownership and a backlog of immigrants. At the same time, it warned about the end of government income support and wage subsidy programs that could hurt tenants’ ability to pay their rent. The organization also said that more university students are likely to enrol in virtual classes instead of in-person learning, which would impact short-term rental activity.
The Toronto Regional Real Estate Board (TRREB) also anticipates a surging GTA real estate market, amid a strengthening economy and widespread vaccinations.
“The pandemic certainly resulted in an unprecedented year for real estate in 2020, but it hasn’t put a damper on the overall demand,” said Jason Mercer, TRREB Chief Market Analyst, in a statement. “Looking ahead, a strengthening economy and renewed GTA population growth following widespread vaccinations will support the continued demand for both ownership and rental housing. But over the long run, the supply of listings will remain an issue, particularly in low-rise segments.”
Put simply, the future largely depends on the vaccine rollout, the coronavirus variants, and the economic rebound.
Transformation of Toronto Rental Spaces?
Perhaps this is an opportunity to reimagine the rental market in Toronto and the rest of Canada’s housing market. With more people working and studying remotely, our homes have become multifunctional spaces to accommodate learning, exercising, entertainment and more. And as a result of this, our need for space has been redefined. PwC called this the “amenitization of communities,” whereby multi-purpose buildings allow new features to accommodate the new normal, such as videoconferencing rooms, dedicated areas for grocery delivery, and perhaps even additional green space.
Once the rental market returns to growth, developers might need to think about how to redesign apartment living for future generations, perhaps inspiring a new wave of rental demand.
Real estate investment Part 2: condo pre-sales and LPs – Western Investor
Vancouver real estate investor Ralph Case helped his son buy a pre-sale condominium in central Surrey in the summer of 2016, putting $30,000 down for a $200,000 apartment scheduled for completion in late 2018. In the summer of 2018, months before the project closed, his son sold the condo as an assignment for $330,000. Minus the down payment, the net profit was $120,0000, Case told the Jurock Land Rush conference March 6 in Vancouver.
In this second of a four-part Western Investor series on real estate investing, we outline how investments in pre-sale condominiums, or purchasing a share of a limited partnership in new condominium or multi-family rental projects can allow investors to get onto a real estate ladder that could carry them to their first home and beyond.
The advantages of buying pre-sale condominiums is that you are investing at today’s prices for a property that will complete in three years, when you expect the price to be higher. Also, a number of Metro Vancouver condo developers are currently offering discounts to move pre-sale units.
There is no guarantee, of course, and investors must be selective about what and where they will be buy. The overall benchmark price of a condominium apartment in Greater Vancouver is now actually 0.4 per cent lower than it was three years ago, but it increased 4.7 per cent in Surrey, 8.7 per cent in Maple Ridge and by 18 per cent in Mission over the same period.
For investors, the concept is not to move into the condo, but to sell it upon completion, or even earlier if assignments are allowed, or to place it on the rental market when the building is complete.
The following are current examples of pre-sale opportunities that are launching shortly, likely by April 2021, compiled with the assistance of Ryznar Media Inc.
• Era, by Swiss RealGroup Canada, is a 20-storey condo tower in Maple Ridge with about 200 units. The developer is offering selected pre-sale one-bedroom condos from $249,900.
• Belvedere, 275-unit condo concrete tower in Central Surrey at a SkyTrain station, by Square Nine Developments. One-bedroom units start in the high $300,000 range. More than 1,000 buyers have registered though it has not officially launched pre-sales yet.
• Telford on the Walk, in Burnaby’s Metrotown, by Intracorp, launched pre-sales in January 2021 and sold out 70 per cent of the 332 units in three weeks. The studio units pre-sell from $389,900 and the completion is set for 2024.
There are a number of limited partnerships involved in the real estate investment space, some of which allow income-producing property to be sheltered inside of a registered retirement savings fund. Most of these are targeted at accredited investors, who are those holding at least $5 million in assets (not counting a principal residence) and with incomes of $200,000 or more.
Nicola Wealth of Vancouver is one of the larger groups, with holdings in both commercial and residential and with three funds, including two which concentrate on long-term income and one, a capital fund, that focuses on buy-hold opportunities. According to the company, $1 million invested in Nicola Wealth in 2000 would now be worth $4.08 million. Nicola’s composite annual return is 6.9 per cent over the past 20 years.
One of the smaller limited partnership, and fairly typical of genre, is the Greater Victoria Property Group (GVPG), which concentrates on new multi-family rental apartments.
The latest GVPG offering is a 22-suite rental building in the Esquimalt area of Victoria, being developed as a joint venture with a general partner. The plan is to complete the building, rent the units and then sell the project within three years. Minimum investment is $50,000. The projection – not guaranteed – is for a net profit of $2.4 million, of which the limited partners would take a 40 per cent share, or about $966,958. The simple return on investment is projected at 48.3%, or 16.1 per cent per annum over the three-year horizon.
Developers can also act as partners for condo investors. An example is Mission Group, Kelowna’s largest residential developer, which pre-sells some new condos that are destined to put into a rental pool. An example is the Bertram building, which has 257 condos ranging from studios to two-bedroom suites, with prices starting in the mid-$200,000 range. It is close to the future University of British Columbia Okanagan downtown campus that was approved last summer. The Kelowna rental vacancy rate is 2.7 per cent and monthly rental averages $1,345 for a one-bedroom, but is higher for new projects.
Next in the series: real estate investment trusts.
February residential resales the best since 2014, pushing Calgary into sellers’ market – Calgary Herald
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Calgary’s resale market had a banner February with gains across every price range.
Recently released data from the Calgary Real Estate Board shows activity in the market was the highest since February 2014, despite the impact of the pandemic.
Sales were up more than 54 per cent, year over year, with 1,836 sales last month. Only February 2014 and 2007 posted similar or better figures over the last 15 years, CREB statistics show.
The benchmark price also grew by 3.4 per cent, compared with February 2020, to $431,100.
Single-family detached homes led the price gains at five per cent year over year to a benchmark price of $502,500. Semi-detached saw the next highest increase at 3.5 per cent to $398,300. And row housing prices gained 1.2 per cent with a benchmark of $284,700.
Apartments also saw an increase in its benchmark price, year over year, to $246,400, up 0.8 per cent.
Low supply in the face of rising demand helped bolster prices with inventory falling by more than 20 per cent year over year in February.
At the same time, months of supply fell to 2.46 months, down more than 48 per cent from the same span in 2020.
Months of supply is even tighter among single-detached homes at 1.72, down almost 58 per cent year over year.
Overall, the sales-to-new-listings ratio for the market was 65 per cent, exceeding the 60 per cent threshold to be considered a market favouring sellers. The ratio was highest among semi-detached at 72 per cent followed by single-family detached homes at 71 per cent.
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