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Brexit, multifamily growth key issues for European CRE experts – Real Estate News EXchange

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Investors considering the European real estate market received insights from a panel of experts at the Global Property Market conference recently at the Metro Toronto Convention Centre.

Following are highlights of what the representatives from six companies, all active in European real estate investment, had to share with the audience.

M&G Real Estate

Panelists discuss European real estate investment opportunities and strategies at the Global Property Market conference in Toronto on Dec. 3, 2019. (Steve McLean RENX)

“U.S. investors tend to look for high risks and high returns when they go overseas,” said Tony Brown, global head of real estate for London, England-based asset owner and manager M&G Real Estate. “Japanese do the same. It depends on what part of the world you’re from what your attitude is toward international real estate.”

London is still the top city for real estate investment in Europe, but Brexit has had a negative impact.

Brown said there had been almost no overseas investment in London this year due to Brexit uncertainty, but he believes the city presents the “biggest single opportunity in Europe right now.”

The election of a majority Conservative government under Boris Johnson is likely to ease that uncertainty, adding to London’s appeal.

M&G’s focus is the United Kingdom and Europe is part of its international allocation. Brown said there are pockets of strong office rental growth in Europe because not much new space has been created in many CBDs during the past 10 years. In addition some older office buildings are being converted to hotels, or residential uses due to housing shortages in the U.K. and other major cities in continental Europe.

JLL EMEA

Matthew Richards, chief executive officer of capital markets for commercial property and investment management services provider JLL EMEA, said:

* there’s a “massive focus” on Germany due to capitalization rate compression;

* the story in Nordic countries remains positive, as there are opportunities in Stockholm, Sweden and rental growth remains very strong;

* and France is the “real darling of the market right now” due to macro-economic issues.

Richards said investment in student housing is more than US$10 billion in the United States, US$4 billion in the U.K. and US$1.5 billion in continental Europe. There’s accommodation for just 10 per cent of 19 million European university students, according to Richards, creating an area of opportunity.

Richards said investors looking for opportunistic returns in Europe are focused on development. Sustainability is also becoming more important in European real estate, and should be an investment consideration.

Canadian investors have a close community of people who’ve already invested in Europe. Richards said they should try and use those relationships to learn more about it.

Ivanhoe Cambridge

Ivanhoe Cambridgé head of Europe and Asia-Pacific Karim Habra said a common theme in gateway cities in Europe is a shortage of quality space, especially in the office sector.

“Whenever someone’s looking for class-A office space, the vacancy is almost zero. This is true for all of the cities. It’s true for Milan, Madrid, Berlin, Paris and every single city.”

Habra said Montreal-headquartered Ivanhoé Cambridge can invest and create value in different ways in Europe, including buying properties directly, setting up platforms and doing joint ventures.

“We wouldn’t do small investments if we didn’t see any growth. In some sectors you’re not going to find critical mass from Day One, so we bet on platforms with operating partners that we can help to grow in the future.”

Ivanhoé Cambridge invests in operating businesses as well as real estate in Europe.

“We will not buy stand-alone hotels because we don’t feel that they capture the full value,” said Habra. “So we go and buy the whole company. We buy the know-how, the rent, the people, the assets and the pipeline. In this way we capture the whole value-creation chain.”

Habra emphasized foreign investors must go into Europe with passion and conviction or they’re wasting their time in the competitive real estate market. He suggested focusing on fewer strategies and ensuring they have the right partners early in the process.

Habra’s final recommendation was to see Europe as a diversification play; and not compare returns and investment strategies with their home markets.

Apache Capital Partners

Apache Capital Partners co-founder and managing director Richard Jackson said Brexit concerns have left some potential investors sitting on the sidelines.

The London-headquartered private real estate investment management firm has multifamily, single-family and seniors living platforms. He said they’re supported by long-term demographic trends, and an increasing number of people are renting for affordability and lifestyle reasons. Jackson believes these defensive investments are recession-proof because people will always need a roof over their heads.

Apache has a pipeline of 6,000 multifamily units and is developing class-A-type products, which hasn’t previously been done in the U.K. Jackson said 14 million people rent housing in the U.K., and that will increase to 17 million by 2025.

Jackson noted just one per cent of residential rental properties in the U.K. are owned by institutions, although that is beginning to rise. Large-scale multifamily residential owners in the U.K. have a lot to learn from their counterparts in North America, where the sector is more established.

“We’ve set up our own operational platform where we’ve trained our own staff that come from a range of property backgrounds and hospitality backgrounds to try and instil that culture and genuine service,” said Jackson.

MARCOL

Rebekah Tobias is the head of business development for MARCOL, a family office that’s acted as an owner, operator, developer, asset manager and joint venture partner in the U.K. for 44 years. She said the firm, which has four European offices, has flexible capital without return criteria and doesn’t need to deploy funds within any set period of time, which allows it to be extremely selective.

“We can take a lot of risk on the operational side of the business, which is where we really find value and where we can create value. We’re not buying stabilized assets. That’s never really been a strategy of ours.”

Tobias said MARCOL didn’t sit back and wait for Brexit the situation to become more clear.

“We’ve seen yields in London that look incredibly cheap compared to the rest of Europe,” she said.

Tobias said multifamily residential is becoming a much bigger asset class in the U.K. MARCOL is also now backing a co-living platform, which bridges the gap between student housing and the multifamily residential market.

MARCOL is doing more in the healthcare real estate space to diversify its portfolio and realize growth opportunities. It’s backing a self-storage operator in Germany and building new sites in growth markets there.

“You just have to be able to roll your sleeves up and get your hands dirty with a lot of these platforms, and obviously back the right people to be able to deliver the strategy,” said Tobias. “If you have a unique skill set in a growing sector in the U.S., there’s a significant opportunity to bring that to Europe.

“But you have to be very mindful of the nuances and cultural changes and mentality, in particular as it relates to city, country and Europe as a whole.”

AXA IM – Real Assets

AXA IM – Real Assets provides investment capabilities in equity and debt, across different geographies and sectors, via private or listed instruments. It manages €15 billion in residential assets including student accommodations, multi-family residential and seniors housing in 11 countries.

Global head of research and strategy for real assets Justin Curlow said these defensive housing investments are underinvested in Europe. This “provides an attractive opportunity to build scale and build on the inefficiencies and build relationships with those standing operators, to really grow this sector into what we see is already a well-established sector in the U.S.”

European real estate investment is fragmented, less transparent than in North America, and difficult from regulatory and legal standpoints. That makes having a local presence, knowledge, and relationships all the more important, Curlow said.

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Real eState

What Is the Canada Mortgage and Housing Corporation (CMHC)

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The Canada Mortgage and Housing Corporation (CMHC) is a Canadian Crown Corporation that serves as the national housing agency of Canada and provides mortgage loans to prospective buyers, particularly those in need.

Understanding the Canada Mortgage and Housing Corporation (CMHC)

The Canada Mortgage and Housing Corporation (CMHC) serves as the national housing agency of Canada. CMHC is a state-owned enterprise, or a Crown corporation, that provides a range of services for home buyers, the government, and the housing industry.

CMHC’s stated mission is to “promote housing affordability and choice; to facilitate access to, and competition and efficiency in the provision of, housing finance; to protect the availability of adequate funding for housing, and generally to contribute to the well-being of the housing sector.”1

A primary focus of CMHC is to provide federal funding for Canadian housing programs, particularly to buyers with demonstrated needs. CMHC, headquartered in Ottawa, provides many additional services to renters and home buyers, including mortgage insurance and financial assistance programs. CMHC acts as an information hub for consumers, providing information on renting, financial planning, home buying, and mortgage management.

CMHC also provides mortgage loan insurance for public and private housing organizations and facilitates affordable, accessible, and adaptable housing in Canada.2 Additionally, CMHC provides financial assistance and housing programs to First Nations and Indigenous communities in Canada.3

Professionals and Consumers

CMHC provides services to both professionals and consumers. For professionals, CMHC aims to work in collaboration with different groups to provide affordable housing. Services include project funding and mortgage financing, providing information to understand Canada’s housing market, innovation and leadership networks to access funding and talent to spur housing innovation and increase supply, and providing speakers and hosting events for the industry.4

For consumers, CMHC seeks to provide all the tools an individual would need to either buy a home or rent a home and a variety of information and assistance for current homeowners, such as managing a mortgage, services for seniors to age in place, and financial hardship assistance.56

For financial hardship and mortgage assistance, CMHC provides tools that include payment deferrals, extending the repayment period, adding missed payments to the mortgage balance, moving from a variable-rate to a fixed-rate mortgage, and other special payment arrangements.7

Canada Mortgage and Housing Corporation (CMHC) and the National Housing Strategy

In November 2017, the Canadian government announced the National Housing Strategy.8 Rooted in the idea that housing is a human right, this 10-year, $70 billion project will largely be administered by CMHC, although some services and deliverables will be provided by third-party contractors and other Canadian federal agencies.9

Strategic initiatives of the National Housing Strategy include:

  • Building new affordable housing and renewing existing affordable housing stock
  • Providing technical assistance, tools, and resources to build capacity in the community housing sector and funds to support local organizations
  • Supporting research, capacity-building, excellence, and innovation in housing research10

History of the Canada Mortgage and Housing Corporation (CMHC)

CMHC was established in 1946 as the Central Mortgage and Housing Corporation by the federal government in Canada with the primary mission of administering the National Housing Act and the Home Improvement Loans Guarantee Act and facilitating discounts to mortgage companies. Initially, CMHC began by providing housing to returning Canadian war veterans, and toward the end of the 1940s, CMHC began to administer a program providing low-income housing across Canada.11

In 1947, CMHC was responsible for opening Regent Park, a large low-income housing project, and Toronto’s first urban renewal project. By the 1960s, CMHC introduced co-op housing and multi-unit apartment buildings throughout Canada.11

In 1979, the Central Mortgage and Housing Corporation changed its name to the Canada Mortgage and Housing Corporation

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Real eState

Canadian home price gains accelerate again in May

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Canadian home prices accelerated again in May from the previous month, posting the largest monthly rise in the history of the Teranet-National Bank Composite House Price Index, data showed on Thursday.

The index, which tracks repeat sales of single-family homes in 11 major Canadian markets, rose 2.8% on the month in May, led by strong month-over-month gains in the Ottawa-Gatineau capital region, in Halifax, Nova Scotia, and in Hamilton, Ontario.

“It was a third consecutive month in which all 11 markets of the composite index were up from the month before,” said Daren King, an economist at National Bank of Canada, in a note.

On an annual basis, the Teranet index was up 13.7% from a year earlier, the 10th consecutive acceleration and the strongest 12-month gain since July 2017.

Halifax led the year-over-year gains, up 29.9%, followed by Hamilton at 25.5% and Ottawa-Gatineau at 22.8%.

Housing price gains in smaller cities outside Toronto and its immediate suburbs again outpaced the major urban centers, with Barrie, Ontario leading the pack, up 31.4%.

On a month-over-month basis, prices rose 4.9% in Ottawa-Gatineau, 4.3% in Halifax and 3.7% in Hamilton.

The Teranet index measures price gains based on the change between the two most recent sales of properties that have been sold at least twice.

Canada‘s average home selling price, meanwhile, fell 1.1% in May from April, Canadian Real Estate Association data showed on Tuesday, but jumped 38.4% from May 2020.

 

(Reporting by Julie Gordon in Ottawa; Editing by Christopher Cushing)

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Economy

Bank of Canada seeing signs of cooling in hot housing market

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The Bank of Canada is starting to see signs that the country’s red hot housing market is cooling down, although a return to a normality will take time, Governor Tiff Macklem said on Wednesday.

The sector surged in late 2020 and early 2021, with home prices escalating sharply amid investor activity and fear of missing out. The national average selling price fell 1.1% in May from April but was still up 38.4% from May 2020.

“You are starting to see some early signs of some slowing in the housing market. We are expecting supply to improve and demand to slow down, so we are expecting the housing market to come into better balance,” Macklem said.

“But we do think it is going to take some time and it is something that we are watching closely,” he told the Canadian Senate’s banking committee.

Macklem reiterated that the central bank saw evidence people were buying houses with a view to selling them for a profit and said recent price jumps were not sustainable.

“Interest rates are unusually low, which means eventually there’s more scope for them to go up,” he said.

Last year, the central bank slashed its key interest rate to a record-low 0.25% and Macklem reiterated it would stay there at least until economic slack had been fully absorbed, which should be some time in the second half of 2022.

“The economic recovery is making good progress … (but) a complete recovery will still take some time. The third wave of the virus has been a setback,” he said.

The bank has seen some choppiness in growth in the second quarter of 2021 following a sharp economic recovery from the COVID-19 pandemic at the start of the year, he added.

(Reporting by David Ljunggren and Julie Gordon; Editing by Peter Cooney and Richard Pullin)

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