Real eState
Bridgemarq Real Estate Services Reports Second Quarter Results and Monthly Dividend – Canada NewsWire
TORONTO, Aug. 7, 2020 /CNW/ – Bridgemarq Real Estate Services Inc. (“Bridgemarq” or the “Company”) (TSX: BRE) announced today its second quarter consolidated financial results and the approval of a monthly dividend to holders of the Company’s restricted voting shares.
HIGHLIGHTS
- Revenue in the second quarter was $11.4 million compared to $11.8 million for the same period in 2019, on pandemic-driven weakness in Canadian real estate markets.
- The Company generated a net loss for the quarter of $9.2 million or $0.97 per share, on a fully diluted basis compared to earnings of $7.8 million in the second quarter of 2019. The difference was due to non-cash, revaluation adjustments on the Exchangeable Units issued by the Company, driven by an increase in the Company’s share price during the quarter.
- The Board of Directors approved a dividend to shareholders of $0.1125 per restricted voting share payable September 30, 2020 to shareholders of record on August 31, 2020.
- The Company’s annual shareholders’ meeting will be held on August 7th, 2020 at 10 a.m. eastern time.
SECOND QUARTER OPERATING RESULTS
Revenues during the second quarter were $11.4 million, compared to $11.8 million in the same period in 2019. The decrease was primarily due to broad-based economic and real estate market weakness during the second quarter of 2020, driven by Canada’s efforts to combat the pandemic.
The Company generated a net loss for the quarter of $9.2 million, or $0.97 per share on a fully diluted basis. These results included a $11.0 million loss on the fair value of the Exchangeable Units issued by the Company driven by an increase in the Company’s share price from $8.43 at the start of the quarter to $11.75 at June 30, 2020. In the second quarter of 2019 the Company generated net earnings of $7.8 million which included a gain on the fair valuation of the Exchangeable Units of $6.7 million due to a decrease in the share price during that quarter.
Distributable cash flow for the second quarter of 2020 amounted to $3.1 million, compared to $4.8 million generated during the second quarter of 2019. During the quarter, the Company provided certain rebates to its franchisees under an alternate fee plan designed to help the Company’s network of REALTORS®1 and brokerages manage through the uncertain times created by the recent pandemic. These rebates totaled approximately $1.1 million during the quarter.
“After a strong start to the year, our revenues dropped sharply at the start of the second quarter, as the Company and industry overall complied with government and public health requests to restrict brokerage services to only those consumers with critical housing needs, to fight the spread of COVID-19,” said Phil Soper, President and Chief Executive Officer, Bridgemarq Real Estate Services Inc. “While the full impact of the pandemic on Canada’s real estate industry won’t be known for months to come, we are pleased with the pace and strength with which the market bounced back in late May and through June.
“I am immensely proud of the efforts of our team who successfully reengineered our processes to safely provide consumer clients with the critical real estate services they needed. From network-enabled virtual home showings in the field, to remote education and training at a national level, throughout the pandemic the Company has continued to provide the superior service levels our brands are famous for,” said Soper.
“Our investment in market-leading technology and services could not have come at a better time. The rollout of our new rlpSPHERE digital operating platform began during the quarter. This cloud-based, AI-driven system allows our agents and brokerages to serve existing clients and prospect for new, from anywhere on any device. It is a true market differentiator,” Soper continued.
While, historically, our fee structure has been biased towards fees that are fixed in nature, for the period from April 1, 2020 to December 2020, the Company implemented an alternative fee plan to its Franchisees. This temporary plan is a variable fee only plan and is designed to provide financial support to the Company’s franchisees and their agents. As such, for 2020, the Company’s franchise fees will be more closely correlated with the changes in the Canadian real estate market.
The Company has deferred payments of management fees and interest on Exchangeable Units totaling $4.9 million under an agreement previously announced with Brookfield Business Partners L.P. and Bridgemarq Real Estate Services Manager Limited. These deferrals will improve the Company’s liquidity to support operations and dividends in the short term.
MARKET UPDATE
During the first quarter of 2020, the Canadian real estate market continued on a positive trajectory that began in the second half of 2019. In mid-March, the pandemic and subsequent government and public health directives to restrict the spread of COVID-19, led to unprecedented market disruption and sharply lower home sales volumes that continued through mid-May 2020. During April and May, the Canadian Real Estate Association reported a 57.6%2 and 39.8%3 year-over-year decrease in monthly sales, respectively. In June, pent up demand drove a 15.2% year-over-year increase in unit sales and a 5.4% year-over-year increase in CREA’s MLS® Home Price Index4 as consumer confidence returned and business activity began to recover. The full extent to which COVID-19 will continue to impact the Canadian Market and the business of the Company is not known at this time and cannot be reasonably predicted.
“Home prices in the second quarter rose as buyers entered the market, attracted by extremely low interest rates and the perception of bargains-to-be-had,” Phil Soper said. “Across Ontario and Quebec in particular, the demand for housing outpaced the growth in new listings. We expect to see sellers return to the market in key supply-constrained regions in numbers that appear sufficient to meet demand as the year progresses.”
CASH DIVIDEND
The Company declared a cash dividend of $0.1125 cents per restricted voting share payable on September 30, 2020 to shareholders of record on August 31, 2020. The dividend distribution represents a target annual dividend of $1.35 per restricted voting share, which is consistent with 2019.
THE COMPANY NETWORK
As at June 30, 2020, the Network was comprised of 18,921 REALTORS®, operating under 298 franchise agreements providing services from 676 locations, with an approximate 17% share of the Canadian residential real estate market based on 2019 transactional dollar volume.
SHAREHOLDERS MEETING
The Company will be holding its annual meeting of shareholders On August 7th, 2020 at 10 a.m. eastern time. The meeting is a virtual only, live audio webcast.
To access the shareholders’ meeting, please visit https://web.lumiagm.com/116985571 and follow the login instructions. Shareholders and proxyholders will require their unique control number, which is provided by AST Trust Company Canada in accordance with the instructions provided to shareholders. Guests are welcomed to join the meeting by following the platform’s instructions on the morning of the meeting.
For more information on participation at the virtual only, live audio webcast, please review the Company’s meeting guide (http://www.bridgemarq.com/meeting-guide) and the Management Information Circular. For answers to frequently asked questions regarding the virtual meeting platform, please visit https://go.lumiglobal.com/faq.
DISTRIBUTABLE CASH FLOW
This news release and accompanying financial statements make reference to distributable cash flow. Distributable cash flow is defined as operating income before deducting amortization and net impairment or recovery of intangible assets, minus current income tax expense and minus cash used in investing activities. Distributable cash flow is used by the Company to measure the amount of cash generated from operations which is available to the Company’s shareholders on a diluted basis, where such dilution represents the total number of shares of the Company that would be outstanding if holders of exchangeable units converted Class B LP units into restricted voting shares. The Company uses distributable cash flow to assess its operating results and the value of its business and believes that many of its shareholders and analysts also find this measure useful. Distributable cash flow does not have any standard meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies.
FORWARD-LOOKING STATEMENTS
This news release contains forward-looking information and other “forward-looking statements”. Words such as “come”, “continue”, “predict”, “appear”, “should”, “provide”, “expect”, “recovery”, “will”, and other expressions that are predictions of or could indicate future events and trends and that do not relate to historical matters identify forward-looking statements. Reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to differ materially from anticipated future results, performance or achievement expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially from those indicated in the forward-looking statements include: the duration and effects of the COVID-19 pandemic, including the impact of COVID-19 on the economy and the Company’s business, the impact of government or other regulatory initiatives to address the impact of the spread of COVID-19 on the Canadian economy, including the impact on real estate markets, changes in the supply or demand of houses for sale in Canada or in any particular region within Canada, changes in the selling price for houses in Canada or any particular region within Canada, changes in the Company’s cash flow as a result of COVID-19, changes in the Company’s strategy with respect to and/or ability to pay dividends, changes in the productivity of the Company’s REALTORS® or the commissions they charge their customers, changes in government policy, laws or regulations which could reasonably affect the housing markets in Canada, consumer response to any changes in the housing markets in Canada or any changes in government policy, laws or regulations, changes in general economic conditions (including interest rates, consumer confidence and other general economic factors or indicators), changes in global and regional economic growth, the demand for and prices of natural resources on local and international markets, the level of residential real estate transactions, competition from other real estate brokers or from discount and/or Internet-based real estate alternatives, the closing of existing real estate brokerage offices as a result of COVID-19 or otherwise, other developments in the residential real estate brokerage industry or the Company that reduce the number of REALTORS® in the Company’s Network or royalty revenue from the Company’s Network, our ability to maintain brand equity through the use of trademarks, the methods used by shareholders or analysts to evaluate the value of the Company and its publicly traded securities, changes in tax laws or regulations, and other risks detailed in the Company’s annual information form, which is filed with securities commissions and posted on SEDAR at www.sedar.com. Forward-looking information is based on various material factors or assumptions, which are based on information currently available to management. Material factors or assumptions that were applied in drawing conclusions or making estimates set out in the forward-looking statements include, but are not limited to: anticipated economic conditions, anticipated impact of government policies, anticipated financial performance, anticipated market conditions, business prospects, the successful execution of the Company’s business strategies and recent regulatory developments, including as the foregoing relate to COVID-19. The factors underlying current expectations are dynamic and subject to change. Although the forward-looking statements contained in this press release are based upon what management believes are reasonable assumptions, the Company cannot assure readers that actual results will be consistent with these forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
About Bridgemarq Real Estate Services
Bridgemarq is a leading provider of services to residential real estate brokers and a network of approximately 19,000 REALTORS®1. We operate in Canada under the Royal LePage, Via Capitale and Johnston & Daniel brands. For more information, go to bridgemarq.com.
Bridgemarq is an affiliate of Brookfield Business Partners, a business services and industrials company focused on owning and operating high-quality businesses that benefit from barriers to entry and/or low production costs. Brookfield Business Partners is listed on the New York and Toronto stock exchanges. Further information is available at bbu.brookfield.com.
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_____________________________ |
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1 The trademarks REALTOR®, REALTORS® and the REALTOR® logo are controlled by The Canadian Real Estate Association (CREA) and identify real estate professionals who are members of CREA. |
|
2 CREA, Canadian home sales and listings post record declines in April 2020, May 15, 2020. |
|
3 CREA, Canadian home sales and new listings on the rise in May, June 15, 2020. |
|
4 CREA, Canadian home sales and new listings up again in June, July 15, 2020. |
|
Bridgemarq Real Estate Services Inc. |
||||||||
|
(Unaudited, in thousands of Canadian dollars, except per share information) |
||||||||
|
June 30, |
December 31, |
|||||||
|
Interim Balance Sheet Highlights |
2020 |
2019 |
||||||
|
Cash |
$ |
9,418 |
$ |
5,202 |
||||
|
Other current assets |
5,410 |
4,943 |
||||||
|
Total current assets |
14,828 |
10,145 |
||||||
|
Non-current assets |
81,330 |
84,648 |
||||||
|
Total assets |
$ |
96,158 |
$ |
94,793 |
||||
|
Accounts payable and accrued liabilities |
$ |
2,197 |
$ |
1,210 |
||||
|
Interest payable on Exchangeable Units |
968 |
484 |
||||||
|
Dividends payable to shareholders |
1,067 |
1,067 |
||||||
|
Contract transfer obligation |
842 |
1,920 |
||||||
|
Total current liabilities |
5,074 |
4,681 |
||||||
|
Debt facilities |
73,358 |
73,338 |
||||||
|
Deferred payments |
4,012 |
– |
||||||
|
Other non-current liabilities |
6,469 |
4,194 |
||||||
|
Exchangeable Units |
39,100 |
48,983 |
||||||
|
Total Liabilities |
128,013 |
131,196 |
||||||
|
Shareholders’ deficit |
(31,855) |
(36,403) |
||||||
|
Total Liabilities and Shareholders’ deficit |
$ |
96,158 |
$ |
94,793 |
||||
|
Three months |
Three months |
Six Months |
Six Months |
|||||
|
ended |
ended |
ended |
ended |
|||||
|
June 30, |
June 30, |
June 30, |
June 30, |
|||||
|
Interim Earnings Highlights |
2020 |
2019 |
2019 |
2019 |
||||
|
Fixed franchise fees |
$ |
1,276 |
$ |
7,267 |
$ |
8,817 |
$ 14,593 |
|
|
Variable franchise fees |
8,467 |
3,233 |
11,086 |
5,378 |
||||
|
Other revenue |
1,651 |
1,338 |
2,613 |
1,984 |
||||
|
Revenues |
11,394 |
11,838 |
22,516 |
21,955 |
||||
|
Cost of other revenue |
(165) |
(153) |
(284) |
(262) |
||||
|
Administration expenses |
(174) |
(316) |
(829) |
(714) |
||||
|
Management fees |
(4,203) |
(4,013) |
(8,279) |
(7,707) |
||||
|
Interest expense |
(732) |
(757) |
(1,482) |
(1,522) |
||||
|
6,120 |
6,599 |
11,642 |
11,750 |
|||||
|
Impairment, write-off and amortization of intangible assets |
(2,311) |
(2,807) |
(4,730) |
(5,945) |
||||
|
Interest on Exchangeable Units |
(1,452) |
(1,452) |
(2,904) |
(2,904) |
||||
|
Gain (loss) on fair value of Exchangeable Units |
(11,048) |
6,655 |
9,883 |
(1,132) |
||||
|
Loss on interest rate swap |
(211) |
(460) |
(2,546) |
(1,429) |
||||
|
Gain on deferred payments |
881 |
– |
881 |
– |
||||
|
Income tax expense |
(556) |
(703) |
(1,286) |
(1,432) |
||||
|
Deferred income tax recovery (expense) |
(599) |
(80) |
10 |
452 |
||||
|
Net and comprehensive earnings (loss) |
$ |
(9,176) |
$ |
7,752 |
$ |
10,950 |
$ |
(640) |
|
Basic earnings (loss) per Restricted Voting Share |
$ |
(0.97) |
$ |
0.82 |
$ |
1.15 |
$ |
(0.07) |
|
Diluted earnings (loss) per Share |
$ |
(0.97) |
$ |
0.20 |
$ |
0.31 |
$ |
(0.07) |
|
Interim Cash Flow Highlights |
||||||||
|
Cash provided by operating activities: |
$ |
10,485 |
$ |
4,658 |
$ |
13,375 |
$ |
6,117 |
|
Cash used for investing activities: |
(1,845) |
(1,002) |
(2,757) |
(1,964) |
||||
|
Cash used for financing activities: |
(3,201) |
(3,201) |
(6,402) |
(4,402) |
||||
|
Change in cash for the period |
5,439 |
455 |
4,216 |
(249) |
||||
|
Cash, beginning of the period |
3,979 |
3,635 |
5,202 |
4,339 |
||||
|
Cash, end of the period |
$ |
9,418 |
$ |
4,090 |
$ |
9,418 |
$ |
4,090 |
|
Interim Distributable Cash Flow Highlights |
||||||||
|
Distributable Cash Flow |
$ |
3,719 |
$ |
4,894 |
$ |
7,599 |
$ |
8,354 |
|
Distibutable Cash Flow per Share |
$ |
0.29 |
$ |
0.38 |
$ |
0.59 |
$ |
0.65 |
|
Twelve months |
Twelve months |
|||||||
|
ended |
ended |
|||||||
|
June 30, 2020 |
June 30, 2019 |
|||||||
|
Distributable Cash Flow |
$ |
16,988 |
$ |
18,131 |
||||
|
Distibutable Cash Flow per Share |
$ |
1.33 |
$ |
1.42 |
||||
SOURCE Bridgemarq Real Estate Services Inc.
For further information: Sarah Louise Gardiner, Director of Investor Relations, Bridgemarq Real Estate Services, [email protected], Tel: 416-510-5783
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Real eState
Once the West Coast's crown jewel, San Francisco's real estate market is crashing – New York Post
San Francisco, once the crown jewel of the West Coast, is now teetering on the brink of collapse — and it seems like nobody is sounding the alarm.
The city’s housing market, in particular, has been hit hard over the past year, with prices plummeting and homeowners fleeing in droves.
JPMorgan Chase CEO Jamie Dimon didn’t mince words when he compared San Francisco’s woes to those of New York City, calling the Bay Area “in far worse shape.”
“I think every city, like every country, should be thinking about what makes an attractive city,” Dimon told Maria Bartiromo in an interview on Fox Business.
“It’s parks, it’s art, but it’s definitely safety, it’s jobs and job creation, it’s the ability to have affordable housing. Any city that doesn’t do a good job will lose its population.”
San Francisco is failing on all fronts and in turn, its housing market is quietly crashing.
Once-luxurious properties are now listing and selling for massive discounts just to attract buyers.
Consider the penthouse at the San Francisco Four Seasons Residential, initially listed in November 2020 for $9.9 million, now begging for buyers at $3.75 million — a jaw-dropping 62% markdown.
It remains on the market today.
Homeowners desperate to escape the sinking ship are offloading their properties at losses, with many seeing their investments dwindle by hundreds of thousands of dollars in just months.
A five-bedroom home at 478-480 Fourth Ave. sold for $1.1 million earlier this month, after selling less than a year prior for $1.6 million.
At 88 King St., a two-bedroom condo overlooking a ball park that sold for $1.12 million more than a decade ago in 2014, recently sold last month for $1.08 million.
Another two-bedroom condo at 1075 Market St., which sold in 2019 for $1.25 million just traded hands earlier this month for $675,000 — and after a price cut, to boot.
The broader trend, according to the latest Redfin analysis, is stark. Nearly one in five homeowners in San Francisco are selling their homes for a loss.
Another one among them: A rare home overlooking the Golden Gate Bridge with oceanfront views was initially listed for the first time in nearly 35 years last March for a price of $12.8 million.
After several price cuts, it took a year to sell at the fairly modest price tag $7.85 million for the area.
The commercial sector isn’t faring any better, with office vacancies soaring post-pandemic.
And the desperation is palpable, as evidenced by the recent sale of a property on Market Street at a mind-boggling 90% discount.
The building at 995 Market St. was acquired for just $6.5 million during a public auction last week.
The previous owner had paid $62 million for it in 2018.
Even retail giants are abandoning ship.
In February, Macy’s announced that it was closing its massive flagship store in San Francisco’s Union Square.
The year prior, Nordstrom had announced it was closing two of its stores over the “deteriorating situation in the area.”
The mall had been inundated with fentanyl overdoses, drug dealers and thieves.
Real estate veteran Craig Ackerman, who’s witnessed San Francisco’s rise and fall over three decades, laments the city’s potential squandered by inept leadership.
He predicts years of continued mismanagement unless drastic changes are made. However, with the current administration’s penchant for liberal grandstanding over pragmatic solutions, the outlook remains grim.
“I do think that San Francisco probably has another five to eight years of mismanagement. I mean things are a mess out here and they don’t need to be. This could all be changed by the stroke of a pen,” Ackerman told The Post.
“But the mayor — they choose to continue this ridiculousness.”
“I don’t think it’s going to change,” Ackerman added.
“They are happy waving their liberal flags and looking for a fantasy land that doesn’t exist … It’ll kill you on the way there.”
Real eState
Y Combinator alum Matterport is being bought by real estate juggernaut Costar at a 212% premium – TechCrunch
Digital twin platform Matterport has agreed to be acquired by one of its customers, Costar, in a cash-and-stock deal of $5.50 per share that gives it an enterprise valuation of about $1.6 billion. Matterport’s tech helps companies create digital replicas of physical spaces.
Costar’s offer represents a premium of a whopping 212% over Matterport’s last closing share price before the deal was announced on April 22.
The deal looks like a fortunate turn of events for Matterport, whose shares had been trading below the $5 mark since August 2022 as the company struggled to meet investors’ expectations for subscriber growth amid a sluggish real estate market and a wider macroeconomic slowdown. Matterport’s stock was trading below $2 per share before the transaction was disclosed.
The company has been trying to improve its profitability over the past year, too, according to its 2023 financial statements. However, investors haven’t been happy with the company, whose shares have been struggling since it went public via a SPAC deal in 2021, which Bloomberg reported valued Matterport at around $2.9 billion.
Matterport’s shares were trading at $4.76 before the bell on Tuesday — slightly below the $5.50 deal price, which indicates investors may be wary of the deal getting blocked by regulators, or they may be hedging their bets to account for a possible decline in Costar’s stock, since the deal has a share-based component, too. Costar’s shares, however, are up slightly since the announcement, indicating that its investors are happy with the potential benefits of the deal.
Matterport quickly rose to prominence from its start in 2011, making 3D imaging cameras, spawning out of the Microsoft Kinect hacker scene and going on to join Y Combinator’s Winter 2012 batch. Its services gained significant traction in the real estate space despite competition from alternatives such as Cupix, Giraffe360 and Zillow 3D Home.
Digital twin technology has applications in construction tech and insurtech, but demand from real estate players is particularly salient, as the pandemic accelerated the switch from in-person viewings to virtual tours, both for commercial and for residential properties.
Early-mover advantage aside, the company’s later decisions likely played an equally important role as the market evolved. It diversified into helping clients create virtual tours even with smartphones. And the addition of AI with its in-house solution, Cortex, added more differentiation to its offering, leveraging its data to generate 3D digital twins supporting additional labels such as property dimensions.
Matterport’s leadership changed over the years. Its current CEO, former eBay chief product officer RJ Pittman, took the reins in 2018 — but its fundraising trajectory was fairly smooth. Over its first decade, it raised successive rounds of funding for a total of $409 million, followed by its public debut in 2021.
“Costar Group and Matterport have nearly identical mission statements of digitizing the world’s real estate,” Costar’s founder and CEO, Andy Florance, said in a statement.
CoStar, which has a market cap of $34.84 billion, is a real estate heavyweight that operates marketplaces such as Apartments.com, Homes.com and LoopNet (for commercial real estate). This gives it direct insights into the value that Matterport can add for its end users.
In March 2024, Costar wrote in a press release, “there were over 7.4 million views of Matterport 3D Tours on Apartments.com, with consumers spending 20% more time viewing an apartment listing when Matterports were available.” The company now plans to incorporate Matterport’s virtual tours (“Matterports”) on Homes.com.
Taking to the stage at a real estate event shortly after the announcement, Florance reportedly said that allowing home buyers to view properties with their own furniture, for instance, will allow agents to provide more value and promote their brands.
It will be worth tracking what happens to Matterport’s activities beyond real estate, such as its partnership with Facebook to help researchers train robots in virtual environments.
The deal is subject to regulatory approvals, but this is more than an asterisk: In 2020, Costar’s attempt to acquire RentPath was derailed by an FTC antitrust lawsuit, and RentPath was instead bought by Redfin in 2021.
Real eState
Caution about Canada's private real estate sector abounds as valuations slow to adjust – The Globe and Mail
Valuations for Canada’s office real estate have taken longer to adjust than properties in other advanced economies.Jeff McIntosh/The Canadian Press
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As the U.S. economy has pulled meaningfully ahead of Canada’s, so too has its private commercial real estate sector, which is adjusting more positively to the post-pandemic reality.
That’s particularly evident in both countries’ privately held office property markets. While the U.S.’s is well down the path of transforming, demolishing or otherwise ridding itself of empty office space, Canada’s has practically frozen in place following a wave of markdowns in 2023. That has made valuation assessments next to impossible.
“There’s a big dichotomy, and the Canadian market so far has not corrected,” says Victor Kuntzevitsky, portfolio manager with Stonehaven Private Counsel at Wellington-Altus Private Counsel Inc. in Aurora, Ont., which holds private real estate assets in credit and equity vehicles in both Canada and the U.S.
It’s no secret that last year was a difficult period for owners of Canadian private real estate, with many pension fund managers losing money as high interest rates drove up borrowing costs, inflation increased operating costs and vacancy rates remained high or even climbed.
The Caisse de dépôt et placement du Québec saw its real estate portfolio decline 6.2 per cent in 2023. The Ontario Teachers’ Pension Plan experienced a 5.9-per-cent loss in its real estate book, while markdowns on commercial properties owned by the Ontario Municipal Employees Retirement System (OMERS) resulted in its real estate portfolio dropping by 7.2 per cent.
However, there are pockets of strength investors can look to, says Colin Lynch, managing director and head of alternative investments at TD Asset Management Inc. These include multi-family residential and open-air retail centres, as well as industrial properties, which have been steady performers following strong gains through the pandemic.
It’s a view that dovetails with other analyses of the Canadian market. BMO Global Asset Management’s latest commercial property outlook notes that the industrial and multi-family segments remain strong due to high investor demand and tight supply.
“Office remains the asset class of the greatest near-term concern and focus,” the BMO GAM report states, estimating “a timeline for a return to ‘normal’ of a least five years.”
Mr. Lynch says while that timeframe could be accurate, private real estate investors need to evaluate opportunities on a city-by-city basis.
“Every city is very different. In fact, the smaller the city, the better the office property market has generally performed because commute times are much better, so in-office presence is much higher,” he says.
He points to cities such as Winnipeg, Regina and Saskatoon, where commute times can be 10 minutes and office workers are in four days a week on average.
However, there’s also room for more bad news, with some property owners struggling to refinance expensive debt in a higher-for-longer rate environment that could force firesales for lower-quality buildings.
The U.S. and other advanced real estate markets, such as the U.K., are “quarters ahead” of where the Canadian office market is in terms of valuation adjustments, Mr. Lynch says. A major reason is much of Canada’s commercial office real estate is owned by a relatively small group of large investment funds.
“Peak to trough in the U.K., for example, declines were about 20 per cent,” he says, noting that Canada’s market hasn’t corrected to that extent, but it is catching up.
Mr. Kuntzevitsky says these private fund assets are valued based on activity.
“The U.S. market is deeper, there’s more activity within it compared to Canada,” he says. “The auditors I speak to who value these funds are saying, ‘Listen, if there’s no activity in the marketplace, we’re just making assumptions.’”
Nicolas Schulman, senior wealth advisor and portfolio manager with the Schulman Group Family Wealth Management at National Bank Financial Wealth Management in Montreal, holds private real estate funds for clients and says he’s preparing to evaluate new investments in the Canadian space later in 2024.
“We don’t think the recovery would take a full five-year window, but we do believe it’s going to take a bit more time. Our conviction is, we want to start looking at the sector toward the end of this year,” Mr. Schulman says.
Mr. Kuntzevitsky says he’s been allocating any excess cash to the U.S. market in both private and publicly listed vehicles.
“The opportunity here is that you redeem your open-ended private [real estate investment trusts (REITs) in Canada] and reallocate the money to the U.S., where the private market reflects [net asset values] based on recent activity, or you can invest in publicly listed REITs,” he says.
Still, Mr. Kuntzevitsky is watching developments closer to home for evidence the market is turning.
In February, the Canada Pension Plan Investment Board and Oxford Properties Group Inc. struck a deal to sell two downtown Vancouver office buildings for about $300-million to Germany’s Deka Group – about 14 per cent less than they were targeting.
“Hopefully, that will activate the market,” Mr. Kuntzevitsky says. “But so far, we haven’t seen that yet.”
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