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Dream Industrial REIT makes $347M move into Europe

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Dream Industrial REIT is under contract to purchase $347 million in European industrial properties, including these four assets in the Netherlands. (Courtesy Dream Industrial)

Dream Industrial REIT (DIR-UN-T) is under contract or in exclusive negotiations to acquire $347 million worth of light industrial and logistics assets in the Netherlands and Germany through seven separate transactions.

“We are very excited to announce our European expansion strategy which will allow Dream Industrial to diversify its portfolio into Europe by acquiring high-quality assets at attractive risk-adjusted returns, pair them with low-cost debt and achieve attractive overall returns for Dream Industrial’s unitholders,” said a statement from Dream Industrial CEO Brian Pauls.

Toronto-based Dream Industrial likes Europe because the fundamentals of the industrial and logistics markets remain attractive. The sector is being driven by the continued growth in e-commerce fueling demand from logistics operators, coupled with a low supply of high-quality and suitable product.

The trust believes the healthy rental growth potential, paired with limited new supply under construction, provides a tailwind for strong performance over the next five to 10 years.

Dream Industrial management is confident modern logistics assets and urban light industrial properties are highly desired by institutional investors, saying they offer superior risk-adjusted returns compared to other asset classes.

Continued Dutch, German expansion

Dream Industrial intends to continue expanding its portfolio in Germany and the Netherlands, which it calls Europe’s most sought-after and liquid logistics markets.

It will also evaluate investment opportunities in other core logistics markets in Western Europe offering compelling returns and the ability to build scale.

The Dutch and German portfolios have a weighted average going-in capitalization rate of 6.1 per cent, a weighted average lease term of 5.3 years and in-place rents below estimated market rents. Dream Industrial intends to fund the acquisitions with cash on hand.

Over the medium term, Dream Industrial is looking to increase its exposure in Europe to approximately 25 per cent of its total portfolio value, from 12 per cent, following the acquisition of the German and Dutch portfolios.

Netherlands market and portfolio

The Netherlands industrial market benefits from healthy economic growth and record-low unemployment levels. It is home to the Port of Rotterdam, the largest container port in Europe and among the 15 largest ports in the world.

Amsterdam’s Schiphol Airport is one of the busiest cargo airports globally.

The strong infrastructure for freight transport, coupled with the development of the e-commerce sector, continues to boost demand for well-located warehouse and logistics space in the Netherlands.

Declining vacancy rates and a low to moderate level of incoming supply have continued to put upward pressure on rental rates.

Dream Industrial’s new Dutch portfolio comprises 34 properties primarily concentrated in major urban centres, including Amsterdam and Rotterdam. More than 80 per cent are located within 30 kilometres of their respective city centres.

The portfolio spans 2.4 million square feet and is 96 per cent leased to more than 70 tenants.

German market and portfolio

New supply remains insufficient to fulfill the growing demand from distribution and logistics users in Germany, as most of the new construction is already pre-leased. This has led to higher rental rates in most markets.

The German portfolio is near Frankfurt and Dresden and was secured by the acquisition team through an off-market channel. It’s comprised of three properties that combine for 738,000 square feet of space and have an average occupancy rate of 92 per cent.

The properties are leased to 18 tenants and located in strong urban logistics locations with excellent transportation access.

The transactions are expected to close in the first half of 2020.

Canadian and American activity

In addition to the European acquisitions, Dream Industrial has nearly $170 million of properties that have recently closed, are under contract, or are part of exclusive negotiations in Canada. These consist of seven separate transactions, primarily in the Greater Toronto Area.

Upon completion of its acquisitions in the Netherlands, Germany and Canada, Dream Industrial’s portfolio will comprise 264 properties with a gross leasable area of 26.3 million square feet and a pro forma gross asset value of $2.8 billion.

Thirty-one per cent will be in Ontario, 22 per cent in Western Canada, 15 per cent in Quebec, 20 per cent in the United States and 12 per cent in Europe.

Dream Industrial remains committed to growing and improving the value of its portfolio across target markets in Canada and the U.S., with acquisition, leasing and portfolio management teams dedicated to each region.

Dream Industrial will continue to leverage its local platform and strategic relationship with The PAULS Corporation to access acquisition and development pipelines in its target markets in the U.S.

In announcing its financial results through three quarters last year, Dream Industrial said it and PAULS were in exclusive negotiations to acquire an interest in approximately 24 acres of development land in Las Vegas. PAULS was expected to serve as development manager.

Dream Global REIT sale

Dream Industrial REIT is an affiliate of Toronto-headquartered Dream Unlimited Corp. (DRM-T), a real estate company with approximately $9 billion of assets under management.

Dream Unlimited’s asset management business includes three Toronto Stock Exchange-listed trusts and institutional partnerships.

While Dream Unlimited has been active in Europe since 1998, it sold all of Dream Global REIT’s subsidiaries and assets — comprised of office and industrial properties in Western Europe, with a focus on Germany and the Netherlands — for $6.2 billion in cash to affiliates of real estate funds managed by The Blackstone Group Inc. in December.

Upon closing of the Blackstone deal, the non-compete clause for acquiring commercial properties in Europe came to an end. Dream Unlimited can now dedicate resources to supporting Dream Industrial’s European expansion program.

Dream Industrial management additions

The European acquisition asset management team which used to be responsible for Dream Global is now committed to sourcing transactions for Dream Industrial. Alexander Sannikov and Bruce Traversy have joined the trust in senior operating and investment roles.

Sannikov was previously chief operating officer of Dream Global and had oversight of its operating performance, portfolio strategy and capital allocation.

Traversy was previously senior vice-president and head of investments for Dream Global and oversaw its investment strategy and execution across Europe.

“Alex and Bruce were invaluable members in helping Dream Global become one of the leading public real estate platforms and brands in Europe since its inception,” Pauls said in a Dream Industrial news release.

“Now, Dream Industrial can leverage Dream’s skills and relationships to spearhead our new European industrial business, improve operations across Canada and work closely with our U.S. industrial platform to help us to continue to deliver long-term value to our unitholders.”

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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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