The downturn in the housing market might be slowly coming to a close, suggests a new report from the Royal Bank.
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 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.”
Canadian real estate crisis needs private-sector help: CMHC
A new report by Canada Mortgage and Housing Corp. says government alone can’t solve the country’s housing affordability challenges.
The scale of the problem is so large that the private sector must be involved, says the report by CMHC deputy chief economist Aled ab Iorwerth.
The national housing agency says public solutions such as rent subsidies and more social housing are helpful, but more needs to be done.
In a June report, on housing shortages and what the CMHC called an “affordability crisis,” the agency estimated that an additional 3.5 million housing units would be required to achieve affordability by 2030.
“To address this imperative, we need more private-sector investment to build more supply in the housing market, particularly in the rental sector,” ab Iorwerth said in the report.
The report notes that government incentives can be used to make it more attractive for companies to build additional housing, particularly the rental supply in fast-growing markets including Toronto, Vancouver, Montreal, Victoria and Halifax.
Although housing affordability is most difficult for low-income Canadians, the report notes that prices are out of reach for those with higher incomes as well.
“The housing system is interconnected, so fixing Canada’s affordability challenge requires a suite of policies to affect the entire system.”
Home prices have eased this year as the real estate market has cooled, but they are coming off record levels earlier in the pandemic.
The report says the imperative of increasing housing supply will be even greater as Canada seeks to attract more immigrants.
This report by The Canadian Press was first published Nov. 28, 2022.
Certus Capital invests Rs 30 cr in EON, a prime real estate project in Mumbai
Mumbai, Nov 28 Certus Capital, an institutional real estate investment and advisory company founded by former KKR director Ashish Khandelia, has invested Rs.30 crore in EON One, a residential project located at a prime south central location in Mumbai and being developed by EON group that has 30 years of experience in Mumbai real estate. This secured debt investment opportunity will soon be available for the investors through Earnnest.me, the digital neo-financing platform of Certus Capital.
With this Rs 30 crore investment, investments through Earnnest.me have crossed Rs.100 crore within months after its launch in February 2022.
This is the third deal closed by Earnnest.me in quick succession following Rs.40-crore investment in mid-market residential project being developed by Pune-based real estate development firm Pharande Spaces and another Rs.40-crore investment in Chennai-based real estate company Arun Excello’s portfolio of four affordable housing projects.
Commenting on the investment, Ashish Khandelia, founder of Certus Capital and Earnnest.me said, “This investment in EON is a part of Certus Capital’s strategy to fund well placed projects being executed by experienced developers in Tier 1 cities. The residential real estate sector is witnessing a stronger demand revival and improved sales. At Earnnest.me, we’ll continue to offer carefully selected and diligenced investment opportunities in the real estate sector to our investors.”
The company has plans to deploy about Rs 500 crore in FY22-23 in senior secured real estate credit deal through Earnnest.me. As a part of its strategy, Certus Capital takes up 10-15 per cent of each investment to ensure its presence throughout the investment cycle.
So far, more than 200 investors with a minimum investment ticket size of Rs 10 lakh have invested in various such credit opportunities through Earnnest.me. The platform has witnessed over 50 per cent repeat investing interest. It has a diversified clutch of investors which includes real estate professionals, finance experts, family offices, CXOs, UHNI, professionals, etc. Earnnest.me continues to actively evaluate deals across Tier 1 markets including Hyderabad, Bengaluru, Pune, Mumbai and Chennai.
Certus Capital continues to grow its leadership team and has added several senior hires. The company has recently appointed former Deloitte India executive Vishal Singh bolster its institutional investment banking business. The other recent appointments include ex-Piramal Capital executive Gaurav Bhalla as Director and ex-Deloitte India executive Siddharth Pal as Senior Vice President.
Across the twin platforms, Certus Capital is working through investment and advisory deals ranging from Rs 25-1,000 crore.
Certus Capital is also planning to launch its first category-II alternative investment fund (AIF) in 2023.
Since its inception in 2018, Certus Capital has evaluated over Rs.40,000 crore of real estate credit exposure forming part of NBFCs and, housing finance companies. Certus has also advised foreign institutional investors on close to Rs 10,000 crore of closed investments / platform commitments in real estate credit and warehousing space.
Pace of real estate decline finally slowing
Prices in Cambridge, for example, are off 22%, while London and Brantford have seen an 18% decline. Kitchener-Waterloo, Kawartha Lakes and Hamilton/Burlington have all had a 17% drop in prices.
While Toronto’s decline has been 11%, prices are expected to fall further.
Toronto also saw a drop of almost half (49.3%) in numbers of home sales in October versus October 2021, while new listings were down 11.5%.
For those on the sidelines wondering when or if to buy, a Toronto mortgage expert (who prefers not to be named) has some words of wisdom.
For starters, he prefers to keep all the gloom and doom on the down-low. A correction notwithstanding, real estate remains a solid investment.
So on the plus side, “with the correction have come reduced prices and reduced closing costs, especially in the GTA,” the expert said.
That’s provided you don’t have a lot of other debt, obviously.
As for figuring out your monthly mortgage payments, calculate $6 per thousand; a $500,000 mortgage will cost $3,000 a month, for example.
The fact that a one-year mortgage is currently at the highest rate and the five-year rate is lower — an inverted yield curve — is a sign of uncertainty.
“For the first time in my career, I’m not telling people what to do. Instead, I’m telling them their options,” he said.
The consensus seems to be that the worst is behind us, “but we’re heading into stagnation. Things will level off, but we need stability.”
There’s very little on the market right now, but the expert’s expectation is that things will pick up after March break, when young families will start looking again in earnest.
“The banks aren’t taking any chances. Anyone who thinks the banks are just giving money away — no! It’s never been tougher to get credit.”
Last word: focus on your debt. “I used to say, ‘Continue to save.’
“Now I say, ‘move from investing to getting rid of debt.’”
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