The impact of the economic lockdown from the pandemic has been devastating within parts of the real estate sector, especially in commercial realty as countless businesses leave or are unable to pay their rent, and workers are encouraged to work from home leaving their offices empty. Yet Tom Dicker, co-manager of the 5-star rated $200.3 million Dynamic Global Real Estate Fund Series F argues that all is not lost and certain sub-sectors have survived if not flourished recently.
“The investable REIT [real estate investment trust] universe has changed meaningfully such that when people think about what constitutes commercial real estate, they often think about an office building or a retail shopping centre. That is not necessarily all that the investable public real estate universe is about,” says Dicker, vice-president at Toronto-based 1832 Asset Management LP. “There will be lots of challenges in those traditional asset classes, such as offices, retail and hotels, which are likely to get worse before they get better. But there are lots of areas where we believe there will be positive outcomes, even as a result of the economic disruption. And there will be areas where it will be neutral, or slightly negative.”
Real Estate for Post-COVID Reality
Areas that will benefit include data centres and cellular phone towers, which have only been regarded as investable assets for the last two decades, says Dicker, who shares duties with portfolio manager Maria Benavente and senior vice-president Oscar Belaiche, who oversees the equity income group. As well, logistics and warehouse space will also benefit, thanks to the significant acceleration in online shopping. “Demand in that area continues to grow and will likely to outpace economic growth for the next decade. That’s our base case now,” says Dicker, a native of Renfrew, ON, who joined 1832 Asset Management in 2011 after he worked for investment counsellor LDIC Inc., and earned a bachelor of commerce degree from the University of Ottawa in 2004.
Areas such as the laboratory-office space should also grow, as healthcare will attract more funding and the area relies on sophisticated airflow systems. “The next decade was going to be about healthcare, because of the ageing population and the advancements in healthcare.”
Another promising area is the single-family home rental. “If you had a choice between renting a home and renting an apartment, in a lockdown scenario or maybe you want a home office, you’d grab the home. That market is extremely strong. So there have been some areas where it is not a depression.” Self-storage and manufactured housing should also escape the impact of the pandemic.
Arguing that the market has presented a mixed picture, Dicker acknowledges that he and co-manager Maria Benavente have made some portfolio adjustments. “We were already fairly well-positioned for this [market correction] and not because we thought there would be a pandemic. We were positioned in property types in which we believe there are good long-term secular trends. Some of those trends include digitization and the move to more data and renting versus owning single-family homes and shopping online. Those are long-term trends.”
Crisis Gave Tech a Boost
Moreover, the pandemic only produced a “huge” acceleration of long-term trends, says Dicker. “We heard Satya Nadella, the head of Microsoft, say that ‘we saw two years of digital transformation take place in a couple of months.’ Some of the trends, that we were positioned for in the long run, accelerated very quickly. That explains why we’ve been ahead of the peer group.”
Year-to-date (as of July 20), the fund returned -7.96%, compared to -14.17% for the Real Estate Equity category. Over the longer-term, the fund has also outperformed. It averaged 5.28% and 9.68% for the past five 10 years, respectively. In contrast the peer group averaged 2.89% and 8.02%.
What lies ahead for real estate is very difficult to predict, although there is a wide range of possible outcomes. Much depends on each particular sub-sector and how the virus plays out. “If we see this surge in cases in the U.S. Sun Belt get worse, and we see the prospect of further lockdowns because the capacity of the healthcare system has been breached, that will be bad for those cyclical areas such as retail and hotels that have already been hit fairly hard,” says Dicker. “There will be more bankruptcies in the hotel sector and among retail tenants and landlords. It will drive up the cost of funds meaningfully. You want to be really careful in the cyclical or value areas.”
A great deal also depends on policy responses to the pandemic and the development of a vaccine. “If the market believes there is a highly effective vaccine that comes in the fourth quarter or the first quarter of 2021, it will get very excited and start to price in a return to normal,” says Dicker. “Lenders will be much more lenient. There is a scenario where if there are treatments and vaccines, the market will look through that. But if it looks as if this will go on for a while, and with the caseload where it is [in the U.S.] there is still some downside in lots of these stocks.”
Dance Between Defensive and Offensive
From a strategic viewpoint, Dicker says he’s taken an approach balanced between defensive and offensive positions. “We own some areas where if the economy does better those areas could do well, but are still reasonably defensive. These are areas such as industrial real estate, which has a big tailwind from e-commerce that we believe will drive returns.” Within residential stocks, for example, Dicker is skewing the portfolio toward more defensive names with high-quality balance sheets and low risk of poor outcomes.
When the market corrected in March, Dicker and Benavente lowered the cash from 9% to about 4%, and added to some of the top holdings in the 49-name portfolio as well as did some repositioning. The managers reduced retail allocation and focused on grocery-anchored shopping centres. At the same time, they added to logistic names, data centres and specialized REITs, where the sustainability of distributions is superior to those areas that have been hit. Within the office sub-sector, they chose to be more defensive and reduced traditional office concepts that will be in a more challenging environment in the future.
From a geographic standpoint, about 44% of the portfolio is held in U.S. stocks, 35% Canada, 5% the U.K. and 4% Australia. On a sector basis, residential is the largest area at 33%, followed by 23% industrial, 17% specialized REITs and 8% offices.
One of the top holdings is Goodman Group (GMG), an Australian real estate developer and asset manager with global operations and an emphasis on logistics and warehousing. “We are really bullish on the logistics and industrial space, given the acceleration we have seen in the area. The e-commerce theme will continue to grow,” says Benavente. “For instance, e-commerce in the U.S. increased to 20% of total sales in May, from 15% prior to the pandemic. We expect that to be maintained and further accelerate. One recent estimate says that e-commerce as a percentage of retail sales will grow to 30% over the next five years. This will drive demand for logistics real estate that is very important for the infrastructure and delivery of goods to people.”
The stock, which has a 2% distribution yield, is trading at 25 times forward price to adjusted funds from operations, which is lower than a comparable company such as US-based Prologis Inc. (PLD) There is no target for the stock.
Another favourite is Tricon Residential Inc. (TCN), a Canadian-based REIT which owns and manages properties mostly in the U.S. “Over the last decade, they have been a big consolidator in the single-family home rental asset class,” says Benavente, adding that Tricon has grown into one of the most sophisticated platforms for single-family rentals and has one of the largest portfolios. “It’s been a success story and one that has been very resilient in spite of the challenging times.”
The stock, which trades at a 25% discount to net asset value, pays a 3.1% distribution yield.
Despite the uncertainty in the economy, Dicker believes that the companies in the portfolio are well-positioned to weather the hard times. “Should the economy recover there is lots of room to run. We are well-positioned between offence and defence,” says Dicker. “On top of that, we are in a very low yield environment, with 10-year Canadian government bonds yielding 52 basis points. Real estate is one of those areas where you can get a predictable stable yield. Office and retail real estate may not do well, but within other sub-sectors, there is lots of room for valuations to recover and expand even further.”
WE Charity laying off staff, looking to sell real estate in Toronto – Kamloops This Week
OTTAWA — WE Charity is scaling back its operations, making dozens of layoffs in Canada and the United Kingdom and looking to sell some of its real estate holdings in Toronto.
The charity has been embroiled in a political controversy since the Trudeau government chose it to run a now-abandoned youth volunteer program.
WE Charity says its financial position has been greatly affected by the COVID-19 pandemic and “recent events,” prompting a need to shift programming and reduce staff.
At its global headquarters in Toronto, 22 full-time employees will be laid off and another 59 employees working on fixed-term contracts with the charity won’t have their contracts renewed when they expire at the end of the month.
WE Charity’s U.K. operations will be centralized in Canada, which means 19 full-time and contract employees in London will be laid off.
In addition, a number of buildings on a block near Moss Park in Toronto acquired by the charity as part of a 25th anniversary plan to create a youth campus will be assessed by the organization to determine which ones could be sold.
This report by The Canadian Press was first published Aug. 13, 2020.
Sale of Private Residential Estate Breaks Quebec Real Estate Record – GlobeNewswire
Montreal, Quebec, Aug. 13, 2020 (GLOBE NEWSWIRE) — Sotheby’s International Realty Canada today announced the sale of a private estate in Montreal that has set a new benchmark as the highest recorded residential property sale through the MLS® (Multiple Listing Service) system in Quebec’s history.
Listed at $20 million, the sale closes as Montreal’s real estate market soars following the resumption of real estate brokerage activities in May.
“Situated on almost 30,000 square feet of beautifully landscaped grounds, this estate provided a rare opportunity to own one of the most prestigious properties in Montreal,” said Liza Kaufman, listing agent with the Kaufman Group of Sotheby’s International Realty Quebec, who represented the sellers and the buyers in the transaction.
“By marketing the property across Sotheby’s International Realty’s exclusive media network, we generated strong local and international demand and several offers. This sale reflects how confident luxury buyers are in the long-term fundamentals of Montreal. It also reveals a consumer trend that is emerging with the pandemic – more than ever, people are seeking security and a desirable lifestyle by investing in their homes,” Kaufman said.
Built in 1924, the six bedroom home, with six full bathrooms, two powder rooms and one powder room in the pool cabana, has been fully restored to merge classic European architecture with stylish contemporary designs, bespoke furnishings and world-class comforts, including a 14-car garage and saltwater pool.
The main kitchen is equipped with a Lacanche Cote d’Or, nine-burner gas stove with double ovens, large Miele Refrigerator, large Miele freezer, Miele dishwasher, compactor, double sink, garburator and pot filler. A grand centre marble island seats four with an adjacent breakfast table with seating for six. An additional pair of writing desks and an abundance of hidden storage make the kitchen a central hub for the home.
The imposing entry opens to a grand centre hall paneled in rich wood, offering exquisite moldings and a gas fireplace. The cross hall plan is perfect for entertaining. The light-filled living room features large windows overlooking the city and a beautiful marble antique mantle piece. The adjacent dining room is available for intimate dinners or lavish entertaining, and it is serviced by a caterer’s kitchen featuring a Wolf oven, Subzero refrigerator, gas stove, dishwasher, microwave and wine refrigerator.
French doors open to a spectacular multi-level backyard which feature the pool and stone terraces large enough to host a wedding party and other large events. A custom stone fire pit, pool cabana with change room and powder room, tree house and children’s play area, make this an outdoor paradise.
“Montreal’s residential real estate market has been strong across the conventional and luxury real estate market, and across every residential property type this summer,” says Daniel Dagenais, Managing Broker of Sotheby’s International Realty Quebec. “In fact, according to the latest statistics released for the Montreal Census Metropolitan area by our real estate board, residential sales surged 46% year-over-year from July of last year and set a new record for a month of July.”
The transaction demonstrates a resurging demand for luxury Canadian properties.
“The Montreal real estate market, as well as major metropolitan markets such as Toronto and Vancouver, saw significant gains in the first months of 2020 before COVID-19 disrupted their momentum,” says Don Kottick, President and CEO of Sotheby’s International Realty Canada. “We’re now seeing pent-up consumer demand surge into new activity. In addition, global uncertainty is firing up new demand for real estate in key Canadian markets including Montreal, not only amongst locals, but from buyers from the U.S. and overseas who are seeking sanctuary and a secure financial investment.”
According to Kottick, favourable mortgage lending conditions and continued volatility in the stock market are also positioning Canadian real estate as a desirable and secure investment.
Further details of the sale of this estate remain private.
About Sotheby’s International Realty Canada
Combining the world’s most prestigious real estate brand with local market knowledge and specialized marketing expertise, Sotheby’s International Realty Canada is the leading real estate sales and marketing company for the country’s most exceptional properties. With offices in over 32 residential and resort markets nationwide, our professional associates provide the highest caliber of real estate service, unrivalled local and international marketing solutions and a global affiliate sales network of approximately 1,000 offices in 71+ countries and territories to manage the real estate portfolios of discerning clients from around the world. For further information, visit www.sothebysrealty.ca.
Media Contact Victoria Levy Talk Shop firstname.lastname@example.org 604-738-2220
Edmonton-area real estate market hot despite COVID-19 pandemic – Global News
According to the Realtors Association of Edmonton, even though concerns remain over the coronavirus pandemic, residential sales in the city and surrounding areas are up this summer.
In the first few months of the pandemic, sales were down more than 35 per cent from March to April. But they’ve since rebounded and then continued to grow.
In May, the housing market shot up more than 54 per cent compared to April, and in June they rose again, up more than 77 per cent. Those sales held steady, increasing slightly in July.
Residential home sales were up nearly 14 per cent in July 2020 compared to last July.
Homes are also selling faster. On average, a single-family home is selling in 49 days — eight days faster than this time last year.
Reema Kaushik is a top-ranking mortgage advisor for CIBC.
“We were quite worried in March when the pandemic started. We thought that people would be scared to buy a home,” she said, joking that she thought she’d have time to try out new recipes on YouTube.
But instead, she’s busier than ever.
“I think one of the biggest reasons is the competitive rates that every lender is offering. We’ve never seen such great rates — ever,” Kaushik said.
She also points to an incentive by the Canada Mortgage and Housing Corporation for getting new buyers into the market.
“It allows first-time home buyers, within a certain eligibility criteria, to borrow five per cent for existing homes and 10 per cent down payment for new construction homes.”
New construction mortgages are Kaushik’s specialty.
“I was talking to one of my builder partners when they told me they’re completely out of existing home inventory, which means there’s no quick possession left.”
This summer has also been a whirlwind for YEG Pro Realtor Reanna Bowden.
“It’s extremely busy,” she said. “I’ve been a realtor in Edmonton for 15 years and by far this is the busiest June [and] July I ever saw.
“It’s 16-hour days — non-stop — to get my clients to where they want to be.”
As for Bowden’s take on the sudden jump in home sales?
“I think our spring buyers that were maybe on the fence, not buying in the spring, just jumped on top of our June [and] July buyers, so it was a frenzy.”
In a single month, Bowden said her clients found themselves in multiple-offer situations four times.
One of those clients was Hana Price. She was one of five people to place an offer on a particular house in west Edmonton in June.
“I thought that the real estate market was not going to be that hot, especially with COVID(-19),” she laughed.
Price said her boyfriend’s house sold pre-pandemic, but they weren’t comfortable shopping when COVID-19 hit.
“There’s uncertainty with employment at that time,” she explained.
“And just kind of not really wanting to leave your house and go into somebody else’s house.”
Price ended up getting the house she wanted, but had to pay $25,000 over the asking price.
She said if you’re interested in buying, she has some advice.
“Move quick. Don’t think about it for too long, because you might lose out.”
© 2020 Global News, a division of Corus Entertainment Inc.
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