The interim chief executive officer at Slate Office REIT SOT-UN-T is determined to get ahead of an expected flood of distressed office building sales.
Earlier this month, Brady Welch put $120-million worth of properties up for sale – roughly 10 per cent of the company’s portfolio. The REIT also sold a two-tower complex in Mississauga for $25.6-million.
Slate, like many commercial real estate owners, is scrambling to pay down debt taken on when interest rates were far lower and office buildings far fuller. The Toronto-based REIT owes lenders a total of $1.2-billion.
“We are trying to be a first mover in those things,” Mr. Welch said on a Feb. 16 conference call. “I’m not trying to say that it’s the most robust market to sell assets. We’re realistic on where we are, but I think we want to be ahead of it and move forward.”
The price of Slate REIT’s units fell by 81 per cent over the past year. In the face of serious headwinds, Mr. Welch has made the tough decision facing many REIT operators. Slate is well down the road on selling office properties in a weak market.
Other CEOs are determined to gut out the downturn, on expectations of lower rates and an increasing number of employees returning to offices in the not-too-distant future. The executives run REITs that are cutting cash distributions to unit holders, but holding off on property sales.
Get this call right, and the sell-off in REITs over the past year will be viewed as a buying opportunity – a time when units dropped in price, then bounced back. Make the wrong decision, and lenders could end up owning the portfolio, while equity investors get nothing.
Mr. Welch’s background makes his an informed voice. He’s been something of a contrarian as co-founder of the office REIT’s parent, Slate Asset Management, consistently buying properties when others were selling to build a $13-billion portfolio of retail, residential and office properties over two decades. He’s also a veteran distressed real estate investor who spent seven years at New York-based hedge fund Fortress Investment Group.
Slate is in talks with potential buyers of several office buildings and is likely sell one property at a time. Mr. Welch said the company is trying to manage the sales in a “prudent and a functional manner,” adding that “if you did a large transaction, that would be difficult.”
Other office property owners have revealed plans for potentially large transactions. Last week, Edmonton-based Melcor REIT suspended its monthly distributions and started a strategic review of the entire company, overseen by investment bank DLA Piper (Canada) LLP. Melcor REIT owns 38 properties across Western Canada – with half the portfolio made up of office buildings – and owes lenders $420-million.
“We do see current macro uncertainty and interest rate volatility as factors which introduce some complexity to the execution of potential transactions,” said Tom Callaghan, analyst at RBC Capital Markets, in a report on the REIT, which is controlled by Melcor Developments Ltd.
Market dynamics make it easy for REIT CEOs to do anything possible to avoid selling properties. Buyers will have the upper hand in the commercial real estate market for the foreseeable future. Private equity funds such as Crown Realty Partners, which bought Slate’s buildings in Mississauga, can have their pick of properties and push for bargain prices. Crown Realty raised a $260-million fund in 2021 to invest in office properties, just as the real estate market began to roll over.
Right now, even experienced executives are struggling with the basic question of what an office tower is worth.
“There’s uncertainty in every level of the market,” said Michael Cooper, Dream Office REIT president, in a conference call earlier this month. “It’s a very unusual environment.”
As first-movers such as Slate Office REIT continue to sell buildings, the rest of the industry – and lenders – will get a sense of property values, and the best path forward.
“The market is starting to move, office buildings are trading,” Mr. Cooper said.
He said once a few more deals get done, “we will have certainty around valuation.”
Has Slate’s Mr. Welch made the right call? Here’s one way to judge the move to sell office buildings in a tough market: Even if he’s made the wrong decision, Mr. Welch is likely to be a survivor.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
MONTREAL – The Quebec Professional Association of Real Estate Brokers says Montreal-area home sales rose 9.3 per cent in August compared with the same month last year, with levels slightly higher than the historical average for this time of year.
The association says home sales in the region totalled 2,991 for the month, up from 2,737 in August 2023.
The median price for all housing types was up year-over-year, led by a six per cent increase for the price of a plex at $763,000 last month.
The median price for a single-family home rose 5.2 per cent to $590,000 and the median price for a condominium rose 4.4 per cent to $407,100.
QPAREB market analysis director Charles Brant says the strength of the Montreal resale market contrasts with declines in many other Canadian cities struggling with higher levels of household debt, lower savings and diminishing purchasing power.
Active listings for August jumped 18 per cent compared with a year earlier to 17,200, while new listings rose 1.7 per cent to 4,840.
This report by The Canadian Press was first published Sept. 6, 2024.
