From shuttered stores and offices to surging unpaid rents, US landlords have suffered a body blow this year. And there’s more turbulence ahead, from short-term cash shortfalls to big changes in tenant preferences.
But American property is hardly down for the count. Thanks to the combination of record government fiscal and monetary stimulus and gradual reopening of public spaces, signs of a turnaround are emerging. And that means opportunity to bet on a comeback in selected real estate investment trusts, many of which are down more than 50 percent year-to-date.
It’s likely most investors will look to REIT-focused ETFs to place wagers. And with roughly $3.2 billion in total assets, the iShares US Real Estate ETF (IYR) will attract its share of the money.
Trading more than 8 million units a day over the past year, iShares REIT is certainly liquid. The Dow Jones US Real Estate Total Return Index it tracks is well diversified with some 113 REITs. And at the current price, the ETF is roughly 20 percent below the all-time set on February 19, leaving room for upside.
There’s just one problem: Despite its name, the Dow Jones US Real Estate Total Return Index is actually a very poor trackers of US property’s fortunes. And that means the iShares ETF is a surprisingly poor way to bet on a recovery.
Let’s start with the fact that not one of the index’s eight largest holdings actually owns office, retail or residential property. Rather, the biggest residential REIT AvalonBay Communities (AVB) doesn’t show up until number nine at roughly 2 percent of the portfolio.
The biggest retail property owner Simon Property (SPG) doesn’t come in until eleventh. And the largest office REIT is Boston Properties (BXP) in 20th place.
Five of the six largest holdings are best described as telecom and Internet infrastructure owners. The biggest and weighing in at more than 10 percent of the portfolio is American Tower Corp (AMT). It’s actually best described as a multinational operator, since nearly half revenue is earned outside the US including emerging markets like Brazil and India.
American Tower has been a very successful company. And the fact management raised the quarterly dividend three times already this year is a pretty clear sign Covid-19 fallout hasn’t had much negative impact on its business to date.
But with American Tower’s shares hitting an all-time high earlier this month, the company clearly has its own internal dynamics and challenges including exchange rate volatility. And they have little or nothing to do with the impact of pandemic control measures on US property markets.
The same is true of the REIT index’ other top 8 holdings, which together make up more than 40 percent of the total portfolio. In fact, these REITs really only have one thing in common with the likes of AvalonBay and Simon: That’s a corporate structure requiring the payout of the lion’s share of earnings in dividend distributions every year.
So far this year, iShares US Real Estate ETF returns have clearly benefitted greatly from holding such a heavy weighting of companies not affected by Covid-19 fallout. For example, Simon is more than 50 percent below where it began 2020. Boston Properties is lower by 30 percent and AvalonBay is off by nearly 25 percent.
This trio rates among the largest and financially strongest REITs in their respective sectors. So, damage has been even worse down the line, including steep distribution cuts across multiple property sectors. But iShares REIT, in stark contrast, has held its year to date losses to only around 7 percent including dividends.
So long as wireless tower and data infrastructure stocks outperform, the iShares ETF will benefit. But the fact their heavy presence dilutes whatever is happening to owners of office buildings, retail centers and residential properties is a double-edged sword. Mainly, they’ll also strongly dilute the favorable impact of a US real estate recovery.
That makes iShares REIT a poor way to bet on property now. And the same is true for the Real Estate Select Sector SPDR Fund (XLRE), which tracks the Real Estate Sector Total Return Index. That ETF is down just 7 percent this year, thanks in part to holding 15.6 percent in American Tower.
Its eighth largest holding AvalonBay Communities is a slightly bigger piece at 3 percent than it is for iShares. But the SPDR Fund is even more top heavy with 56 percent in its seven biggest positions, none of which are residential, office or retail REITs.
That leaves individual REITs as investors’ best property recovery bets, though selectivity is crucial. This month’s canvas of the 70 plus companies in our REIT Sheet coverage universe shows the best in class are weathering this storm. But many others are struggling to keep heads above water.
The steepest plunge has been in retail, where the widespread mall closings have forced once-major companies like J.C. Penny (JCPNQ) into bankruptcy. Shopping center REITs overall reported receiving less than half of scheduled rents in April and May due to tenants’ financial distress.
The best-run owners of office property have collected upwards of 90 percent of rents on time, thanks largely to long-term contracts with committed tenants. But others face a day of reckoning, particularly REITs with tenants in the battered oil and gas industry. And even multi-family residential REITs have reported greater strain than they did in 2008-09.
For REITs, there’s no substitute for strong balance sheets, low cost capital, high quality properties and creditworthy tenants. Those with them are gearing up for growth as once-stratospheric asset values fall to earth. Those that don’t are cutting dividends and worse.
Bottom line: There’s rarely been a better time to buy best in class REITs for high yield and ultimately explosive capital gains, but only if you’re willing to separate wheat from chaff. Anyone who’s not, simply shouldn’t bet.
Powell River real estate sales strong in June – Powell River Peak
Total real estate sales during the month of June 2020 for the Powell River area amounted to $14,259,400, considerably more than June 2019’s total of $10,133,400.
Powell River-Sunshine Coast Real Estate Board president Neil Frost said the 2020 to 2019 comparison was not only healthy in volume, it was healthy in variety.
“There are sales all across the board,” said Frost. “May was a solid month but if you look at the residential sales, we’ve done almost twice as much dollar volume from June over May 2020.
“That impacts the average price of the residential market. We are up considerably over 2019 if you compare June to June.”
In terms of the benchmark pricing, Frost said the average home is still listing in the $399,000 range and selling up to $430,000.
In the single-family homes category in June 2020, there were 25 homes sold, valued at $11,421,700, compared to 20 homes in June 2019, valued at $7,769,900.
For mobiles and manufactured homes, two sold in both June 2020 and 2019. In 2020, the value was $245,000, compared to $360,500 in 2019.
In the condos, apartments and duplexes category, there were four units sold, valued at $1,280,900 in June 2020, compared to five units, valued at $1,342,000 in June 2019.
Total number of residential units sold in June 2020 were 31, compared to 27 in June 2019.
In non-residential, there were 10 parcels of vacant land sold, valued at $1,311,800 in June 2020, compared to four parcels of land, valued at $661,000 in June 2019.
Frost said realtors are still seeing competing offers for properties and there are still a lot of out-of-town buyers.
He said July 2020 has started off “decent” so it will be interesting to see how summer sales go.
“It was nice to see not only the number of sales in June, but some higher-end sales, and the low-end is still very active. There are sales on Texada and Savary islands, plus lots. There has been a good mix of single-family homes, to waterfront homes, right down to condos and manufactured homes.”
Frost said there was pent-up demand because people were holding back or waiting to see what would happen with the market and the economy with COVID-19.
“People are still interested in real estate in Powell River,” said Frost. “There’s still a lot of market strength. It’s a good time to sell. The market is active.”
Total number of units sold in June 2020 amounted to 41, compared to 31 in June 2019.
The number of all active listings for the end of June 2020 was 222.
The average monthly selling price in June 2020 was $456,868 and the average days on the market were 56. The average selling price in June 2019 was $388,495, with average days on the market being 36.
Frost said people working in the real estate industry are taking COVID-19 precautions, following protocols, and adhering to WorkSafeBC standards and clients’ comfort levels.
Firm Capital announces its Special Situation Finance Group | RENX – Real Estate News EXchange
Firm Capital Corporation, a leading non-bank lender since 1988, is pleased to announce its Special Situation Finance Group that will provide “tailor made” structuring to real estate companies impacted by COVID-19. The program will provide liquidity, restructuring of existing loans, bridge financing and debtor-in-possession funding (DIP).
See below for more details.
Special Situation Finance Group
The Special Situation Finance Group was created to focus on structured real estate finance across Canada, for unique transactions that require “tailor made” structuring for; debt purchases; debtor-in-possession or DIP lending; margin loans secured by stock ownership; re-capitalization of special situation transactions and all other non-traditional real estate lending situations.
Firm Capital offers fast execution on:
* Performing and non-performing debt purchases;
* DIP lending;
* Restructuring finance;
* Lending against partial ownership interests;
* Re-capitalization of balance sheet & special situation transactions;
* Margin loans secured by stock ownership;
* Bridge financing for leveraged buyouts;
* All other non-traditional real estate lending situations;
– Bridge and transitional lending solutions: In a tightening financing environment, Firm Capital will assist borrowers on new acquisitions and refinancing, offering a mix of senior, mezzanine and junior loans;
– Acquisition and restructuring of loans: Working with lenders facing impaired performing and non-performing loans and securities to purchase and restructure; and
– Flexible liquidity solutions for sponsors: Firm Capital will use preferred equity to help recapitalize and stabilize balance sheets where existing debt or equity is constrained.
About Firm Capital’s mortgage operations:
As part of the Firm Capital Organization, Firm Capital Corporation, a leading non-bank lender since 1988, provides creative and innovative solutions to real estate finance. Firm Capital is the mortgage banker for various capital pools, including Firm Capital Mortgage Investment Corporation (TSX: FC), Firm Capital Mortgage Investors Corporation (a private mortgage fund since 1994), Firm Capital Private Mortgage Trust and Firm Capital Private Partners Inc.
Tailored mortgage engineering by Firm Capital®
To learn more, contact Michael today:
Vice President, Mortgage Investments
Tel.: (416) 635-0221 x 245
Ontario Mortgage Brokerage, Lenders and Administrators Act License #10164, Administrators License #11442
Toronto's real estate market is rebounding fast as pandemic restrictions lift – blogTO
Home sales are surging in Toronto once again this summer after a brief yet steep drop due to COVID-19, and prices are following suit despite holding steady (if not increasing in most parts of the city) amid the pandemic.
The Toronto Regional Real Estate Board (TRREB)’s latest Market Watch Report, released on Tuesday, indicates that GTA realtors made 8,701 residential sales in June of 2020 — a whopping 89 per cent jump from the previous month’s figures.
“This result represented a very substantial increase over the May 2020 sales result, both on an actual (+89 per cent) and seasonally adjusted basis (+84 per cent), and was only down by 1.4 per cent compared to June 2019,” the report reads.
Considering that sales were down 53.7 per cent year over year in May, and 69 per cent in April, that’s not a bad data point at all.
Some GTA market segments and regions even saw growth in June, most notably detached homes and townhouses in parts of the GTA “surrounding the City of Toronto.”
Detached and townhouse sales were up 10.4 per cent and 7.8 per cent respectively in the 905, according to TRREB. Home prices were up across the board for all market segments and parts of the GTA.
“The average selling price for all home types combined was $930,869 – up by 11.9 per cent compared to June 2019,” reads the report. “The actual and seasonally-adjusted average selling price was also up substantially compared to May 2020, by 7.8 per cent and 9.8 per cent respectively.”
New listings are up slightly, year over year, by 2.1 per cent, but TRREB reports that “active listings” are down by about 28.8 per cent.
“It will be important to closely monitor housing market conditions as economic recovery continues in the second half of 2020 and into 2021,” said TRREB CEO John DiMichele.
“The persistent lack of listing inventory in the GTA understandably took a back seat to COVID-related issues in the short term, but supply should once again be top-of-mind once the recovery takes hold, in order to ensure long-term affordability in the GTA.”
Hey, at least rent prices are down.
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