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Recession fears a new headwind for commercial real estate rebound

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Concern over the state of the economy is making prospective commercial real estate clients take their time before inking leases, according to the chief executive of one of the country’s largest office real estate investment trusts.

Michael Emory, CEO of Allied Properties REIT, said his company saw strong interest in lease tours during the third quarter, but that it was taking longer to close deals, meaning two of the key metrics he uses to forecast demand were throwing up contradictory signals.

“In some respects, the results are contradictory leading indicators,” Emory said. “Tours suggest strong demand in the near term. The stretching out of timeframes to get deals done suggests that demand may be weakening. Our interpretation, and it’s (a) preliminary interpretation, is that the stretching out of timeframes may signal some degree of slowdown in the face of a pending recession or in the face of an expectation of recession.”

As a result, Allied, which reported third-quarter earnings this week, is taking a more cautious approach to its occupancy outlook while focusing on completing the developments in its pipeline. “Management expects to add $82 million over the next few years” to their annual earnings before interest, taxes, depreciation, and amortization (EBITDA), the company said in its quarterly report.

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Allied, which is currently working on 109 potential lease transactions the number that are completed in the fourth quarter will be telling on the state of the market going forward.

Emory said the rebound from the pandemic has differed from city to city. While the REIT’s properties in Vancouver and Calgary are almost completely occupied, the return to work in Montreal and Toronto still “have a long way to go.”

“It has been the slowest in Montreal and Toronto. Tours and deals have begun to accelerate in both markets starting in September, and the acceleration has been quite significant,” Emory said. “In percentage terms, we’re still below 50 per cent occupancy but we accelerated very rapidly from about high 20s to almost 40 per cent in September and October. So, the rate of change is quite positive but we still have a long way to go.”

The REIT’s third quarter ended on Sept. 30 with average in-place net rent per occupied square foot increasing to $25.56, up 3.8 per cent from the comparable quarter last year and 1.1 per cent from the second quarter. Their FFO per unit was 60.6 cents, down 2.9 per cent from the comparable quarter last year and identical to the second quarter. AFFO per unit was 52.6 cents, up 1.3 per cent from the comparable quarter last year and down 3.1 per cent from the second quarter. NAV per unit at quarter-end was $51.10, down slightly from the end of the second quarter due to a decline in value in their Calgary portfolio.

The S&P/TSX Real Estate Sector Index plunged 30 per cent in September making it one of Canada’s worst-performing sectors and putting it on pace to suffer its largest annual decline since 2008. This fall came following the Bank of Canada’s 75-basis-point interest rate hike that month, which it followed with a 50-point hike on Oct. 26 to bring its policy rate to 3.75 per cent.

• Email: shcampbell@postmedia.com

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Canada's Real Estate Bubble Is Approaching The Largest In History – Better Dwelling – Better Dwelling

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Canada’s Real Estate Bubble Is Approaching The Largest In History – Better Dwelling  Better Dwelling



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How Sellers Should Approach The Current Vancouver Real Estate Market – Storeys

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STOREYS Custom Studio

We often hear “buyer beware,” but when it comes to the up-and-down real estate market, sellers would be wise to do the same — but not too much.

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Is this a good time to sell? Should I even be thinking about selling? These are questions people often have difficulty answering with confidence. But Kevin O’Toole, Vancouver-based Managing Broker at Sotheby’s International Realty Canada, sees the solutions simply.

“If you’re selling out of fear [of a market downturn], that’s not a good play,” O’Toole says. “Take a breath. Talk to your financial advisors. Talk to your realtor.”

O’Toole — who has 15 years of experiencing in the Vancouver real estate market — says if you want to sell because you need more space, or you want to downsize, or you’re being transferred for work and need to move, then go ahead and do it, because there is a decent chance you’ll be dealing with the same market influences in the future that you’re worried about now.

When O’Toole is faced with a client who has this kind of conundrum, he says he always makes a genuine effort to listen. He asks them personal questions, such as “What do you want to achieve?” and “What are your concerns?” or “What do you think would be a better investment?”

Once clients answer, O’Toole says he will often say “tell me more.” He jokingly says it makes him feel like a psychologist, but also says that he genuinely views himself — and other realtors — not as salespeople, but as consultants. And it’s times like those we’re in today when, he says, realtors provide the most value. “Realtors deliver value when there is uncertainty,” he says.

Realtors are not biased towards buying or selling, he adds. So if after the heart-to-heart, an agent feels like selling would indeed help you achieve your goals, they’ll tell you. And if they think it’s in your best interest not to, they’ll probably tell you that as well.

RELATED: Amidst Uncertainty, Vancouver Island’s Market Remains a Beacon of Stability

Once you’ve reached the point where you’ve decided to sell, O’Toole says it’s important to again work with your realtor to set a reasonable asking price. He says in the past month or so, he’s starting to see both sellers and buyers are getting a better idea of where the market is after a series of interest rate increases, and are often coming together to work out a deal.

“For a while, sellers wanted the price that they saw in the early-spring, but are now more amenable to prices for buyers,” he says.

Looking forward, he recognizes there are a few unknowns that could potentially impact the market. Premier David Eby recently announced changes to the Province’s Strata Property Act that would allow stratas to be rented out in all strata buildings. O’Toole says that could impact the market because it could open up another possible solution for those who are selling primarily due to financial concerns.

“There can be a ton of valid, and right, reasons to sell,” O’Toole says. “But selling out of fear is one of the wrong ones.”


This article was produced in partnership with STOREYS Custom Studio.

Written By
STOREYS Custom Studio

Content by STOREYS Custom Studio is created in partnership with companies and brands looking to tell their own stor(e)y.

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Ontario's real estate industry regulator is ineffective, Auditor-General says – The Globe and Mail

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Ontario Auditor-General Bonnie Lysyk speaks during a news conference at Queen’s Park in Toronto on Dec. 4, 2019.Aaron Vincent Elkaim/The Canadian Press

Ontario’s Auditor-General says the province’s real estate regulator has been ineffective in policing the multibillion-dollar residential property industry.

In a report released on Wednesday, Auditor-General Bonnie Lysyk found the Real Estate Council of Ontario (RECO) does not adequately ensure that the industry complies with the regulations and has failed to do enough to protect consumers.

Topping the Auditor-General’s list of concerns was the fact that RECO does not fully inspect real estate brokerages on a timely basis. The Auditor-General found that 27 per cent of registered brokerages have never been fully inspected.

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As well, the Auditor-General said RECO does not have a consistent process to assess those applying to be realtors and who say they have a criminal history. The report looked at a sampling of 25 professionals who had disclosed a criminal conviction or charge and found that RECO had approved 20 of them and did not provide any documented reasoning for why it did so.

RECO was also criticized for how it deals with ethics violations in real estate transactions. The report said the average fine imposed on realtors was often below the amount of the commission they earned in a transaction, and said the fine could be viewed as a cost of doing business instead of a “sufficient deterrent to future misconduct.”

RECO said it is committed to developing a plan that will address the Auditor-General’s concerns. RECO’s response was included in the Auditor-General’s 51-page report. Under the province’s real estate act, every real estate brokerage, broker and realtor must be registered with RECO.

The Auditor-General identified a host of other shortcomings ranging from RECO’s failure to track and analyze complaints, which would help it identify and address systemic problems, to a lack of protocols to ensure that students do not cheat on virtual real estate exams.

The report said one glaring lack of enforcement occurs after RECO inspectors discover a brokerage is violating rules. The regulator rarely follows up “to confirm that the brokerage has addressed the violations,” the report said.

The report also noted that RECO does not have a process to inspect whether real estate professionals are complying with anti-money-laundering laws.

“It is probable that money laundering is occurring undetected in Ontario’s real estate market,” Ms. Lysyk said in a press release accompanying the report.

During the pandemic real estate boom, blind bidding was heavily criticized for contributing to the spike in home prices when properties sold for hundreds of thousands of dollars over the listed price.Lars Hagberg/The Canadian Press

Realtors and brokers are required to report suspicious and large cash transactions to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), which monitors money laundering.

But over the past five years, when more than one million Ontario properties worth $760-billion were sold, hardly any transactions were reported to FINTRAC. The federal agency received no reports of large cash transactions from 2017 to 2020. Only last year, which was a record period for home sales, FINTRAC received 18 reports of large cash transactions, according to the Auditor-General.

The report recommended that RECO work with FINTRAC to share information. It also recommended that RECO update its procedures to ensure that brokerages’ reporting obligations are properly reviewed.

RECO said it had already begun to “explore opportunities” to share information and collaborate with FINTRAC.

Over all, the Auditor-General had 25 recommendations for RECO and the Ministry of Public and Business Service Delivery, which oversees the regulator. In the report, both RECO and the ministry said some of the recommendations would be addressed next year when the province’s new real estate rules go into effect.

That law includes a purported change to an opaque real estate sales tactic known as blind bidding, where competing buyers in a multiple-bid situation do not know what others are offering to pay for a home.

During the pandemic real estate boom, blind bidding was heavily criticized for contributing to the spike in home prices when properties sold for hundreds of thousands of dollars over the listed price.

The real estate industry has repeatedly defended the practice as giving homeowners choice. The new law, which comes into effect in April, includes a provision that will allow the homeowner to disclose the competing offers. However, homeowners are already allowed to sell their homes via an open auction.

The Auditor-General report recommended that RECO work with its overseeing ministry to gather data on which sellers choose an auction process.

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