Casey Gallagher, the executive vice-president of CBRE’s national investment team. (Courtesy CBRE)
PART I of a two-part feature: Casey Gallagher, the executive vice-president of CBRE’s national investment team, moderated a panel of leading executives at the recent Real Estate Forum in Toronto.
The effect of COVID-19 on development was the basis for the discussion, which evolved into a “state-of-the-business” update on many commercial real estate sectors and issues facing the industry.
Among the hardest-hit sectors have been hotel, retail, seniors housing and office sectors, and questions remain about the long-term prospects for some of them. Here’s what Gallagher had to say about them to open the Dec. 4 Real Estate Forum session:
* “Hotel operators have been hit hard by global and domestic travel restrictions. If the SARS recovery of the early 2000s is any indicator, the timelines to get back to pre-COVID performance could take quite a while.”
* “Many at-risk or antiquated retail concepts have been forced to fast-forward the inevitable and pull the plug. Perhaps more importantly, today’s events are spotlighting many exposures that retail has always had, but in normal cycles are easily ignored — namely whether the tenant offers covenant quality or experiential value, and how that impacts on your project.”
* “Elements of Canada’s more socially dependent real estate sectors have been particularly stressed, including long-term care, shelter space in urban cores and affordable housing across the country.”
* “Some major office users have become more vocal about their long-term space planning, with thoughts on transitioning to a more flexible work-from-home arrangement and creating a question as to office space viability that didn’t exist only nine months ago.”
The news isn’t all negative
On the bright side, however, Gallagher said the Canadian commercial real estate market saw solid month-over-month sales increases after bottoming out in May. He expected a quarter-over-quarter jump of approximately 10 per cent in Q3.
“From a pricing point of view, industrial, multifamily and land have been big winners so far during COVID. The Canadian industrial and multifamily sectors entered the pandemic with occupancy levels near 100 per cent and rents rising drastically year-over-year.
“COVID has acted as a bit of a tailwind to these sectors, with industrial demand being supported by the acceleration of e-commerce penetration due to most residents being stuck in their homes.
“In older generation multifamily, demand is supported by increased price sensitivity toward housing due to the economic carnage brought on by the pandemic, although we do note that newer generation multifamily rental product has been more exposed, particularly in major urban cores.”
Home sales from July to October outperformed 2019, according to the Toronto Real Estate Board. Gallagher said Greater Toronto Area (GTA) home resales were up 25 per cent year-over-year in October.
The outlook for development is less negative now than in March when COVID-19 hit Canada.
“Government stimulus, tight fundamentals and a positive Canadian story are all supportive of an optimistic outlook, but we note that equity capital sources are asking more questions of these projects than ever before,” said Gallagher.
“Economic forecasts show that Canada is poised to have the most robust recovery of any G7 nation, from both an economic output and employment perspective.
“What’s more, the Canadian government recently increased their immigration targets to 1.2 million over the next three years to make up for the reduced immigration totals in 2020 due to COVID.”
Valuations and transactions
Gallagher said land prices have held strong even though transaction volumes are down and there’s been no major negative impact on home pricing in most major markets.
Niall Finnegan, co-founder of development cost consulting company Finnegan Marshall, said suburban locations have outperformed those downtown in the GTA.
“There has been more and more institutional investment in commercial real estate development, which has rendered deal-making far more challenging for private developers,” said Gallagher.
However, merchant developers (primarily condo and homebuilders) have been more aggressive than their institutional counterparts and seem more bullish and less risk-averse, according to Gallagher.
Small sales from $1 million to $5 million have been doing OK; those in the $5-million-to-$15-million range have outperformed 2019, but deals of more than $20 million are well off from last year. Gallagher said institutions have been holding back on larger projects.
Allied Properties REIT (AP-UN-T) executive vice-president of development Hugh Clark said there have been few downtown land sales and there’s not much appetite for taking on major projects.
He noted Allied has bought a few lower-priced infill properties for larger and longer-term land assemblies because expenditures of a few million dollars aren’t a big concern.
“You would expect a change in sentiment on the part of vendors, but we haven’t seen it, even in Calgary, which has been suffering through a recession for an extended period of time and this pandemic has done nothing to improve that condition at all.
“Vendors there are just sitting on their hands, hoping and waiting for a turnaround.
“The lack of understanding about the duration of this pandemic has prevented people from actually doing any fire sales,” he said, noting the arrival of vaccines could make things “magically go back to normal.
“We haven’t seen anyone make any adjustments. We would expect someone to make an adjustment for us to want to get into the market and make a substantial purchase.”
Morguard (MRC-T) senior VP of development Margaret Knowles said her company has been selling serviced land parcels, valued at between $5 million and $10 million each, for master-planned housing subdivisions in Quebec.
There are strong local and regional homebuilders in the province looking to fill their pipelines so they know what they’ll be doing a year or two from now, she added.
Due diligence periods are longer and there are more extensions until deals close, according to Knowles, but well-located, transit-oriented sites remain in demand.
The approvals process
First Capital REIT (FCR-UN-T) is active in Ontario, Quebec, British Columbia and Alberta. Senior VP of development Jodi Shpigel said there were different responses in different municipalities across the country when it came to the approvals process when lockdowns first started in March.
Larger Ontario municipalities have had challenges in adapting because of their size and workforces, so it took longer to get things running close to normal. Shpigel noted, however, “normal wasn’t great” and it’s still time-consuming to push through layers of bureaucracy.
Shpigel praised B.C. for adapting quickly to remote working with little interruption.
Knowles said B.C. has always laid out clear ground rules so developers know what they’re dealing with and what to do. Morguard is working on two major projects in Coquitlam and Knowles said the response from the municipality has been terrific.
Knowles said there are fewer applicants looking for approvals now due to COVID-19, so Morguard is taking advantage to get zonings and master planning done.
Morguard zoned an Edmonton project in an efficient year-and-a-half because it worked collaboratively with city planners, allowing for immediate feedback.
The City of Edmonton also held a conference call with developers to discuss a city council mandate to incentivize development. Measures included freezing taxes and front-ending infrastructure work.
Knowles has a major concern, shared by the other panelists, when it comes to zoning and approvals.
“Municipalities may be looking to buy out folks and reduce their overheads because of financial constraints,” she said. “Some of the good, experienced people that we’ve had previously working with us may take early buyouts.”
Heather Grey-Wolf, senior VP of development and stakeholder relations for Capital Developments, said collaboration and interaction is more difficult when people are working remotely.
Her company had a four-day delay in April in acquiring an above-grade construction permit while City of Toronto offices were closed and staff were working from home.
“We’ve had experiences on both sides of the spectrum, depending on where you are in the development process,” said Grey-Wolf. “Toronto prioritized condominium registrations, understanding how critical that was for the development community.”
TOMORROW IN PART II: The panelists offer updates and observations on the retail, office and multifamily sectors, as well as issues such as construction costs and financing.
Price of detached homes continue to outpace condominiums as Canadians trade location for square footage
Despite strong push toward the suburbs, Toronto and Montreal single-family homes see double-digit price gains in city centres
Median price of a two-storey home in Greater Vancouver rises 8.8% as buyers prioritize square footage
Out-of-region buyers spur Maritimes’ home prices, as option of remote work and demand for large, affordable properties grows
Aggregate price of a home in Canada rose $206,815 since Q4 2015
TORONTO, Jan. 15, 2021 /CNW/ – According to the Royal LePage House Price Survey released today, the aggregate1 price of a home in Canada increased 9.7 per cent year-over-year to $708,842 in the fourth quarter of 2020, as strong seller’s market conditions continued to shape Canada’s real estate market through the end of the year. The significant year-over-year increase in aggregate price was driven by price gains for larger properties. Sixty-four per cent of all regions surveyed showed year-over-year median price gains of more than 10 per cent for two-storey homes.
The Royal LePage National House Price Composite is compiled from proprietary property data, nationally and in 62 of the nation’s largest real estate markets. When broken out by housing type, the median price of a standard two-storey home rose 11.2 per cent year-over-year to $840,628, while the median price of a bungalow increased 10.0 per cent to $592,899. The median price of a condominium increased 3.9 per cent year-over-year to $509,239. Price data, which includes both resale and new build, is provided by Royal LePage’s sister company RPS Real Property Solutions, a leading Canadian real estate valuation company.
Aggregate prices are calculated using a weighted average of the median values of all housing types collected. Data is provided by RPS Real Property Solutions and includes both resale and new build.
“In April 2020, we issued our pandemic period forecast for Canadian real estate, the principle prediction being that unexpectedly soft spring home prices, historically low interest rates, and years of pent-up demand would trigger a sharp recovery of sales volumes and rising property prices in the second half of the year,” said Phil Soper, president and CEO of Royal LePage. “As we close the books on the strangest year in my long career, ‘recovery’ proved to be an understatement. Looking at fourth quarter results we can state without hyperbole that the health crisis triggered a real estate boom.
“High levels of unresolved housing demand and low inventory levels will likely characterize the 2021 spring market, putting further upward pressure on housing values, particularly in the detached and larger townhome segments, as families with access to extremely low borrowing costs trade traditionally desirable urban locations for more personal space,” he continued.
Nationally, Ontario posted the highest year-over-year aggregate home price gains in dollar value during the fourth quarter. During this period, the aggregate price of a home in Markham increased $133,932 to $1,100,436, the highest dollar value increase in aggregate home price. Markham was followed by Vaughan, which increased by $132,699 to $1,130,483; Burlington, which increased by $115,475 to $950,796; Pickering, which increased by $110,905 to $856,725; and, Oakville, which increased by $109,912 to $1,215,405.
“Confined to their homes, Canadians are struggling to adapt their properties to accommodate the need for an office, school classroom and gym, and find themselves longing for more living space,” said Soper. “Yet buying a house is not like buying a car; for most it is a long-term commitment. Post-crisis, some employers will be accommodating of work-from-home employee requests, and some businesses will require that their teams work together in offices again. Many will adopt a hybrid model. Home shoppers should look at prospective neighbourhoods through a post-pandemic eye, paying careful attention to the things that will matter when we drop our masks, including restaurants, access to entertainment and even walkability.”
Soper added that the surge in sales that characterized the second half of the year is a sign that Canadians feel confident buying and selling properties during the pandemic.
“The real estate industry has shown that buying and selling property can be done safely as much of the search and purchase process can now be done online,” he said. “Our real estate agents can help families looking for a home with efficient digital showings. Physical private viewings of a short-listed property should be done in compliance with best practice and public health guidelines. Clients can use their phone or computer to complete the transaction, leveraging today’s advanced technologies.”
While many Canadians have been seeking larger homes outside of urban centres, demand for properties in Canada’s largest urban centres have remained high. Ottawa’s aggregate price increased 14.9 per cent year-over-year to $568,608 during the fourth quarter, the greater regions of Montreal, Toronto and Vancouver increased 12.4 per cent, 10.4 per cent and 7.2 per cent to $487,380, $936,510 and $1,155,346, respectively.
Strong demand in the fourth quarter also resulted in price stability in Canada’s energy and agriculture regions. During the period, the aggregate home price in Saskatoon, Regina and St. John’s increased year-over-year by 6.3 per cent, 3.4 per cent and 0.8 per cent to $400,173, $327,517 and $325,833, respectively. Edmonton and Calgary’s aggregate home prices remained relatively stable, dipping 0.1 per cent and 0.5 per cent to $372,515 and $467,041, respectively.
Demand from local buyers and those relocating back to the Maritimes put significant upward pressure on prices. During the quarter, Halifax posted the highest increase in aggregate price, rising 17.1 per cent year-over-year to $377,469. Charlottetown posted the second highest increase in aggregate price rising 12.7 per cent year-over-year to $344,823, during the same period.
In December 2020, Royal LePage issued its 2021 forecast stating that the national aggregate price of a home is expected to increase 5.5 per cent year-over-year. To read more about Royal LePage’s national and major urban centre forecast, please go to rlp.ca/2021-forecast.
Greater Toronto Area
The aggregate price of a home in the Greater Toronto Area (GTA) increased 10.4 per cent year-over-year to $936,510 in the fourth quarter of 2020. Broken out by housing type, the median price of a standard two-storey home increased 11.9 per cent year-over-year to $1,102,155 in the fourth quarter, and the median price of a bungalow rose 12.8 per cent year-over-year to $923,047. During the same period, condominiums in the region continued to see healthy price appreciation, with the median price rising 3.6 per cent year-over-year to $593,811.
With the exception of condominiums, similar strong home price gains were seen in the City of Toronto where the aggregate price of a home rose 7.4 per cent year-over-year to $960,368 in the fourth quarter. Broken out by housing type, the median price of a standard two-storey home increased 10.6 per cent year-over-year to $1,446,184, and the median price of a bungalow rose 12.3 per cent year-over-year to $1,001,083. During the same period, the median price of a condominium grew 1.4 per cent year-over-year to $634,081.
“Throughout the second half of 2020, buyers were looking for as much space as they could afford. While many buyers shifted their target neighbourhood away from the city centre, so few properties for sale meant that most detached listings saw multiple-offer scenarios,” said Debra Harris, vice president, Royal LePage Real Estate Services Ltd. “2020 did bring some balance to the region’s condominium market but larger units, often in the greater region, are still in high competition.”
Harris added that pent-up demand in the GTA remains significant for detached homes and inventory levels will be a leading indicator of price appreciation in the spring market.
“The GTA real estate market could absorb a short-term influx of detached home listings and remain in a seller’s market. If inventory remains low, prices can only go up,” said Harris.
In December, Royal LePage issued a forecast projecting that the aggregate price of a home in the Greater Toronto Area will increase 5.75 per cent in the fourth quarter of 2021, compared to the same quarter in 2020.
Greater Montreal Area
In the Greater Montreal Area, the aggregate price of a home posted a 12.4 per cent increase year-over-year reaching $487,380 in the fourth quarter of 2020. When broken down by housing type, the median price of a standard two-storey home increased 13.6 per cent year-over-year to $619,099 in the fourth quarter, and the price of a bungalow rose 15.3 per cent year-over-year to $391,493. During the same period, condominiums in the region continued to see strong price appreciation, although at a slower pace than single-family homes, with the median price rising 8.1 per cent year-over-year to $367,113.
In the core of Montreal, the aggregate price of a home rose 10.8 per cent year-over-year to $613,268. Broken out by housing type, the median price of a standard two-storey home increased 13.3 per cent year-over-year to $836,790, and the price of a bungalow rose 12.1 per cent year-over-year to $582,225. During the same period, the median price of a condominium grew 7.1 per cent year-over-year to $442,317.
“Conditions were favourable to make 2020 a year of strong growth for Montreal’s real estate market,” said Dominic St-Pierre, vice-president and general manager of Royal LePage for the Quebec region. “During the first wave of the health crisis, it was difficult to predict how it would impact the economy and, more importantly, consumer behaviour. We could have seen a price correction if buyers had left the market. But low interest rates, combined with increased household savings from remote work and new buyer incentives, played a key role in a market that was already highly competitive before the pandemic. In the suburbs and on the Island of Montreal, activity in the single-family segment resulted in double-digit price increases in most neighbourhoods of the Greater Montreal Area.
“Historically, the Montreal core has always been the hottest spot for both sales activity and prices. No one could have predicted before COVID-19 that the pace of markets on the outskirts of Montreal would outpace the city,” said St-Pierre.
In December, Royal LePage issued a forecast projecting that the aggregate price of a home in the Greater Montreal Area will increase 6.0 per cent in the fourth quarter of 2021, compared to the same quarter in 2020.
The aggregate price of a home in Greater Vancouver increased 7.2 per cent year-over-year to $1,155,346 in the fourth quarter of 2020. Broken out by housing type, the median price of a standard two-storey home increased 8.8 per cent year-over-year to $1,507,279 in the fourth quarter, and the median price of a bungalow increased 6.8 per cent to $1,265,285. During the same period, the median price of a condominium increased 3.3 per cent year-over-year to $662,120.
In the city’s centre, the aggregate price of a home rose 5.7 per cent year-over-year to $1,306,820 in the fourth quarter. Broken out by housing type, the median price of a standard two-storey home increased 7.3 per cent year-over-year to $2,113,504, and the price of a bungalow rose 4.1 per cent year-over-year to $1,424,474. During the same period, the median price of a condominium grew 3.9 per cent year-over-year to $784,351.
“Multiple offers were common throughout the fourth quarter and almost every detached home was attracting competitive bids. Buyer confidence is strong and current low interest rates make purchasing even more attractive,” said Randy Ryalls, general manager, Royal LePage Sterling Realty. “Buyers are worried they will be priced out of the market and with our low inventory of homes for sale in the region, prices are expected to go up in the spring.”
Ryalls added that while new listings slowed in the fourth quarter, which is consistent with seasonal trends, the pipeline of buyers continues to grow.
In December, Royal LePage issued a forecast projecting that the aggregate price of a home in Greater Vancouver will increase 9.0 per cent in the fourth quarter of 2021, compared to the same quarter in 2020.
The aggregate price of a home in Ottawa increased 14.9 per cent year-over-year to $568,608 in the fourth quarter of 2020. During the same period, the median price of a two-storey home increased 14.8 per cent to $595,991, while the median price of a bungalow increased 15.9 per cent to $588,320, and the median price of a condominium increased 13.8 per cent to $385,525.
“The strong seller’s market is expected to persist through 2021, as demand continues to outpace supply in Ottawa,” said Jason Ralph, managing partner, Royal LePage TEAM Realty. “The city is more affordable than Vancouver or Toronto and that’s attractive to both first-time buyers and young professionals from across the country, especially those with families.”
Ralph noted that prices are set to continue a steady upward climb as potential buyers who were unsuccessful purchasing in 2020 re-enter the upcoming spring market.
In December, Royal LePage issued a forecast projecting that the aggregate price of a home in Ottawa will increase 11.5 per cent in the fourth quarter of 2021, compared to the same quarter in 2020.
The aggregate price of a home in Calgary dipped slightly by 0.5 per cent year-over-year to $467,041 in the fourth quarter of 2020. During the same period, the median price of a two-storey home decreased 0.5 per cent to $512,107, while the median price of a bungalow increased 0.5 per cent to $493,164, and the median price of a condominium decreased 3.7 per cent to $248,840.
“Calgary remains an attractive place to purchase a home, partly due to its affordability relative to other major cities in Western Canada,” said Corinne Lyall, broker and owner, Royal LePage Benchmark. “With inventory levels the lowest we’ve seen in nearly two decades, specifically in the single-family detached market, I expect a brisk spring market in 2021.”
Lyall added that all signs point to continued stability in the region as an increase in immigration next year will likely create new opportunities for investors, and those looking to relocate to the region as remote work remains a viable option for many.
In December, Royal LePage issued a forecast projecting that the aggregate price of a home in Calgary will increase 0.75 per cent in the fourth quarter of 2021, compared to the same quarter in 2020.
The aggregate price of a home in Edmonton dipped slightly by 0.1 per cent year-over-year to $372,515 in the fourth quarter of 2020. During the same period, the median price of a two-storey home remained flat at $427,530, while the median price of a bungalow increased 0.4 per cent to $360,996, and the median price of a condominium decreased 1.3 per cent to $217,141.
“Edmonton’s housing market has been relatively flat throughout the pandemic, with sellers hesitant to list their homes due to safety concerns. However, the resilience of Edmonton’s home prices during the pandemic is reassuring to both buyers and sellers,” said Tom Shearer, broker and owner, Royal LePage Noralta Real Estate. “I anticipate a brisk spring market, as consumer confidence rises once a vaccination plan is well underway.”
Shearer added that demand for detached homes, driven by young families, remains strong and low inventory in this segment of the market is expected to put upward pressure on prices in the new year.
In December, Royal LePage issued a forecast projecting that the aggregate price of a home in Edmonton will increase 1.5 per cent in the fourth quarter of 2021, compared to the same quarter in 2020.
The aggregate price of a home in Halifax increased 17.1 per cent year-over-year to $377,469 in the fourth quarter of 2020. During the same period, the median price of a two-storey home increased 17.5 per cent to $399,282, while the median price of a bungalow increased 19.4 per cent to $335,744, and the median price of a condominium increased 4.0 per cent to $301,615.
“Inventory levels have hit historic lows in recent months, putting continued upward pressure on prices,” said Matt Honsberger, broker and owner, Royal LePage Atlantic. “Local buyers are looking for more space, and now, more than usual, they are competing with out-of-province buyers, many of whom are returning to the Maritimes. The option of remote work has altered the landscape of the real estate market.”
Honsberger added that many new construction projects are experiencing delays due to uncertainty surrounding the pandemic, further contributing to the supply shortage.
In December, Royal LePage issued a forecast projecting that the aggregate price of a home in Halifax will increase 7.5 per cent in the fourth quarter of 2021, compared to the same quarter in 2020.
The aggregate price of a home in Winnipeg increased 7.1 per cent year-over-year to $330,273 in the fourth quarter of 2020. During the same period, the median price of a two-storey home increased 11.4 per cent to $372,915, while the median price of a bungalow increased 3.7 per cent to $307,841, and the median price of a condominium increased 0.2 per cent to $231,500.
“That remote work will remain an option indefinitely is a reality for many Canadians, resulting in continued high demand for homes with more space,” said Michael Froese, broker and manager, Royal LePage Prime Real Estate. “As long as the supply shortage continues in Winnipeg and the surrounding communities, prices will remain buoyant.”
Froese added that the pace of sales has been exceptionally brisk. In the fourth quarter of 2020, the median number of days a detached home spent on the market was ten, compared to 27 during the same time period in 2019.
In December, Royal LePage issued a forecast projecting that the aggregate price of a home in Winnipeg will increase 4.75 per cent in the fourth quarter of 2021, compared to the same quarter in 2020.
The aggregate price of a home in Regina increased 3.4 per cent year-over-year to $327,517 in the fourth quarter of 2020. During the same period, the median price of a two-storey home increased 4.2 per cent to $402,903, while the median price of a bungalow increased 2.1 per cent to $295,421, and the median price of a condominium rose 8.2 per cent to $222,210.
“The trend of steadily increasing prices that we’ve seen over the last year in Regina will likely extend into the spring, as the need for more space continues to drive demand,” said Mike Duggleby, broker and owner, Royal LePage Regina Realty. “We are experiencing an inventory shortage, like many cities in Canada. Until supply can keep up with growing demand, prices will keep climbing.”
Duggleby added that the return of international students to the region will put further upward pressure on prices, specifically in the condominium segment.
In December, Royal LePage issued a forecast projecting that the aggregate price of a home in Regina will increase 2.75 per cent in the fourth quarter of 2021, compared to the same quarter in 2020.
The Royal LePage House Price Survey provides information on the three most common types of housing, nationally and in 62 of the nation’s largest real estate markets. Housing values in the Royal LePage House Price Survey are based on the Royal LePage Canadian Real Estate Market Composite, produced quarterly through the use of company data in addition to data and analytics from its sister company, RPS Real Property Solutions, the trusted source for residential real estate intelligence and analytics in Canada. Commentary on housing and forecast values are provided by Royal LePage residential real estate experts, based on their opinions and market knowledge.
About Royal LePage
Serving Canadians since 1913, Royal LePage is the country’s leading provider of services to real estate brokerages, with a network of over 18,000 real estate professionals in over 600 locations nationwide. Royal LePage is the only Canadian real estate company to have its own charitable foundation, the Royal LePage Shelter Foundation, dedicated to supporting women’s and children’s shelters and educational programs aimed at ending domestic violence. Royal LePage is a Bridgemarq Real Estate Services Inc. company, a TSX-listed corporation trading under the symbolTSX:BRE. For more information, please visit www.royallepage.ca.
SOURCE Royal LePage Real Estate Services
For further information: Katie Raskina, Proof Strategies, [email protected], (416) 969-2709
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As the pandemic continues, certain sectors of commercial real
estate have been impacted, particularly the office, hospitality and
Pressure is being felt especially by Canada’s brick and
mortar retail and hospitality industries as some businesses are
struggling to maintain healthy balance sheets, and all indicators
suggest that the commercial real estate market will face more
challenges in 2021. As market pressures mount, dealmaking
opportunities are emerging. In this article, we explore important
considerations that landlords and lenders, owners/occupiers and
purchasers should keep in mind as they engage in distressed and
other opportunistic commercial real estate transactions in the
To date, the Canadian commercial real estate market has not
witnessed a wave of bankruptcies or insolvencies as a result of the
COVID-19 pandemic, although some warning signs are emerging that we
will continue to monitor. In the United States, there has been a
host of bankruptcies by large retailers, such as Neiman Marcus,
Brooks Brothers and Muji, among others, leaving empty lease spaces
that landlords must repurpose for other uses. It remains to be seen
whether these types of large-scale insolvencies will impact the
Canadian real estate market.
Insolvency proceedings present several opportunities. A company
whose real estate is overleveraged cannot sell a property, at least
without the consent of the lender.
For those tenants who are surviving, landlords are working with
them to offer concessions, such as rent abatement or reduced rent
payments determined as a percentage of sales, if any. Other major
issues faced by landlords include lease terminations on grounds of
force majeure and renegotiations of co-tenancy agreements. In
addition, tenants have had access to government rent-support
programs which have provided some relief.
In contrast, in the residential real estate market, major
Canadian cities have broadly fared well, though smaller markets are
equally beginning to witness mounting pressures, especially with
regard to maximum loan-to-value (LTV) analyses which lenders are
undertaking as property owners seek to finance new, or re-finance
The short and long-term prospects for office properties remains
unknown at this time and will only play out as the length of the
pandemic becomes determined, office workers feel safe (or are
mandated) to return to work and the extent to which the “work
from home” trend continues following the crisis.
Seeking relief from mounting market pressures
The commencement of insolvency proceedings may present an
opportunity for commercial real estate players to seek relief from
mounting financial challenges, although landlords, lenders and
prospective purchasers will need to weigh different considerations
as they engage in these processes.
Insolvency proceedings present several opportunities. A company
whose real estate is overleveraged cannot sell a property, at least
without the consent of the lender. Insolvency proceedings allow a
party to apply to the court for a vesting order—a powerful
remedy giving the court broad discretion to deal with property
which is subject to multiple creditor claims and needs to be sold
In the context of an insolvency proceeding, a court may remove
from title all encumbrances, transfer title, and hold back funds
for claims. Another benefit of an insolvency proceeding is the
ability to market the assets in an expedited manner. Finally, if
the relevant property is a development of pre-sales or pre-leases,
those contracts may no longer reflect market value; the court has
discretion to terminate these contracts and transfer title to the
purchaser without it being bound by those contractual terms.
Many industries are surviving through government funding, and
this will not last forever—there will likely be a wave of
opportunities in the commercial real estate market in 2021 and
From a landlord perspective, if a tenant is going through a
creditor protection or bankruptcy process, the landlord may be
prohibited from exercising certain rights that it would otherwise
have in normal circumstances, such as the right to terminate a
lease, the right to distrain, and so on. Landlords will need to
exercise caution when evaluating enforcement options in this
For lenders, they will need to determine if they want to go
through foreclosure or power of sale proceedings when dealing with
distressed assets and should understand timelines of both
Finally, in terms of vesting orders, care must be taken when
evaluating the language of the order. From the purchaser’s
perspective, there may be limited avenues to perform satisfactory
due diligence, including issues around tenant estoppels, or lack of
representations and warranties.
Distressed opportunities on the horizon
While many market players are looking to acquire distressed
commercial real estate assets, dealmaking opportunities have yet to
fully materialize as the level of insolvency in the Canadian
commercial real estate market remains relatively low. However, many
industries are surviving with the benefit of government funding,
and this will not last forever—there will likely be a wave of
opportunities in the commercial real estate market in 2021 and
beyond, with the long-term impact of the pandemic to play out in
the commercial real estate market in a 3-5-year time horizon.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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