Home showings are taxing, but one Vancouverite’s selling stresses were recently heightened even further when they caught a real estate agent picking their pear tree clean via security footage.
On top of keeping the place spick and span, making plans to be out of the house, and (during the time of COVID-19) sanitizing to the max, Jill Chan shared this week that apparently, keeping track of backyard garden stock should be added to a home seller’s showing to-do list.
In a Facebook post shared to a private group, which was reposted on reddit, Chan said that on Friday, Luxmore Realty’s Peter T. Yang brought two people into her Vancouver home for a showing while she and the other residents weren’t present.
That’s when things reportedly got prickly.
According to Chan, Yang took notice of the property’s large pear tree and berry bushes, and started to pick fruit off the trees and eat it. He then retrieved plastic bags from his vehicle, Chan said, and “picked every last fruit” from the garden.
Chan’s post illustrates Yang encouraged the home viewers to join him in picking the fruit.
“They took a free for all on our home showing,” she wrote, reporting that the group spat seeds all over the yard.
“Who does this? This garden was my late grandma who passed away last year’s pride and joy, and I don’t believe it is of acceptable practice to bag up someone’s entire garden at a home showing like a free market.”
Chan wrote that she reported the incident to the Vancouver Police Department but law enforcement said they wouldn’t get involved until the homeowners “find something tangible missing.” Instead, she was encouraged to contact the real estate board.
“We hope this practice will be punished,” Chan said. “My family still lives here and we are distraught at this behaviour.”
CCTV footage via Jill Chan.
Charles Zhou, Managing Broker at Luxmore Realty, posted a public statement about the recent incident to the company’s website; the post is titled “Letter of Apologies.”
“On behalf of Luxmore Realty, my team members and I extend our sincerest apologies for the terrible experience one of our clients had with our real estate agent Peter T. Yang,” Zhou wrote. “I understand that Peter made a really irresponsible and unprofessional behavior during last Saturday’s home showing. I deeply apologize to the homeowner and her family members who were offended by such behavior.”
In the statement, Zhou said that Yang “feels guilty [over] and regrets” his mistakes. He is now reportedly in the process of making an official apology to the homeowner, and providing them with compensation.
“Meanwhile, our company will also strengthen all sorts of training, especially educating about property privacy,” Zhou said. “We deeply apologize for Peter’s behavior and we will learn from our mistakes. We take full responsibility for what we did. And we hope the homeowners and the public to forgive us this time.”
Zhou’s mention of compensation isn’t the first in this situation. According Chan’s Facebook post, Yang offered to “give the fruit back” for that exact reason — as compensation.
As other segments of the economy have suffered in 2020, life sciences are emerging as a bright spot.
Private investors have put more than $16 billion to work in life sciences in the first half of 2020, while the National Institutes of Health continues to up its grant volume. In 1994, NIH gave out $11 billion in grants. By 2019, that number jumped to $39.1 billion, JLL’s Life Sciences practice Global Leader Roger Humphrey wrote for NAIOP.
The pursuit of COVID-19-related therapeutics, antibody tests and a vaccine contributed to this increase in funding. But it wasn’t the entire story, according to Humphrey. An aging US population needing life-sustaining and life-extending care, wellness-conscious millennials and a prescription drug market on track to reach $1 trillion by 2022 also drove this market.
To secure funding, Humphrey writes that life sciences companies must create a work environment that encourages innovation and productivity while remaining flexible to meet new and evolving demands.
As these firms need to remain flexible, they’re adopting more technology, such as machine learning and artificial intelligence.
“That means a growing portion of today’s lab looks more like a traditional office, even if its operational systems are far more sophisticated,” Humphrey writes.
While computers and the internet have allowed many office workers to work remotely, Humphrey writes that life sciences companies still brought workers into labs. They are incorporating staggered shifts and social distancing to keep their work on track. Many administrative staffers at these companies are working from home.
“Flexible lab space that can adjust to a variety of work tasks with limited downtime will be critical, along with ‘free’ space that can be called on to meet changing industry conditions,” Humphrey writes.
The locations of this space could be changing, though. Boston, San Francisco and San Diego secured up to 70% of venture capital investments in 2019. While these locales offer proximity to a highly educated workforce and ties to leading research institutions, Humphrey reports some companies are starting to look to secondary markets to cut costs. He writes that these secondary markets include Maryland, North Carolina’s Research Triangle, Philadelphia, New York and Los Angeles.
Others agree that high costs are creating new life science hubs. “Major metropolitan cities like Boston, San Francisco, Seattle and San Diego that have been long-established life science hubs are expensive to operate in,” Mark Hefner, CEO and shareholder of MGO Realty Advisors told GlobeSt. in an earlier interview.
“Everything from real estate to cost of living in these cities is expensive. Now, with the Covid-19 crisis, companies are facing tremendous budget constraints and increasing pressures on their bottom line, forcing them to reconsider where they are located.”
One of the world’s largest credit rating agencies doubled down on its Canadian home price forecast. Moody’s Analytics sent clients its September update on Canadian real estate prices. The forecast reiterates they expect price declines to begin towards the end of this year. The report also names impacted cities this time, with Toronto expected to be a leader lower.
A quick note on reading Moody’s charts, which includes “forecast vintages.” If you’ve only looked at consumer forecasts, these might be new. They’re scenarios that vary depending on the forecasting model’s inputs. Instead of giving a forecast like, “prices will drop x%,” they give a range based on factors. These factors are fundamentals that have typically supported prices.
The Moody’s forecast shows vintages as baseline, S1, S3, and S4. The September baseline is the scenario they believe has the highest probability. The S1 is what happens if indicators are better than expected. This would mean unemployment drops fast, and disposable income doesn’t fall much. The S3 is what happens if fundamentals are worse than expected. S4 is the worst scenario that can unfold in a reasonable amount of time. Abrupt scenarios and black swans can still be worse. It’s just those are outside of the range of reasonable expectations.
Canadian Real Estate Markets To Start Showing Weaknesses Soon
Moody’s previous forecast didn’t expect the market to show signs of weakness until Q3, and they’re doubling down. The report’s economist expects stimulus, mortgage deferrals, and interest rates to contain damage until Q3. They expect by Q3, the optimism of those programs will begin to wear thin. The reality of how meaningful the improvements are, should be apparent by then. The optimism should then fade. It’s at this point they believe prices can no longer defy employment, vacancy, and delinquency rates.
Canadian Real Estate Prices To Drop Around 7%
The firm expects all scenarios to show a drop in the near future, but how much depends on fundamentals. In the September baseline, the firm’s economist is forecasting a ~7% decline at the national level. This scenario expects unemployment at 8.56%, and a 2% drop of disposable income next year. Since the rise in disposable income was due to temporary supports, the fall is expected.
In the other scenarios, things vary from a brief drop to a very deep, multi-year decline. In the S1 scenario, there’s only a brief dip in Q1, before prices rocket even faster and higher. In S3, a slightly worse than base case, prices fall about 15%, taking them back to 2016 levels. In S4, if disposable income, GDP, and/or unemployment worsen, prices drop about 22%, back to 2015 levels. Of course, this trend isn’t evenly distributed across Canada. However, it’s also not distributed how most might expect.
Prairie Cities and Toronto Real Estate To Lead The Declines
The base case sees Prairie cities and Toronto real estate leading price declines. Calgary, Edmonton, and Regina lead the drop, with a peak-to-trough decline between 9 to 10%. This is a trend already apparent in the regions’ condo markets. Toronto, a little more unexpected, is forecasted to see a 9% price drop, from peak to trough. Vancouver’s drop is forecasted below the national average, with an average decline of almost 7%. The last market is interesting, since other organizations gave Vancouver much worse forecasts.
Toronto Real Estate To Experience Uneven Declines Across Regions
The base case for Toronto expects an uneven decline, with some regions harder hit. The drop across Toronto CMA is expected to be about 9%, from peak to trough. Pickering should see smaller declines, but experience minimal growth through 2025. Markham is the most surprising though, not expected to hit 2017 highs by 2025. The trend here appears to be regions short on space will recover the fastest. Although that is likely to depend on the type of housing as well.
The forecast notes pandemic uncertainty, and its potential to bring greater downside. As it gets colder, the potential of more indoor activity may lead to a second wave. The report’s economist believes this can bring even larger declines to prices. Shifting consumer behavior is also a wild card that can also push prices lower, as are any vaccine delays.
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Transit City Condos, being developed by a JV led by SmartCentres REIT, at the Vaughan Metropolitan Centre just outside Toronto. Development and intensification have been key growth strategies during the past decade for Canadian REITs. (Rendering courtesy SmartCentres)
Development has been a key growth strategy for many real estate investment trusts over the past decade, but will that continue during the next 10 years?
“There has been some dislocation in the short-term operating metrics,” CIBC World Markets REIT analyst Dean Wilkinson said. “I think the question we’re all struggling with is: Is this a permanent structural shift in a downward direction with the underlying fundamentals of the real estate, or have we overshot?“
“Projects are getting bigger and more complex, and we’re seeing a lot of mixed-use,” said Altus Group cost and project management senior director Marlon Bray, who noted he’s being inundated with proposals. “I’ve got people sending me six, eight, 10 projects to look at in the space of two or three weeks.
“They’re looking long-term at pipelines and thinking of the future and not just what’s going to happen tomorrow.”
Transit-oriented and mixed-use development
Immigration has slowed considerably during the pandemic, but it’s starting to rise again and those people will need places to live and work.
While public transit ridership has decreased during the COVID-19 pandemic, SmartCentres REIT (SRU-UN-T) development VP Christine Côté said transit-oriented development is still desirable and should remain a focus for REITs and all levels of government.
Dream Unlimited (DRM-T) chief development officer Daniel Marinovic said a lot of critical transit infrastructure work began in the Greater Toronto Area in 2008 and, while it will be ongoing for years to come, he believes it’s a “phenomenal” long-term investment.
“I’ll continue to be a big believer in density,” said Marinovic.
Allied Properties REIT (AP-UN-T) executive VP of development Hugh Clark remains a strong advocate of the “live, work and play” concept and believes it will continue to prosper. He said mixed-use projects need amenities to help people socialize.
Grocery stores, restaurants and services and amenities catering to the daily needs of the local community will become more important additions within residential buildings, according to Côté.
“We feel strongly that value-oriented retail will continue to be strong,” she said.
Construction costs levelled off from April through June, but have ramped back up due to supply and demand factors.
Bray attributes some of the increase to the 7,000 condominium units and 10,000 rental units under construction in the Greater Toronto Area, more than double the numbers from 10 years ago.
Bray pointed out construction costs comprise less than 50 per cent of residential development expenses.
Land can account for as much as 30 per cent, while development charges and taxes are also major costs. Development charges have increased by multiples and are always changing and hard to predict, said Bray.
Wilkinson said the saving grace over the last several years is that rent increases have “probably gone at, or at a level higher than, the inflation surrounding those construction costs. But if the script gets flipped and it goes the other way, what could happen?”
Specific issues for REITs
No more than 15 per cent of a Canadian REIT’s funds are generally allowed to be spent on development, which Wilkinson said is lower than in other countries.
The potential build-out for some Canadian REITs, particularly those with retail sites with inherent density, is larger than their current gross leasable area.
Wilkinson added that development activity isn’t included in the underlying value of a company until a building is finished. Thus, a short-term construction expenditure is a diluted effort because capital is put into something that’s not creating immediate cash flow.
There’s an increase in NAV after the completion of projects, but the public market is still focused on quarterly results instead of longer-term cycles, according to Wilkinson.
As a result, Allied is taking a prudent, market-driven approach to development and isn’t looking to expand just because it can.
Clark said the REIT may slow the launch of new projects and ensure it hits certain pre-leasing requirements before starting construction so it doesn’t put itself in a “position of strain.”
Returns for REITs are getting smaller
Clark said it’s “getting harder and harder to make some big gains, with eight or nine or 10 per cent returns on investment.” While it’s possible with some high-priced condos, those are few and far between.
Clark thinks REITs will be lucky to keep a 100- to 150-basis point spread going forward. A development yield of 150 basis points over the acquisition cap rate is much lower than the 400- or 500-point spreads of the past, Wilkinson added.
The convergence between the two figures could mean the elimination of compensation for development risk, so developers may have to start looking more closely at portfolio quality versus straight economic accretion.
“There’s value to that, but it remains to be seen how the market wants to treat that,” said Wilkinson.
Apartment rents have sagged recently due to the COVID-19 pandemic, and Wilkinson said there are concerns market rents may be just 10 per cent higher than in-place rents when apartments being built now are completed.
“The premium that was afforded to a lot of the apartment REITs was really based upon the fact that their in-place rents were 20 to 25 per cent below what was deemed to be market rent. So, they were trading at 20 to 25 per cent premiums to NAV.”
Côté has been with SmartCentres for 17 years, and her focus in that time has changed from building Walmarts and shopping centres to intensifying existing properties across Ontario.
“We’ve got countless master plans that are in place now and we are preparing, submitting and processing development applications for those initial phases of redevelopment across the portfolio,” she said.
SmartCentres has made applications for more than 20 development projects since the onset of COVID-19 and will submit another 20 over the next six months, according to Côté.
The REIT has more than 40 million square feet of density planned, mainly on sites it already owns, and has a long-term plan for much more than that.
Côté said SmartCentres is taking more time with new building design to increase efficiencies and make them more economical.
Despite the recent softness in rents, Côté doesn’t think the REIT’s planned purpose-built rental apartments will be switched to condos.
She believes the market will be past its short-term challenges by the time those buildings are ready for occupancy.
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