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Single-tenant assets prove a hat-trick investment – Western Investor

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A year ago, we contributed to a Western Investor report on what was attracting tenants to single-tenant investment property; namely, strong covenants, long-term triple net, or even quadruple net leases, quality locations, and carefree ownership. Today, a lot of the fundamentals remain the same but what has been notable over the last few months is the increase in buyers and the amount of capital searching for these deals.

In a year that has brought uncertainty and risk to the forefront of people’s minds, as well as the shakeout of smaller local retail operators, stability and security are in high demand.

Many single-tenant properties are occupied by national tenants with strong corporate brand recognition and offer daily needs, such as banks, pharmacies, quick service restaurants, or automotive gas stations and service centres. These tenants often have a large loyal following and provide goods or services that are not easily replicated by e-retail.

Of the 23 deals firmed up or sold this year by Marcus & Millichap, seven were in Metro Vancouver, eight on Vancouver Island and the Interior of B.C., and eight in Alberta, for a combined value of over $104 million.

Assets in the Lower Mainland or primary markets on Vancouver Island and the Interior of B.C. received the highest level of interest, but this is also reflected in capitalization (cap) rates. In general, we have seen lower cap rates this year than in previous years. The greatest demand and lowest cap rates we received were for assets in Metro Vancouver, but the larger Vancouver Island and Okanagan markets were not far behind. Alberta, given the opportunity for slightly higher yields, drove increased investor demand.

Lenders are looking to these assets as a safe investment, and buyers have taken advantage of the competitive lending rates and terms. That said, investors are also coming to the table with greater equity across the capital stack.  For transactions in the Lower Mainland, it’s common for buyers to expect to be putting down 50 per cent to 60 per cent equity given the low cap rates. Values in Metro Vancouver assets are often driven by the underlying land, promoting compressed cap rates.

In Metro Vancouver, buyers are speculating on the continuing increase of land value, and upward pressures on rents. As investors move away from the major population centres, the focus shifts to capturing the greatest positive leverage possible (the spread between cap rates and borrowing rates), with the more traditional loan to value ranging from 65 per cent to 75 per cent.

Single-tenant strata

With a lack of investment product, and an abundance of capital, investors that were traditionally not focused on stratified commercial real estate opportunities, are now actively pursuing these assets. If you are looking to invest in the larger urban centres, stratified commercial assets will inevitably form a part of the overall portfolio.

Case in point, in North Vancouver, our team listed a block of newly built, street-front commercial strata units occupied by quality tenants including Scotiabank and Pharmasave. The strata units were being offered on an individual, single-tenant basis, all secured by long-term triple-net (NNN) leases with expiration in 2030-2031. Prices ranged from $1.4 million to $4.3 million. Within days of the properties going to market, a single buyer purchased the entire offering.

There are still traditional freestanding single-tenant opportunities in Metro Vancouver, but their scarcity, future development potential and often high-profile locations generate great interest and buyer demand. 

We expect demand for single-tenant properties to remain strong through 2022, as capital continues to seek secure and stable hard assets. A rising interest rate market may push some groups to the sideline, but more likely to search further afield in secondary and tertiary markets. In general, the high demand for well-located, long-term, secure, and stable real estate will continue to apply downward pressure on cap rates in the immediate term.

  • Curtis Leonhardt is first vice-president, investments, with Marcus & Millichap, Vancouver

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Pandemic darlings face the boot as investors eye return to normal life

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Stay-at-home market darling Netflix slumped on Friday, joining a broad decline in shares of other pandemic favourites this week as investors priced in expectations for a return to normal life with more countries gradually relaxing COVID restrictions.

The selloff, which began after Netflix and Peloton posted disappointing quarterly earnings, spread to the wider stay-at-home sector as analysts judged the new Omicron coronavirus variant will not deliver the same economic headwinds seen in the first phase of the pandemic in 2020.

“This a confirmation that the economy is gradually moving towards some sort of normalisation,” said Andrea Cicione, head of strategy at TS Lombard.

France will ease work-from-home rules from early February and allow nightclubs to reopen two weeks later, while Britain’s business minister said people should get back to the office to benefit from in-person collaboration.

“With a return to the office and travel lanes opening, darlings of the WFH (work from home) thematic are reflecting the growing reality that the world is moving slowly but with certainty towards a new normalcy,” said Justin Tang, head of Asian research at United First Partners in Singapore.

Netflix tumbled nearly 25% after it forecast new subscriber growth in the first quarter would be less than half of analysts’ predictions.

The stock, a component of the elite FAANG group, was on track for its worst day in nearly nine-and-a-half years following rare rating downgrades from Wall Street analysts.

“It is hard to have confidence that Netflix will return to the historical +26.5 million net subscriber add run rate post the 2022 slowdown,” MoffettNathanson analyst Michael Nathanson said.

“The decay rate on streaming content is incredibly rapid. ‘Squid Game?’ That’s so last quarter. ‘The Witcher?’ Done on New Year’s Eve!”

Exercise bike maker Peloton lost nearly a quarter of its value on Thursday, leading at least nine brokerages to cut their price target on the stock.

The selloff erased nearly $2.5 billion from its market value after its CEO said the company was reviewing the size of its workforce and “resetting” production levels, though it denied the company was temporarily halting production.

Peloton’s shares were up nearly 5% on Friday morning, bouncing back somewhat from a 23.9% drop on Thursday, its biggest one-day percentage decline since Nov. 5.

HOME DELIVERY

Both companies were part of a group, along with others such as Zoom and Docusign whose shares soared in 2020, and in some cases 2021 as well, as people around the world were forced to stay at home in the face of the coronavirus.

However, thanks to vaccine rollouts and the spread of the less severe Omicron strain of COVID-19, life is returning to normal in many countries, leaving companies like Netflix and Peloton struggling to sustain high sales figures.

According to data from S3 Partners, short-sellers doubled their profits by betting against Peloton in 2021, the third best returning U.S. short.

Direxion’s Work from Home ETF has fallen more than 9% in first three weeks of the year, compared to a 6% drop in the fall of the broader U.S. stock market. Blackrock‘s virtual work and life multisector ETF has weakened more than 8% this year.

In Europe, lockdown winners are also going through a rough patch as rising bond yields pressurise growth and tech stocks.

Online British supermarket group Ocado, Germany’s meal-kit delivery firm HelloFresh and food delivery company Delivery Hero which emerged as European stay-at-home champions in the early days of the pandemic have underperformed the pan-European STOXX 600 so far in 2022.

(Reporting by Alun John and Julien Ponthus; Additional reporting by Nivedita Balu, Anisha Sircar and Chuck Mikolajczak; Editing by Saikat Chatterjee, Alison Williams and Saumyadeb Chakrabarty)

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Bitcoin falls 9.3% to $36,955

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Bitcoin dropped 9.28% to $36,955.03 at 22:02 GMT on Friday, losing $3,781.02 from its previous close.

Bitcoin, the world’s biggest and best-known cryptocurrency, is up 2.4% from the year’s low of $36,146.42.

Ether, the coin linked to the ethereum blockchain network, dropped 12.27% to $2,631.35 on Friday, losing $368.18 from its previous close.

 

(Reporting by Jaiveer Singh Shekhawat in Bengaluru; Editing by Sriraj Kalluvila)

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Oil, gas investment forecast to rise 22% in Canada – Investment Executive

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It’s positive news for an industry that has now essentially recovered to its pre-pandemic levels, after a disastrous 2020 that saw oil prices collapse due to the impact of Covid-19 on global demand.

But CAPP president Tim McMillan pointed out that in spite of the fact that oil prices are at seven-year highs and companies are recording record cash flows, capital investment remains well below what it was during the industry’s boom years. In 2014, for example, capital investment in the Canadian oilpatch hit an all-time record high of $81 billion, capturing 10% per cent of total global upstream natural gas and oil investment.

“Today we’re at $32 billion, and we’re only capturing about six% of global investment,” McMillan said. “We’ve lost ground to other oil and gas producers, which I think is problematic for a lot of reasons . . . and it leaves billions of dollars of investment that is going somewhere else, and not to Canada.”

Investment in conventional oil and natural gas is forecast at $21.2 billion in 2022, according to CAPP, while growth in oilsands investment is expected to increase 33% to $11.6 billion this year.

Alberta is expected to lead all provinces in overall oil and gas capital spending, with upstream investment expected to increase 24% to $24.5 billion in 2022. Over 80% of the industry’s new capital spending this year will be focused in Alberta, representing an additional $4.8 billion of investment into the province compared with 2021, according to CAPP.

While the 2022 forecast numbers are good news for the Canadian economy, McMillan said, it’s a problem that companies aren’t willing to invest in this country’s industry at the level they once did.

He said investors have been put off by Canada’s record of cancelled pipeline projects, regulatory hurdles and negative government policy signals, and many now see Canada as a “difficult place to invest.”

However, Rory Johnston, managing director and market economist at Toronto-based Price Street Inc., said laying the decline in the industry’s capital spending at the feet of the federal government is overly simplistic.

He added while current “rip-roaring, amazing” cash flows and a period of sustained high oil prices will certainly give some producers the appetite to invest this year, Johnston said, it will likely be on a project-by-project basis and certainly on a smaller scale than the major oilsands expansions of a decade ago.

“You have global macro trends across the entire industry that have begun to favour smaller, fast-cycle investment projects – and most oilsands projects are literally the polar opposite of that,” he said.

One reason capital spending isn’t likely to return to boom time levels is because companies have become much more cost-efficient after surviving a string of lean years. And that’s not a bad thing, Johnston said.

“The decade of capex boom out west was tremendously beneficial for Canada and Albertans, but it also caused tremendous cost inflation,” he said.

“While what we’re seeing right now is not as construction-heavy and not as employment-heavy – and those are two very, very large downsides – the upside is that you’re much more competitive in a much more competitive oil market,” Johnston said.

In a report released this week, the International Energy Agency (IEA) hiked its oil demand growth forecast for the coming year by 200,000 barrels a day, to 3.3 million barrels a day.

According to the IEA, global oil demand will exceed pre-pandemic levels this year due to growing Covid-19 immunization rates and the fact that the new Omicron variant hasn’t proved severe enough to force a return to strict lockdown measures.

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