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
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
