At the height of the COVID-19 pandemic, when many of her peers were binge watching Netflix shows, Toronto’s Sewit Tamene decided she would finish getting her real estate licence, a process she had started almost a decade earlier.
Real eState
The Canadian real estate that smart money is still desperate to buy: industrial warehouses – The Globe and Mail
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Employees work at the Amazon fulfillment centre in Brampton, Ont. in 2018.Chris Young/The Canadian Press
Unrelenting demand for Canada’s storage and distribution warehouses is vaulting that segment of the real estate market into a new echelon, with industrial properties in and around cities such as Toronto and Montreal commanding some of the fastest-rising prices in the world.
The market for warehouse space is so strong that the national vacancy rate has fallen to a record low of 1.6 per cent, according to commercial real estate services and investment firm CBRE Group Inc. Supply is so tight that some landlords have been able to raise rents more than 100 per cent in tenant turnovers and lease renewals.
The returns have attracted some of the world’s most sophisticated real estate players. In June, Prologis Inc. PLD-N, a massive industrial property owner based in San Francisco, bought land in the Greater Toronto Area to develop a new warehouse. The $500-million purchase price amounted to almost $2.5-million per acre, more than double the going rate five years ago.
Yet there are fears this can’t last much longer. Major retailers have cautioned that the e-commerce boom has reached its limit, and this spring Amazon spooked investors by announcing plans to sublease some of its warehouse space. At the same time, interest rates have spiked, making commercial mortgages more expensive, and incessant inflation has sent development costs soaring.
So far, though, industrial properties here have defied fears of a sector-wide cooling, and the markets in four Canadian cities are the tightest in North America. “The party is not over,” said CBRE Canada vice-chair Paul Morassutti. “It might not be quite the rager it was, but it’s definitely not over.”
In mid-August, Summit Industrial Income REIT, which exclusively owns Canadian warehouses, reported quarterly earnings and disclosed that its average rent increase this year when a lease was renewed or in a tenant turnover was 46 per cent.
Summit also reported that the national average rental rate across the sector rose to a record high of $12.25 per square foot. Five years ago, it was less than $7.
Demand for warehouses took off around 2016 as e-commerce gathered steam, then shot up through the pandemic as consumers relied heavily on online shopping. Although e-commerce growth has slowed of late because lockdown restrictions have lifted, online sales are still rising overall, just at a slower rate.
CBRE estimates that for every billion dollars in e-commerce sales in Canada, approximately 1.25 million square feet of warehouse inventory are needed. That means another 90 million square feet of space could be needed in the next five years. Canada currently has 1.9 billion square feet of industrial space.
The need could be even greater if just-in-time inventory systems become more prevalent, with companies increasingly turning to onshore sourcing in order to mitigate the supply chain issues that have plagued them over the past 2½ years.
High transportation costs have also boosted industrial property values, something Mr. Morassutti said is underappreciated. Typically, logistics and transport expenses account for 70 per cent of supply chain outlays, while real estate is only 5 per cent of the burden. That means that for every dollar saved on logistics – by having warehouses closer to the customer, for instance – a company can theoretically pay 14 times more on rent.
This month, Summit disclosed that it recently re-leased a one-storey warehouse in Markham, Ont., northeast of Toronto, after only one month of downtime and increased the monthly rent by 42 per cent. At another property in the GTA, the REIT re-leased the space with no downtime – and a 117-per-cent rent increase.
Summit’s shares, which trade on the Toronto Stock Exchange, have soared 223 per cent, including distributions, over the past five years. Rivals Granite REIT and Dream Industrial REIT, which own a mix of Canadian and international properties, have gained 98 per cent and 86 per cent, respectively. The equivalent return for the S&P/TSX Composite Index is 57 per cent.
Because residential real estate has cooled so quickly in Canada over the past six months, and commercial sectors such as office properties have also struggled, there are fears warehouses will get hit, too. The main concern is that, with the pace of construction at a record high, the market will eventually get flooded with industrial properties.
However, even after all the properties currently under construction are completed, the total amount of square footage available will increase just 2.3 per cent, according to CBRE.
As for fears that Amazon is scaling back in the U.S., which sent a chill through the entire sector, that just hasn’t materialized. “What’s interesting is we’ve been monitoring the market pretty closely to see what Amazon is doing,” Granite REIT chief executive Kevan Gorrie said on a conference call with analysts and investors this month, “and there are so far almost zero, it’s negligible, the number of assets that Amazon is actually looking to sublease.”
Because the industrial market has been so hot, it is widely believed there will be some softening, particularly in other countries. “There are some U.S. markets that don’t have many constraints on land or constraints on development, and those markets are finding rents stabilizing much quicker,” Dream Industrial CEO Brian Pauls told analysts and investors on the company’s quarterly conference call.
“But in the GTA, certainly, and in Montreal, what we’re seeing are rents continuing to grow,” he said.
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Real eState
Piles of commercial-real-estate loans at banks may be worth just 77 cents on the dollar — if that
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The swift collapse of Silicon Valley Bank earlier in March put a spotlight on potentially painful losses lurking at banks from trillions of dollars in commercial-real-estate loans on their books.
It also sparked debate over what piles of older loans on commercial properties might be worth now that low interest rates and peak real-estate prices have vanished, and as stress in the banking system makes credit more scarce.
The sale of $72 billion in assets from the failed Silicon Valley Bank by regulators at a $16.5 billion discount, which pencils out to about 77 cents on the dollar, offers a glimpse into a new clearing price for commercial-real-estate loans.
“The way I look at it is: [that] the Silicon Valley Bank trade created a baseline for the market,” David Blatt, chief executive at CapStack Partners, a credit fund that buys commercial-real-estate loans from banks and originates short-term bridge loans and mezzanine debt.
“To me, that’s the top end, not the bottom end, for commercial-real-estate loans,” said Blatt, who studied the bank’s loan exposure.
Unlike stocks or bonds, loans in the estimated $5.5 trillion commercial-property market don’t sell in a transparent way, which means pegging their values can be difficult.
To be sure, not all of the sold assets of Silicon Valley Bank were related to commercial real estate. The bank reported about $13 billion of real-estate exposure at the end of 2022, according to a quarterly filing, which categorized about $2.6 billion as loans on commercial real estate.
Still, Blatt and other commercial-real-estate veterans steeped in previous bank-failure cycles told MarketWatch the sale provides a “mark” in terms of where loans actually changed hands in the wake of two regional-bank failures.
”Everybody is dusting off their old playbook,” said Jack Mullen, founder of Summer Street Advisors, a commercial-real-estate advisory firm that’s been involved in multibillion-dollar workouts. “There just hasn’t been much distress for years.”
Toll of higher rates
As with bonds, the Federal Reserve’s rapid pace of interest-rate hikes has cut the value of older, low-coupon commercial-real-estate loans. Mullen said recent bank failures also make it harder for banks to “sweep it all under the rug,” which likely means more loan sales by banks.
“People are not going to let it carry into next year,” he said. “On the regulatory side, it’s coming right to the front of the line. People are supermindful of it.”
Richard Hill, head of real-estate strategy and research at Cohen & Steers, recently argued in a report that while banks hold an estimated 45% of all commercial mortgages, the debt isn’t a systemic risk for banks.
“We previously argued that [a decline of 10% to 20% in commercial-property prices] was reasonable to expect, and we now believe it could be 20–25%,” Hill wrote. He also said higher loan standards in the wake of the 2007–08 global financial crisis can provide lenders a cushion if property values fall.
In the reeling office sector, however, the value of older office buildings in Manhattan could tumble 70%, said Stijn Van Nieuwerburgh, a professor of real estate and finance at Columbia University’s business school, in a talk Thursday about turning older offices into homes hosted by the Volcker Alliance.
“Forty percent of that is just coming from interest rates alone,” Van Nieuwerburgh said, adding that remote work, current regulations and other pressures on the office-building market contribute to the value drop.
Write-down implied
Real-estate investors also will be watching the sale of $60 billion of Signature Bank loans. Newmark Group Inc. was hired to market the assets from the failed bank that were excluded in a previous sale of its holdings.
“What everybody has been operating under is this hold-to-maturity veneer,” Blatt said of banks that have continued to value loans at 100 cents on the dollar, or par.
“There’s just no way these things get resolved at par,” Blatt said. With the discounted sale of Silicon Valley assets, “the write-down is kind of implied.”





Real eState
The spring housing market could bring a reckoning for realtors in Canada
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Realtors’ fate depends on whether buyers and sellers return in force and how that will affect prices


But by the time she completed the program in September 2022, the booming pandemic housing market had started to turn cold, with sales and new listings on the decline and prices rolling over, too. For Tamene, the timing was bad, but at least she still had a full-time job elsewhere. For her friends trying to launch careers in the industry, the transition has been more difficult.
“Maybe if they already had a history and they already had a client base and they were already sort of successful, it wouldn’t be hitting them as hard — but if you’re a newer agent, I definitely think that it’s a little bit more difficult to get going,” Tamene said. “Some realtors are definitely taking a pause or leaving the industry because there’s just not enough cake for everyone.”
The pressure on a swelling real estate profession — membership at the Canadian Real Estate Association (CREA) has risen 17 per since the end of 2020 to 160,000 while the number of brokers and salespeople represented by the Toronto Regional Real Estate Board is up 25 per cent since March 2020 — is just one of the storylines making this spring’s real estate market a make-or-break affair.
There’s just not enough cake for everyone
Sewit Tamene
The big questions, the ones that will decide realtors’ fates, are whether buyers and sellers return in force and how that will affect prices.
The Bank of Canada’s dramatic interest rate hikes over the past year have reshaped lending markets, making homes even less affordable and pushing many would-be homebuyers to the sidelines.

Figures released by CREA on March 15 show that actual (non-seasonally adjusted) transactions in February 2023 came in 40 per cent below a strong February 2022. New listings also continued to fall in February 2023, decreasing by 7.9 per cent month over month and hitting record lows in some cities, including Calgary.
Industry observers have suggested the usually busy spring market might be the turning point that lures buyers and sellers back into the game, but that is hardly assured, and just where the balance of supply and demand lands will have significant consequences for the industry and the economy.

John Pasalis, president and broker of record at Toronto real estate brokerage, Realosophy, thinks demand has the upper hand. He said his brokerage has had lots of showings recently and that sales are growing faster than inventory. That is keeping the bidding process competitive and maintaining price levels, something he doesn’t see changing.
Pritesh Parekh, a Toronto realtor, said that while the lack of listings may be supporting prices, it is limiting the options for buyers.
“If a realtor is representing a buyer in this market, they’re definitely feeling the pressure of even finding homes that are suitable,” Parekh said. “And when they finally do find a property — and I’m talking more so houses than condos in this specific example — there are so many other buyers that are looking at that same home.”
“It was a market where properties were selling quickly and selling for high prices,” he said. “Part-timers doing lower volume sales or staying afloat based on the reality that there was a lot of business to go around, were selling properties relatively easily.”

Then, the market was buzzing from the Bank of Canada’s emergency interest rate cuts, sparked by the COVID-19 pandemic. The overnight rate sat at 0.25 per cent for all of 2021. A previously hot market seemingly got hotter that year.
“Properties were selling without being staged, without having repairs — even properties that had negative attributes were still selling at prices people couldn’t believe,” Parekh said.
Parekh thinks this spring will show that buyers and sellers are tired of playing the waiting game.
“There were so many people who were looking to buy last year,” Parekh said. “And once prices started going down, they held off to see what happens next. There are still people in the market who have been waiting since last year, and at this point there’s going to be a segment of them who are tired of waiting and say, ‘You know what, I’m ready to pull the trigger.’”

Adil Dinani, a realtor with Royal LePage West in Vancouver, has been selling real estate for 17 years and has seen three major market corrections. He said he is optimistic about the spring market and believes that “the worst is behind us.”
But he thinks a reckoning may be ahead for the industry, with less-established agents being winnowed out over the next few years.
“I think real estate practitioners need to work to provide value, to display market knowledge and really understand what’s happening out there (in real estate) because it’s a confusing time,” Dinani said. “If you’re a first-time buyer and rates are five and a half, six per cent, and prices have come down but not that much — you want to know where the opportunities in the market are.”
In spite of the uncertainty, Tamene is optimistic the market will bounce back.
“Things have been slower these past few months which can be discouraging,” she said. “I’m not a gambler but if I were placing a bet on Toronto and its real estate market, I’m going all in because that’s how confident I am that things will turn around.”
Real eState
European real estate stocks hammered by banking turmoil
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