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Tips from Canada's top-performing real estate fund managers on how play the volatile sector – The Globe and Mail



Industrial space such as warehouses and fulfilment centres have risen in value amid the embrace of e-commerce.onurdongel/iStockPhoto / Getty Images

Investors considering adding some real estate into their portfolios should take a page from some of the top-performing fund managers who have succeeded by playing on long-term trends such as low vacancy rates for apartments and the embrace of e-commerce.

“Definitely over the last three years the ‘beds and sheds’ theme has worked” for investors, says Derek Warren, a vice-president and portfolio manager with Lincluden Investment Management in Mississauga. (‘Beds’ refers to residential real estate, while ‘sheds’ is a reference to industrial space such as warehouses and fulfilment centres).

Mr. Warren, who manages the Lipper Award-winning CIBC Canadian Real Estate Fund, says the strategy works because people need to live somewhere and the shift to online commerce seems unstoppable.

“The cheapest place to live is in a rental apartment. So as home prices have appreciated and as immigration has increased over the last three years, that market has done very well and is very stable.”

Industrial real estate, meanwhile, has gained “dramatically” in recent years owing to the growth of online retailing, he says. “Everything you buy online has to come from a warehouse … and of course COVID only exacerbated that trend and accelerated it.”

Taking the e-commerce theme a bit further, the portfolio manager added U.S. funds that offer more niche plays such as data centres and cellphone tower real estate investment trusts (REITs).

The CIBC real estate fund is also currently overweight two office REITs, namely “brick and beam” (warehouse style office space) property owner Allied Properties Real Estate Investment Trust (which also has some urban data centre ownership) and Dream Office REIT. He expects both to do well as workers begin to fill office spaces again.

The pandemic has been particularly hard on the valuations of traditional office owners and retail property companies, as well as for some in the assisted living and apartment sectors.

Acting tactically and buying these out-of-favour commercial real estate sectors has been a winning formula for Dean Orrico, president and chief executive of Middlefield Capital Corp. of Toronto, whose Middlefield Global Real Estate Class fund was a 2021 Lipper Award winner.

Last year, early in the pandemic, his firm loaded up on e-commerce companies including U.S.-based cell tower and data centre REITs. He has recently added Canadian grocery-anchored REITs, believing that people would eventually have to get back to their normal routines.

“We felt strongly [last fall] that eventually we would get vaccines,” Mr. Orrico says. “Eventually you were going to start seeing a reopening and some of those office, apartment and grocery-anchored REITs were oversold.”

His top picks include the Granite REIT (industrial/logistics properties within North America and Europe), the U.S.-based Alexandria Real Estate Equities REIT which owns and operates urban science and tech campuses in North America, retail developer RioCan REIT which is diversifying out of traditional retail as well as CAPREIT, Canada’s largest apartment REIT.

Mr. Orrico remains bullish on the real estate sector generally despite predictions of rising interest rates.

“Even during periods of rising rates, real estate actually tends to perform very well,” he says, because owners can pass of rising costs as leases expire. Many real estate companies have also been extending their existing debt in the ultralow interest rate environment.

“For investors who want income and who want tax-efficient income, in my view there is no better asset class than the REITs,” Mr. Orrico says.

Another often overlooked sector for would-be real estate investors is manufactured homes, better known as mobile homes or trailer parks.

“Most of my funds have been overweight manufactured homes since their existence,” says Steve Buller, a Boston-based portfolio manager with Fidelity Investments who manages the 2021 Lipper Award-winning Fidelity Global Real Estate Fund.

Trailer parks may not be pretty to look at, but they have displayed attractive financial fundamentals, he notes.

“It’s been an extremely good sector. Many people don’t want them built in their neighbourhoods or their towns [but] it is very low capex when you have a concrete slab,” he says.

Park or trailer campground operators typically provide minimal services such as utilities and lighting and have a financial advantage apartment building operators could only dream of; security for their rent.

“If [tenants] don’t pay their rent on their slab you have a first lien to take over their manufactured house, so you have security of rental stream,” he says.

Looking ahead, the Fidelity portfolio manager sees the fundamentals of the out-of-favour hotels sector improving as leisure and business travel returns to more normal levels. His fund remains underweight in office markets in North America and Britain where work from home practices may take longer to end than other countries.

He also likes the commercial real estate fundamentals in general; economies are improving and capital is relatively cheap to raise which is leading to more real estate companies issuing equity for acquisitions.

“Access and cost of capital is as good as it has ever been even with the slight uptick in global interest rates,” he says.

Mr. Buller also doesn’t believe that rising inflation will be bad for the commercial real estate sector. In fact, he believes it may boost the value of existing properties as the replacement costs for buildings spiral higher as costs of raw materials such as steel and concrete and labour soar.

“Too much supply is always the danger [for real estate] with inflation what it is and the replacement costs, you are going to need to have to higher rents to economically justify new construction,” he says. “So we are starting to see supply actually taper off unless you have higher rental rates.”

For the full list of 2021 Lipper Awards winners visit:

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Grand real estate sales on pace to set record in 2021 – Sky-Hi News



This year is on track to see record real estate sales in Grand County, driven by a high demand for mountain properties and limited availability.

Data from the Grand County Board of Realtors shows that October was the 115th month of gains in median sales prices compared to the same month of the previous year, while the available inventory has dropped consistently during that same period.

In October, the one-year change in the median sales price for all properties was up 11.8% while the number of active listings was down 14.4%, according to the board of Realtors.

“Due to the lack of inventory and the need for housing up here, when properties do get put on the market, they’re just going so fast,” said Lindsey Morrow, an agent with Keller Williams Top of the Rockies. “This has been a really strong year for real estate in general.”

The September report from the Land Title Guarantee Company shows the average sales prices for single family and multi-family properties are at their highest reported rates with single family homes reaching an average of $876,425 and multi-family properties going for $510,367 on average.

So far this year, real estate sales have totaled more than $861 million, which is a 41.7% increase over the same time frame last year, according to the Land Title Guarantee Company.

Last year saw record sales with more than $994 million in transactions.

The high demand for property in Grand County can be credited to a number of factors, including more people working from home, low interest rates, rising sales prices in surrounding mountain communities and recreational opportunities.

“Grand County is only an hour and a half from Denver … we have the infrastructure and internet for people to (work at home), and I think people are realizing that Grand County has a great work-life balance,” Morrow said.

A majority of the buyers are from the Front Range, which has accounted for 61% of sales so far this year, per data compiled by Land Title Guarantee Company.

All the demand means that active listings go quick.

Properties sold in October saw a 52% decrease in the number of days on market compared to October 2020. The average townhouse or condo sold after only 48 days and single-family homes sold at 72 days, according to the Grand County Board of Realtors.

Morrow said the demand has slowed toward the end of the year, though it remains comparatively high when held up to previous years. Demand is the highest for properties priced below $600,000.

“It’s definitely calmed a little bit compared to the summer where there were multiple offers and properties spent two or three days on market,” she said. “Though as soon as you get into those properties in the $400,000 or $500,000, which are desirable, those are going off within five or six days.”

According to the Grand County Board of Realtors’ data, a majority of properties sold so far this year range from $600,000 to $999,999.

Inventory below $600,000 in Grand County is increasingly rare with only 13 single-family homes currently on the market.

On top of the incredible demand and low inventory, external factors such as rising building costs, labor shortages and problems in the supply chain have also contributed to the extreme sale prices.

Single-family properties going for $1 million to $1,999,999 in 2021 have increased by 52-55% increase compared to last year, GCBOR data shows.

However, there are still opportunities out there for buyers.

With rental rates increasing, Morrow urged interested buyers to reach out to a lender while interest rates remain favorable

“If people are willing to spend $3,000 per month on rent, that could potentially get them a $600,000 or $700,000 house, which there is inventory for,” she said.

Morrow said the market is sustaining itself so, unlike the 2008 market, it’s unlikely there would be a crash and current trends will likely continue until more inventory is available.

“Appraisal values of properties are still coming in at or above contract price,” she added. “The biggest thing is we don’t have the inventory for people moving into the community.”

Building permit numbers indicate that Grand County is picking up the pace on construction with 2021 seeing a record number of permits for single family homes, according to Steve Jensen of the Grand County Builders Association.

Not including construction in Fraser, Granby or Winter Park, Grand County has issued 237 permits for single family homes so far this year compared to the same period in 95 in 2020 and 108 in 2019. Of the permits issued this year, 89 are fire rebuilds.

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More Bad News For China’s Sorry Real Estate Market, UBS Says – Forbes



The hits keep on coming for China’s economy.

This time the news is the country’s already beleaguered real estate sector is set for more bad news.

“Property activities are likely to fall further in the coming quarters, and without policy easing, property sales and starts could fall 20% or more by 2022,” states a recent report from Swiss bank UBS.

The current and near-future prospects for China’s property sector is the result of spillover from the Evergrande debt debacle earlier this year, policy tightening by the Chinese government, and shifts in domestic demand, the report explains.

In turn, a real estate slowdown could hit the broader economy hard slowing growth to 4% or even lower. That’s a standstill from China’s perspective.

In other words, China’s economy is likely headed for a hard landing soon if its government doesn’t take swift action.

“Our baseline forecast is for gradual policy easing, but there is a substantial risk for policy easing being delayed or insufficient,” the UBS report states.

Policy easing would likely mean lower cost of borrowing for domestic Chinese companies and or easier loan standards.

Still, the news comes on the back of a sharp contraction in China’s steel production earlier this year, at the same time when the world’s other top steel producers were seeing growth in output.

It doesn’t augur well for China’s economy overall so investors in Chinese or Hong Kong stocks might want to be cautious for the immediate future.

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Research: Small-business real estate lenders for San Francisco North Bay – North Bay Business Journal



The latest North Bay Business Journal research ( focuses on lenders certified to handle U.S. Small Business Administration program loans for real estate.

A list of SBA 504 lenders (certified development companies) is ranked by the value of debenture portion placed in Sonoma, Marin, Napa and Solano counites from Oct. 1, 2020, through Sept. 30, 2021. Other information provided includes the number of loans made in each county.

Detailed information from the list is available for purchase as a spreadsheet via the links above.

Want to have your company surveyed for this and other lists? Contact Research Director Michelle Fox at or call 707-526-8682.

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