About a week after NASA released satellite imagery of California’s precipitously low water reserves, Douglas Elliman published its market report for Los Angeles’s second quarter.
Price trend indicators, Elliman found, were among the highest they’d been in at least 17 years. “All of California, especially southern California, is booming,” says Jonathan Miller, president and chief executive officer of appraiser Miller Samuel Inc., which compiled the report. “Beginning with the end of the lockdown, even with rising COVID infections, it’s continuing.”
Housing trends are rising across the U.S., in fact, with median single-family home prices in the second quarter up by at least 10 per cent from the previous year in 61 per cent of the U.S. counties surveyed by the industry database Attom.
Luxury sales in many of these areas matched or surpassed other categories, with strong results from downtown Boston (condo sales are up 118 per cent from the preceding year, according to an Elliman report) to the San Francisco Bay Area, where the number of US$3 million-plus house sales in June were higher than they’ve been since at least 2018, according to a Compass report.
But some of the top performing luxury markets in the U.S.—specifically Southern California, Colorado, and South Florida—have something less rosy in common: They’re all in the throes of extreme climate-related events.
“There’s awareness and discussion about it, but it doesn’t seem to be modifying behavior yet in the markets I cover,” says Miller.
If anything, he continues, events such as flooding and hurricanes seem, at least anecdotally, to encourage high-end construction rather than deter it. “After Hurricane Sandy, there was a tremendous discussion about flooding,” he says. “And what we ended up seeing was middle-class housing being leveled by the storm and higher-end properties taking their place.”
Climate change, Miller concludes, “doesn’t discourage development, and I think it shifts the mix from affordable to more expensive.”
No place is immune to climate change; just ask New Yorkers who saw the sky darkened for days by forest fires 2,700 miles away. But there are some locations, such as Los Angeles, where the luxury real estate market appears particularly impervious to external events.
“You were seeing packed open houses where you could see smoke [from forest fires] in the background,” Miller says, of recent years when the city was threatened by nearby wildfires.
Growth in LA’s luxury market, accounting for the top 10 per cent of sales, has been particularly pronounced. A whopping 112 houses, primarily in the city’s west side and downtown, sold in the last quarter, according to the Elliman report, for a 138 per cent rise over the same quarter last year; the average sales price was just under US$17 million.
“We’ve seen unprecedented demand,” says David Parnes, a principal at Agency real estate brokerage. “Everything is being bought up, and what that suggests to me is that this is not the end. The market is going to get even stronger.” Some properties, he says, receive 20 or 30 offers. “That means those 20 or 30 people have missed out,” he says, “which means that 20 or 30 people are still looking.”
CLEAR-EYED, WITH PRIVATE PLANES
It’s not that wealthy buyers are delusional, brokers say; it’s just that they’ve weighed the pros and cons and are willing to shoulder the risk.
“Clients will ask about rising water, and will talk about flood plains and ask me about the elevation” of a home, says Lourdes Alatriste, a Douglas Elliman broker in Miami. “I do believe it’s a concern. But at that level of money, should anything happen, they just close up and go.”
Luxury buyers, she continues, “have planes. They can get out.”
Other wealthy homeowners are planning for disaster. Palm Beach, Fla., residents are building bigger and higher and stronger houses, while some residents in Malibu, Calif., have attempted to add fire-protective coating to their homes.
Indeed, Alatriste, who says that demand for luxury properties is so high that many of her sales occur off-market, has had a few clients investigate flooding risks and decide not to buy. But largely, “they want to live right now, in the moment,” she says, and Florida “serves that purpose.” Also, she adds, “they get insurance.”
Colorado, which is currently being ravaged by a series of devastating wildfires, is home to numerous markets whose luxury tier has soared throughout the pandemic. There, says Gary Feldman, a broker with 36 years of experience in Aspen’s luxury real estate, “none of my clients really discuss it,” he says of the risk.
In Aspen, which saw sales dry up in the month of June due to a lack of inventory on the market, signed contracts for single family homes occurred only at or above US$5 million, according to an Elliman report.
If they’re concerned, Feldman continues, “they’d buy some place else, and where else do you buy? Everywhere has issues, and not all are climate-related. Some are social. And people are smart enough to weigh the pros and cons of the issues of the day and then decide where to go. But no one really brings it up, in my experience.”
Miller says that might change sometime soon. Climate-related events “just have to be more frequent, and more intense than they are now,” he says. “And I’m not sure when that day comes, but it will come at some point.”
Podcast: Raising capital for commercial and industrial real estate | RENX – Real Estate News EXchange
The Industrial Real Estate Show with Chad Griffiths.
Can you raise outside capital to purchase commercial real estate? What if you don’t come from a business-minded family or have a circle of affluent friends?
In this episode Griffiths is joined by Whitney Sewell, founder and CEO of Life Bridge Capital, a private firm with over $125M in assets under management.
Sewell shares how he started with small projects and now raises upwards of $10 million per project in a few hours. He also offers a number of actionable steps investors can take right now to raise capital, and why he is working so diligently toward accomplishing his goals.
The Daily Chase: Toronto real estate broker laughs at housing pledges; Fed decision day – BNN
Toronto real estate broker John Pasalis laughed at Greg when asked about campaign housing pledges and whether any of them make sense for addressing affordability. Check out that refreshingly candid reaction, and why Pasalis (like many other guests we’ve spoken with) fears the Liberals’ strategy will backfire and actually drive up prices. Mattamy Homes Founder Peter Gilgan was even more blunt, telling us “we need to declare that we’re at war with affordability.” We’ll have plenty more insight in the days ahead about what to expect in Justin Trudeau’s third mandate, including this afternoon when CAPREIT CEO Mark Kenney joins Greg to discuss the Liberals’ targeting of real estate investment trusts. We’ll note here that the Prime Minister’s Office released a readout yesterday evening from Trudeau’s call with U.S. President Joe Biden; the two “committed to getting together in person soon.”
Markets will find out this afternoon if the U.S. Federal Reserve is prepared to fine-tune its language about taper timing. Last we heard from Chair Jerome Powell in his Jackson Hole speech, he confirmed that the central bank thinks it will be in a position to scale back asset purchases before the end of this year, but signaled “considerable” progress was still needed to attain maximum employment. Since then, we saw August non-farm payrolls that fell way short of expectations. The policy statement and updated forecasts land at 2 p.m.; followed by Powell’s news conference a half hour later.
The debt-laden Chinese property developer that’s captured the financial world’s attention amid concern (seemingly misplaced, at least for now) that it could be heading toward a Lehman moment has managed to assuage some immediate fear, while simultaneously stirring confusion. China Evergrande Group said in a regulatory filing that it “resolved” an interest payment coming due tomorrow, without providing many details. Meanwhile, less than 24 hours ago, Bloomberg Intelligence Analyst Damian Sassower told us the big question surrounding Evergrande was what the People’s Bank of China was prepared to do about it. Overnight, it pumped additional liquidity into the financial system in a reverse repo operation. That all added up to a steady session in Asia, where the Shanghai Composite closed flat after a two-day holiday.
OTHER NOTABLE STORIES
- FedEx had a rough fiscal first quarter as profit fell year-over-year amid supply chain woes and a US$450-million jump in costs due to what the company calls a “constrained labour market.” The parcel shipper cut its full-year profit forecast as a result. Shares have been down more than five per cent in pre-market trading.
- The U.S. House of Representatives cleared the SAFE Banking Act last night, meaning the U.S. cannabis industry is one step closer to freer access to banking services.
- Celestica announced last night that it’s paying US$306 million to acquire Singapore-based electronics manufacturer PCI Limited. Celestica, which also raised its profit forecast, said the deal will add more than 20 “blue-chip” customers to its business. CEO Rob Mionis is on The Open at 10:10 a.m.
- Telus International announced a secondary offering of 12 million shares after yesterday’s closing bell. None of the proceeds are flowing to the company. TIXT shares have surged almost 22 per cent since their first day of trading in February.
- Walt Disney Co. shares have steadied in pre-market trading after an abrupt five per cent plunge yesterday afternoon on the heels of a management warning about Disney+ subscriber additions this quarter.
- Reminder that Ontario’s COVID vaccine passport program takes effect today, forcing venues including restaurants, bars, and movie theatres to screen patrons for full vaccination.
- Notable data: Canadian manufacturing sales flash estimate, U.S. existing home sales
- Notable earnings: BlackBerry, General Mills
- 8:30: Wheaton Precious Metals investor day
- 9:10: Suncor Energy East Coast Vice-President Josee Tremblay addresses Newfoundland and Labrador Oil and Gas Industries Association conference
- 10:00: Ontario Superior Court resumes hearing Cineworld-Cineplex case
- 11:00: U.S. President Joe Biden convenes virtual COVID summit on sidelines of United Nations General Assembly
- 14:00: U.S. Federal Reserve releases interest rate decision and updated forecasts (plus 14:30 news conference)
- Canadian Council for Aboriginal Business hosts virtual conference on rebuilding the Indigenous economy. Speakers include Suncor Energy CEO Mark Little (12:45)
Artis REIT puts Calgary office portfolio up for sale | RENX – Real Estate News EXchange
Artis Real Estate Investment Trust is selling the remainder of its Calgary office portfolio which includes six buildings comprising close to 700,000 square feet.
It is part of the REIT’s overall strategy of divesting Calgary office property, which began in late 2016, to concentrate on other real estate assets.
At its peak in mid to late 2016, just prior to its shift in its strategy, Artis (AX-UN-T) owned in excess of 2.5 million square feet of office property in Calgary across approximately 20 properties.
“Artis pursued a significant portfolio shift away from Calgary office to prioritize capital allocation to higher-growth strategies, particularly emphasizing the U.S.A. industrial development program,” said Corey Colville, head of strategy, real estate, at Artis.
The Calgary portfolio for sale includes:
– Canadian Centre, 156,772 square feet;
– 417 14th Street building, 17,517 square feet;
– Alex Building, 61,847 square feet;
– Campana Place, 49,123 square feet;
– Heritage Square, 315,152 square feet;
– and Hillhurst Building, 63,394 square feet.
Colville said the present occupancy of the Calgary office portfolio is about 70 per cent.
“Strategic decision” to exit Calgary office sector
“We still have a very robust portfolio of retail and industrial properties in Calgary, but we’ve made this strategic decision to market our remaining Calgary office buildings,” said Colville.
Artis has five retail properties in Calgary of over 343,000 square feet and six industrial properties with over 362,000 square feet.
“Over the past trailing few years, Artis has marketed and successfully transacted on much of their Calgary office portfolio. These remaining six assets, we’re of the view that there’s a terrific opportunity for the market to capitalize on a substantial discount (to) replacement cost and create significant value,” said Colville.
“We’ve had interest from owner/user investors, from repositioning and converter investors as well as office investors.
“With these properties, we think with the amount of potential there’s just fundamentally an opportunity in the market for local investors to capitalize on.”
Colville said Artis has held some of the Calgary office assets for more than a decade. On balance, they’ve been longer-tenured assets for Artis.
“At the peak, (Calgary office) was a really significant component of Artis’ total valuation. At this point of time, the remaining assets in relation to our gross book value is actually quite immaterial and the contributory cash flows from them,” he said.
“We’re looking to focus our efforts in a more strategic way. We think that we’ll be very dominant long-term and competitive landlords and we don’t feel that this is going to be the case now that we’ve reduced our position so much in the Calgary office market.”
Downtown vacancy about 30 per cent
Calgary’s office market has struggled for the past seven years since the collapse of oil prices in late 2014. That led to massive layoffs, particularly in the city core where many energy companies had their corporate head offices. Obviously, fewer people has meant less need for office space throughout the city.
The downtown Calgary office vacancy rate has hovered around the 30 per cent mark for some time.
“You know, we’re not quite as pessimistic as some of the news headlines would indicate. Naturally, and quite obviously, there’s been a struggle in the market, but we are confident that Calgary is one of the most important cities in Canada and that Canada is a phenomenal country to invest in,” said Colville.
“In time, we believe that Calgary will make a strong resurgence and comeback and we believe that Calgary will benefit from the wave of immigration to come and the rejuvenation to the energy markets over time.”
The Artis REIT property portfolio
In Q2 2016, Artis had 260 properties of about 26.6 million square feet overall; 191 properties in Canada with about 17.1 million square feet and 69 properties in the U.S.A. with about 9.5 million square feet.
At that time, it owned 73 properties in Alberta with about 6.7 million square feet. By the end of Q2 2021, that number had decreased to 40 properties with about 2.7 million square feet.
At the end of Q2 2021, Artis had 133 Canadian properties with about 10.4 million square feet and 70 U.S. properties with about 11.6 million square feet for an overall total of 203 properties and 22 million square feet.
The REIT’s portfolio at the end of the second quarter was 42.7 per cent office, 38.2 per cent industrial and 19.1 per cent retail.
Its overall occupancy was 92.3 per cent in Canada; 97.7 per cent for industrial, 83.3 per cent in office and 90.8 per cent in retail. In the U.S., its overall occupancy was 91.8 per cent comprising 94.3 per cent for industrial and 87.4 per cent for office.
Colville said the third quarter will feature a further and material shift of the portfolio following the sale of 27 of 28 of its Greater Toronto Area industrial properties. The 28th property is also for sale.
Other recent portfolio activity
– Acquired a parcel of industrial development land in Minnesota’s Twin Cities Area, for US$1.5 million.
– Disposed of an office property in Calgary, three retail properties in Regina and a portion of a retail property in Fort McMurray, Alta., for an aggregate price of $62 million.
– On June 30, Artis entered into an agreement to sell the GTA Industrial Portfolio, comprising 28 industrial properties located in the Greater Toronto Area. On July 15, the REIT closed on 26 of the 28 properties for $696.7 million. One of the remaining properties is expected to close in Q3 2021 and generate gross proceeds of $26.7 million. The remaining property will be actively marketed for sale.
– Subsequent to June 30, it also disposed of the King Edward industrial portfolio, comprised of two properties in Winnipeg, for $3.2 million.
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Podcast: Raising capital for commercial and industrial real estate | RENX – Real Estate News EXchange
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