|On Wednesday, January 30 at 11:00 a.m. EST (rebroadcast at 7:00 p.m.), join us for a FREE hour-long webinar which should be of particular interest to buyers, sellers, investors and developers in the Canadian apartment industry.
When it comes to investing in any industry, it’s important to know where you’ve been to understand where you’re going. This especially holds true for the Canadian purpose-built rental apartment industry.
2012 was a great year. Cap rates continued their descent, and apartments sold for some of the highest prices around. There’s been a boom of new construction, both in conventional apartments and in student housing.
But will these trends continue? How dependent is the industry on low interest rates, and how long can we expect these historically low interest rates to continue? What are the possibilities for 2013? Are there things on the horizon that may force us to rethink our strategies?
This is why I’m pleased to announce that Sandy Mandel of Sanford Mandel & Associates Inc., will be joining us on Wednesday, January 30, 2013 at 11:00 a.m. EST (rebroadcast at 7:00 p.m.). Sandy has had his finger on the pulse of the apartment industry for the past several years. He has identified many hot markets that are off the radar of other investors. If anybody knows where this industry is going in the days and months ahead, it’s him.
So, join us on Wednesday, January 30, 2013 at 11:00 a.m. EST (rebroadcast at 7:00 p.m.) as Sandy and I look back at where we’ve been, and where we are going. As always, it promises to be an interesting and useful discussion.
Like Windsor, Sarnia is a moderate-sized urban centre located on Canada’s border with Michigan. A well established town that still depends heavily on the petrochemical industry, Sarnia has had its problems in the past, but has managed to avoid the economic doldrums that has afflicted its larger sister city. It boasts a sizable apartment market of 5,434 units – mostly in small buildings of 50 units or less – which translates to a concentration of 7.6 units per 100 people. Sarnia managed to weather the 2008 recession far better than Windsor.
In 2009, the Sarnia census metropolitan area list 4,100 jobs, but between 2005 and 2011, the total number of jobs lost has only been 1,800. In 2010, Sarnia gained 1,000 jobs. Likewise, vacancy rates in the city are high by provincial standards (5.8% in 2010), but much lower than in Windsor.
Average rents have also increased steadily, averaging 1.29% per year and finished 2010 with an average of $693. These conditions, while modest, have still allowed the market to increase, with five new buildings added in the last ten years.
Vacancy rates are higher for three bedroom apartments (7.4% in 2010, an increase from 6.7% in 2009), continuing a pattern identified in 2009 that saw Sarnia buck the provincial trend that favoured these family-friendly units.
- Vacancies: down; Rents: flat; Supply: increasing;
- Capitalization Rates: 6%-7%
- Opportunities for long term holders north of Highway 402.
- Short term and reposition opportunities at city’s south end.
- Rental supply is scattered geographically in city, best stock is found near the river and downtown
- Downtown core is attractive and an asset
- Diversified ownership may allow acquisition.
Sarnia looks set for slow but steady growth in the near future as trade increases through the Bluewater Bridge crossing with the United States. The market appears stable and vacancy rates, while high, do not show a big gap between supply and demand.
On behalf of all of us here at ROCK Apartment Advisors, Inc., we would like to wish you and yours the happiest of holidays, and all the best in the New Year. Enjoy your time with your family and try not to pack on too many pounds. I know: easier said than done.
Windsor, an industrial city of 216,473 has had a difficult decade, losing over 12,000 jobs since 2006. The well-established apartment market of 14,651 units (6.77 units per 100 people) went into the 2008 recession with some of the highest vacancy rates in the province, and the downturn pushed vacancies to astonishing levels. By 2008, the vacancy rate for the whole census metropolitan area was 14.6%. Although very much a buyer’s market, the high vacancy rates and dropping rents meant low rates of return for individuals who took the risk.
Good news has started to return to Windsor in the past year. Unemployment is down and there has been a net influx of residents. Work is progressing on a major new border crossing with Detroit and the revival of the automotive industry breathed new life into the economy.
At 10.9%, Windsor’s vacancy rates are still the highest in the province, but this is a significant drop from the 13% vacancy rate in 2009. Numbers are even better in Windsor’s eastern flank, with vacancy rates dropping as low as 7.5%. Even more encouragingly, average rents have increased by 1.82% to $670, the first year-to-year increase above 1% in over five years.
Government spending will drive Windsor over the next decade. Work on the new bridge, highway and customs complex will produce a short term construction boom that may provide a pool of new renters. We feel that Windsor has hit rock bottom and is starting to rise, and that the floor is solid.
The situation is better than in nearby Chatham or Wallaceburg where vacancy rates are as high, but towns don’t have Windsor’s advantages.
- Vacancies: down; Rents: flat; Supply: static; Capitalization Rates: 7% plus
- Opportunities for repositioning distressed properties.
- Windsor could become a retirement community, with temperate climate, health care, access to Detroit.
- Vacancies are lowest among the best buildings while older lower quality buildings still struggle
- Windsor is likely to remain a renter’s market for the next few years
- University of Windsor is creating strong demand in west end, but only for value rentals
- Windsor is the only city in Ontario where the east end is better than the west end.
Windsor’s economy has challenges ahead, but investments in the city’s transportation infrastructure will create jobs and spur the rental market. If you can tolerate high risk for a potentially high reward, Windsor is the place to invest, although not for the faint of heart.
London is a significant urban centre in southwestern Ontario, the largest city between Hamilton and Detroit. Although recently overshadowed by the growth of Waterloo Region, London’s population of 352,395 continues to grow at a rate of around 1% of year. It boasts a diverse economy based on skilled trades, health care, manufacturing and education. Its location at the junction of Highways 401 and 402 enhance the importance of the transportation sector on its economy.
London’s large manufacturing base was challenged by the 2008 recession, problems in the automotive sector and the high Canadian dollar, costing the city 8,000 jobs in the sector. In spite of this, its economic outlook improved in 2010, with new jobs and growth in the high tech sector. After peaking at 11%, London’s unemployment rate at the end of 2010 stabilized at 8.8%, one of the lowest in Ontario.
For the 41,251 apartments in London’s universe (8.38 units per 100 people), the city’s emergence from its economic challenges bodes well for 2012, although it has some way to go before it makes up for lost ground. London is currently the home of a number of active apartment developers, and its concentration of apartments is the highest in southwestern Ontario. This has led to a saturated market. Vacancy equilibrium continues to elude the market due to ongoing development.
Vacancy rates remain above the provincial average, and in 2010 the market responded by dropping average rents. In addition to this, new supply was added to the marketplace, with 32 buildings and 4,923 units added between 2006 and 2010. These factors should keep rental rates down and vacancy rates up. High unemployment in the under-25 demographic may also depress rental activity.
It should be noted that vacancy rates are disproportionately high for the more expensive apartments than for average or lower priced apartments. It is possible that new apartment construction in this price range has reached a saturation point. Certainly, this saturation puts London’s high-end apartments in heavy competition with London’s mid-market stock, reducing returns for investors who spend in London’s mid-market. In other cities, owners renovate to raise rents, but in London, they renovate to keep tenants.
- Vacancies: up; Rents: flat; Supply: increasing;
- Capitalization Rates: 5.5%-7%.
- Continuing challenges in the mid-market due to competition from oversupplied upper market.
- Opportunities exist for repositioning for the seniors’ market; older buildings can add elevators to improve accessibility.
- Opportunities will materialize in the old south, especially around Wortley Village. Approach east of Adelaide and its older stock with caution.
- Opportunities exist in the student market, especially around Western university, but be aware of local bylaw restrictions.
On Wednesday, January 30, 2013 at 11:00 a.m. (rebroadcast at 7 p.m.), we will have a FREE online webinar discussing the big events of the apartment industry in 2012, and looking ahead to the opportunities of 2013. To register for this retrospective webinar, click here. And we don’t end there. We are proud to announce our schedule for next year’s FREE webinars as follows:
2012 Apartment Investment Roundup and 2013 Forecast-The Nation’s Hottest Market
Spotlight on the Mid-Market- Opportunities to buy, sell, build & profit in buildings with 8-80 suites
The Growing Need for Student Housing- Opportunities Across Canada
New Apartment Construction – Canada, it’s time to build apartments!
Creative Strategies to Structure Apartment Deals-New Construction, Rehab & Core Holdings
How to Buy an Apartment Building in a Tight Market
All About Rents – How to Manage, Maximize and Collect the Rents
How to Reposition an Apartment Building for the 21st Century- Successful Value Added Strategies in a Cautious Market
How to Effectively Sell an Apartment Building In a Tight Market
Marketing Strategies and Driving Cash Flow Using Social Media
Finding and Negotiating Your Best Equity Deal
What Comes after the Purchase Offer is Signed? How to Conduct Due Diligence
On Wednesday, December 19 at 11:00 a.m. EST (rebroadcast at 7:00 p.m.), join us for a FREE hour-long webinar which should be of particular interest to anybody who has owned an apartment building and wants to get more value from it.
In the past few webinars, we’ve talked a lot about buying and selling apartments, but we mustn’t forget that these buildings are income properties. Instead, let’s talk about getting more NOI!
So, on Wednesday, December 19 at 11:00 a.m. EST(rebroadcast at 7:00 p.m.), we will be joined by special guestsKevin Fancey, Executive VP Sales and Marketing at Coinamatic Canada Inc., and Steve Herzog of Greener Solutions to discussNet Operating Income Enhancement Strategies. We will talk about the steps you can take to reduce your costs, upgrade your buildings, and increase your NOI.
And this is in addition to our monthly report on the latest transactions that have taken place within the Ontario apartment industry, and our expert opinion on what these trades mean to the Ontario purpose-built rental apartment industry as we go forward.
So, register now for Net Operating Income Enhancement Strategies and tune in to listen to us at 11:00 a.m. EST on Wednesday, December 19, 2012 (rebroadcast at 7:00 p.m.) for this valuable but FREE webinar.
Number of Sales: 385
Number of Units: 21,980
Total Value of Sales: $2,462,156,066
Avg Price/Unit: $122,185
The largest transaction this month was in Cambridge, where 245 Lena Crescent sold for $61,800,000. The highest price per unit transaction was in the old city of Etobicoke, where 2800 Bloor Street West sold for an outstanding $414,545 per unit. 61% of the activity occurred in the GTA, but there was activity all across Ontario, with 21% occurring in southwestern Ontario, 15% in northern and eastern Ontario, and 3% in Hamilton and Niagara.
The sales included a $17,360,000 on a student housing development in Waterloo, Ontario. Once again, student housing proves to be a strong and growing niche market that deserves attention.
On Tuesday, November 27, we ran a webinar on Financing Strategies in a Low Interest Rate Environment. We’d like to thank Robert Fleet, Business Development Manager at First National Financial LP for offering his expertise this month.
For the past few years, Robert Fleet has seen remarkable changes take place to the Canadian economy. Interest rates hit historic lows and, more importantly, stayed there for a very long period of time. One can’t help but wonder, will low interest rates be with us forever? Or will the days of inexpensive credit vanish?
HOW LONG CAN LOW INTEREST RATES LAST?
In Mr. Fleet’s view, the slow global economy should keep interest rates at current levels for the next six to twelve months, but we must be prepared for rates to increase over time. This has profound and varied implications depending on the type of investor you are. There are good reasons to borrow now while rates are low. Not only can borrowing help you acquire new properties, it can help you unlock equity that can assist in upgrading buildings, making down payments on new acquisitions, or setting aside money as part of estate planning.
The point is, every investor is different and has to be in tune with their goals and business plan to know how best to invest in the current environment. A good apartment broker or financial manager can help you realize what your goals are and how best to meet them. Don’t forget that these days are good days to be in the apartment industry. Cap rates are at historic lows, and building prices are rising. There is a lot of return to be had for investors willing to take the risk.
The City of Guelph is a small urban centre located at the northwestern edge of the Greater Toronto Area. In 2006, its census metropolitan area had a population of 114,943, an increase of 8.26% over 2001. While it is far from jobs in the GTA, the city is seeing a growing number of commuters, and transportation connections are improving between the city and the GTA.
Guelph is also a part of Canada’s Tech Triangle, cooperating in economic development in the area of high tech jobs with the Region of Waterloo. The city is the home of a well established university and a heritage downtown, although it has had difficulty with urban decay in the past.
The city’s apartment universe has remained static for the past four years, and currently holds 6,598 units (5.74 units per 100 people) – primarily one and two-bedroom. The city’s vacancy rates remained around 2% before the 2008 recession before jumping up to 4.1% in 2009. In 2010, the vacancy rate dropped to 3.4%. Demand is particularly slack for bachelor apartments, which saw vacancy rates rise to 8.5% in 2010.
Overall, rents have been static, increasing on average only 0.85%, and they currently stand at $848, $95 below the provincial average, but slightly higher than what is found in Kitchener or Cambridge. Again, bachelor apartments show signs of a saturated market, with average rents falling $37 to $611.
Guelph can be overlooked compared to the heated markets of the GTA and Waterloo Region, but it is a stable city with potential to take part in the economic growth of its more active neighbours. This will be a market to watch over the next decade.
- Vacancies static, Rents flat, Supply static
- Capitalization Rates: 5.5%-6.75%.
- Continued diversified ownership in market may allow for acquisition opportunities.
- Local university presents good opportunity for student housing, both buying and repositioning.
- Revitalizing downtown may present opportunities for new construction.
Guelph’s market remains strong for one and two-bedroom apartments. Once the city recovers from the lingering effects of the 2008 recession, growth should spur interest, especially as the neighbouring Region of Waterloo surges.