APARTMENT TRENDS Q1-2021
The Apartment Group
The market continues to be strong and it appears that Covid has had minimal impact on apartment values over the past year. Yes rents have softened given the lack of immigration and the poor job market which is making more younger people stay home at this time rather than find work and move out on their own. However this asset class has out performed all others during Covid in terms of occupancy and rent collections.
“In the GTA apartment values have increased be 8% over the past year .”
Q1 2021 saw the completion of 22 apartment deals which is similar to the amount which occurred in 2020. Over $387MM worth product changed hands which is down from $479MM in 2020 which was a record breaking year. This was a decline of 19%. To put in perspective, in Q1-2019 the sales volume was around $300MM. The number of suites sold in Q1 2021 was 1,238 which is much less than the 1,655 suites in 2020 but slightly higher than the 1,102 sold in 2019.
Centurion was back in the market purchasing 2 buildings in Oshawa for a total of $48MM. The next largest buyer was private and a new entrance into the apartment market with the purchase of 2 buildings totaling $40MM. Rounding out the top three was Timbercreek with the purchase of a single building for $14.35MM.
Building values were on average around $313,000 per suite in the GTA for the first quarter of 2021. This was up 8% for the previous year and 15% higher than 2019. Cap rates between 2020 and 2012 remained relatively flat at around the 3.5% mark.
Sellers into this market are increasingly private long term holders. Many have held the real estate and decades. In many instances there is no succession plan for the real estate for family or other partners. Many owners are getting on in age and have made the decision to sell today. Many indicate that the timing is right given low interest rates and strong demand. At the same time many are aware of the changes to Capital Gains Tax which will manifest itself in some shape or form in the immediate future. This change will eat hard into the money left in their jeans if they wait.
We see the "seller profile" and the "Capital Gains" affect in the market today as we are active in it. We have closed 2 deals in Q1-2021 and 7 more now which are firm and closing in the next 60 days. We also currently have over 500 suites on the market for sale. We think this trend will continue.
BANK OF CANADA FLAGS DEBT RISK
GLOBE AND MAIL - Rachelle Younglai
The Bank of Canada has a stark message for Canadians: Interest rates are guaranteed to increase but home prices are not.
With the pandemic’s low interest rates pushing over-leveraged borrowers to pile on mortgage debt, the central bank ranked household indebtedness and accelerating home prices among the biggest threats to the economy in the medium term.
The average home price in the country has jumped more than 30 per cent during the health crisis, with prices climbing at a faster pace in the Toronto suburbs and smaller Ontario cities. The bank itself has played a role in stoking demand for real estate by holding interest rates at record lows over the past year, and promising not to raise them for some time.
“Some people may be thinking that the kind of price increases we have seen recently will continue. That would be a mistake,” Bank of Canada Governor Tiff Macklem said at a news conference on Thursday. “Interest rates are very low. That means there is more potential for them to go up.”
In its latest Financial System Review, the central bank warned that household vulnerabilities have intensified with the quality of borrowing deteriorating and speculative buying increasing. The bank found that the share of highly indebted households taking out mortgages is up significantly and now represents 22 per cent of all new mortgages.
That is higher than during the 2016-2017 real estate boom, when spiking mortgage debt triggered stricter lending rules from Ottawa. In addition, highly indebted borrowers are making down payments that are less than 20 per cent of the purchase price of the property. The bank said this combination has been “associated with a greater risk of falling behind on debt payment.”
Canadian businesses have fared surprisingly well during the pandemic, thanks to generous government support, the bank said. Overall corporate indebtedness declined and business insolvencies are 30 per cent below prepandemic levels. However, the bank warned that this could change as government support programs, such as wage and rent subsidies, wind down.
Companies that rely on high-yield debt markets to fund their operations could face particular problems if investor appetite for risky assets declines. High-yield bonds, also known as junk bonds, account for around 20 per cent of the value of all corporate bonds in Canada. Most of these are issued by commodity companies.
RENTS MOVING UP IN MOST MARKETS
Although average monthly rents continued to decline on a national basis, rents are rising regionally according to the latest rent report from Rentals.ca.
Monthly data for April shows that average rents are rising in British Columbia, Ontario, Alberta and Quebec, suggesting the market might have turned a corner with increased tenant demand. Though the third wave of COVID-19 continues to wreak havoc in certain areas, it appears this isn’t stopping residents from trying to get into the rental market, or from switching apartments for better deals and more space before rents are rising consistently across the country.
“Despite the continued decline in average rents on a national level, the rental market has started to turn up with rents increasing month over month in most of the largest provinces in the country,” said Ben Myers, president of Bullpen Research & Consulting. “The drop overall in Canada is likely the result of a lower share of listings in Ontario in April compared to March, which we believe is the result of units leasing faster as opposed to more vacant units in the other provinces. Even with the prolonged pandemic, there appears to be increased rental demand, but it will take a few months before we declare it a trend and not a statistically anomaly based on a changing composition of listings.”
Most of the major Canadian metropolitan areas — including Toronto, Montreal, Vancouver, Calgary, Edmonton, Ottawa and Winnipeg — saw monthly increases in average monthly rent in April for both condominium rentals and apartments.
Saskatoon, up 4.5 per cent, and Brampton, up 4 per cent, led 13 of the 18 cities in terms of month-over-month increases in monthly rent for condo rentals and apartments.
London, down 1.5 per cent, Mississauga, down 1.4 per cent, and Etobicoke, North York and Regina saw monthly decreases in average monthly rent for condominium rentals and apartments.
Vancouver had the highest average asking rents in Canada in April for condo rentals and apartments at $2,200 per month, followed by Toronto at $2,004 per month.
333 Sidney Belsey - Toronto - $78,000,000 / $295,500 Per Suite / 3.5% Cap Rate
This property was sold by The Apartment Group and consists of a single 14 storey rental apartment building subject to affordable housing program which is to run for another 10 years. The 1.6 acre site is improved with a building constructed in 2008 containing 264 larger suites in a ravine like setting. While under the affordable housing program the building was exempt from paying realty taxes and had a forgivable loan associated with the deal. The Property was purchased by Akelius Canada.
26 Park Street East – Mississauga – $28,050,000 / $342,100 Per Suite / 3.0% Cap Rate
This is a 7 storey concrete rental apartment building constructed in 1965. The building has a brick exterior, double windows, balconies, flat roof and an elevator. The asset has 82 suites in a mixture of one and two styles. Heating is gas fired hot water and the asset site on just over one acre of land. The building has been is the same ownership for many years and the rents were far below market. The property was fully exposed on the market and was purchased by a private investor.
Valiant Portfolio - Oshawa - $103,644,000 / $214,600 Per Suite
Cap Reit just purchased 4 buildings managed by Valiant Rental Properties totaling 483 suites. The buildings were: 140, 191 Nonquon Road; 1266 Pentland Street; 1221 Simcoe Street North. The buildings all date from the 1960's and were in good condition and professionally managed. They range from 93 to 153 suites per building. The buildings have been under the same ownership for many years and are considered to be "B" class buildings in similar neighbourhoods. It appears that this was a direct deal and not marketed on the open market.
1505-1525 Wilson Avenue - North York - $34,000,000 / $259,550 Per Suite / 2.76% Cap Rate
This property comprises three walk up rental apartment buildings built in 1958 on 2.9 acres of land. There are a total of 131 suites in mostly one bedroom styles. They have brick exteriors, double windows and flat roofs. Heating is via a hot water gas fired system. There are only a few balconies and surface parking of 155 spaces are available. One of the buildings has an elevator. Rents here were far below market and the land under utilized. The assets were fully marketed and exposed. The Buyer was Golden Equity Properties.
893 Kennedy Road - Scarborough - $22,000,000 / $285,700 Per Suite / 3.05% Cap Rate
This property was sold together with 1505-1525 Wilson Avenue as a package deal. This property was constructed in the early 1960's and has 77 suites in a mixture of one and two bedroom styles. There are 53 surface parking spaces and 24 underground spaces. The building has an elevator and the rents are considered below market. There is a brick exterior, balconies, double windows and flat roof. The building is considered "B" class and the area is working class immigrant.
THE APARTMENT GROUP
Together the team has completed over 1,500 transactions and has sold over $6.5 billion in apartments and development land. Put us to work for you and see the results. NO ONE has sold more buildings then our group. Experience, knowledge and professionalism will insure you get the right deal or the highest price if you are selling.
The Apartment Group is a dedicated team of professionals specializing in the sale of multi-residential investment properties. With over 40 years of combined experience, the team brings together their strengths including strong negotiation and sales skills along with highly technical market analysis and appraisal methods.
We are a boutique Brokerage but have the capabilities of the larger houses without the overhead. We have: an internal database of over 10,500 active apartment and land Buyers; a list of all apartment building owners in the Greater Toronto Area; our web site gets over 50,000 hits a month; we highlight properties for sale through our newsletter which reaches 10,000 investors monthly.
President & Owner,
LORENZO DIGIANFELICE, AACI
Broker of Record, Owner