LEAKING TOILETS = LEAKING MONEY LOTS OF MONEY
When we talk about the building sector’s impacts on climate change, most refer to energy usage and carbon emissions. But another factor sometimes overlooked is the increased need for water conservation. The UN Security General describes climate change as a “crisis amplifier,” and nowhere is that more evident in water supply in certain parts of the world. The UN Environmental Program has named water crises as one of the top global risks in the coming decade, as the number and duration of droughts globally have increased by 29 percent since 2000.
This is not just a third-world problem, either. The U.S. Southwest, the hottest and most arid region in the nation, has been abnormally dry since 2012, according to the EPA, and drought periods are expected to become longer, more frequent, and more intense.
"Water bills are surging nationwide because utilities need the revenues to replace aging infrastructure like corroded pipes and overflowing sewer systems."
The two most prominent uses of water in the U.S. are for thermoelectric power and irrigation, but commercial buildings like offices use a fair share, as well. About 46,000 of the largest U.S. commercial buildings used 2.3 percent of the nation’s public water supply in 2012, according to a study by the U.S. Energy Information Administration. That doesn’t sound like a lot, but 2.3 percent represented about a billion gallons of water used per day. Helping to conserve water as a building owner is a laudable aim to protect the environment, and in certain parts of the U.S. Southwest, noncompliant buildings may even face mandatory conservation measures.
But water conservation in office buildings goes beyond being eco-friendly. Inefficient water use can also get very expensive, leading to exorbitant utility bills for property owners at a time when water rates continue to rise. The average annual price escalation for water from U.S. utilities was 4.1 percent between 2008 and 2016, according to the Department of Energy.
Water bills are surging nationwide because utilities need the revenues to replace aging infrastructure like corroded pipes and overflowing sewer systems. The EPA estimates the U.S. needs to spend about $665 billion over the next 20 years to upgrade water and sewer systems, repairs that water companies have put off for years to keep prices low. This gave many of us the expectation of cheap water for decades, but that could be changing now. Utilities depend heavily on customers for revenues and get just four percent of their funding from the U.S. government. Some utilities out west, like in Los Angeles, also cite drought concerns and loss of revenue as reasons for rate hikes. But for the most part, water availability hasn’t impacted utility rates, it’s more so tied to infrastructure improvements and operating costs.
Another sneaky contributor to water waste are leaks. A toilet leak can waste 250 gallons of water per day for an estimated daily cost of $3.30, according to New York City’s Department of Environmental Protection. No matter how many high-efficiency restroom fixtures you install, ignoring leaks like this can wipe away a considerable portion of water savings. Keeping an eye out for leaks the old-fashioned way is one strategy, advising maintenance and housekeeping staff to be on the lookout and leaving signs in restrooms for occupants. Some property managers even designate a specific number to call to report leaks.
Water metering is a way to track usage and leaks, too, and it works best when incorporated into a building management system, so property managers and building owners can view the information on their dashboards.
Water audits are gaining popularity, though they don’t have the same widespread standardization of energy audits. Water audits can be done in-house or performed by a plumbing or utility professional. The benefits of the audit will be establishing more exact measurements of where water is being used in the facility and enabling a property owner to set benchmarking goals. For companies with multiple facilities, this can be especially helpful, as you’ll be able to compare and contrast performance between buildings. Diving deep into the data, property owners can also prioritize retrofitting projects based on ones that’ll have the most impact.
BANK OF CANADA RAISES INTEREST RATES
The Globe and Mail Mark Rendell
The Bank of Canada raised its policy interest rate March 2nd, 2022, pushing up borrowing costs for the first time since 2018 and kicking off a much-anticipated rate hike cycle despite heightened economic uncertainty caused by Russia’s invasion of Ukraine. The central bank’s governing council voted to increase the key overnight interest rate to 0.5 per cent from 0.25 per cent – the first step in a push to bring runaway inflation back under control.
This puts the bank on the path to normalizing monetary policy after two years of record-low interest rates, held down by the bank to support the Canadian economy through the COVID-19 pandemic. Bank governor Tiff Macklem and his team decided to proceed with the rate increase despite disruptions to the global economy resulting from the war in Ukraine and the massive sanctions levelled by Western governments against Russia in recent days. These moves included freezing the Russian central bank’s foreign exchange reserves and cutting much of the country’s financial system off from global markets.
The Bank of Canada’s decision to start tightening monetary policy comes in response to the highest inflation in decades, which has eroded the purchasing power of the Canadian dollar and challenged the central bank’s credibility as an inflation fighter. It has also become clear in recent months that the Canadian economy has largely rebounded from the pandemic-induced recession and no longer needs emergency monetary policy support.
The rate of inflation hit a three-decade high of 5.1 per cent in January, and consumer price index growth has exceeded the central bank’s 1 per cent to 3 per cent target range since April of last year. The bank warned on Wednesday that price increases have become more pervasive, and said that inflation “is now expected to be higher in the near term than projected in January.”
Avery Shenfeld, chief economist at the Canadian Imperial Bank of Commerce, said in a note to clients that the central bank’s outlook for higher inflation means that it will likely increase rates more quickly than previously expected.
“Odds are that the bank will deliver the remaining three quarter point hikes we had allocated for 2022 over the next three rate setting dates, rather than spread out through the year,” he said. Financial instruments that track market interest rate expectations point to six more rate hikes over the next year, bringing the policy rate back to its pre-pandemic level of 1.75 per cent.
WHERE ARE RENTS GOING OUTSIDE THE GTA
The Apartment Group
When everyone talks about astronomical real estate prices for homes they usually are speaking about the GTA. For the past decade, housing prices in the GTA have become more and more unaffordable couple with the time it takes to bring on new supply and you get a supply demand imbalance which pushes prices up. Here you have two major factors on the supply side. One - the time it takes to bring on new product and Two - the restriction in supply of smaller entry level stock as even those owner can not afford to move up and buy larger homes. They stay in place and renovate. This has caused huge price appreciation.
This is good for the rental market. As those who now can't afford to buy turn to renting. As we all know, given rent controls there is a lack of purpose built product coming on the market so the supply side there too is finite. This couple with all the immigrants coming in is pushing up rental demand and rental rates in the GTA too have gone up just like house prices.
Well this is effect is now spreading out in the hinterland to the 905 and even the 705. Many point to this migration to the hinterland as a direct result of Covid, but the reality is - it is all about affordability. And now that we have learned to work from home commuting is not so much a big thing to consider. Over the past few years we have been placing our clients into these markets as our research showed that appreciation here would occur as the water ripples out from a central point. Our direction to our clients was that this same affordability issue will creep into the hinterland markets and as single family home price went up rental rates will follow in tandem. However, they would be purchasing rental buildings are much better cap rates than in the GTA.
We are now seeing this in markets like Hamilton, Brantford, Paris, Woodstock, Kitchener, Lindsay, Barrie, etc.. Over the past 2 years it is not uncommon to see prices jumping 20-30% per year. Entry level residential product like townhouses have shown the greatest gains. Here are some quotes from some markets we are looking at.
In January, the average sale price for all residential properties in the Kitchener-Waterloo area was $955,665. This represents a 37.3 per cent increase over January 2021 and a 13.6 per cent increase compared to December 2021.
Average home prices in Hamilton are up by 35% year-over-year, with the average sold price now at $976,423 for January 2022. Hamilton home prices are at a record high as average detached home prices increase by $176,256 in just one month!
"MLS® home sales started 2022 right where 2021 left off, once again setting a new monthly record," said John Oddi, President of the Brantford Regional Real Estate Association. The overall MLS® HPI composite benchmark price was $758,300 in January 2022, a jump of 42% compared to January 2021.
"Home sales marked a huge recovery from last January’s levels and set a new record for the month. This is a very strong start to the year," said Anthony Montanaro, President of the Woodstock-Ingersoll & District Real Estate Board. The overall MLS® HPI composite benchmark price was $665,400 in January 2022, up sharply by 35.5% compared to January 2021.
We could go on and on. These price jumps are a direct result of people from the GTA moving into these markets. Right now in Kitchener townhouses are being listed for $450,000 to $500,000 and selling for over $650,000. Rents in these markets are now starting to move up as the locals are pushed out of the ownership market and into rentals.
PERKELL PORTFOLIO - TORONTO - $194,000,000 / $414,530 Per Suite / 2.0% Cap Rate
This is the sale of four properties by an Seller who originally built these buildings back in the 1960's. The first property is 530 The East Mall and comprises a 3.79 acre site improved with 7 storey concrete rental apartment building with 110 suites. 1061 Don Mills Road East comprises of a 3 acres site and 108 rental apartment suites in a collection of low rise buildings. 210 Markland Drive consists of 152 rental apartment suites in a 13 storey concrete building on 4.33 acres. All of these properties were purchased by Hazelview Properties. The final property is 351 The West Mall and it comprises a 3.4 acre site with two low rise rental apartment buildings with a total of 98 suites. This property was purchased by Starlight Investments. Reportedly these buildings were on the market for sometime and were being sold by the Seller directly. All the properties has a substantial surplus land component in addition to the investment income.
1 KINGSWOOD ROAD - TORONTO – $4,680,000 / $390,000 Per Suite / 4.5% Cap Rate
This property comprises a low rise walk up rental apartment building located in the Beach. The building dates from the 1950's and in the past 24 months has been totally gutted and renovated to a high level. The asset comprises 12 suites - 2 bachelors, 8 one bedrooms and 2 two bedrooms. The building had in place rents that were at market. The property was fully marketed and was purchased by a private investor.
1570 LAWRENCE AVENUE WEST - NORTH YORK - $33,750,000 / $387,900 Per Suite / 2.7% Cap Rate
This property is located in along Lawrence Avenue between Culford Road and Black Creek and comprises a six storey rental apartment building 1.94 acres. In total there are 87 suites and the building has 2 elevators, surface and underground parking and has rents below market. It is a concrete structure with brick exterior walls, double windows, flat roof and balconies. It is a corner property with good curb appeal. The property was fully exposed and marketed and purchased by Pulis Real Estate.
1738 AND 1744 WILSON AVENUE - NORTH YORK - $8,300,000 / $415,000 Per Suite
These are two rental walk up apartment buildings located along Wilson Avenue between Jane Street and Highway 400. They are located long a strip adjoined by similar walk up rentals. These two buildings were purchased in 2020 and the owner vacated the buildings renovated them from top to bottom. The rents are at market and the area is improving. The buildings were fully marketed and were purchased by Forum Equity Partners.
THE APARTMENT GROUP
Together the team has completed over 1,500 transactions and has sold over $7.0 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