References to bubbles in real estate circles tend to provoke strong emotions.
A couple of weeks ago, Coalition of Progressive Electors (COPE) mayoral candidate Meena Wong told an Urban Development Institute audience that the Vancouver real estate market was a bubble. The next day, Mark Sparrow, director of hotels, Western Canada for CBRE Ltd., told the Western Canada Hotel & Resort Investment Conference that Vancouver itself is a bubble – but of a different sort.
“It’s a market unto its own,” he said, saying the dynamics are such that prices have room to expand as investors seek a place for capital. “There’s really not a ceiling that’s been set here. … The investment dollars that are looking to place their capital into Vancouver are coming in a strong way from Asian markets and alternative markets in the U.S. and other areas.”
A good example of the optimism is the 120-room Best Western Sands Hotel at 1755 Davie Street, which traded earlier this year for $30.3 million. The buyer was a numbered company backed by Asian capital. The price worked out to $252,500 a room, and a cap rate of just 2.8% – well below the return investors typically expect, and see, in the Vancouver market.
“It’s placing income in a market where they can hold their capital,” Sparrow said, estimating that the new owner will hold the property seven to eight years before pursuing any redevelopment. “Long term, I think they’re in a very good spot.”
The deal stands in stark contrast to Nat Bosa’s purchase of the 477-room Fairmont Empress Hotel in Victoria.
Its former asset manager, Ivanhoe Cambridge, gave Carrie Russell, managing director of valuation firm HVS Canada, the green light to disclose the deal’s approximately $50 million value. The price worked out to $105,000 a room, significantly less than what was paid for the Best Western Sands, and the cap rate was commensurately higher at approximately 4%.
“It’s a little capital-starved,” Russell observed. “There’s definitely some redevelopment opportunities on that site. … Bosa sees a lot of opportunity about where this could go.”
Speaking of opportunity …
Grande Prairie-based Pomeroy Lodging LP is fired up over opportunities associated with natural gas projects in northern B.C.
Having been active in the Fort St. John market for several years, it headed west to Terrace in June, closing a deal for the local Chances community gaming centre. It also owns the Chances gaming centre in Fort St. John, which is part of a 125-room hotel and conference centre.
“We’re looking at options to do that kind of development in Terrace,” said Jeff Hyslop, vice-president, real estate and development, citing liquefied natural gas developments in the region and other projects among the factors that make Terrace an attractive place to set up shop. “We think it’s going to be robust for the whole area and region.”
All going well, the purchase in Terrace will lead to additional investment in the province’s northwest.
“It would be rare for us to buy a hotel in a market that we didn’t plan to build any more in, or [have] already owned some,” president Ryan Pomeroy told the recent Western Canada Hotel & Resort Investment Conference.
Kitimat is among the communities in Pomeroy’s sights for future investment.
Proficient when deficient
Vancouver-based Sitemax Systems Inc. made its name developing project management software for contractors, beginning with Wales McLelland Construction Ltd.
Now, it’s setting its sights on the downside of construction: deficiencies.
During the Buildex Express show in Vancouver last week Sitemax showcased Rectify, a new application that will launch in November. The service is free for up to 100 deficiencies on a single property, and $59 a year for a subscription that will cover multiple properties.
The service operates on a mobile platform, allowing remote management and interaction between a client, contractor, insurers and friends to whom the client might want to refer the contractor.
“You can share your deficiency with anybody,” explained James Faulkner, president and co-founder of Sitemax. “I have a structure around how much I’m going to pay them, how much I’m going to hold back till it’s finished, and then there’s a record of this deficiency that’s been done for my house.”
Faulkner believes the service could benefit people renting out a portion of their homes, or managing a small portfolio of condos.
“They have to rely on that contractor to have their own process, and I can tell you from my experience, they don’t all have one,” he said. “It puts the power in the consumer’s hands to manage their people.” •