Investors seek shelter from the coronavirus storm

Metro rental apartment buildings the preferred destination in “flight to safety”

The new 146-suite Fusion Apartments in Surrey, sold this year to Toronto-based Centurion Real Estate Investment Trust for $56 million | submitted

Metro Vancouver’s multi-family rental apartment market should ride out the COVID-19 crisis better than most of a commercial real estate industry that is bracing for unprecedented disruptions over the next few weeks or months, analysts say.

They add that it is not only top-tier new purpose-built rentals but also older assets that should see strong investment action.

Eventually.

“The market is on pause right now,” said Lance Coulson, president of the National Apartment Group in Vancouver with CBRE.

He explained that owners are dealing with multiple health and personnel issues related to COVID-19, and it is difficult to even show property because self-isolating tenants don’t want to open their suites.

“I am advising property owners to hold off listing until this crisis settles,” he said.

But Mark Goodman, a Vancouver multi-family specialist and principle with Goodman Commercial Inc., said the appetite for B.C. rental apartments from institutional investors, such as pension funds and real estate investment trusts (REITs), has ramped up in the face of the pandemic.

“This is counter to the weeks prior where we were hearing that developers were done with Vancouver because of bad policies discouraging rental development.”

Goodman added that the sudden interest represents a “flight to safety,” noting that stock market volatility and threats to other real estate sectors have swivelled attention to residential rentals, which are considered less risky. Emergency-level low interest rates, he said, are also attracting investors.

As of March 24, lending rates as low as 1.8% on five-year loans and 2.1% on 10-year loans were available to apartment building buyers with mortgage insured by Canada Mortgage and Housing Corp.

Goodman said one Toronto-based REIT manager called on March 14 “asking for a list of all our listings and financial information as they are looking to move back into B.C. immediately and would like to expedite their investment strategy.”

Such investors, he said, are seeking prime assets, such as large new purpose-built rental properties in the $50 million range – a rare property in Metro Vancouver where the average apartment building is 54 years old.

Coulson, who has sold a number of new apartment projects to REITs, does not expect to see a flight of buyers into Vancouver.

“Nobody is jumping on a plane from Toronto today,” he said. “Large property owners have enough to deal with right now, including who will be paying rent on April 1.”

Coulson added that there are also mixed signals coming out of B.C.

“The premier has said there will be no rental evictions. What does that really mean?”

But in a March 20 webinar, Toronto-based Derek Lobo, a 30-year veteran of the apartment sector with SVN Rock Advisors, said residential rental investments are considered a relative blue-chip investment as the virus crisis unfolds.

“Other than the drugstores, the grocery stores and Netflix, almost every industry is envious of apartment owners. Everybody needs someplace to live, and I think things are going to be better for our industry than most.”

Lobo added that Class-B apartment buildings, which represent the bulk of the market, should do well as people hunker down during this period of self-isolation. A sector that could be challenged, he said, is student housing because of the closure of universities and college campuses. Vacancies in Class C low-rent properties could climb, he added, because of job losses in the service sector.

In B.C, however, the provincial government and the City of Vancouver have pledged rental assistance to those most in need during the COVID-19 crisis.

“The apartment market will continue to deliver favourable performance,” summed up the Coronavirus Outbreak: Implications for Real Estate report released March 23 by Marcus & Millichap, a commercial real estate agency with offices across Canada.

“With vacancy rates near historic record-low levels across numerous markets, apartments will continue to deliver strong results,” the report concluded. •