Connection point
This fall’s outlook sessions have been fairly consistent in the opinion that 2014 will be a steady year with scant difference from 2013.
One of the moderating influences – and a topic of much speculation – has been the course of interest rates, which are uniformly expected to rise, but both when and by how much are unknown.
But all that chatter has led to an acceptance of the actual effects, whatever they are, and so a lessening of the impact they’ll have on real estate transactions – so far as major investors go, anyway.
“Everyone is expecting interest rates to rise, so return expectations have moved down,” said Andy Warren, director, real estate research, with PricewaterhouseCoopers (PwC) in Iowa, and a co-author of the 2014 Emerging Trends in Real Estate report PwC previewed in Vancouver last week with co-publisher the Urban Land Institute.
Sudhir Dhingra, senior vice-president, investment finance, with Citibank in Vancouver, agrees. Speaking a few days earlier as part of a panel discussion the commercial real estate association NAIOP hosted regarding the outlook for investment real estate, Dhingra said interest rates – especially for residential properties – have limited room to increase.
“I don’t see interest rates higher than 3% or more than 3.25%,” he said, “because that would impact the housing market.”
Warren said sources for the Emerging Trends report indicate that commercial rates could rise 200 basis points within two years. But this isn’t something to fret about.
“There’s a feeling that the real estate markets are strong enough to absorb that increase,” he said. “[There’s] not a lot of concern that interest rates will derail the market.”
Major market interest
Tallies presented by Tony Quattrin, vice-chairman of the CBRE Investment Properties Group, at the recent NAIOP discussion regarding investment real estate indicated that foreign investors – primarily from China and India – have bought more than $280 million worth of commercial real estate in Metro Vancouver in the past 12 months.
The majority of investment has been in the region’s core, which Jim Szabo – managing director of CBRE’s investment group – told last week’s Urban Land Institute meeting was part of a strategy on the part of investors to preserve capital. Rather than seek significant immediate returns, the buyers are targeting markets with good long-term fundamentals.
“They’re sticking pretty close to the major markets right now, and they’re willing to pay up for that,” Szabo said. “So if you’re trying to get them to look at a great opportunity that’s outside the core, they’re not there yet.”
The comments echoed those made by Mark Sparrow, director of hotels, Western Canada, with CBRE Ltd., at the Western Canada Hotel and Resort Investment Conference in late October.
While capital from Asia had shown plenty of interest in hotel properties, deals tended to occur closer to Vancouver rather than in emerging markets such as Kitimat.
Speaking of deals ...
Canadian investors have spent $27 billion more on U.S. real estate in the past year than U.S. buyers have spent in Canada.
Among the latest deals is Aquilini Investment Group’s purchase of 670 acres of land on Red Mountain in Washington state from the local irrigation district. The property includes some of Washington’s most sought-after vineyard land, which the Aquilini family aims to develop with suitable grapes as soon as possible.
While the motives of the group were initially viewed askance by local vintners and growers, some of whom were among the 38 parties Aquilini trumped with its winning US$8.8 million bid, most welcome the land’s development. Aquilini’s holdings include hundreds of acres of blueberries and cranberries in Pitt Meadows, as well as a dairy farm in Sunnyside, Washington, but it is new to the region’s wine industry. The purchase is set to close January 7, 2014.
More vendors
Westminster Management Corp. was the majority owner of the joint venture that previously owned the site acquired earlier this fall by AIMCo Realty Investors LP of Alberta with asset manager Blackwood Partners Management Corp. of Toronto for development of Renfrew Centre. Pacific Capital Real Estate Group, which was named during interviews and in last week’s column as the previous owner, was a minority partner with Westminster alongside Renfrew Properties Ltd. •
