Surprising Hot Commercial Properties
Two nearly identical apartment buildings located in Cambridge, Ontario, were surprisingly hot properties for two days in May. In fact, they may have been the very hottest properties in the whole of Canada. Not that they were anything out of the ordinary appearance-wise. Sand colored brick buildings with metal balconies; nothing that you would write home to mother about. But their price tag mad them hot, hot, hot. At $46.7 million, these were dream investments that are few and far between and there was a flurry of activity as real estate investment trusts with deep pockets rush to grab them up while they were still available.
There are around 100,000 apartment buildings located across Canada, with the largest portion of those located along the Windsor-Quebec City corridor. And although an apartment building may not provide as big of a return to their investors as an office building or shopping center, they are low risk and they provide an excellent way to generate dependable income.
Throughout the recession, there were no distress sales for apartment buildings. They held their value. How? Owners could refinance their debt through Canada Mortgage and Housing Corporation very inexpensively, giving them access to credit during a period of time when other property owners were turned away and denied.
With rates on mortgages poised to rise in the months ahead, buyers are eager to make purchases now. First quarter sales, as tracked by RealNet Canada, shows that sales volumes decreased in most of the country while commercial sectors were showing dramatic signs of recovery. Does this have anything to do with lack of confidence in the sector? No. On the contrary, it is a good illustration of how hesitant sellers are to part with properties that can generate income. Simply put, when people own them, they don’t want to get rid of them. And the ones that do can command top dollar.
This story has a familiar spin and is reminiscent of the record price gains in the residential housing market. The twist is that instead of families looking to purchase a new home, these are gigantic players who have been diligently raising billions of dollars in capital over the past twelve months – and now they are ready to put that money to good use. They are targeting reluctant sellers and private owners that will likely only sell if the money is too good to pass up.
Case in point, the Halifax based Killam Properties began their year with a goal: they wanted to spend as much as one-hundred and fifty million dollars on apartment buildings in Ontario. They passed the one-hundred million dollar mark when they closed the deal in Cabridge earlier in the week. Killam CEO Phillip Fraser stated that it was becoming harder to find buildings that met the criteria that his company was looking to buy, and finding a property in Cambridge was rare. But with some door-knocking, his representatives found an owner who was willing to part with a property, taking over a twenty-year, $10.1 million dollar mortgage at a rate of 5.15%, and an additional mortgage of $16 million dollars at 4 1/2%. The remainder was paid in cash to the owner. But, according to Fraser, it’s an investment that’s worth making, as the buildings in Killam’s portfolio keep their value in the long run.
