[vc_row][vc_column width="1/2"][vc_column_text][/vc_column_text][/vc_column][vc_column width="1/2"][vc_column_text]At the CBRE Market Outlook Breakfast, Hani Lammam, VP of Development & Acquisitions for Cressey Development Corp, talked about the current environment of multi-family investing. Hani explained, “The opportunities are always there, as long as we can be creative and nimble. But it’s going to take owners and vendors to have this same sense of reality.”
In order to have “realistic” goals, it is important to consider that every property has its own unique attributes and resulting market value.
From a multi-family valuation perspective, the following are all factors to consider: current income, property and building condition, completed upgrades and capital expenditures, suite mix, location, future densification potential, market trends, any political policies that may affect the property’s performance, and more.
From our experience, the probability of an efficient and successful sale process increases greatly when parties involved understand the unique dynamics of a specific asset.[/vc_column_text][/vc_column][/vc_row]
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At the 2019 CBRE Market Outlook Breakfast, Jon Stovell (President & CEO of Reliance Properties) noted, “People who have the balance sheet and are willing to ‘go long’ on a good development property with good holding income are going to come out in the next cycle looking good.”
With a variety of exciting initiatives taking place in the City of Vancouver, such as the ongoing review of the Broadway Corridor Plan, the forthcoming creation of a City-wide land use plan, and surging emphasis on additional rental developments & initiatives, the results of these efforts may ultimately transform the market.
For the investor that shares a similar investing mantra as Jon Stovell, the ability to spot long-term opportunities in the current market may prove to be fruitful down the road.
According to the October 2019 edition of the CBRE Canada Monthly Mortgage Commentary, the current 5 year mortgage spread is between 1.55-2.05% and the 10 year mortgage spread is 1.65-2.30%. For multi-family assets in particular, the availability of
CMHC Insured Financing offers even more accretive financing terms. As a result, investment opportunities providing immediate-yield and long-term re-development opportunities become that much more appetizing.[/vc_column_text][/vc_column][/vc_row]
[vc_row][vc_column width="1/2"][vc_column_text][/vc_column_text][/vc_column][vc_column width="1/2"][vc_column_text]CBRE’s 2019 Tech-30 Market report recently stated that Vancouver experienced the most high-tech job growth between 2017-2018 at 30%, adding approximately 13,600 new jobs.
As global companies like Amazon & Facebook increase their labour footprint in Vancouver, in conjunction with steadily increasing migration, the rental apartment vacancy rate across Metro Vancouver will inevitably remain compressed and place upwards demand in neighbourhoods near the Downtown Core, and corresponding upwards pressure on rental rates.
For example, The West End/Stanley Park and the South Granville/Oak neighbourhoods are both within minutes of the Downtown Core, and boast some of the lowest vacancy rates at just 0.6% and 0.5% respectively (CMHC 2018). High demand, compressed vacancy & increased rental rates will allow apartment owners to enjoy a steady income stream and a good return on investment for many years to come.[/vc_column_text][/vc_column][/vc_row]
[vc_row][vc_column width="1/2"][vc_column_text][/vc_column_text][/vc_column][vc_column width="1/2"][vc_column_text]Throughout Metro Vancouver & Greater Victoria, multi-family assets continue to be one of the strongest performing commercial investments. Below are a few main drivers of the multi-family market:
Interest rates remain at historically low levels. The compressed interest rate environment has provided investors the opportunity to secure extremely favourable long-term debt, which will likely keep cap rates in Metro Vancouver relatively lower to the other major Canadian markets.
British Columbia will continue to benefit from positive migration and tenant demand; Vancouver’s regional population continues to rise by approximately 40,000 – 50,000 people per year, and for many the cost of home ownership remains out of reach, making renting the only viable option for the foreseeable future.
Governments have yet to effectively incentivize any real significant amount of new rental stock, ensuring vacancy rates remain low, tenant demand high, and continued upward pressure on rental rates.[/vc_column_text][/vc_column][/vc_row]
[vc_row][vc_column width="1/2"][vc_column_text][/vc_column_text][/vc_column][vc_column width="1/2"][vc_column_text]Once you identify a real estate investment property that offers promising cash flow, you will need to consider how to finance the acquisition.
Aligning your financing early on will help you make a swift and credible offer, which ultimately increases the probability for a successful transaction!
Below are a few examples of financing options for your next multi-family investment:
Conventional Financing: Offered by several banks and lending institutions. Up to a maximum 70% - 75% LTV, dependent on lender. Interest rates are typically 1.50% - 2.00% higher than Canadian bond rates, depending on length of term & lender.
CMHC Insured Financing: Typically, the most attractive form of financing specific to multi-family investments. Up to maximum 85% of purchase price or lending value as determined by CMHC, and generally lower interest rates relative to other forms of financing.
High Leverage Financing: Short term financing at higher interes trates, typically preferred by investors who want to minimize their equity requirement.
Partnership: A partnership structure can be set up for an acquisition, thereby splitting up capital requirements, rental revenue and end-profits in accordance to each partner’s proportionate contributions.[/vc_column_text][/vc_column][/vc_row]
[vc_row][vc_column width="1/2"][vc_column_text][/vc_column_text][/vc_column][vc_column width="1/2"][vc_column_text]From our years of experience and expertise in multi-family transactions, below are some reasons why investing in multi-family properties can benefit your real estate investment portfolio:
Secure Recurring Income: A primary driver behind the demand for multi-family investment assets is the overwhelming rental demand throughout Metro Vancouver. With local vacancy rates below 1.0%, combined with positive forecasts for population & employment growth for the region, landlords can be extremely bullish of their buildings’ ability to generate steady income moving forward.
Price Point Variety: Rental apartment buildings come in a wide range of units, location and resulting price points, providing for a variety of options for investors depending on their available capital, investment requirements and desired portfolio size.
Rental Income Growth: Based on CMHC data, average rental rates in Metro Vancouver have grown by 20% in the last 3 years alone. Unlike other commercial properties with lengthy leases, rental apartment buildings can capture immediate rental income growth as tenants turnover, which is particularly true for a highly sought-after market such as Metro Vancouver.
Property Appreciation: Pertaining to a rental apartment building, the growth in rental income and the appreciation of the property value goes hand-in-hand. As rental rates grow rapidly and vacancy remains compressed, this will prove to be extremely beneficial for multi-family investors.[/vc_column_text][/vc_column][/vc_row]
[vc_row][vc_column width="1/2"][vc_column_text][/vc_column_text][/vc_column][vc_column width="1/2"][vc_column_text]How do you know whether a rental property will be profitable in the long run? A few things to consider:
1️⃣ Low Levels of Vacancy in the Area = High Demand: In areas of low vacancy, there is greater potential to increase rental income due to the consistent demand placing upwards pressure on rents.
2️⃣ Highly-Rated Amenities & Transit: Renters are attracted to areas with an array of amenities and transit options because of the convenience it provides them in their day-to-day lives
3️⃣ Future Development Potential: Over and above the revenues generated by the property, it is important to get educated on any future re-development potential as these mid-long term opportunities may amplify property values appreciation and provide alternative exit-strategies.[/vc_column_text][/vc_column][/vc_row]
[vc_row][vc_column width="1/2"][vc_column_text][/vc_column_text][/vc_column][vc_column width="1/2"][vc_column_text]The benefits of buying a Rental Property in an emerging Neighbourhood include:
Higher Return on Investment: Often times, you’ll be able to purchaser a rental property at a lower price point in an emerging neighbourhood, allowing you to benefit from a higher return on investment once the neighbourhood develops
Portfolio Growth: there is greater potential to purchase 2-3 properties in an emerging area for the price of 1 in a more developed neighbourhood, making it easier to grow your real estate portfolio
Rental Income Upside Potential: apartment buildings in these neighbourhoods may yield below-market rents, providing investors a value-add opportunity to turnover (and modernize in some cases) and re-lease at market rents
East Vancouver is a prime example of an emerging neighbourhood for a few reasons:
It’s only 10-15 minutes from Downtown Vancouver
49.1% of households are renters & offers more affordable rents
Known for Art & Culture
Provides excellent transit options
To know if an investment in an emerging neighbourhood is right for you, ask your commercial broker the following questions:
🔸 Does this neighborhood have growth potential?
🔸What is the percentage of renters in this neighbourhood?
🔸Are there any major developments or new businesses opening in this area?
🔸 Are majority of rents below average?[/vc_column_text][/vc_column][/vc_row]
[vc_row][vc_column width="1/2"][vc_column_text][/vc_column_text][/vc_column][vc_column width="1/2"][vc_empty_space][vc_column_text]Cash flow positive means that you have more money going into your business at any given time than you do coming out. Investing in a commercial property with positive cash flows is one of the best ways to add to your portfolio and build your wealth.
As the rental income from the investment property is able to cover the mortgage payments, this allows you to build your equity faster. This investment principle allows you to build your wealth over time and can provide the flexibility to re-invest that cash flow into another real estate investment opportunity or into a future re-development.[/vc_column_text][/vc_column][/vc_row]