Add Brookfield Properties Corp. to a growing list of commercial real estate players who have lots of money to spend, but little to buy.
The Globe and Mail reported Friday that Brookfield has $5 billion in cash at its disposal, but can't find Canadian properties that will provide the requisite 20 per cent return. Brookfield set up a $5-billion real estate investment fund in September with a sister company and dozens of major institutional players with the goal of acquiring several distressed office and mall properties.
"There really hasn't been that much out there," Brookfield CEO Ric Clark told the Globe. "When we first started thinking about this, we had many companies on the list as potential targets – the public markets have been so efficient that many have been able to solve their problems."
The situation points to the fact that many Canadian commercial property owners do not have the same debt problems as their U.S. counterparts, and tenants are not nearly as stressed, either. Canadian landlords are also showing more willingness to work with tenants to retain them.
As Avison Young's National Fall Newsletter pointed out, there is considerable activity in the Toronto office market, especially in the heart of Bay Street, as tenants take advantage of deals to move into new space or stay in their existing locations. Vancouver landlords are also expected to offer much more favourable lease terms as numerous agreements roll over following the 2010 Winter Olympics.
Vacancy is on the rise in major markets, but building owners are refusing to panic. Notably, in the retail asset class, several potential deals on malls ranging from Vancouver to Toronto have been scuttled because sellers did not get the prices that they were looking for, and properties have been quietly pulled off the market. Owners are banking that property values will hold relatively firm, and they can cash in on large equity gains later, even if they have to take less in rent now.
The same principle applies to both office and retail. The Calgary office market, where vacancy is expected to double in the short term, will definitely test this strategy as several speculative builds start to play out. But, generally, the builders of the Calgary properties have strong financial support.
Signs indicate that there is still considerable pent-up demand across the country.
While Brookfield built its $5 billion fund, several REITs and other investors were cleaning up their balance sheets and raising cash for an expected resurgence in acquisitions during the second half of this year. That resurgence has yet to materialize, and may be delayed slightly, because buyers and sellers are still trying to narrow their price-expectation gap.
Some have questioned whether REITs wanted the money primarily to manage their debts rather than acquire assets. But RioCan's recent $180-million foray into the U.S. market and Artis REIT's recent acquisitions of retail and industrial properties in Vancouver and Winnipeg, respectively, clearly indicate that some REITs are active buyers.
However, they are also having trouble figuring out where to spend their money. For instance,
many are anxious to invest in the downton Vancouver office market, where there is a shortage of class A properties, is a prime example.
The same goes for international investors who have a unique affection for Vancouver despite traditionally low cap rates.
What does this all mean? Brookfield is not the only investor with money to invest, and there is much more than $5 billion kicking around.
Friday, October 30, 2009
Tuesday, October 27, 2009
Canada's largest REIT begins U.S. foray
RioCan's anticipated foray into the U.S. commercial real estate market came to fruition Monday.
The Canadian REIT announced it has agreed to acquire acquire shopping malls in the northeastern and Mid-Atlantic states as well as a minority stake in a U.S. developer for $181 million US. RioCan, Canada's largest shopping mall owner, has struck definitive agreements with Cedar Shopping Centers Inc., to take an equity stake in the Port Washington, N.Y. real estate investment trust, owner of 124 shopping centres, The Canadian Press reported.
RioCan and the U.S. firm will form a joint venture with the Canadian REIT owning 80 per cent of the assets. Continuing the emphasis on food-and-drug-based assets, the partners' first properties are seven grocery store-anchored shopping centres in Massachusetts, Pennsylvania and Connecticut currently owned by Cedar.
RioCan has also agreed to take a 15-per-cent stake in Cedar that comprises 6.7 million shares and 1.4 million warrants of the U.S. company. The Canadian REIT will invest $181 million, furnishing $106 million in net equity and assuming $75 million in mortgage debt on properties.
“RioCan's objective is to take a measured and defensive approach to investment in the U.S. market,” said president and CEO Edward Sonshine.
The announcement coincided with RioCan's third-quarter report, which included a profit of $28.4-million or 12 cents per unit for the quarter ended Sept. 30 compared with a profit of $40.9 million or 19 cents per unit a year ago.
Cedar said the two companies expect to acquire up to $500-million worth of supermarket-anchored properties in the northeast and mid-Atlantic states in the next two years.
RioCan is Canada's largest REIT with a total capitalization of $7.8-billion (Canadian) and 247 retail properties, including 13 under development.
The Canadian REIT announced it has agreed to acquire acquire shopping malls in the northeastern and Mid-Atlantic states as well as a minority stake in a U.S. developer for $181 million US. RioCan, Canada's largest shopping mall owner, has struck definitive agreements with Cedar Shopping Centers Inc., to take an equity stake in the Port Washington, N.Y. real estate investment trust, owner of 124 shopping centres, The Canadian Press reported.
RioCan and the U.S. firm will form a joint venture with the Canadian REIT owning 80 per cent of the assets. Continuing the emphasis on food-and-drug-based assets, the partners' first properties are seven grocery store-anchored shopping centres in Massachusetts, Pennsylvania and Connecticut currently owned by Cedar.
RioCan has also agreed to take a 15-per-cent stake in Cedar that comprises 6.7 million shares and 1.4 million warrants of the U.S. company. The Canadian REIT will invest $181 million, furnishing $106 million in net equity and assuming $75 million in mortgage debt on properties.
“RioCan's objective is to take a measured and defensive approach to investment in the U.S. market,” said president and CEO Edward Sonshine.
The announcement coincided with RioCan's third-quarter report, which included a profit of $28.4-million or 12 cents per unit for the quarter ended Sept. 30 compared with a profit of $40.9 million or 19 cents per unit a year ago.
Cedar said the two companies expect to acquire up to $500-million worth of supermarket-anchored properties in the northeast and mid-Atlantic states in the next two years.
RioCan is Canada's largest REIT with a total capitalization of $7.8-billion (Canadian) and 247 retail properties, including 13 under development.
Monday, October 26, 2009
REITs hungry to buy as economy recovers
Canadian REITs continue to shore up their balance sheets in an expected run on acquisitions over the rest of this year.
Analysts estimate more than a billion dollars have been raised by Canadian REITs in the last year, says a story in Monday's The Globe and Mail.
“We think the next 18 months will be a very fruitful time for listed [property companies],” AMP Capital Brookfield chief investment officer Kim Redding told the Globe. “They are one of the few investors in the world that have capital.”
RioCan, the largest REIT in Canada, has said it would make a major purchase in the U.S. as it deploys $150 million that it raised on capital markets. Scott's REIT chief executive officer John Bitove told the Globe his company will “certainly be a buyer,” and Whiterock REIT has already jumped in by taking a large stake in an $82-million deal for Toronto office towers, which are definitely in play these days as tenants look for better deals as leases roll over.
But questions remain about whether REITs are raising capital for investment to deal with internal financial issues as they continue to recover from the global financial meltdown.
“Most REITs have taken advantage of the open capital markets,” said Mark Rothschild, an analyst at Genuity Capital Markets. “Most management teams have expressed confidence this capital will be used to take advantage of distressed opportunities – we believe that there will not be many extremely accretive acquisition opportunities and ultimately many of the recent offerings will prove dilutive.”
And despite the rash of fundraising, Mr. Rothschild told the Globe, REITs face challenges in their everyday operations that should be highlighted over the next two weeks as they report earnings. Funds from operations – a key gauge of health – are expected to have slipped lower for the first time this recession for residential REITs, while the commercial REITs could see the second decline in a row.
“Fundamentals have softened across most Canadian markets as a result of the weakening economy … vacancy rates have increased” he said.
Whiterock CEO is Jason Underwood is on the lookout for deals after his firm raised $30 million. He's confident that he has a cushion behind him in the event of another downturn, even if he can't find enough assets worth $30 million.
“REITs have raised all that money and you know they don't need a billion dollars to bolster their balance sheets,” he told the Globe. “That doesn't mean it all needs to be spent at once – I'd characterize our outlook as cautiously optimistic, so it's not a bad thing to have some money in the bank.”
Analysts estimate more than a billion dollars have been raised by Canadian REITs in the last year, says a story in Monday's The Globe and Mail.
“We think the next 18 months will be a very fruitful time for listed [property companies],” AMP Capital Brookfield chief investment officer Kim Redding told the Globe. “They are one of the few investors in the world that have capital.”
RioCan, the largest REIT in Canada, has said it would make a major purchase in the U.S. as it deploys $150 million that it raised on capital markets. Scott's REIT chief executive officer John Bitove told the Globe his company will “certainly be a buyer,” and Whiterock REIT has already jumped in by taking a large stake in an $82-million deal for Toronto office towers, which are definitely in play these days as tenants look for better deals as leases roll over.
But questions remain about whether REITs are raising capital for investment to deal with internal financial issues as they continue to recover from the global financial meltdown.
“Most REITs have taken advantage of the open capital markets,” said Mark Rothschild, an analyst at Genuity Capital Markets. “Most management teams have expressed confidence this capital will be used to take advantage of distressed opportunities – we believe that there will not be many extremely accretive acquisition opportunities and ultimately many of the recent offerings will prove dilutive.”
And despite the rash of fundraising, Mr. Rothschild told the Globe, REITs face challenges in their everyday operations that should be highlighted over the next two weeks as they report earnings. Funds from operations – a key gauge of health – are expected to have slipped lower for the first time this recession for residential REITs, while the commercial REITs could see the second decline in a row.
“Fundamentals have softened across most Canadian markets as a result of the weakening economy … vacancy rates have increased” he said.
Whiterock CEO is Jason Underwood is on the lookout for deals after his firm raised $30 million. He's confident that he has a cushion behind him in the event of another downturn, even if he can't find enough assets worth $30 million.
“REITs have raised all that money and you know they don't need a billion dollars to bolster their balance sheets,” he told the Globe. “That doesn't mean it all needs to be spent at once – I'd characterize our outlook as cautiously optimistic, so it's not a bad thing to have some money in the bank.”
Sunday, October 25, 2009
Ottawa contemplates new pension-fund rules
Ottawa is aiming to boost pension-fund surpluses to help offset threats to retirees' nesteggs. Finance minister Jim Flaherty is weighing the merits of allowing pension plans to increase their surpluses from the current 10 per-cent-of-value threshold to help make up for looming pension-fund shortages. The move, once finalized, could have a significant impact on commercial real estate investment activity because it would enable pension funds to accumulate more properties.
For more details, click on the link to a story in The Globe and Mail.
http://tinyurl.com/pensionstory
Tuesday, October 20, 2009
Thales Group lease offers hope to T.O. market
Thales Rail Signalling Solutions Inc. (TRSS), a subsidiary of Thales Group worldwide, announced Tuesday it has leased 190,000 square feet of office space in Toronto's suburbs.It's the largest new-space deal signed in Toronto this year, and commercial real estate insiders and observers are optimistic that it will bost sales and lease velocity.
See the linked Globe and Mail story below for more info.
TD Bank boss not worried about bad CRE loans
TD Canada Trust's CEO says commercial real estate loan defaults won't have a big impact on his bank's bottom line.
Speaking at an investment conference in Toronto, Tim Hockey said the bank's loan outlook remains unchanged. Hockey expects bad loan cases to rise, and their resolutions usually lag the overall economy's recovery, but he does not foresee major problems as Canada continues to rebound from the recession.
To read a Reuters story on Hockey's appearance at the Toronto event, click on the link below.
http://tinyurl.com/yku3wke
(Monte Stewart writes about commercial real estate for Avison Young. www.avisonyoung.com)
Speaking at an investment conference in Toronto, Tim Hockey said the bank's loan outlook remains unchanged. Hockey expects bad loan cases to rise, and their resolutions usually lag the overall economy's recovery, but he does not foresee major problems as Canada continues to rebound from the recession.
To read a Reuters story on Hockey's appearance at the Toronto event, click on the link below.
http://tinyurl.com/yku3wke
(Monte Stewart writes about commercial real estate for Avison Young. www.avisonyoung.com)
Friday, October 16, 2009
Institutional construction bucks downward trend
Canadian institutional construction continued to rise in the third quarter.
According to Statistics Canada figures released Friday, institutional construction increased for the seventh consecutive quarter, primarily as a result of higher investment in educational institutions in eight provinces and the Northwest Territories. Spending on new institutional buildings jumped 5.5 per cent to $3.3 billion on a seasonally-adjusted basis, offsetting an overall 3.9% decline in non-residential construction.
Alberta, hit hard by the recession, showed the largest year-over-year gain in institutional construction, a whopping 44%, to $660.9 million from $458.8 million in the third quarter of 2008. The large increase, which contrasted with a 14.2% decline in overall non-residential construction, was attributed to higher spending on health and educational institutions.
Quebec enjoyed a healthy 14.5% boost to $601.8 million from $525.4 million in the same period a year earlier.
Meanwhile, Ontario experienced a 10.3% rise on a year-over-year basis to $1.31 billion from $1.19 billion. However, investment dipped slightly to $from $1.32 billion in the second quarter of this year.
B.C. institutional construction increased 3.3% to $350.8 million from $339.5 million in the second quarter, but remained flat in relation to the third quarter of 2008.
The institutional-construction increases contrasted sharply with the overall decline in non-residential investment. The StatsCan figures show non-residential construction spending fell for the third straight quarter to $10.39 billion from $10.81 billion.
Alberta, Ontario and B.C. suffered the sharpest drops.
(Monte Stewart writes about commercial real estate for Avison Young, www.avisonyoung.com)
According to Statistics Canada figures released Friday, institutional construction increased for the seventh consecutive quarter, primarily as a result of higher investment in educational institutions in eight provinces and the Northwest Territories. Spending on new institutional buildings jumped 5.5 per cent to $3.3 billion on a seasonally-adjusted basis, offsetting an overall 3.9% decline in non-residential construction.
Alberta, hit hard by the recession, showed the largest year-over-year gain in institutional construction, a whopping 44%, to $660.9 million from $458.8 million in the third quarter of 2008. The large increase, which contrasted with a 14.2% decline in overall non-residential construction, was attributed to higher spending on health and educational institutions.
Quebec enjoyed a healthy 14.5% boost to $601.8 million from $525.4 million in the same period a year earlier.
Meanwhile, Ontario experienced a 10.3% rise on a year-over-year basis to $1.31 billion from $1.19 billion. However, investment dipped slightly to $from $1.32 billion in the second quarter of this year.
B.C. institutional construction increased 3.3% to $350.8 million from $339.5 million in the second quarter, but remained flat in relation to the third quarter of 2008.
The institutional-construction increases contrasted sharply with the overall decline in non-residential investment. The StatsCan figures show non-residential construction spending fell for the third straight quarter to $10.39 billion from $10.81 billion.
Alberta, Ontario and B.C. suffered the sharpest drops.
(Monte Stewart writes about commercial real estate for Avison Young, www.avisonyoung.com)
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