12 May

Commercial landlords and big retailers work together to pitch rent relief plan to Ottawa

Challenging Times

Posted by: Garth Chapman

A coalition of Canada’s largest retailers and commercial property owners is lobbying Ottawa for a rent relief package that could see major landlords slash rent by one-third for their distressed tenants and walk away from billions of dollars in revenue, while providing loans to retailers to cover the rest of their rent.

The group, which includes Hudson’s Bay Co., Indigo Books & Music Inc. and Cadillac Fairview, is proposing that landlords provide an abatement on one-third of the rent for 10 months to retail tenants whose revenues have declined significantly. The companies have also asked the government to establish a low-interest loan program to help retailers cover the other two-thirds of the rent, according to people with knowledge of the proposals. The Globe is not identifying the sources because they were not authorized to speak publicly on the matter.

The proposal is designed to help large retailers that aren’t covered by Ottawa’s rent relief program for small businesses. That program provides taxpayer funds for half of small tenants’ gross rent as long as the tenant has lost a minimum of 70 per cent of its revenues due to the novel coronavirus pandemic and pays $50,000 or less in monthly rent.

Indigo CEO Heather Reisman and Cadillac Fairview chief executive John Sullivan are leading the efforts on behalf of the coalition of big retailers and commercial real estate owners. The group includes Cineplex Inc., Aritzia Inc. and GoodLife Fitness Centres Inc.; as well as property owners such as RioCan REIT, SmartCentres REIT, Oxford Properties and Ivanhoé Cambridge Inc.

The coalition has been collectively advocating for the measures in order to show broad industry support.  But the loans could apply to any retailers designated as non-essential by governments that have been forced to close.  Many larger retailers are in need of rent relief, but don’t qualify for the small business relief program.  The measures would not apply to retailers such as grocers, which have not suffered deep enough revenue declines during the pandemic.


12 May

Commercial Real Estate Owners Stuck Between Tenant Needs, Building Expenses

Challenging Times

Posted by: Garth Chapman

As tenants face the challenge of paying rents, building owners, particularly those with hard-hit retail spaces, have had to consider options in order to cover their own costs. These include property taxes that have soared over the years in major cities. The owners with mortgages are in a particularly challenging spot.

“Those with tenants in financial crisis typically want to ensure the businesses were in good shape prior to the pandemic, that the businesses truly need help and that tenants have looked into claims for business interruption insurance, as well as government stimulus programs.”

“Property tax is probably the largest component of rent that the tenant has to pay and municipalities typically aren’t abating property taxes. So, the landlord is still faced with the property tax bill they have to pay and the mortgage obviously.”

“There’s the added complication that if an owner wants to defer or lower rents, they have to check with their lender, or it could be a breach of their mortgage agreement.”

Commercial Real Estate Owners Stuck Between Tenant Needs, Building Expenses

12 May

Why Cap Rates are likely to go up

Challenging Times

Posted by: Garth Chapman

From an article by Colliers International

The capitalization rate of a real estate investment is calculated by dividing the property’s net operating income by the current market value. It’s the most popular measure for how real estate investments are assessed for profitability and rate of return.

Our expectation is that they will start to go up, because people are going to start to see more risks. The days of looking at an asset and painting it with a broad brush . . . are evaporating.

However the greatest factor for cap rates universally is the strength of a landlord’s tenants to pay their rent.

Scott Bowden, the managing director of valuation and advisory services for Colliers International


12 May

COVID-19’s Potential Impact on Commercial Real Estate valuations, by Asset Class

Challenging Times

Posted by: Garth Chapman

How will the recession brought about by government measures to combat COVID-19 impact commercial real estate valuations?


While it’s still too early to know long-term repercussions, companies are currently carrying out stress tests, forecasts, analyses and covenant-checks of assets to try to avoid surprises later.

Theoretically, property values should be moving lower as risks have increased and cash flow has likely weakened. However, as long as companies and high-net-worth investors seek to deploy large amounts of capital to buy real estate, the trend of high property valuations could continue.

Retail valuations

  • The retail sector has been challenged in recent years
  • While trophy assets such as CF Toronto Eaton Centre and Yorkdale Shopping Centre should still be very strong, there will be a widening gap between good and bad malls.
  • Enclosed malls in secondary and tertiary markets that were already ripe for redevelopment opportunities may have those plans hastened.
  • Grocery and pharmacy-anchored retail strips have generally performed well, as those stores have remained open to provide essential goods. However, those locations often also feature small businesses such as salons, bakeries and dry cleaners that may be in for tough times.
  • Migration to online shopping isn’t likely to end.


  • “Multifamily real estate has historically been the most resilient asset class and we think that continues today,” said Anna Kennedy, chief operating officer of KingSett Capital, a private equity real estate firm with $13 billion of assets under management.
  • Kennedy cited low vacancy rates, upward pressure on rents and an existing need for more rental apartments in key Canadian urban markets, which she believes portend continued strong performance.
  • Sender said people who are renting typically don’t have a lot of alternatives, and need to live somewhere, so “it makes sense that multifamily will be more resilient than commercial asset classes.”


  • The majority of office workers across Canada have been working from home for about two months, and Kennedy said it’s been “quite remarkable” how they’ve adapted.
  • However, the consensus of the panel members was people still long for human interaction, working in teams and innovating, as well as creating new business relationships instead of just maintaining existing ones. All of this can best be done in office environments.
  • “If anything, they may well need more space because they’re concerned about the higher densities in their office space,” said Kennedy.
  • Increased workplace flexibility through hoteling systems and having more people work from home, at least part-time, could reduce demand for office space. However, Johnston believes it will be balanced by the desire for increased buffering and distancing.

Calgary office

  • While the office markets in most major Canadian cities have performed well of late, Calgary was a glaring exception. The most recent collapse of oil and gas prices has exacerbated the problems there.
  • Johnston said Altus was seeing light at the end of the tunnel with absorption and had forecast rental growth for the next few years, but that will now be amended.
  • Long-term leases signed years ago now have rents well above market value, and rents have decreased dramatically upon lease rollovers, according to Johnston. With Calgary’s downtown office vacancy rate hitting 24.6 per cent in Q1 2020, and expected to rise, rents should continue to decline.
  • One note of optimism was expressed by Kennedy. KingSett has four per cent of its income fund invested in Calgary and owns a couple of office buildings there that have “already been written down substantially over the last four years.”
  • She said rent collection for April was more than 90 per cent.

Seniors housing

  • Johnston said Altus was doing a lot of feasibility work for companies interested in building more seniors housing, which had been acknowledged as a growth sector because of Canada’s aging population.
  • The large COVID-19 death tolls in seniors homes has likely put a pause on that. Down the road, however, there will continue to be a need for such facilities — albeit with increased staffing, cleaning, security and other improvements.
  • “It’s not all seniors housing that’s being hit hard,” said Chin. “It’s long-term care which is the most vulnerable.”
  • Johnston said the children of seniors often decide if their parents will go into these facilities. Their personal wealth has potentially been decreased in this pandemic-caused recession and they may no longer be able to afford to pay for it.


  • Johnston believes the industrial sector should remain relatively unscathed and companies will want to build more if they can find the land. Industrial space close to cities will continue to be especially important for last-mile delivery of goods.
  • Small-bay properties may be challenged, depending on where they fit in the supply chain, according to Johnston.
  • Chin said supply chain issues might prompt some companies to stockpile certain goods to ensure availability, and places will be needed to store them.
  • “We’ve lost some of our confidence in relying on global supply chains,” said Kennedy. “I think we may bite the bullet and pay more for certain strategic goods that we may want to manufacture at home.”


  • Hotels will get “kicked in the teeth the hardest,” according to Sender, who believes the asset class is “in for a tough go for a period of time.”
  • Johnston said tourist-oriented hotels will suffer because people may be wary of going to them, travel may continue to be restricted to some extent, and disposable income could be impacted over the next few years.
  • Downtown hotels in major cities catering to diverse clientele – business clients as well as vacationers – may recover more quickly.


  • Some new development has been temporarily put on hold due to COVID-19-mandated construction stoppages or slowdowns, which is likely to impact project budgets. Chin said the primary issue with development is delayed registrations because of municipal offices being closed.
  • Johnston said Altus is still performing development appraisals, however, and it’s too early to say if land values have been negatively impacted.
  • Although Otera is being conservative with its loan structures, Chin said the company is “looking at new development on a very selective basis. It depends on who the sponsors are.”
  • Otera has been repaid on three large condominium loans through the COVID-19 crisis and Chin expects to be repaid on two more in the next month, which are positive signs.

The full article

12 May

Stalled Multi-Family Projects can be Saved via Conversion to Affordable Housing – Financed up to 95% of Cost

Commercial & Multi-Family

Posted by: Garth Chapman

There are a number of multi-family projects in Alberta that have stalled, primarily due to a lack of funding caused by cost overruns, lenders backing out and other causes related to a struggling economy.  Such incomplete MF projects can be saved if the Developer is prepared to convert the use of their stalled out project to Affordable Housing status.

The CMHC Insurance Certificate is double-pronged, in that it works both for the construction financing and for the take-out mortgage at completion.  You can get the rate locks on both mortgages, even as far as to funding the take-out mortgage into escrow, all this at the currently vary low rates – I am seeing numbers in the range of 2.2% for 10-year terms.

The Balance Sheet lenders are now advantaged big-time over the Monoline and other mortgage lenders.

The rent is 10% below market, increasing by CPI annually, and is tied to the address no matter who the tenant may be – for 10 years.  The Affordable Housing requirements remain in place for 10 years, so this is not a short term scenario to solve a financing problem, but for the right projects and the right Developers it can save a project.

12 May

Shopping for a mortgage? Oil’s collapse has changed the equation = Good News for Property Investors

Investment (Rental) Properties

Posted by: Garth Chapman

Canada’s oil industry is fighting for its life. In 2014, a barrel of crude sold for US$100-plus. This week, supply and demand got so distorted that people literally had to be paid to take a barrel of oil.

Oil’s decline is a mega-trend that will directly or indirectly affect Canadians for decades to come. It will even affect the price we pay for mortgages.

History has shown that variable and short-term mortgages outperform longer fixed terms. The dis-inflationary effect of oil’s slow demise could weigh on rates and reinforce that trend.


There will be “no increase in [Bank of Canada] policy rates until at least 2023,” Mr. Brown projects. And a similar chorus echos throughout economist-land.

All else being equal, the economic drag from a contracting oil sector could exert downward pressure on rates for more than a decade, past the end of the COVID-19 crisis.



Calamity in the oil patch and general economic devastation are nothing to celebrate. They’re tragic. But if they’re going to happen, one should at least capitalize on one silver lining: lower borrowing costs.

Read more

11 May

The Art of Defending and Strengthening your Financial Position in the age of COVID-19


Posted by: Garth Chapman

During this time of financial disruption people are and should be seeking to shore up their financial position, just as businesses are looking for ways to strengthen their Balance Sheet.

A popular option in the past has been to refinance homes to either take advantage of lower interest rates or to pull out equity as a source of extra funds. But in an unprecedented situation like the one we’re now dealing with, the refinancing landscape can look quite different than it has in a long while.

Here is some information from the article I will provide a link to at the bottom of this post.

“Does the option to refinance property work the same for me today?
The short answer: It depends. Everyone’s situation and circumstances are different, but qualifying is not as easy as it was before. In the wake of the COVID-19, refinances have been tougher for Canadians for a few reasons.”

Due to declining employment, lenders are more wary when it comes qualifying income. With record job losses in March and the grim outlook of Canada’s future unemployment rate, lenders are digging deeper into current employment status and the stability of future income.

If a borrower is self-employed they may also need to provide a description of their business, its current status, and reasonable proof that it can withstand the effects that will come with COVID-19. In addition, lenders will not use any temporary government benefits towards qualifiable income, but they recently started considering Child Tax Benefit as qualifiable income, which can be very helpful.

While private lenders are also being cautious by lowering LTV ratios or requiring interest pre-paid for all or part of the term, they are also providing much needed solutions to buyers and homeowners during this difficult time.” 

The decision-making criteria for Canadian Homeowners on this is quite clear

If you think you may want or need to have access to more capital in the coming months or years, then get it done now, as it appears that financing will continue to become tougher to get as time goes on.  Remember, once it’s too late…it’s too late.

Read more: Refinancing in the age of COVID-19


8 May

CIBC Deputy Chief Economist Benjamin Tal on the Economy and What to Expect


Posted by: Garth Chapman

I have followed CIBC World Markets Managing Director and Deputy Chief Economist Benjamin Tal for nearly 20 years. He has a solid track record. He’s what he’s saying about what to expect going forward in 2020 and beyond.

On the Economy:

Multifamily, office and industrial real estate will emerge from the COVID-19 crisis as winners, while losers will include the energy, transportation and hospitality sectors.
“It’s not a recession, it’s not a depression, it’s something in-between. It’s basically a frozen economy.”
Tal anticipates governments continuing to play a large role in the economy, as relief payments to get people through the crisis evolve into a more permanent universal basic income system.
Many companies will start thinking less in terms of profits and more in terms of resiliency.
More medical-related products and other essential goods will be produced domestically and there will be a move from “just-in-time” to “just-in-case” inventory systems.

On Real Estate:

Tal said real estate valuations being made now have very little value and people should be careful about making decisions based on the current economic situation. “I think the damage to the real estate market isn’t as significant as perceived.” Tal expects the Canadian economy to emerge from the recovery phase in 2022 or 2023 and that “the demand for real estate will remain very strong.”
The Canadian rental housing market is not in danger of collapse. Tal said the rent payment rate among those low-income earners was higher than for Canadian renters in higher income brackets. He attributes this to many low-earners now receiving a $500 weekly Canada Emergency Response Benefit payment from the federal government, which they’re using to pay rent.
The number of immigrants and non-permanent residents in Canada will decrease this year. A large percentage of those people are also renters, which will decrease demand for rental housing. Tal expects that to be balanced out somewhat by a reduction in supply due to a lack of apartment building completions, so the vacancy rate increase won’t be dramatic.
Commercial real estate sectors:
“But at the same time, I think that those who predicted that this market will collapse are overstating the damage. I don’t think that the move towards people working from home will be as dramatic as perceived, given the productivity aspect.”
“High-quality retail will remain in demand, and in fact it will improve,” said Tal. “I see significant damage to low-quality retail. This means that you will see e-commerce taking over.”
Tal didn’t address industrial real estate, beyond saying he’s still bullish on the sector.
Benjamin Tal’s 60 talk is here (you have to register to listen) https://www.realestateforums.com/portal/en/watch/watch.html
6 May

Up to 6% of Homeowners Have Missed a Mortgage Payment During COVID-19 as of April 16

Mortgage Tips

Posted by: Garth Chapman

Note- this was a small random survey of 1,335 Canadians taken April 16th by The Forum Poll™ – but the indicators are large enough to warrant this blog post.

Don’t let this be you!

  • Always find a way to make your mortgage payment. Always.
  • Miss a payment on any other debt or debts before you miss a mortgage payment.

Some Alternative Options:

  • Call the lender and ask for a deferral, or even just to invoke the skip-a-payment privilege that most mortgages allow for.
  • Borrow from family.
  • Ask for an advance on wages.
  • Make the payment with your credit card, or personal credit line, or bank account overdraft.

Why is this so Important?

  • Because it will be very difficult to get your next mortgage, or at least your next mortgage will carry a very high interest rate.
  • In worst cases you won’t get one at all until enough time has passed with good credit management that a lender will be willing to lend to you on a mortgage.
  • Speak with your Mortgage Lender about what options they offer.
  • If you feel you need some coaching on how to handle that conversation talk to your Mortgage Broker first.

From the April 16th The Forum Poll™

“While Canadian lenders stepped forward with unprecedented measures to assist those affected by the COVID-19 pandemic, there were still some homeowners unable to make their mortgage payments over the past month.

One in 20 homeowners (6%) said that due in part, or in full, to the COVID-19 pandemic, they had missed a mortgage payment recently, while a similar proportion preferred not to say (5%).

Amongst those homeowners that said they had already missed a mortgage payment, a high proportion (caution small sample) (76%) said they will miss another mortgage payment before the pandemic ends. One-quarter (23%) said they would not, and few (1%) preferred not to say.

Nine in 10 home owners said they had not (89%) missed a mortgage payment, but of those who said they had not yet missed a payment, about one in twenty (5%) said they think they will miss their next mortgage payment, with a similar proportion preferring not to say (5%).

Nine in 10 (90%) said they wouldn’t.”

Read more at: http://staging-poll.forumresearch.com/post/3057/covid-19-housing-and-employment/
Copyright ©Forum Research Inc.

4 May

Why Home Buyers with Job Security in 2020 Should Get Pre-approved now for a Mortgage

Buying a Home

Posted by: Garth Chapman

A good article here in The Globe and Mail here by Rob Carrick

But first, some required prior reading from my blog:

Is Your Mortgage Pre-Approval Really a Pre-Approval?

And now that you’ve read my blog post above (you did read it, right?) back to the article:

Your personal finance to-do list for this week:

  • Get your financing lined up if you want to buy a house;
  • Learn how to have respectful spousal money discussions that don’t escalate into nastiness;
  • File your taxes, even if you have until June 1.
    • You’ll need that to qualify if you are self-employed and your income is higher in 2019 than in 2018 and 2017. Talk to your Mortgage Broker for more on this.  And here is the link to the full article:

With unemployment rising and incomes plunging, expect to see home prices fall in the months ahead. First-time home buyers with job security, this is your time. Get pre-approved for a mortgage while we wait for physical distancing guidelines to be relaxed enough to allow for more normal real estate market conditions.  Read on below…

Pandemic Personal Finance Update No. 6: First-time home buyers with job security should get preapproved for a mortgage