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

26 Apr

9 Steps to recession-proof your Real Estate business

Challenging Times

Posted by: Garth Chapman

How will you ensure your real estate business prospers in tough times?  What are you doing to adjust your business to our new economic realities?

Here are my practices, built on what I learned in 44 years in business, and as published in REIN Life magazine here http://magazine.reincanada.com/2016_Issue1/ on pages 33 & 34. 

1) Keep a balanced view: take your view from the 10,000 foot level (get out of the forest and above the trees). Don’t be pulled back and forth by the daily news headlines. Do read beyond the headlines; remember that the last paragraph sums up the true story much better than the headline does. The headline’s role is to entice you to read the story. Pay attention to the longer term trends and statistics – they will keep you balanced and help you to make better decisions. Pay attention to both the positive and the negative things that are happening around you. Be realistic as you evaluate of what is going on. Be positive but don’t be mistaken for Pollyanna. A positive mindset is a powerful ally in getting things done, but must be accompanied by a realistic view on things to allow you to focus on that which is achievable.

2) Analyze your business: What are you doing well and what not so well? What can you improve on? What must you improve on? Review your Real Estate portfolio’s financial performance versus your budget. If you don’t yet have a budget then create one now. Measure what is significant so you will know what areas to put your time, effort and money into. Know your true numbers (for each property and your whole portfolio) – if you don’t you are not really managing your business, and that means you have put it at risk. Always know your current cash position and your projected monthly cash-flow going forward – if you don’t you risk running out of cash. Maintain sizeable cash reserves, and/or credit facilities. Positive cash-flow is critically important, and cash reserves will get you through the tough patches.

3) Review your business plan: both the short term and the long term, and adjust it as prudent investors should when the world you operate in changes big time. Be proactive. Don’t be buffeted by the changing seas. Don’t allow yourself to drift. Chart your course and make corrections as needed to keep your business on course.

4) Involve your team and other experts in this process. They are on your team for a reason. Get their input. Ask for their advice. Involve people you respect for their knowledge and experience. Most of your best ideas will come out of those discussions – both your ideas and theirs. And you will awake with eureka moments in the wee hours of the morning. That’s a good thing. It means you have engaged your subconscious mind.

5) Take a break. Get away and relax. Read some books, go sailing, walking, running, diving, flying, driving – whatever works for you. If you take the right amount of time, all that you have done so far in this process will distil in your mind and you will find clarity.

6) Now act to recession-protect your business. A few examples:

First, determine your cash-flow position, and if negative, by how much. In other words, what is Your Burn Rate? Are you cash-flow positive or break-even, or negative?  If negative, what is your Burn Rate?  The term essentially means ‘by how much does your cash outflows exceed your inflows?’  For this exercise I recommend you assume all spending is not funded by lines of credit or credit cards etc.  So do your monthly or annual budget in this manner to determine if you have a ‘burn’ or not.  And if you do, you need to act to minimize the burn rate as best you can.  Cut spending, increase income if you can, look for debt payment deferrals, and if that is not enough, then look to other debt instruments to help or sell assets.

  1. Extend amortization periods on those of your mortgages with shorter amortizations. Most lenders will do this without cost (or a very small processing fee). This can make for significant reductions in monthly payments. And once things improve you can always shorten the amortization periods again.
  2. Look for ways to increase revenues: provide cable TV, internet, other services, add rental units to your properties (suites, garages, parking spaces, coin-op laundry facilities, etc).
  3. Act pro-actively to decrease vacancies. Be creative in your advertising, write excellent ad copy, advertise online, in the neighbourhood and at the property itself. Offer incentives to fill vacant units, preferably one-time incentives so you preserve good cash-flow.
  4. Create new lines of credit where you have equity to provide a cash reserve you can draw on when needed. This could be utilized to fund unexpected costs or to purchase a great new property.
  5. Sell properties that simply won’t perform and those where the return on your equity is poor and cannot be improved. Then re-deploy that cash into good solid cash-flowing assets, or to reduce other debts.
  6. Set expectations for your team and clearly communicate them to each. Then regularly measure and report back to them their performance as against those expectations. Celebrate their successes and address how shortcomings will be improved. If a member just isn’t getting it done – fire and replace them.
  7. Continue to make decisions that fit with your long-term objectives. Don’t take the easy or quick solution as those often cost more in the long run and tend to move you further away from your goals rather than towards them.

7) Do the same for your personal life. Your family’s business also needs your attention. Treat your personal finances much like your business finances. If your personal financial health is good you will reduce financial pressures that often make for poor decision-making.

8) Review and repeat. Review what you did to determine how to do it better next time. Do this all again at least once a year. In these times maybe twice a year is more prudent.

9) Share what you have learned. This will help to make others’ businesses better as was yours. Much more will come back to you than you put out there, including many good ideas from others that you can employ yourself.

We have been managing our Real Estate business like this since we began in the business in 2002. The process ensures we stay on top of our business and continue to improve its performance year after year.

To your success,