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


30 Mar

Big Picture Thoughts for Landlords – Early Days COVID-19

Challenging Times

Posted by: Garth Chapman

My Big Picture Thoughts for Landlords in the early days of COVID-19

Aside from one’s own personal sense of obligations to those in need, I believe that society as a whole bears the obligation to help those in need, at all times, and most especially in extraordinarily challenging times.

At this COVID-19 time a great many Canadians are in need. The Federal & Provincial governments are honouring society’s obligations by way of the many and growing supports, now at a point where it appears that no-one is at risk of not being able to pay for food and shelter and medical costs.

Governments leaned on the banks to provide payment deferrals to Canadians, and to support that are providing liquidity to those banks to allow the banks to do what the federal government has asked. This is an extension of the gov’t providing the obligated supports to Canadians in need.

Landlords taking deferrals does not deprive Canadian homeowners of their own opportunities to take deferrals. The banks won’t run out of capacity to offer deferrals because the federal Gov’t won’t allow that to happen.

Through all this, no matter if we were to take mortgage payment deferrals or not, we will stand by our good (mostly long-term) tenants and support them as they work their way through this. The rules Alberta Premier Jason Kenney announced on March 27th are essentially what we believe that we and our tenants should do. And we’ve conveyed that to our tenants.

With all the above in mind, we decided to apply for mortgage payment deferrals on our rental properties to buttress our cash reserves. Once we are through this if we have extra cash remaining we will use it to pay down those mortgages or to pay down any HELOC debt we then have on our rentals. Note- the interest rate is higher on the HELOCs than on our mortgages. If we were in property acquisition mode we would use such funds towards purchases.

On the Income Tax Implications of Payment Deferrals

I have been told by an Accountant that mortgage interest that is deferred is still a tax deductible expense.  Hence, mortgage interest deferred within a tax year will itself NOT reduce taxable income. Check with your own tax advisor to know your tax implications in advance.

So if you believe your cash-flows may become impaired over the coming months due to lost or reduced rents and/or increased vacancies you have the option of protecting your liquidity with mortgage payment deferrals for up to 6 months, and perhaps longer depending on how this goes.  You can always cancel them if at any time you decide you don’t need them.

On working through this with your Tenants

Rent is due. It’s a contract. Nothing stops you from offering deferrals to those in need, but do a proper needs test of that, much as many banks are doing when you ask them for a mortgage payment deferral.

You can of course later forgive any amounts of rents deferred as you choose to, but starting out with forgiveness instead of deferrals will fundamentally change the relationship, and maybe forever.

Provincial and federal governments have done easily enough to ensure nearly 100% of all renters will have enough income to pay their rent.

Think about what tenants’ payment priorities are:

1) Groceries

2) Non-elective child care and medical costs

3) If Applicable: Child support and Alimony payments

4) Rent

And after the rent comes everything else, like auto payments, credit card payments, student loans, personal loans, personal lines of credit – and note, all of those are eligible for payment deferrals.

On Communication

Nobody doesn’t want to pay a landlord who they know, and who they like/respect, and who has treated them well and is responsive to trouble calls on the property.

Have you or your Property Manager personally called all your tenants to check in and ask how are they doing?

30 Mar

Template – Your Second COVID-19 Letter to Tenants

Challenging Times

Posted by: Garth Chapman

We wanted to stay in touch and to reach out today with important new information regarding new or improved benefits that both the federal and Alberta governments have announced this week.  As you are also undoubtedly doing, we are working very hard to cut our costs in every area possible.  We will get through this, and what we do now and in the days and weeks ahead will determine the speed and ease with which our lives return to a ‘new normal’.


On March 27th he Alberta government announced temporary measures for landlords and tenants.  Kenney said “For as long as the Public Health Emergency remains in effect landlords will be obliged to negotiate payment plans that accommodate their renters’ financial circumstances. Renters will be obliged to pay their rent as fully and consistently as possible, and both the renters and the landlords will be obliged to take into account the financial supports they are getting from the federal and provincial governments.”  Premier Kenney further said the government expects that before the end of April renters will begin receiving cash from new Provincial and Federal COVID-19 relief programs, and that the government expected that financial relief received by renters be used to pay rent.

Important– If you think you may not have the full amount of rent when it comes due, call us in advance and together we will make a rent payment plan.

Info for renters (scroll halfway down the page)  –  Rent Payment Plans  –   Suspension of Eviction Enforcement to May

All the COVID-19 Support Programs across Canada

This is a great open-source document detailing, searchable, and categorized by need and situation. Updated frequently. 

Financial Relief from non-governmental sources

Banks are offering COVID-19 Relief on Auto & Personal Loans, Credit Cards, Credit Lines

ATB Customer Relief Program

Credit Union customers – access to a variety of programs and solutions designed to ease difficulties with loan payments and short-term cash flow. Check with your Credit Union.

Important note – a payment deferral is not a forgiveness of the amount owed.  It means the payments are deferred to a later time, when we will have to pay them back, plus the cost of interest charges on the interest deferred.

CANADA – COVID-19 Economic Response Plan: Support for Canadians and Businesses

NEW PROGRAM: CERB – This is Big!

CERB: Canada Emergency Response Benefit

CERB will give workers who cease working or are receiving reduced employment income because of COVID-19 a $500 per week for 16 weeks. The income will be taxable, but the gov’t will not deduct income tax at source.

See Dutton Employment Law Group’s CERB review and FAQ


The Canadian Emergency Wage Subsidy to help Businesses keep & return workers to payroll retroactive to March 15.

It looks like the payment will be capped at 75% of $58,700 annual income, so $1,129 per week for up to 12 weeks.

Canada’s Federal COVID-19 Economic Response Plan

NEW INFOIt appears that the federal government will use the CRA ‘My Account for Individuals’ to register for or to access electronic payments.  Apply here for an individual CRA account unless you already have an account.

Link to all Federal COVID-19 Programs

These appear to be Automatic (but you should double-check on that):

  • Enhanced Canada Child Benefit for the 2019-2020 benefit year, by $300 per child
  • GST Credit increase
  • A one-time special payment by early May 2020 through the Goods and Services Tax credit. The average boost to income for those benefiting from this measure will be close to $400 for single individuals and close to $600 for couples.
  • Delay to Income Tax filing deadline to June 1, 2020 and payment deadline to Aug 31, 2020
  • These you must Apply for:
    • EI Work Sharing Program
    • Federal Student loan 6-month payment moratorium. Note: this is a deferment, not a forgiveness.

ALBERTA – Immediate relief for Albertans affected by the COVID-19 pandemic

NEW INFOyou will need a MyAlberta Digital ID account to receive Alberta government COVID-19 benefits.

There is normally a 10-day waiting period after uploading your driver’s license to the site waiting to receive by mail your verification code.

COVID-19 Supports for Albertans

  • Alberta student loan payments can access a 6-month, interest free, moratorium on payments.
  • Emergency isolation support – a one-time payment of $1,146 will be distributed to bridge the gap until the federal emergency payments begin in April.
  • Residential customers can defer electricity and natural gas bill payments for 90 days to ensure no one will be cut off, regardless of the service provider.

Important note – a payment deferral is not a forgiveness of the amount owed.  It means the payments are deferred to a later time, when we will have to pay them back.

Other Existing Income Supports for Albertans – click the link for details on existing programs

Covid-19 Government Resources for Albertan Renters & Property Owners – courtesy of ‘COVID-19 Resources’

UPDATED Health Resources official sites

For more information about COVID-19 itself, please check out these resources:

Canada Public Health Services

Check these Alberta Provincial Health web pages:

How to Self-Isolate

Coronavirus Info for Albertans

AHS Help in Tough Times

AHS COVID-19 Self-Assessment

Household Budgeting Apps & Programs

Mvelopes – FREE VERSION is full featured online personal finance App based on the age-old envelope budgeting method, where you put your cash in envelopes, each marked to what the cash is for, and when it is gone, it is gone, resetting during the start of your next pay period.

You Need a Budget (YNAB) – $6.99 / month USD – packs in many features and improvements over earlier versions, and it intuitively teaches some solid budgeting practices.

Quicken – has 4 versions at varying costs Best for Those Who “Want It All”

Vertex42 – FREE – a great variety of Excel Spreadsheet based products. All the Vertex42™ budget templates can be downloaded for personal use and no charge.  See their household budget spreadsheet here

We will stay in touch with you – please keep us up to date as much as you like on how you are doing.  And don’t hesitate to call either of us on any of this with any questions as they come up.  We will always do what we can to help.

18 Mar

Legal Strategies for Investing in Canadian Real Estate When the Market Is Down

Investment (Rental) Properties

Posted by: Garth Chapman

A timely post by Real Estate Lawyer and Educator, Barry McGuire, who I have had the pleasure of learning many ins and outs of real estate investing from since 2013.

With over 40 years of legal experience and the highest personal and integrity, who else would you want to learn from, or to have represent you?


Barry’s next Focus Workshop will be May 4-5 in Edmonton.

13 Jul

How tenants can help pay your mortgage

Buying a Home

Posted by: Garth Chapman

The single most common and often most significant road to financial security for Canadians is paved by home ownership.  And for first-time home-buyers often the largest barrier to getting started is the monthly cost.  So why not consider a home with a rental suite that would allow you to have a tenant who pays rent, which would lower your home ownership costs?  Such a property might not be the home of your dreams, but if it gets you into the game then it might just be a great way in.  After all, down the road you could move up and keep that first property – now with two renters covering all the costs and then some.

And if it works well for you, then why not have 2, or 3 or more such properties.  It doesn’t take many to, once paid off in say 25 years, to fund your financial freedom.

And for seniors and those on fixed incomes, or those living in high-price markets, the rental unit can make it much easier to stay in your home far longer than you might otherwise be able to.

Read more here: How tenants can pay your mortgage