Managing Existing Portfolios Top Priority For CRE Firms, Managers

But bid-ask spread is decreasing, raising hopes for more transaction activity, Altus Group survey finds

Managing their existing portfolios will be the primary focus for 49 per cent of the Canadian commercial real estate industry executives who participated in Altus Group’s Q1 2024 Commercial Real Estate Industry Conditions & Sentiment Survey.

After managing existing portfolios, the biggest priorities according to the respondents were: raising capital (18 per cent); deploying capital (15 per cent); de-risking portfolios and divesting (10 per cent); and reassessing (eight per cent).

The cost of capital, development costs and inflation topped the list of expected priority issues over the next 12 months for the third consecutive quarter. Still, the percentage of respondents citing each declined slightly from the Q4 2023 survey.

Operating costs/expense management and tenant retention rounded out the top-five near-term priorities, while concerns about capital availability experienced a notable drop. Leasing/tenant retention was the only concern among the top five which increased between fourth quarter of 2023 and the first quarter of 2024.

The Altus research team surveyed 214 industry participants, representing a range of organization types and functional areas, from at least 55 Canadian firms between Jan. 23 and Feb. 9.

Asset pricing, interest rates and cap rates

Half or more of the respondents characterized land/development, hospitality and multifamily properties as “overpriced,” while some viewed retail, office, multifamily and land to be “underpriced.” Most respondents characterized the retail and industrial sectors as being “fairly priced.”

The survey’s findings suggest the bid-ask spread, which contributed to lower transaction activity in 2023, might be compressing. This could lead to increased investment and transaction activity if the trend holds.

Forty-seven per cent of respondents expected interest rates to remain stable over the next 12 months, while another 47 per cent expected them to decrease, with only six per cent anticipating an increase. The percentage of executives expecting rate decreases jumped by 28 percentage points from the previous quarter.

One-third of respondents expected capitalization rates and cap rate spreads to increase over the next 12 months.

Distress and transaction activity

Fifty-eight per cent of respondents expected commercial real estate distress to increase over the next 12 months, down 20 percentage points from the previous quarter. Just 18 per cent had a high conviction in their directional call, a 22 percentage point drop from the fourth quarter.

Along with the expected increase in distress, 48 per cent of participants anticipated investment transaction activity to pick up in the coming year, up 19 percentage points from the prior quarter.

Seventy-one per cent of respondents planned to either buy, sell or both over the next six months, up from 67 per cent in the prior quarter.

Those from companies with commercial real estate exposure of between $500 million and $1 billion increased their transaction intentions by 26 percentage points; those with between $1 billion and $5 billion in investments increased theirs by 13 percentage points.

While 29 per cent of respondents indicated no intentions to transact in the near term, that was three percentage points lower than in the previous quarter.

Sixty-three per cent of respondents expected their geographic footprint to be of a similar size a year from now, while 24 per cent anticipated that it would be expanded and 13 per cent believed they would be in fewer markets.

Capital availability

While the overall expectation is that capital availability will be low over the next 12 months, net expectations have broadly improved since the previous quarter.

Survey participants expected the least amount of capital availability from real estate investment trusts and asset managers. They anticipated greater availability of equity capital from individuals, family offices, private equity and hedge funds.

Expectations for securitizations, mortgage REITs and insurers were heavily constrained. Canadian commercial real estate professionals expected debt funds and banks to have the greatest amount of capital availability over the next year.

The expectation for Canadian bank capital availability is in stark contrast to the belief in the United States.

Environmental, social and governance considerations

Thirty-nine per cent of respondents “moderately” factored environmental, social and governance (ESG) considerations into their capital decision-making process.

Respondents from institutions with greater than $5 billion in commercial real estate under management showed the most ESG consideration, with 67 per cent saying it either “significantly” or “moderately” affected their capital decisions.

Nearly two-thirds of respondents believed ESG needs “investor or market demand” for it to be more widely considered and incorporated by the commercial real estate industry. “Peer adoption or industry standards” and “regulation or legal clarity” were the next top responses.

Canadian respondents had higher confidence in ESG being adopted into the industry than their American counterparts.

Source Renx.ca. Click here to read a full story.

Dominate Your CRE Deals: 5 Automation Strategies For 2024

The Canada CRE sector experienced significant growth and resilience amidst evolving market dynamics, showcasing its strength and adaptability according the CBRE and JLL’s latest Canadian real estate market reports.

Leveraging technology-driven solutions has emerged as a critical strategy for capitalizing on this momentum and sustaining success in 2024 and beyond. This extensive guide delves into five indispensable strategies for automating the marketing and leasing process, empowering CRE professionals to navigate the complexities of the market and seize new opportunities in the year ahead.

Achieve higher profits

A revenue focused CRE solution must prioritize driving higher revenue while simultaneously lowering operational costs. When it comes to driving higher revenue, the two main levers are: Increasing lead and deal volume. Equally crucial is ensuring that executed deals are economically favourable.

Automation plays a pivotal role in achieving these goals by streamlining workflows, reducing manual interventions, and eliminating data fragmentation. By automating lead generation processes, CRE professionals can efficiently manage incoming inquiries, prioritize leads, and focus efforts on closing high-potential deals. The right technology partner can help you efficiently manage your deal pipeline using real-time, portfolio-wide data, that will support optimal profitability and accelerate deal velocity.

Maximize marketing outcomes

Successful marketing requires juggling multiple channels, like email, brochures, listing sites, and social media. Unfortunately, managing each platform individually can be resource-intensive and lead to inconsistencies, outdated information, and inaccuracies across your marketing efforts. Here’s where automated syndication tools come in. They streamline the distribution of your property listings across CRE platforms, marketplaces, and even your website. These tools seamlessly update details and availability, augmenting lead generation and overall marketing effectiveness. Additionally, automation simplifies listing updates, ensuring timely and consistent content everywhere. This significant reduction in manual effort empowers you to devote your attention to what truly matters: analyzing marketing performance and developing strategic initiatives.

Elevate lead-to-lease management

Efficient management of the lead-to-lease pipeline is critical to maximizing deal throughput and minimizing cycle times. However, disparate systems often hinder this efficiency, leading to delays due to disconnected processes, siloed communication, and inaccurate tenant information.

The right CRE solution addresses this issue by centralizing valuable data like number and type of leads, tour activity, lease expiration dates, and tenant information. This comprehensive portfolio overview provides full transparency and facilitates faster decision-making, empowering your staff to close better deals, faster.

Additionally, leveraging advanced approval workflows eliminates bottlenecks and expedites deal execution, while sophisticated tools automate letter of intent (LOI) creation, guaranteeing customized and accurate documents with minimal effort. The ideal software empowers your staff to seamlessly track communication, tasks, and activities in real-time within one platform.

Streamline deal evaluation

In today’s fast-paced business environment, real-time data access is crucial for informed decision-making. Firms need key information to evaluate deals, including the start date, rent schedule, tenant improvement costs, and lease term.

More quantitatively focused firms also require net effective rent (NER) – the discounted net rent averaged over the lease term after all expenses. The most advanced firms then compare NER to the underwriting budget, annual budget, prior lease, or a combination of these.

However, disconnected systems force dealmakers and asset management teams to manually track and compare this data. Resulting in errors, miscommunication and efforts wasted.

A connected deal management solution streamlines this process by automatically calculating NER and pulling relevant comparisons, eliminating manual effort. The solution should integrate seamlessly with the core property management system, allowing real-time access to underwriting budget, annual budget, and previous lease data.

Furthermore, approval workflows can be tied to these economic comparisons, empowering managers to approve deals with full transparency into the financial performance against budget. This data-driven approach ensures only the most profitable deals are closed, ultimately driving higher revenue.

Simplify lease document management 

The creation and management of lease documents are critical components of the leasing process. Unlike apartment leases, commercial leases were once considered too complex to automate. Fortunately, this perception has shifted.

New automation solutions offer a simplified approach to generating even intricate lease documents, reducing processing time by 80-90% and minimizing administrative overhead.

Sophisticated lease automation platforms enable CRE professionals to create lease and addenda templates, store clauses and options in libraries, create groups of clauses and options with a push of a button and minimal intervention. These functionalities, along with in-app editing, approval, and tracking, ensure a seamless signing process. Additionally, robust e-sign functionality facilitates secure and efficient electronic signing, further enhancing operational effectiveness.

Achieve success

The dynamic nature of the CRE market demands constant innovation. To stay ahead, CRE organizations can leverage easy-to-implement technology that streamlines workflows, marketing efforts, deal pipeline visibility, data analytics, and lease management in a single connected solution. This empowers CRE professionals to optimize operations, drive revenue growth, and maintain a competitive edge – making you a leader in the evolving CRE landscape.

Source Renx.ca. Click here to read a full story.

Primaris To Demolish Portion Of Windsor’s Devonshire Mall

A long-vacant former Sears store at Primaris REIT’s Devonshire Mall in Windsor will soon be demolished as part of a redevelopment that will open up land for future uses.

The space, which has a basement and two floors above ground, has remained largely vacant since Sears closed in early 2018. It was temporarily used by Spirit Halloween as a pop-up outlet and served as a COVID-19 vaccination clinic for 10 months beginning in June 2021.

The removal of the Sears building will free up 18.5 acres and create an opportunity to reconfigure the outside entrance at that end of the mall.

“The cost of restoring it to modern environmental and safety standards was very high,” Primaris REIT chief executive officer Alex Avery told RENX. “So we thought rather than spending a lot of money trying to repurpose that, we would do what’s right for the mall and create a new high-impact entrance like we have in other parts of the mall.”

Primaris took ownership of Devonshire Mall at the end of 2021 as part of its $800-million acquisition of six shopping centres and two related properties from Healthcare of Ontario Pension Plan.

Next In Line For Review: Toronto’s Tall Buildings Guidelines

2023 was the year the City of Toronto started taking a harsh look at its Mid-Rise Building Design Guidelines.

In June 2023, council requested moving forward with community consultations regarding proposed changes to the Rear Transition Performance Standards, changes that aim to replace the “wedding-cake” effect caused by angular planes and current guidelines.

Next up would be the Tall Building Design Guidelines, which were adopted city-wide back in 2013.

Toronto’s tall building guidelines, although not perfect, are a crucial tool in shaping our city. Their significance becomes more evident when compared to many places where such a document simply does not exist.

It is then that you truly see how urban design suffers.

Consider the requirements for limiting floor plans and how the buildings should “meet the ground” for example. A quick look at several cities in the Middle East and East Asia shows how crucial these guidelines are and what the city looks like without them, when towers have no limitation on floor plates and they grow out in the centre of a big surface parking area.

Then we will start appreciating what Toronto’s Tall Building Design Guidelines have achieved.

Compared to other manuals, Toronto’s Tall Building Design Guidelines are clear, not overly strict and offer enough flexibility for design. Whether architects actually take advantage of that flexibility is a separate issue.

Where current guidelines fall short

With that positive disclaimer, here are the aspects where the guidelines are falling short (pun intended):

First, tall building guidelines are intended to provide a degree of certainty and clarity in interpretation, and while they are supposed to offer some flexibility in application, they wield significant influence in determining the height of our buildings, because they apply to the evaluation of all tall building proposals across the city.

One of the main objectives of these guidelines is to ensure tall buildings fit within the existing or planned context and facilitate an “appropriate” transition to the surrounding lower-scale buildings. Introducing a 45-degree angular plane from lower-scale areas — which in Toronto mostly means areas designated as “Neighbourhoods” in the Official Plan (OP) land-use map — is one of the measures the guidelines implement to ensure this transition.

What is the problem with that?

Take properties along the Bloor-Danforth subway line, for instance. Those designated as mixed-use in the OP tend to be shallow and back onto the neighbourhoods. Try applying the 45-degree angle to these properties near the subway stations — which are by no doubt underutilized — to determine the potential permitted height.

What you get is . . . well, no tall buildings at all!

Even beyond that, why should height even be a question for tall buildings? Tall buildings offer the most efficient way of providing more homes while using less land. So, why impose a limit at all?

Construction costs and market demand will naturally dictate the height anyway.

What is an “appropriate” tall building site?

Next, identifying a site “appropriate” for a tall building development.

To evaluate a site’s suitability for tall buildings, the city considers its land use as well as the location and dimensions, particularly its depth. In this evaluation, there is a significant emphasis on ensuring the location and density of a prospective tall building are appropriate for the existing context of the site – which in Toronto predominantly consists of low-rise, low-density neighbourhoods.

However, the question of whether the existing context of a site is appropriate for the opportunities presented by its location is greatly overlooked. As a result, tall buildings are frequently placed in undesirable locations, like highways.

So, it seems contradictory when those who argue against tall buildings as desirable residential options and advocate for pushing them away from neighbourhoods – citing areas along major roads as the only “appropriate” location for constructing them – are often the same individuals using the “bad outcomes” as a reason for deeming tall buildings undesirable. This approach refuses to give tall buildings a fair chance to evolve into vibrant communities from the outset.

Another restriction related to the form of tall buildings is the limitation of the floor plate to 750 square metres. The initial idea behind this restriction was to create a sleek and slender silhouette.

However, given the housing crisis we are in and the years of delivering poorly designed units to make developments financially viable within these constraints, the recent recommendation by housing minister Sean Fraser’s Affordability and Climate Change Task Force to increase the floor plate limitation seems timely. It is an adjustment that could relieve the rigid constraints and hopefully improve the quality of units.

Revising our height and floor-plate constraints is crucial to ensuring we can deliver much-needed housing in the crisis we are facing.

But how about taking it a step further? How about refraining from imposing overly restrictive form-related constraints on developments and instead focusing on factors that would improve quality.

Of course, floor-plate limitations are necessary to some extent, but they should not be overly deterministic. We need to start looking at our regulatory tools more holistically and systematically.

The impact of Inclusionary Zoning

Take the Inclusionary Zoning for example, a policy aimed at creating mixed-income housing by mandating a certain percentage of affordable units in new residential developments.

Currently, private developers must allocate five to 10 per cent of developments of more than 100 units (and larger than 8,000 square meters of residential gross floor area) as affordable housing, contingent upon the development’s location and whether it secures affordable ownership units or affordable rental units. This requirement is planned to incrementally increase to eight to 22 per cent by 2030.

It neither makes sense nor is practically sustainable in the long term when 90 per cent of building owners — many of whom could be first-time homebuyers new to the housing market — are taxed to bear the affordability burden of the remaining 10 per cent. However, if a height or density bonus was implemented, it could offer a more feasible and equitable solution for accommodating affordable units.

Moreover, easing strict regulations regarding height and density could create space for prioritizing the design of our tall buildings and the resulting aesthetics of our cities. While the guidelines touch upon design and articulation as essential aspects, they fail to enforce them.

Imagine this: What if we didn’t allow the use of the words “height” and “density” at Design Review Panel discussions and shifted the focus solely to “design” and in doing so ensured we have a diverse panel to enable a broader range of voices and design approaches to contribute?

This shift could elevate the significance of this crucial committee and help create urban landscapes we can take pride in — something we lack today.

Toronto is currently grappling with a serious design challenge. No doubt economic constraints play an important part, but we must explore ways to break away from the trend of repetitive windows and uninspiring facades in tall buildings, and build beautiful and distinctive urban spaces that are representative of our diverse and vibrant society.

A call for a cultural shift

But above all, and even more fundamental than shifting the focus of our regulatory tools, we need a cultural shift.

This is something our design guidelines have not yet addressed and may never even try to. We need to change how we perceive living in tall buildings and dense urban neighbourhoods as a society.

Times are changing rapidly, and so are our needs and challenges. To ensure we keep pace, public support, or at least stigma reduction, is crucial.

In a couple of decades, billions more people will be living in cities. The only environmentally and economically sustainable way to accommodate this new population is to create tall, dense and charming neighbourhoods designed to foster a human scale: neighbourhoods that prioritize the pedestrian experience, encouraging social and economic interactions at various levels.

Cities that successfully achieve this will lead the way in the future while those that fail will be left behind, missing out on the enormous growth and prosperity this new way of living can bring.

I hope Toronto will make the right decision.

Source Renx.ca. Click here to read a full story.

56-acre Life Science, Technology Park Proposed North Of Toronto

The owner of a 56-acre plot of land acquired 43 years ago for a hobby farm in Georgina, Ont., about an hour’s drive north of Toronto, is seeking to turn it into the Canadian Life Science and Technology Park (CLSTP).

“I have about 27 years of medical device, biotech and pharmaceutical experience, having served across multiple departments in multiple companies in the area of scientific commercialization, development of pharmaceuticals and biotech medical devices,” said CLSTP founder Uzzo Calderaro, whose father purchased the Georgina site in 1981.

Calderaro said he has also been involved in designing and building specialized rooms for life sciences companies. He told RENX the proposed development stems from a recognition of the need for space to serve a wide array of sectors, including pharmaceutical, biotechnology, medical device, bioprocessing, health care, academia, digital and technology.

Calderaro enlisted Safa’a Al-Rais to become president and chief executive officer of CLSTP. Al-Rais has almost 20 years of experience in the pharma and biopharma spaces, working with different companies to scale up the development and manufacturing of associated products.

“I’ve established a strategy that would establish the life science, health, health care and tech space cluster-like, whereby they can come together and become an ecosystem on a campus of some sort,” Al-Rais told RENX.

Canadian Net REIT: ‘Strong Performance’ From Niche Retail

Canadian Net REIT’s strategy to acquire commercial real estate that is under the radar of most of its competitors appears to be paying off, its 2023 year-end financial results indicate.

“Despite the challenges faced in the real estate market throughout 2023, Canadian Net maintained its strong performance,” president and CEO Kevin Henley said as the Montreal-based REIT released its 2023 fourth-quarter results on March 19.

Canadian Net (NET-UN-X) says it concentrates on an “unexploited real estate niche in Canada,” with deal sizes that are under the radar of large REITs and institutions, but too large for individual investors.

It has 98 properties in Eastern Canada with $308 million in total assets and 1.45 million square feet of gross leasable area.

The REIT specializes in single-tenant, essential services properties with good access, visibility and high traffic, and boasts a 100 per cent occupancy rate. Tenants are primarily comprised of groceries, service stations and c-store chains and quick service restaurants.

Properties are mostly in Quebec and Ontario (61 per cent and 25.5 per cent respectively, as of June 30), and Nova Scotia and New Brunswick (13 per cent and 0.5 per cent).

Canadian Net REIT’s Q4 results

Rental income for the quarter ended Dec. 31, 2023 was $7.2 million, an increase of 2.8 per cent from the same quarter in 2022.

For the 12 months ended Dec. 31, 2023, rental income was $26.6 million, a 7.4 per cent increase from the same period in 2022. Net operating income was $19.4 million, 5.8 per cent higher than a year earlier, primarily reflecting the year-over-year increase in rental income and partially offset by property sales.

During an earnings call on March 20, Henley told analysts the REIT’s goal in 2024 is “mostly to position ourselves better as we see more and more deals coming to market.”

However, given that the transactional market continues to be quiet due to interest rate volatility, “our goal continues to be to recycle capital and optimize the REIT’s balance sheet, positioning ourselves to seize opportunities as they arise.”

Canadian Net sold three properties last year, including a single-tenant Pizza Hut property in Dartmouth, N.S., for $1.65 million and a Mike’s restaurant in Trois-Rivières, Que., for $1.3 million.

“We’re always disposing of assets on an opportunistic basis as long as it’s accretive,” he told analysts. “(Doing so) allows us to redeploy capital.” More dispositions are expected this year.

Analyst upgrades Canadian NET to “buy”

Canaccord Genuity analyst Zachary Weisbrod upgraded Canadian Net from a “hold” to a “buy” after the fourth-quarter results were released.

“Our investment thesis is based on the fact that the REIT owns a stable portfolio leased to necessity-based tenants on triple-net-leases resulting in steady cash flow,” Weisbrod wrote in a note.

“Further, fundamentals are healthy, in our view, which should lead to steady rent growth. The REIT operates with a conservative payout ratio, allowing for retained capital to fund growth, and is currently trading at an attractive valuation.”

Formerly known as Fronsac REIT, the trust changed its name in June 2021.

According to the REIT, its business model leads to lean overhead with virtually no cap ex.

Canadian Net REIT leases properties on a triple-net lease basis, so tenants incur maintenance costs, property taxes and insurance expenses. The REIT says this results in more stable and predictable cash flows and that overhead does not increase with new acquisitions.

It also incurs no management expenses and the trust can afford to pay increasing distributions as soon as it consolidates acquisitions. The REIT also has significant insider ownership, currently about 15 per cent.

The REIT leases primarily to credit-rated national tenants. Its top five tenants, representing 62 per cent of all tenants, are Loblaws (18 per cent), Walmart (14 per cent), Metro (12 per cent), Sobeys (12 per cent) and Suncor (six per cent).

REIT renews all 2023 lease expiries

During the earnings call, Henley said the REIT concentrated its Q4 2023 efforts on lease renewals, refinancing and property dispositions.

All leases expiring in 2023 were renewed during the quarter and most 2024 lease renewals were completed during 2023, he said. Twelve leases were up for renewal in 2024, representing around $1.7 million in NOI, and only two remain to be renewed.

Henley, who has been with the REIT for seven years, became president and CEO last year. He was formerly Canadian Net’s chief investment officer.

Canadian Net officials did not immediately respond to a request from RENX to be interviewed for this article.

Source Renx.ca. Click here to read a full story.

Local Owners Buy 200K-Sq.-Ft. Barrie Office/Retail Building

Downtown Lakeview Corporate Centre has troubled past; to be renamed Barrie City Centre

Canadian Retail CRE Snapshot: Quality Space ‘Shrinking Quickly’

JLL report cites continuing leasing demand, but little new space in development pipeline

Gta CRE Investment Volume Back On The Rise In Q4

Total commercial real estate investment volume in the Greater Toronto Area was $4.6 billion in Q4 2023, up from $4.1 billion in the previous quarter and $3.8 billion a year earlier.

That was perhaps the most welcomed news found in Avison Young’s new Greater Toronto investment review Q4 2023 report.

“We have been progressing through a more stable marketplace as a result of a number of factors, most particularly the steady rise in Government of Canada bond yields since October 2021,” Avison Young capital markets principal Richard Chilcott told RENX in an email interview.

“October 2023 saw the highest yields for many years and a drop in yield, together with a more stable outlook, has given investors a foundation upon which to price and deploy capital.”

Full-year sales volume of $20.4 billion was down eight per cent year-over-year, but still higher than any past year except the record-setting 2021 and 2022.

Canada’s CRE Market Might Be About To Turn The Corner

Senior executives strike optimistic tone when looking ahead at 2024 at RealCapital conference