2016 Canadian Apartment Investment Report

Annual 2016 / Issue 12

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FEATURE:

Altus Group Presents:

• High Rise Condo Units Under Construction - GTA • Cdn. Rental Apartment Investment Barometer • 2016 Featured Apartment Transactions Across Canada

Find out what industry executives are thinking over the next 12 months Top thoughts from: John Dickie • Amy Erixon Paula Gasparro • Brian McCauley Henry Morton • Tyler Seaman Rob Spanier • Jeremy Wedgbury • Bill Zigomanis

• Area Rental Apartment & High Density Residential Land Transactions by Volume and Value P. 08-11

Save the Date

Quebec Apartment Investment Conference February 16, 2017 Palais des congrès de Montréal

Canadian Apartment Investment Conference September 6, 2017 Metro Toronto Convention Centre

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* Sales Representative This disclaimer shall apply to CBRE Limited, Real Estate Brokerage, and to all other divisions of the Corporation (“CBRE”). The information set out herein, including, without limitation, any projections, images, opinions, assumptions and estimates obtained from third parties (the “Information”) has not been verified by CBRE, and CBRE does not represent, warrant or guarantee the accuracy, correctness and completeness of the Information. CB RE does not accept or assume any responsibility or liability, direct or consequential, for the Information or the recipient’s reliance upon the Information. The recipient of the Information should take such steps as the recipient may deem necessary to verify the Information prior to placing any reliance upon the Information. The Information may change and any property described in the Information may be withdrawn from the market at any time without notice or obligation to the recipient from CBRE. CBRE and the CBRE logo are the service marks of CBRE Limited and/or its affiliated or related companies in other countries. All other marks displayed on this document are the property of their respective owners. All Rights Reserved.

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CONTENTS 03 Message From the Co-Chairs 08

Altus Group Report

12 Stuyvesant Town a Win for New York Middle Class 14 Rental Survey Throughout the Report: Find Out What Industry Executives are Thinking Over the Next 12 Months

Message from the Co-Chairs

Anne Morash, Senior Vice President, Multi-Residential, GWL Realty Advisors Inc.,

As the world continues to experience political and economic changes that are making Canada a continued safe haven for capital and immigration, these changes are also maintaining a lower growth environment globally. In low growth environments we tend to turn our attention to multi-family, a slow and steady growth investment.

The apartment market is only getting better. The landscape has changed, specifically in what the end user is asking for: proximity to higher order transit.

Security of tenure is another priority today. Whereas someone who rents an apartment has many rights as a tenant, the condo renter risks being displaced if, for example, the owner wants a family member to move in. People who choose to rent as their lifestyle—an increasing number, particularly in Toronto—want to know they can stay.

maintenance fees down, it impacts their resale value. Simply stated, our view is that a rental building built today and managed well over the next 15 years will have significantly less cap-ex than the condo building sold primarily to investors that are not living there.

Expect to see continued cap rate compression and historic lows, especially for transit oriented development and urban multifamily product. The ongoing challenge of housing affordability for the younger demographic in Canada’s major markets will likely mean a continued drop in vacancy rates and an increase in achievable rents. Pricing will go up as demand for the core multifamily asset class remains at the top of the institutional wish-list, given liquidity and availability of debt.

Thank you for attending our Conference.

May it inform, enlighten and inspire you to face market challenges head-on and achieve great success.

Daniel Winberg, Principal, The Rockport Group

We see significant growth in the rental market because there is more onus on the owner. To be successful, owners/ landlords must service their buildings and tenants very proactively. When condo investors do whatever they can to keep

Editor & Designer

Canadian Apartment Investment Report

Speaker Opportunity

Michel Rémy, Sarah Segal & Vivien Lin

The magazine is published annually, coinciding with the Canadian Apartment Investment Conference in Toronto in September.

Informa and the Real Estate Forums are always interested in attracting new speakers for our various programs across the country.

An online version is available throughout the year at www.realestateforums.com

If you are interested in speaking please contact Events@informa.com

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©2016 Informa Exhibitions Inc. Disclaimer: The views, opinions, positions or strategies expressed by the authors and those providing comments are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of Informa Canada.

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3

“The residential Industry executives real estate market is so expensive right now that renting were asked: what is the an apartment is becoming an affordable alternative to most significant trend purchasing a single family affecting apartment home or a condominium,” says Rob Spanier, Partner & investment over the Principal at Live Work Learn Play Inc.. “At a price of almost $1.3 million for an average next 12 months. detached home in Toronto, it’s becoming unrealistic for the average Torontonian to maintain the dream Their Responses are: of homeownership as past generations have...

Similarly, the average condominium sales price is up 7.1 per cent over the last 12 months...

Apartments are making a comeback on the backs of affordability in the marketplace.”

“There are fewer and fewer opportunities to buy existing apartment assets in Canada which leads investors to focus on new development.’’

Rob Spanier, Partner & Principal, Live Work Learn Play Inc.

Tyler Seaman, Vice President, Hotels & Multi-Residential, Oxford Properties Group 160606FRPOrecruitAD_Layout 1 2016-07-05 12:11 PM Page 1

Keep reading on pages 6, 14 & 16 for all the responses!

Helping Rental Housing Providers and Industry Suppliers Across Ontario

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Canadian Apartment Investment Report / September 2016

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“Primarily these are And the responses kept coming the markets in Alberta, Saskatchewan, and Newfoundland. according to industry First we saw vacancies rise, and now rents are falling; sometimes in these free markets, rents will overshoot on executives over the next the way down, people need to adjust their expectations 12 months, we will see: with regards to sale prices as

“At $1.2 million for an average home price in Ontario, it’s not ‘I can’t afford it,’ it’s, ‘I only have the choice of renting an apartment.”

Rob Spanier, Partner & Principal, LiveWorkLearnPlay

“A significant amount of construction financing is going on in rental markets, which had been absent for many years in places like Ontario, because of the rent controls – and because they were effectively replaced by the condominium market, now we’re seeing it back in a big way. While conventional lenders will finance 75 or 80 per cent of costs, a whole bunch of secondary lending institutions out there are quite happy to lend another 10 to 20 per cent, to facilitate the deal at a much higher interest rate. This gives the second and third tier developers, who are light on equity, access to a much higher loan amount and the ability to build.”

Jeremy Wedgbury, Senior Vice President, Commercial Mortgages, First National Financial LP

“I believe that cap rates are still relatively tight - there’s just not enough product,” Bill Zigomanis, Vice President, Investments, Boardwalk Rental Communities

6

volumes go down, purchasers are only willing to pay so much, and vendors are looking at the values they thought they had.

John Dickie, President, Canadian Federation of Apartment Associations

“We will possibly see less or a consistent amount of trades over the next 1218 months which is low compared to a decade ago” Paula Gasparro, Manager, Multi-Unit Client Relations, Multiples Underwriting (Ontario), Canadian Mortgage and Housing Corporation

“That frenzied appetite by the larger institutions is leading to higher sales of existing rentals and compression of cap rates - and that’s saving the industry on the development side,” he says. “People can still sell finished product for a higher price than it cost them to build, but I’m not sure that’s sustainable.”

Brian McCauley, President & COO, Concert Properties

Continued on pages 14 & 16 Canadian Apartment Investment Report / September 2016

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Canadian Apartment Investment Report / September 2016

9

Greater Toronto Area - Toronto

Greater Toronto Area - Scarborough

Greater Golden Horseshoe - Barrie

Address:

625 Roselawn Ave.

Address:

25 Trudelle St.

Address:

15 Maple Ave.

Price:

$27,050,000

Price:

$32,400,000

Price:

$62,000,036

Price/unit:

$297,253

Price/unit:

$150,000

Price/unit:

$366,864

Purchaser:

O’Shanter Development Company Ltd.

Purchaser:

Golden Equity Properties

Purchaser:

Starlight Investments

City of Edmonton

City of Calgary

City of Vancouver

Address:

The Oliver

Address:

The Birkenshaw

Address:

Graystone Manor

Price:

$66,250,000

Price:

$50,202,500

Price:

$18,100,000

Price/unit:

$290,570

Price/unit:

$233,500

Price/unit:

$385,106

Purchaser:

ICM Realty Group

Purchaser:

Homestead

Purchaser:

Concord Pacific

10

Canadian Apartment Investment Report / September 2016

11

Stuyvesant Town a Win for New York Middle Class A post-World War II private residential development on the east side of Manhattan, Peter Cooper Village Stuyvesant Town (PCVST) is comprised of more than 11,200 apartments in 56 residential buildings across 80 acres of land.

The properties were developed in the late 1940s by Frederick Ecker, president of the Metropolitan Life Insurance Company, for families of moderate means.

Even as Manhattan became increasingly expensive to live in, the rent-stabilized apartment complex continued to serve the middle class. In more recent years, however, the property has changed hands a few times, and Stuy Town’s “affordable” status has been threatened and the future of the entire complex was in question due to a mess of litigation.

‘Great victory’ On December 18, 2015, the acquisition had officially closed. Besides establishing a long-term affordability program to protect 5,000 below-market units, Ivanhoé Cambridge and Blackstone Group also agreed to refrain from building any new units or converting apartments into condos. New York Mayor Bill DeBlasio, who had made affordable housing a key component of his campaign, called the deal a “great victory” for middle class New Yorkers.

“Even as Manhattan became increasingly expensive to live in, the rent-stabilized apartment complex continued to serve the middle class.”

Everything changed last October, when fund manager Blackstone Group and investor Ivanhoé Cambridge announced that in a $5.3 billion deal to buy STPCV, they would keep 5,000 of its apartments affordable for at least 20 years. Amid an affordable housing crisis in major North American cities, this was a landmark transaction.

¡­ Michelle Morra-Carlisle

OUR APARTMENTS LEAVE AN IMPRESSION.

Why Stuy Town was in limbo In 2006 Metropolitan Life sold the property to developer Tishman Speyer and fund manager BlackRock, who planned to convert the units to market rate. But in 2010, Tishman Speyer defaulted on its Stuy Town loans. CWCapital, a subsidiary of Fortress Investment Group, took control of the complex on behalf of several lenders. But when CW decided to sell in 2014, a group of those lenders made that impossible. They sued CW for “misconduct,” claiming it had tried to keep control of the property and reaped “an unjust windfall” through the proposed sale. As the case dragged on, potential buyers were wary.

When CW and the plaintiffs finally settled on their litigation in September of 2015, the sellers pursued an off-market sale, wanting to attract only serious buyers.

Meanwhile Ivanhoé Cambridge and Blackstone Group, two investments giants with a growing global business relationship, had separately kept Stuy Town on their radar for awhile. When the property became available, they decided to bid together as partners.

12

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Canadian Apartment Investment Report / September 2016

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New survey sheds light on Canadian tenant trends

Rental Survey In collaboration with Rentlogic, Informa has conducted a rental preference survey across Canada.

The findings have proved important in understanding tenant profiles, desires and technological take-ups.

We look to produce a 2017 survey and will be calling on owners and managers to take part and help define and assess the rental market in Canada. Should you wish to speak to our team regarding your organization’s participation and/ or the 2016 survey results, please contact sarah.segal@informa.com.

“We’ve looked at variables ranging from how renters are distributed across age bands to household size, the types of units they are renting, the affordability characteristics, and their likelihood of jumping from unit to unit versus staying put for an extended period of time. Some findings include: nearly 60 per cent of renters expected to stay put, while the majority needed only one month to find a unit, despite low reported vacancy rates. The number one amenity they wanted was high speed internet connections. We saw a great deal of useful data to inform landlords about where to spend their marginal dollar, between additional amenities and unit upgrades versus services - particularly technology investments.”

Amy Erixon, Principal & Managing Director, Investments, Avison Young

The Survey Told us a lot about tenants and our industry executives told us a lot about the Market!

“There’s this really interesting friction going on between people paying the money to buy older apartments (in Vancouver) at very aggressive cap rates and very high prices,” he says. “They’ll do whatever they can to raise rent throughout those portfolios to justify the land prices.”

Brian McCauley, President &

“There’s a lot of talk COO, Concert Properties about more units being built but there are only a few locations within the downtown core and around strong transit nodes that make economic sense to construct. Otherwise, the rents being achieved in suburban type locations are not enough to justify new construction.”

Bill Zigomanis, Vice President, Investments, Boardwalk Rental Communities 14

“Canada’s current interest rate climate of “lower for longer,” and the expectation that this will continue to be the case over the short to medium term, has driven down capitalization rates to historically low levels.”

Tyler Seaman, Vice President, Hotels & Multi-Residential, Oxford Properties Group

“Many people, especially millennials, don’t even want to think about taking out a mortgage and selling their soul for the next 25 years. I may be one of the last generations to buy a house because it was the right thing to do. It’s just too expensive. And I don’t see the market correcting itself in the next 12 months.”

Rob Spanier, Partner & Principal, LiveWorkLearnPlay

Continued on page 16

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Final insights on the Canadian MultiResidential market Whereas US investors have access to advanced metrics “that allow them to track every single apartment, every single bed, every single price, which helps provide an understanding of what markets are doing…here (Canada) we have an incredible lack of quality information across sectors….

We see a greater degree of openness among industry competitors in the United States. There isn’t that belief of a ‘secret sauce’ that people feel there is in Canada.

I think people here really think they’re doing something different with each of their properties and they’re concerned about divulging it to others. At the end of the day, it doesn’t really help anybody… That lack of information flow, is an impediment for good investing.”

Henry A. Morton, President, Campus Suites

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“We are experiencing a catalytic generational shift not unlike that of the Baby Boomers. However, this new generation has a completely different outlook on how they choose to live and work as well as their outlook on homeownership.”

Rob Spanier, Partner & Principal, Live Work Learn Play Inc.

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Nov. 30 - Dec. 2, 2016 Metro Toronto Convention Centre

Canadian Apartment Investment Report / September 2016

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Based in Toronto, Centurion is a Canadian company that owns and manages approximately $1 billion in total assets; comprising of several quality multi-residential rental and student housing properties across Canada.

The Centurion portfolio currently includes: PRIVATE INVESTMENT PRODUCTS Centurion Apartment REIT Centurion Real Estate Opportunities Trust FINANCING Mortgage Lending | Equity / Joint Venture Financing PROPERTY MANAGEMENT SERVICES Multi-residential Apartments | Student Housing To learn more, please visit us online or call us today.

STUDENT HOUSING PROJECT 1 Columbia Street West | Waterloo, Ontario Rendering (left) to building development as of May 2015 (right).

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Canadian Apartment Investment Report / September 2016

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