INVESTOR’S GUIDE TO COMMERCIAL REAL ESTATE 2017

INVESTOR’S GUIDE TO

COMMERCIAL

REAL ESTATE 2017

IN WESTERN CANADA OFFICE | MULTI-FAMILY | INDUSTRIAL | RETAIL | LAND PUBLISHED BY WESTERN INVESTOR 2017

Commercial Sales & Leasing

604.736.5611 macdonaldcommercial.com

Macdonald Commercial’s team of outstanding professionals are here to assist you with all of your real estate needs At Macdonald Commercial we‘ve built our reputation by providing our clients with the very best in full service commercial real estate services – Sales, Leasing, Property Management, and Luxury Strata Management.

PERFORMANCE, TRUST & PROVEN RESULTS – ALL UNDER ONE ROOF

EDITOR’S LETTER

Commercial real estate investing in Western Canada

W Frank O’Brien Editor

elcome to the inaugural annual edition of the Western Investor Commercial Real Estate Guide for Investors.

In a yield-starved world, commercial real estate investing in Western Canada promises the type of returns, investor satisfaction and out right potential rare in any investment environment today. From the white-hot multifamily market of Vancouver to industrial and

retail real estate in Alberta and Saskatchewan to the stability and diversity of Manitoba’s office and rental apartment scene, opportunities abound across the West.

We have compiled thought leaders from across Canada, all with intense interest in Western Canada real estate, to help new and seasoned investors formulate their path to success in 2017. ■

The experts Western Investor is proud to feature Western Canada’s leading real estate and investment experts to our first Commercial Real Estate Investment Guide.

Peter J. Anderson is a shareholder at Boughton Law, Vancouver and has a focus on commercial real estate transactions.

Philip Thomas is president of Optum+, a Vancouver-based project management and management consultant.

Thomas Beyer is president of Prestigious Properties Group, Edmonton, which has transacted over $175 million of real estate over the last decade.

Ronan Pigott is vice-president, office leasing, with Avison Young, Vancouver.

Richard Crenian is the founder and president of ReDev Properties, which manages prime commercial property across Western Canada.

Jarvis Rouillard is president of NAIOP (National Association of Industrial and Office Properties), Vancouver.

Arthur Klein is an M&A Advisor with Vancouver-based Pacific M&A and Business Brokers Ltd.

Curtis Scott is manager of marketing intelligence, Western Canada, for Colliers International.

Derek Lobo is the founder and CEO of SVN Rock Advisors Inc., Brokerage and Derek A. Lobo & Associates.

Barry Stuart is a managing partner and senior sales associate, ICR Commercial Real Estate, Saskatoon.

Carol Lee is a partner at Boughton Law, Vancouver, with more than 25 years of experience advising on real estate and corporate commercial law.

Russell Westcott is a real estate investor, best-selling author and member of the management team with the Real Estate Investment Network.

INVESTOR’S GUIDE TO

COMMERCIAL

REAL ESTATE

IN WESTERN CANADA OFFICE | MULTI-FAMILY | INDUSTRIAL | RETAIL | LAND PUBLISHED BY WESTERN INVESTOR 2017

Publisher: Janai York Editor-in-Chief: Joannah Connolly Editor: Frank O’Brien Advertising Sales: Behrouz Habibi, David Witherspoon Sales Coordinator: Angela Foster Production Manager: Holly Burge Production: Darko Isic Designers: Arslan Sultan, Annette Spreeuw 4

WESTERNINVESTOR

Roy Millen is a partner with Blake, Cassels & Graydon LLP of Vancouver, and an expert on First Nations real estate issues.

BRITISH COLUMBIA THE PLACE TO INVEST GLOBAL CONNECTIONS | NATURAL RESOURCES | EDUCATED LABOR FORCE

COMMERCIAL A DVA N TAG E

LINKING ASIA WITH NORTH AMERICA WORKING WITH COMMERCIAL REAL ESTATE INVESTORS THROUGHOUT THE LOWER MAINLAND AND THE FRASER VALLEY VANCOUVER | NORTH SHORE | RICHMOND | DELTA | BURNABY | TRI CITY| SURREY | LANGLEY | ABBOTSFORD

@ info@clcco.com

COMMERCIAL A DVA N TAG E

www.commercialadvantage.ca 604-689-3424

CONTENTS

What’s inside WINNING IN THE

8

west Where to invest in commercial real estate from B.C. to Manitoba in 2017

SIX TOP

20

landlord MARKETS Winnipeg the only non-B.C. town to make list

sexy

27

INDUSTRIAL

High-spending film industry, marijuana growers shake up a traditional sector Commercial Real Estate Guide for Investors is published by Real Estate Weekly/Western Investor, a division of Glacier Media Group, 303 West Fifth Avenue, Vancouver, B.C. V5Y 1J6.

Columns Investing in commercial real estate ........................ 12

Investing in strata windups ............................................. 24

Seven pillars of joint venture investing ................ 14

Multi-family capitalization rate ..................................... 25

Investing with syndicates ................................................. 16

How to invest in industrial real estate .................. 26

Investing in First Nation joint ventures .................17

Investing in retail real estate .......................................... 30

Alternative financing for commercial mortgages........................................................................................ 18

Investing in office space .................................................... 31 Guide to leasing office space ....................................... 32

Financing apartment building buys ......................... 22

Buying a business with real estate ......................... 34

6

WESTERNINVESTOR

Copyright 2017 Real Estate Weekly/Western Investor.

Copyright 2017 Real Estate Weekly. All rights reserved.

No part of this book may be reproduced in any form or incorporated into any information retrieval system without permission of Real Estate Weekly. The publishers are not responsible in whole or in part for any errors or omissions in this publication.

CENTRAL VANCOUVER ISLAND WELCOME PROPERTY INVESTORS...

Sandy Clark Personal Real Estate Corporation

Buying or selling property is a major decision that requires careful consideration, commitment and the comfort of knowing you can trust the person helping you to invest is essential.

Being a long term resident of Nanaimo with experience in both commercial and residential real estate I welcome the opportunity to provide you with honest and informative information in regards to property in Nanaimo and the central Vancouver Island region.

DÊ㛽Ă?Í• Ê㛽Ă? and Z›Ă?ĂŠ Ùã Ă™Â›ÂƒÂ˝ ›Ă?ĂŁÂƒĂŁ › ÂŽĂ„ Í• a n d h^

Reasons to Engage: ^ĆšĆŒĹ˝ĹśĹ? ĆŒÄžĹŻÄ‚Ć&#x;ŽŜĆ?ĹšĹ?ƉĆ? Ç Ĺ?ƚŚ Ä?ĆľÇ‡ÄžĆŒĆ? ĂŜĚ Ć?ÄžĹŻĹŻÄžĆŒĆ? ŽŜŜĞÄ?Ćš Ä?ĆľÇ‡ÄžĆŒĆ? ƚŽ ƚŚĞ ĆŒĹ?Ĺ?Śƚ WĆŒĹ˝Ć‰ÄžĆŒĆ&#x;ÄžĆ? Ď°ĎŹ Ç‡ÄžÄ‚ĆŒĆ? ŽĨ ÄžÇ†Ć‰ÄžĆŒĹ?ĞŜÄ?Äž Ç Ĺ?ƚŚ ŽƾƚĆ?ƚĂŜĚĹ?ĹśĹ? Ć?Ä‚ĹŻÄžĆ? ĆŒÄžÄ?Ĺ˝ĆŒÄšĆ?

ÂšÂ›Ă™Ă™ĂšÂ—ĎŻĎľÎœĂŁÂ›Â˝Ă§Ă?Í˜Ă„Â›ĂŁ

1-877-717-1886

4200 Island Highway N. | Nanaimo, BC | V9T 1W6 | 250.668.9878

JERRY DOMBOWSKY WZ D/ Z , Kd >^ E DKd >^ ͘ K D

ROYAL LEPAGE NANAIMO REALTY

nanaimoproperty@gmail.com www.sandyclarkrealestate.com

3(5621$/ 5($/ (67$7( &25325$7,21

COMMERCIAL . RESIDENTIAL . DEVELOPMENTS :KHWKHU \RX DUH ORRNLQJ WR EX\ RU WR VHOO ZH FDQ KHOS ([FHSWLRQDO UHVXOWV ZLWKRXW H[FHSWLRQ

JU

S

T

S

O

LD

!

JU

COMMERCIAL

1970 SPICER RD N.VAN Crest Realty

S

T

S

O

LD

!

JU

COMMERCIAL

1974 SPICER RD N.VAN

S

T

S

O

LD

!

DEVELOPMENT SURREY BUILDING

ϭϏϭͳώϲϏϾ t ^ds/ t ZÍ&#x2DC; EKZd, s E Khs ZÍ&#x2022; Í&#x2DC; Í&#x2DC; sĎłE Ď°DĎŽ ϲϏϰͳϳϳϾͳϲϲϰϰ tttÍ&#x2DC;'KZ KE<> D EÍ&#x2DC; KD WESTERNINVESTOR

7

FEATURE

WINNING IN THE

west

What and where to buy now from Vancouver to Winnipeg

By GEOFF KIRBYSON

W

ith the bottoming out of the oil industry in the rearview mirror - fingers crossed - and cautious optimism about the Canadian economy, there are ample commercial real estate investment opportunities in the four Western provinces.

Here’s a quick look at where you should put your money in real estate from B.C. to Manitoba.

VANCOUVER THE PICK: multi-family rental buildings The best time to invest in Vancouver real estate was 40 years ago but the second-best time just might be right now.

David Goodman, principal at HQ Commercial and author of The Goodman Report, said the environment for land and multi-family rental buildings is as positive as it’s been in many years.

There are currently 11,000 rental units either under construction, approved but not started or their applications have been submitted. A far cry from the recent past.

“If I had said that three years ago, I would have been committed. There are 6,000 in Vancouver and 5,000 in the rest of metro Vancouver. That’s a healthy sign,” he said.

New development sites are going at $250-$300 per buildable square foot on Vancouver’s west side, about $200 per

buildable square foot on the east side and about $100 per buildable in suburbia.

“The numbers are working. In the old days, you couldn’t build a rental (property) if they threw in the land for free. That has changed. With low interest rates and rental shortages, rents have doubled in the last eight years,” he said.

Developers still prefer condos in many cases but because the numbers for rental units are becoming more compelling, they’re looking more closely at that option.

“Tenants will swoop in and rent it as soon as the building is finished or an investor will come in and buy your building. There is unlimited demand,” Goodman said.

Vancouver: despite high prices, multifamily rentals are the best bet for high returns.

While the office and industrial markets have been hit hard by depressed oil prices, Calgary’s retail sector has emerged relatively unscathed.

” CALGARY THE PICK: retail real estate While the office and industrial markets have been hit hard by depressed oil prices, Calgary’s retail sector has emerged relatively unscathed.

The vacancy rate is hovering around four per cent, which is about double what it was for the previous decade, but Ryan Rutherford, vice-president of retail at Avison Young, said the market is healthier than before.

“It’s traditionally been really tight here. With four per cent, there’s been locals that have

EDMONTON THE PICK: industrial real estate and retail If the fourth quarter of 2016 is any indication for Edmonton’s industrial sector, 2017 could be a barn-burner.

The biggest transaction of the quarter, and arguably the entire year, was the acquisition of the Artis portfolio by Pure Industrial Real Estate Trust, which consisted of eight industrial properties throughout the province, including a half-dozen in Edmonton.

According to Colliers International’s most recent report on the city’s industrial market, there remains a gap between vendor and purchaser expectations when buying investment properties, but as the market begins to stabilize, the gap is narrowing.

“Progressing forward into 2017, we can expect to see an increase in investment sales transactions,” Colliers said.

Optimism is also growing 10

WESTERNINVESTOR

Calgary: With $6 billion in monthly consumer sales, retail real estate is picked as the market leader. closed their doors but there are national or American retailers wanting to fill those holes,” he said.

Perhaps more importantly, the increased vacancy gives local entrepreneurs the chance to get their own concepts off the ground that they wouldn’t have had previously.

because the oil and gas sector, which is strongly correlated to Edmonton’s industrial market, is showing signs of recovery.

There were also 977,400 square feet of industrial space under construction in the

Rutherford said Calgary is significantly underserved in retail, unlike Edmonton, even though it’s a larger city.

Not every part of the city is unblemished, though. Rutherford said a nine-block area downtown with a mix of office and residential towers has proven to be “challenging” from a retail

quarter, up from 693,000 during the previous three-month period.

Edmonton’s retail market is also looking up, thanks in part to the opening of Rogers Place, the new home to the NHL Oilers,

point of view.

A couple of leading indicators are helping spread further optimism throughout Calgary’s real estate sector. Statistics Canada reported retail sales rose 2.4 per cent in January - the fifth increase in six months - driven primarily by sales of vehicles and parts.

last fall. The ICE District is a 25-acre mixed-use development in the downtown core, featuring 300,000 square feet of retail space surrounded by 1.3 million square feet of office space as well as residential.

Edmonton: Banking on an oil price rally, industrial investment is seen as the 2017 “barn burner”.

SASKATOON THE PICK: industrial It helps when the municipal government lends a hand as the North Commuter Parkway, which is scheduled to welcome its first vehicles in the fall of 2018, will bring more traffic by the Marquis Industrial and North Industrial areas.

According to a recent research report from ICR’s Saskatchewan Edge, there are a number of subleasing opportunities in industrial, though landlords are largely staying at a face value of $12 per square foot in asking lease rates.

With a number of new neighbourhoods in various stages of development, ICR said there is money to be made on the retail side, too, particularly if the recent experience of new retailers in these burgeoning neighbourhoods is any indication.

“This new inventory has been met with high demand,” he said.

WINNIPEG THE PICK: all sectors Manitoba’s economy has long been praised for its diversity and the same principles apply to Winnipeg’s real estate market.

It doesn’t matter if you’re looking at retail, commercial, industrial or multi-family, there are plenty of projects pending that have the potential to turn a tidy profit.

No individual building is going to go to the moon profit-wise, but that’s not the way things work in

Saskatoon: Infrastructure upgrades position key industrial and retail sites for higher performance.

the Manitoba capital.

With political chaos south of the border, North American investors are increasingly looking at Canada, but prices in cities such as Toronto and Vancouver have got to the point where some people can’t play the game, says John Pearson, a commercial real estate broker/ developer with Shindico.

With the $400-million True North Square coming out of the ground downtown, the offshoots across all sectors should be plentiful, particularly with new

condominium projects being announced on a regular basis.

“Winnipeg’s market is stable, predictable and hasn’t been hit by the oil downturn like Saskatoon and Calgary have.

Plus, we have a strong agricultural base and plenty of diversification,” he said.

Investors will also appreciate the fact that Winnipeg is home to companies such as GreatWest Lifeco, Investors Group and James Richardson International, plus a deep base of arts and sports communities. Q

Winnipeg’s market is stable, predictable and hasn’t been hit by the oil downturn like Saskatoon and Calgary have.

”

Winnipeg: You pick ‘em: steady, stable returns are expected right across the commercial real estate sectors this year.

WESTERNINVESTOR

11

BUSINESS BROKERAGE

Commercial real estate Income-producing real estate in Western Canada is a superior long-term investment

Many investors, rather than selling, will remortgage their property, pull out some equity and do it again

”

L

et’s take a look at specific advantages of placing some of your hard-earned capital into income-producing commercial property. The examples I am using will be applicable to investors who wish to place their money long term.

Keeps pace with inflation: All commercial real estate derives income from tenants who pay to rent the premises. Obviously supply and demand for rental property can vary.

We have seen periods in the history of Saskatchewan commercial real estate where rents have flatlined for a period of time or maybe even dropped slightly. Over the long term, rental income will keep pace with inflation, which is reassuring for retirees concerned about future purchasing power.

Income, however, is only one of the sources of return on your investment.

Leverage: Very few will borrow money to invest in equities. It is quite simply too risky. Even if you did, the interest charged is unlikely to be favourable. Conversely, most commercial real estate is purchased with (an average of) only a 25 per cent initial investment.

Assuming the property appraises and the asset is sound, financial institutions will compete aggressively to finance your purchase. That means your tenants are paying you a return on your investment and at the same time paying off your mortgage (most commercial mortgages are amortized between 15 and 20 years).

Starting to sound interesting?

Wait, there’s more.

Cash on cash return: Today you can obtain commercial mortgage funds at anywhere between 2.75 and 4.5 per cent. It is likely the property you purchased is showing a cap rate of between 6 and 7.5 per cent.

12

WESTERNINVESTOR

That means in addition to your return of 6 to 7 per cent on your initial investment and your tenant paying your mortgage off, you are also receiving a return on the money you borrowed.

That spread in today’s market is likely to be 2.5 to 4 per cent. This is found money.

Asset appreciation: The examples used above regarding the factors that affect rent levels are also true for the value of real estate. I can provide you with countless examples of increased value in commercial real estate my clients have experienced since I have been the business.

Appreciation, more than any other factor, provides tremendous growth opportunity for your capital.

Let’s say two partners each invest $187,500 (plus closing costs) into a $1.5-million property.

It’s not inconceivable for someone to offer them $2 million after 5 years.

If their mortgage was amortized over 15 years, they have paid down the mortgage by roughly $300,000.

Add that to the $500,000 capital gain and they have each turned their initial $187,500 investment into $587,500 (less recaptured depreciation tax). Many investors, rather than selling, will remortgage their property, pull out some equity and do it again.

In most cases, rental income should have increased to cover the additional mortgage amount.

I like real estate because it is a tangible asset. I can take an older, tired property, add value through renovations and increase both rent income and market value. It’s yet one more example of how your investment can grow. ■

Barry Stuart is a managing partner and senior sales associate, ICR Commercial Real Estate, Saskatoon. www.icrcommercial.com

Seasoned investor or new to the Real Estate Investment World Leverage Amrik S Rai’s knowledge and experience to maximize the potential of your investment and benefit from his experience, knowledge and dedication to serve you.

YOUR COMMERCIAL REAL ESTATE EXPERT!

GLENAYRE REA GLENAYRE GLEN R REALTY EA ALTY CHILLIWACK CHIL ILLIWA LIWACK

Rick Toor Personal Real Estate Corporation tion

Office: 604-795-2955 Cell: 604-897-0260

Contact him today for a consultation.

321 Units, Calgary Newer project, good mix of 1 and 2 bedroom condo.

Quality, heated underground parking.

FOR SALE

FOR SALE

High provile shopping centre.

Lower Mainland. $34,900,000

Zoned 2100 acre development land, Quebec.

Close to Montreal, Ottawa.

• Leasing • Land Development

• Investmentt ales Building Sales

Amrik S Rai 604-709-9200 or email: amrik@incomerealty.ca INCOME REALTY INC. website: www.incomerealty.ca

• Businesses for Sale

6760 MADILL ROAD | PRINCE GEORGE, BC NG

I ST LI

• •

Leased to Shoppers Drug Mart on a 15 year term 10,563 SF building on a 1.18 acre parcel, with future drive-thru pad development opportunity available

4103 4 AVENUE S | LETHBRIDGE, AB NG

I ST

LI

FORM RETAIL ADVISORS SINGLE TENANT NET LEASE INVESTMENT TEAM FORM

has emerged as Western Canada’s leading brokerage specializing in advisory and transaction services for single tenant, net-leased assets.

As the premier retail and single tenant property specialists in British Columbia, we integrate our transactions expertise with unparalled market knowledge and the application of our extensive investor and user database to ensure a comprehensive valuation, marketing and sales process.

OVER

$90 MILLION

IN SINGLE TENANT ASSESTS

•

FORM RETAIL ADVISORS INC. T 604 638 2121 1280 - 333 Seymour Street F 604 638 2122 Vancouver, BC V6B 5A6 E info@form.ca form.ca

Leased to Parkland Fuel Corp. and Great Canadian Oil Change 7,255 SF of net rentable area on a 0.89 acre lot

250 WINNIPEG STREET | PENTICTON, BC NG

TI IS

L

• •

23,565 SF, large format property, with future pad development opportunity Leased to Landmark Cinemas on a 20 year term

9704 112 STREET | FORT ST. JOHN, BC R T DE AC UNNTR CO

• •

Leased to The TDL Group Corp. on a 20 year term Brand new 1,008 SF building on a 0.477 acre lot

33 SOUTH SHORE ROAD | LAKE COWICHAN, BC R T DE AC UNNTR CO

• •

SOLD IN 2016

FOR MORE INFORMATION PLEASE CONTACT OUR TEAM:

•

11,800 SF building tenanted by FIELDS on a 0.90 acre lot Significant future redevelopment potential, by way of waterfront residential development

2601 HIGHWAY 6 | VERNON, BC RM

FI

• •

Leased to The TDL Group Corp. on a 20 year term 2,700 SF building on a 0.41 acre strata lot

ricktoor.com cktoor.com ricktoor@shaw.ca

4340 SUNDIAL CRESCENT (SL 3&4) | WHISTLER, BC RM

FI

• •

Tenanted by Showcase Snowboards on a 30 year term 3,474 SF strata unit located within Sundial Boutique Hotel, Whistler

3510 27 STREET | VERNON, BC LD

SO

Sale date: December 2016 • •

Leased to The TDL Group Corp. on a 20 year term Brand new 2,695 SF building on a 0.647 acre lot

860 ESQUIMALT ROAD | VICTORIA, BC LD

SO

Sale date: November 2016 • •

Leased to Island Burgers Inc., one of A&W’s largest franchise operators 15 year term

34630 & 34650 DELAIR ROAD | ABBOTSFORD, BC LD

SO

Sale date: October 2016 • •

Leased to Cactus Club Café and Prospera Credit Union 12,287 SF of GLA on a 1.09 acre lot

3695 LOUGHEED HIGHWAY | VANCOUVER, BC LD

SO

Sale date: September 2016 • •

8,914 SF drive-thru premises leased to McDonald’s Restaurants of Canada Limited Situated on a 0.80 acre corner parcel

2601 WEST BROADWAY | VANCOUVER, BC LD

SO

Sale date: June 2016 • •

Desirable 7,844 SF corner property located on a major traffic corridor Leased to Dairy Queen on a 10 year term

WESTERNINVESTOR

13

POOLED INVESTING

JOINT-VENTURE

investments Pooling resources can result in accelerated wealth appreciation if the right systems, property and partners are in place Carefully choose your partners to ensure that they are not bringing the same skill to the table as you are

”

M

ost sophisticated and successful real estate investors utilize joint ventures to create wealth at an accelerated pace. Some of the key foundational principles of creating successful joint venture relationships include:

1

Systems It is important you establish a system by which you can duplicate your joint venture agreements over time. This system should not be new but, rather, something that has been tried and tested by others over time. This ensures two important things: first, your system will succeed; second, the system will accommodate every stage of the market.

2

Relationships The backbone of successful joint ventures is the relationships that are established. Within your current relationships there is a very real possibility for a potential partner.

With the people you know right now, you have potential access to the money required to buy your next piece of real estate.

3

Follow-through It is your absolute responsibility to follow through, take the action, get the results, and move forward.

Truly successful people are those who take 100 per cent accountability for their results, both good and bad.

One of the best illustrations of this comes in a quote from Jim Rohn: “You can’t hire someone else to do your pushups for you.”

4

Win/win transactions Help others to achieve their financial dreams and they will have others lined up to do business with you. Quite often you will be putting the needs of your joint venture partner’s ahead of yours. Remember, if you structure the deal properly, the more money your joint venture partner makes, the more money you make - a true win/win deal.

5

Sell and negotiate The ability to raise investors’ capital is a form of selling and

14

WESTERNINVESTOR

negotiating. Once you get competent at the art of listening to people’s needs and determining if you can offer something that can help meet those needs, that is when you become a professional joint venturer.

Selling and negotiating are trainable skills. The more proficient you become at both, the easier your investment life will become.

6

Leverage “Little hinges swing large doors.”

This famous quote from W. Clement Stone, who built a billion-dollar sales organization out of the depths of the great depression, is a great illustration of the power of leverage.

Within real estate, you can utilize the principle of leverage (i.e. you invest $1, and the bank gives you the remaining $3 for your property purchases) to further your portfolio.

7

Your team Great teams are formed when partners’ skills or assets complement each other. Carefully choose your partners to ensure that they are not bringing the same skill to the table as you are. If you are lacking cash – do not match up with someone who is also lacking cash. Be honest with yourself.

Identify what you’re lacking and then find someone to fill that void.

Remember, joint venture partners can provide you with finances, properties, credit worthiness or investing experience.

These are the seven foundational pillars to building successful joint venture relationships (and this is just the tip of the iceberg). Implement these pillars into your joint venture skill set and you will have a solid foundation from which to grow. ■

Russell Westcott is a Canadian real estate investor, educator, researcher, best-selling author and member of the management team with the Real Estate Investment Network. He uses his personal experience to help real estate investors think creatively and raise investment capital to buy their next piece of real estate.

Westcott can be reached at www.reincanada.com

PERFORMING EQUITY ĞǀĞůŽƉŵĞŶƚƐ ;^ƋƵĂŵŝƐŚͿ >ƚĚ͘

Downtown Squamish Limited Partnership Opportunity

THE LAUREN dŚĞ ^ƋƵĂŵŝƐŚ ŽŶĚŽŵŝŶŝƵŵ ŵĂƌŬĞƚ ŝƐ ƵŶĚĞƌͲƐƵƉƉůŝĞĚ͕ ĂƐ ĞǀŝĚĞŶĐĞĚ ďLJ ͘ ͛͘Ɛ ůŽǁĞƐƚ ǀĂĐĂŶĐLJ ƌĂƚĞ ĂŶĚ ƵƐŝŶĞƐƐ͛Ɛ ƌĂƟŶŐ ĂƐ ƚŚĞ ŶƵŵďĞƌ ŽŶĞ ƉůĂĐĞ ƚŽ ǁŽƌŬ ŝŶ ͘ ͘

Unit Mix • • • •

ϰϴ ZĞƐŝĚĞŶƟĂů ƵŶŝƚƐ ƌĂŶŐŝŶŐ ĨƌŽŵ ϲϬϬ ʹ ϭ͕ϬϬϬ ƐƋ͘ Ō͘ ϯϲ hůƚƌĂ ĞĸĐŝĞŶƚ ϭ ĂŶĚ Ϯ ďĞĚƌŽŽŵ ƵŶŝƚƐ ϭϮ WĂŶŽƌĂŵŝĐ ƉĞŶƚŚŽƵƐĞ ƵŶŝƚƐ͕ ϭϬ ǁŝƚŚ ůŽŌƐ ϮͲϯ 'ƌŽƵŶĚ ŇŽŽƌ ĐŽŵŵĞƌĐŝĂů ƵŶŝƚƐ ;ĂƉƉƌŽdžŝŵĂƚĞůLJ Ϯ͕ϬϬϬ ƐƋ͘ Ō͘Ϳ

ABOUT THE PROJECT The Market • ^ƋƵĂŵŝƐŚ ŚĂƐ ďĞĐŽŵĞ ŽŶĞ ŽĨ ƚŚĞ >ŽǁĞƌ DĂŝŶůĂŶĚΖƐ ŵŽƐƚ ĂƩƌĂĐƟǀĞ ĂŶĚ ĚĞƐŝƌĂďůĞ ĐŽŵŵƵƚĞƌ ƚĂƌŐĞƚƐ͕ ďŽĂƐƟŶŐ Ă ǁŽƌůĚͲĐůĂƐƐ ůŝĨĞƐƚLJůĞ ĂŶĚ ͛Ɛ ηϭ ũŽďͲŐƌŽǁƚŚ ƐƚĂƟƐƟĐƐ • dŚĞ ƐƵďũĞĐƚ ƉƌŽƉĞƌƚLJ ŝƐ ĐĞŶƚƌĂůůLJ ůŽĐĂƚĞĚ ĚŽǁŶƚŽǁŶ͕ ǁĂůŬŝŶŐ ĚŝƐƚĂŶĐĞ ƚŽ ƐŚŽƉƉŝŶŐ ĂŶĚ ƌĞƐƚĂƵƌĂŶƚƐ ĂŶĚ ŽŶůLJ ϰϬ ŵŝŶƵƚĞƐ ƚŽ tŚŝƐƚůĞƌ Žƌ tĞƐƚ sĂŶĐŽƵǀĞƌ • ^ƋƵĂŵŝƐŚ͕ ǁŝƚŚ ŝƚƐ ŵƵůƟƚƵĚĞ ŽĨ ůŝĨĞƐƚLJůĞ ďĞŶĞĮƚƐ ĂŶĚ ĞŵƉůŽLJŵĞŶƚ ŽƉƉŽƌƚƵŶŝƟĞƐ ĞĂƌŶƐ Ă ǁŝŶŶŝŶŐ ƐĐŽƌĞ ĨŽƌ ŝŶǀĞƐƚŵĞŶƚ ĨƵŶĚĂŵĞŶƚĂůƐ • dŚĞ ĚŽǁŶƚŽǁŶ ƐŝƚĞ ŝƐ ƵŶŝƋƵĞůLJ ůŽĐĂƚĞĚ ŝŶ ĂŶ ĂƌĞĂ ƚŚĂƚ ƉƌŽǀŝĚĞƐ ĨŽƌ ƐƵďƐƚĂŶƟĂůůLJ ĂĐĐĞůĞƌĂƚĞĚ ĚĞǀĞůŽƉŵĞŶƚ ĂƉƉƌŽǀĂů ĐŽŵƉĂƌĞĚ ƚŽ ŽƚŚĞƌ ϰ njŽŶĞĚ ƉƌŽƉĞƌƟĞƐ͘ dŚŝƐ ĂůůŽǁƐ ƵƐ ƚŽ ƋƵŝĐŬůLJ ŵĞĞƚ Ă ĚƌĂƐƟĐ ƐƵƉƉůLJ ƐŚŽƌƚĂŐĞ ĨŽƌ ĂīŽƌĚĂďůĞ ĚŽǁŶƚŽǁŶ ĂĐĐŽŵŵŽĚĂƟŽŶ

Investment Opportunity • &ƵůůLJ ƉĞƌŵŝƩĞĚ ůĂŶĚ ĐŽŶƚƌŝďƵƚĞĚ Ăƚ ĐŽƐƚ ďLJ 'ĞŶĞƌĂů WĂƌƚŶĞƌ ŶŽ ĂĐƋƵŝƐŝƟŽŶ ĨĞĞ • ΨϮϱ͕ϬϬϬ >ŝŵŝƚĞĚ WĂƌƚŶĞƌƐŚŝƉ ƵŶŝƚƐ Ͳ Ψϰ͘ϬD ŽīĞƌŝŶŐ • ϮϮ ŵŽŶƚŚ ŝŶǀĞƐƚŵĞŶƚΎ • WƌŽũĞĐƚĞĚ ƌĞƚƵƌŶƐ х ϱϬй ;ŝ͘Ğ͘ ΨϲϬϬ͕ϬϬϬ ŝŶǀĞƐƚŵĞŶƚ͕ ŐĂŝŶ ŽĨ ΨϯϬϬ͕ϬϬϬ ŝŶ ϮϮ ŵŽŶƚŚƐͿΎ

CONTACT US

ZĞŐĂƌĚŝŶŐ ͘ ͘ ŵƵůƚŝͲĨĂŵŝůLJ ŽƉƉŽƌƚƵŶŝƚŝĞƐ

(604)620-3728 WWW.INVESTINSQUAMISH.COM ĞŵĂŝů͗ ŝŶĨŽΛƉĞƌĨŽƌŵŝŶŐĞƋƵŝƚLJ͘ĐŽŵ

Experienced Development Team • • • • •

^ƵĐĐĞƐƐĨƵů ƚƌĂĐŬ ƌĞĐŽƌĚ ŽĨ ϭϭϮ ĐŽŶĚŽŵŝŶŝƵŵ ƉƌŽũĞĐƚƐ ZĞĐĞŶƚ ^ƋƵĂŵŝƐŚ ĚĞǀĞůŽƉŵĞŶƚ ŵĂŶĂŐĞŵĞŶƚ ĞdžƉĞƌŝĞŶĐĞ ZĞƐƉĞĐƚĞĚ ďƵŝůĚĞƌ ǁŝƚŚ ůŽĐĂů ĞdžƉĞƌŝĞŶĐĞ ĂŶĂĚĂ͛Ɛ ŵŽƐƚ ƚƌƵƐƚĞĚ ƉƌŽƉĞƌƚLJ ŵĂŶĂŐĞƌ KƉƟŽŶĂů ͞^ŝŐŶĂƚƵƌĞ ^ĞƌǀŝĐĞ͟ ƌĞŶƚĂů ŵĂŶĂŐĞŵĞŶƚ ƉƌŽŐƌĂŵ ĂǀĂŝůĂďůĞ

&ƌĞĞ DĂƌŬĞƚ ZĞƉŽƌƚ ǀĂŝůĂďůĞ

WHY SQUAMISH?

^ƋƵĂŵŝƐŚ ŝƐ ŽŶĞ ŽĨ ƚŚĞ ĨĂƐƚĞƐƚ ŐƌŽǁŝŶŐ ĐŽŵŵƵŶŝƟĞƐ ŽŶ ƚŚĞ ĐŽǀĞƚĞĚ tĞƐƚ ŽĂƐƚ͘ /ƚƐ ĞdžĐĞƉƟŽŶĂů ŽƵƚĚŽŽƌ ƌĞĐƌĞĂƟŽŶ ŽƉƉŽƌƚƵŶŝƟĞƐ ĂƌĞ ƌĂŶŬĞĚ ĂŵŽŶŐ ƚŚĞ ďĞƐƚ ŝŶ EŽƌƚŚ ŵĞƌŝĐĂ͕ ƉƌŽǀŝĚŝŶŐ Ă ǁŽƌůĚͲĐůĂƐƐ ŽƵƚĚŽŽƌͲĐĞŶƚƌŝĐ ůŝĨĞƐƚLJůĞ͘ ΨϲϬϬͲŵŝůůŝŽŶ ŚŝŐŚǁĂLJ ƉƌŽǀŝĚĞƐ ĨŽƌ ϰϬͲŵŝŶƵƚĞ ĂĐĐĞƐƐ ƚŽ tĞƐƚ sĂŶĐŽƵǀĞƌ Žƌ tŚŝƐƚůĞƌ͘ DƵůƟͲŵŽĚĂů ƚƌĂŶƐƉŽƌƚĂƟŽŶ ŝŶĨƌĂƐƚƌƵĐƚƵƌĞ ŵŽǀĞƐ ^ƋƵĂŵŝƐŚ ĐĂƌŐŽ ƚŽ ŵĂũŽƌ ŵĂƌŬĞƚƐ ǁŽƌůĚǁŝĚĞ͘ ZĞǀŝƚĂůŝnjĂƟŽŶ ŽĨ ƚŚĞ ĚŽǁŶƚŽǁŶ ĂŶĚ ǁĂƚĞƌĨƌŽŶƚ ĂƌĞĂƐ ǁŝůů ŚĂǀĞ Ă ǀĞƌLJ ƐŝŐŶŝĮĐĂŶƚ ŝŵƉĂĐƚ ŽŶ ƚŚĞ ĞdžƉĞƌŝĞŶĐĞ ŽĨ ĚŽǁŶƚŽǁŶ ƌĞƐŝĚĞŶƚƐ ĂŶĚ ůŽŶŐ ƚĞƌŵ ƉƌŽƉĞƌƚLJ ǀĂůƵĞƐ͕ ƐŝŵŝůĂƌ ƚŽ ƚŚĞ ƌĞǀŝƚĂůŝnjĂƟŽŶ ĞīĞĐƚ ŽŶ sĂŶĐŽƵǀĞƌ͛Ɛ ǁĂƚĞƌĨƌŽŶƚ ;zĂůĞƚŽǁŶͬ ŽĂů ,ĂƌďŽƵƌͬKůLJŵƉŝĐ sŝůůĂŐĞͿ͘

WWW.INVESTINSQUAMISH.COM ΎdŚĞ ĮŶĞ ƉƌŝŶƚ͘​͘​͘ dŚŝƐ ĚŽĐƵŵĞŶƚ ŚĂƐ ďĞĞŶ ƉƌĞƉĂƌĞĚ ďLJ WĞƌĨŽƌŵŝŶŐ ƋƵŝƚLJ ĞǀĞůŽƉŵĞŶƚƐ ;^ƋƵĂŵŝƐŚͿ >ƚĚ͘ ;͞ƚŚĞ ŽŵƉĂŶLJ͟Ϳ ƚŚĞ ŐĞŶĞƌĂů ƉĂƌƚŶĞƌ ĨŽƌ WĞƌĨŽƌŵŝŶŐ ƋƵŝƚLJ͕ ĂŶĚ ŝƐ ďĞŝŶŐ ƉƌŽǀŝĚĞĚ ƐŽůĞůLJ ĂƐ Ă ŐƵŝĚĞ ĨŽƌ ƚŚĞ ƉƵƌƉŽƐĞ ŽĨ ŐŝǀŝŶŐ ďĂĐŬŐƌŽƵŶĚ ŝŶĨŽƌŵĂƟŽŶ ƚŽ ĞŶĂďůĞ ƌĞĐŝƉŝĞŶƚƐ ƚŽ ĂƐƐĞƐƐ ǁŚĞƚŚĞƌ ƚŚĞLJ ǁŝƐŚ ƚŽ ĞŶƚĞƌ ŝŶƚŽ ĚŝƐĐƵƐƐŝŽŶƐ ǁŝƚŚ ƚŚĞ ŽŵƉĂŶLJ ƌĞŐĂƌĚŝŶŐ ƚŚŝƐ ƉŽƚĞŶƟĂů ƚƌĂŶƐĂĐƟŽŶ͘ Ύ ůů ƐƚĂƚĞŵĞŶƚƐ Žƌ ǀŝĞǁƐ ĞdžƉƌĞƐƐĞĚ ĂŶĚ Ăůů ƉƌŽũĞĐƟŽŶƐ͕ ĨŽƌĞĐĂƐƚƐ Žƌ ƐƚĂƚĞŵĞŶƚƐ ƌĞůĂƟŶŐ ƚŽ ĞdžƉĞĐƚĂƟŽŶƐ ƌĞŐĂƌĚŝŶŐ ĨƵƚƵƌĞ ĞǀĞŶƚƐ Žƌ ƚŚĞ ƉŽƐƐŝďůĞ ĨƵƚƵƌĞ ƉĞƌĨŽƌŵĂŶĐĞ ŽĨ ƚŚĞ ƉƌŽƉŽƐĞĚ ƚƌĂŶƐĂĐƟŽŶ ƌĞƉƌĞƐĞŶƚ ƚŚĞ ŽŵƉĂŶLJ͛Ɛ ŽǁŶ ĂƐƐĞƐƐŵĞŶƚ ĂŶĚ ŝŶƚĞƌƉƌĞƚĂƟŽŶ ŽĨ ŝŶĨŽƌŵĂƟŽŶ ĂǀĂŝůĂďůĞ ĂƐ Ăƚ ƚŚĞ ĚĂƚĞ ŽĨ ƚŚŝƐ ĚŽĐƵŵĞŶƚ͘ WƌŽƐƉĞĐƟǀĞ /ŶǀĞƐƚŽƌƐ ŵƵƐƚ ĚĞƚĞƌŵŝŶĞ ĨŽƌ ƚŚĞŵƐĞůǀĞƐ ǁŚĂƚ ƌĞůŝĂŶĐĞ ;ŝĨ ĂŶLJͿ ƚŚĞLJ ƐŚŽƵůĚ ƉůĂĐĞ ŽŶ ƐƵĐŚ ƐƚĂƚĞŵĞŶƚƐ͕ ǀŝĞǁƐ͕ ƉƌŽũĞĐƟŽŶƐ Žƌ ĨŽƌĞĐĂƐƚƐ ĂŶĚ ŶŽ ƌĞƐƉŽŶƐŝďŝůŝƚLJ ŝƐ ĂĐĐĞƉƚĞĚ ďLJ ƚŚĞ ŽŵƉĂŶLJ ŝŶ ƌĞƐƉĞĐƚ ƚŚĞƌĞŽĨ͘ WƌŽƐƉĞĐƟǀĞ /ŶǀĞƐƚŽƌƐ ĂƌĞ ƐƚƌŽŶŐůLJ ĂĚǀŝƐĞĚ ƚŽ ĐŽŶĚƵĐƚ ƚŚĞŝƌ ŽǁŶ ĚƵĞ ĚŝůŝŐĞŶĐĞ͕ ŝŶĐůƵĚŝŶŐ͕ ǁŝƚŚŽƵƚ ůŝŵŝƚĂƟŽŶ͕ ƚŚĞ ůĞŐĂů ĂŶĚ ƚĂdž ĐŽŶƐĞƋƵĞŶĐĞƐ ŽĨ ƚŚĞŵ ŝŶǀĞƐƟŶŐ ŝŶ ƚŚĞ ƉƌŽƉŽƐĞĚ ƚƌĂŶƐĂĐƟŽŶ͘ ΎEŽ ƌĞƉƌĞƐĞŶƚĂƟŽŶ Žƌ ǁĂƌƌĂŶƚLJ͕ ĞdžƉƌĞƐƐ Žƌ ŝŵƉůŝĞĚ͕ ŝƐ Žƌ ǁŝůů ďĞ ŐŝǀĞŶ ďLJ ƚŚĞ ŽŵƉĂŶLJ Žƌ ĂŶLJ ŽĨ ŝƚƐ ĂĚǀŝƐŽƌƐ͘ ŶLJ ĮŶĂŶĐŝĂů ƉƌŽũĞĐƟŽŶƐ ŐŝǀĞŶ ĂƌĞ ŝůůƵƐƚƌĂƟǀĞ ŽŶůLJ͖ ŶŽŶĞ ŽĨ ƚŚĞ ƉƌŽũĞĐƟŽŶƐ Žƌ ĂƐƐƵŵƉƟŽŶƐ ƐŚŽƵůĚ ďĞ ƚĂŬĞŶ ĂƐ ĨŽƌĞĐĂƐƚƐ Žƌ ƉƌŽŵŝƐĞƐ ŽŶ ƚŚĞ ƉĂƌƚ ŽĨ ƚŚĞ ŽŵƉĂŶLJ ŶŽƌ ƐŚŽƵůĚ ƚŚĞLJ ďĞ ƚĂŬĞŶ ĂƐ ŝŵƉůLJŝŶŐ ĂŶLJ ŝŶĚŝĐĂƟŽŶ͕ ĂƐƐƵƌĂŶĐĞ Žƌ ŐƵĂƌĂŶƚĞĞ ƚŚĂƚ ƚŚŽƐĞ ĂƐƐƵŵƉƟŽŶƐ ĂƌĞ ĐŽƌƌĞĐƚ Žƌ ĞdžŚĂƵƐƟǀĞ͘ Ύ ůů ůŝĂďŝůŝƚLJ ĨŽƌ ƌĞůŝĂŶĐĞ ŽŶ ƚŚĞ ĐŽŶƚĞŶƚƐ ŚĞƌĞŽĨ ŝƐ ĞdžƉƌĞƐƐůLJ ĞdžĐůƵĚĞĚ͘ ΎdŚĞ ĚŽĐƵŵĞŶƚ ĚŽĞƐ ŶŽƚ ĐŽŶƐƟƚƵƚĞ ŝŶǀĞƐƚŵĞŶƚ ĂĚǀŝĐĞ͘ dŚŝƐ ĚŽĐƵŵĞŶƚ ĚŽĞƐ ŶŽƚ ĂŵŽƵŶƚ ƚŽ ĂŶ ŝŶǀŝƚĂƟŽŶ Žƌ ŝŶĚƵĐĞŵĞŶƚ ƚŽ ďƵLJ Žƌ ƐĞůů ĂŶ ŝŶǀĞƐƚŵĞŶƚ ŶŽƌ ĚŽĞƐ ŝƚ ƐŽůŝĐŝƚ ĂŶLJ ƐƵĐŚ ŽīĞƌ Žƌ ŝŶǀŝƚĂƟŽŶ ŝŶ ĂŶLJ ũƵƌŝƐĚŝĐƟŽŶ ĂƐ ŝƚ ŝƐ ŽŶůLJ ƉƌŽǀŝĚĞĚ ĨŽƌ ŝŶĨŽƌŵĂƟŽŶ ƉƵƌƉŽƐĞƐ͘ ΎWĂƌƟĐŝƉĂƟŽŶ ŵĂLJ ĞdžƉŽƐĞ ƉŽƚĞŶƟĂů ŝŶǀĞƐƚŽƌƐ ƚŽ Ă ƐŝŐŶŝĮĐĂŶƚ ƌŝƐŬ ŽĨ ůŽƐŝŶŐ Ăůů ŽĨ ƚŚĞ ƉƌŽƉĞƌƚLJ Žƌ ŵŽŶĞLJ ŝŶǀĞƐƚĞĚ͘ ŶLJ ƉĞƌƐŽŶ ǁŚŽ ŝƐ ŝŶ ĂŶLJ ĚŽƵďƚ ĂďŽƵƚ ƚŚĞ ŽƉƉŽƌƚƵŶŝƚLJ ƚŽ ǁŚŝĐŚ ƚŚŝƐ ĚŽĐƵŵĞŶƚ ƌĞůĂƚĞƐ ŝƐ ƐƚƌŽŶŐůLJ ĂĚǀŝƐĞĚ ƚŽ ĐŽŶƐƵůƚ ƉƌŽĨĞƐƐŝŽŶĂů ĂĚǀŝƐŽƌƐ͘ Ύ Ŷ KīĞƌŝŶŐ DĞŵŽƌĂŶĚƵŵ ŝƐ ĂǀĂŝůĂďůĞ ĨŽƌ ƚŚŝƐ ŝŶǀĞƐƚŵĞŶƚ ĂŶĚ ĐĂŶ ďĞ ƉƌŽǀŝĚĞĚ ƚŽ ƚŚŽƐĞ ǁŝƚŚ ƐĞƌŝŽƵƐ ŝŶƚĞƌĞƐƚ͘

INVESTING

Limited partnerships Investors look to pool money in commercial real estate, but caution is the byword. Here are eight red flags when investing in a syndicate

Often, the promised ROI (return on investments) are paid from your own investment dollars.

”

C

autious investors should look for these eight warning signs when considering a real estate investment syndicate.

1

Overpriced assets Often an asset is purchased by the syndicator, and then sold to the “innocent” public for a lift up from a low of 20 per cent to more than 100 per cent on some land deals.

This used to be O.K. in a very strong market, but is not common.

2

Check track record Many a syndicator has had some success raising funds, sometimes for flow-through tax deals or other parties. But it takes years to understand how to buy real estate, even more years how to buy well and not overpay, and even more years to manage an asset well and then exit with a profit.

3

Excessive fees Some syndicators charge in excess of 10 per cent commission.

This seems to be the norm, but is still high as it has to be made up through asset performance, which takes a few years. Also, an annual asset management should probably not exceed 0.5 per cent on the asset value, or 2 per cent of the cash invested, otherwise it is too rigged towards the syndicator and not the investor.

4

Unrealistic ROIs Often, the promised ROI (return on investments) are paid from your own investment dollars. It is easy to produce a 20 per cent return over five years .. by paying you your money back. Thus: look at the underlying vehicle that produces this return. Any promise to deliver any distributions over 6 per cent in the current environment has very high risks.

5

False sense of security Syndications often use terms such as “asset backed” or “secured

16

WESTERNINVESTOR

by a mortgage”, but in many cases these mortgages are in second or third position and exceed by far the value of the underlying real estate.

In construction or land development projects the investors’ money is often in 2nd or sometimes in 3rd position behind an expensive first position. This is not security: it is a sham. Don’t call it a mortgage if it is indeed equity or investment dollars.

6

Licensing requirements There is a requirement in Canada that sales people who are “in the business of selling securities”, like realtors, have to be licensed by a provincial security commission and registered via an Exempt Market Dealer. Most provincial security commissions have a database that is accessible to check their credentials.

7

Acquisition fees Some operators charge an acquisition fee of up to 3 per cent or

4 per cent. Combining this fee with sales commission, plus the usual marketing, administration, travel, legal and bookkeeping expenses and a startup might be 30 per cent in the hole after the building is acquired.

To get from 70 per cent actual cash invested to 100 per cent is a 40 per cent gain that the asset must produce just to break even.

8

Are these returns realistic?

The advertised returns initially are usually paid for with your own money. Marketing fees often approach 12 per cent to 20 per cent of the funds raised, plus sales commission. This can be a very high hurdle as it has to be made up through asset performance.

Use these guidelines to separate the wheat from the chaff and you too can successfully and profitably coown a larger piece of real estate or a pool of hard assets with others. ■

Thomas Beyer is president of Prestigious Properties Group, which has transacted over $175M of real estate over the last decade. Phone 403-678-3330, Email tbeyer@prestprop.com or visit www.prestprop.com

POOLED INVESTING

PARTNERING WITH

First Nation investors First question: who is authorized to make an agreement?

A business needs to conduct some due diligence on its prospective First Nation counterparty.

”

T

here are a growing number of joint ventures (JVs) or partnerships between businesses and First Nations, typically seeking to work on other projects (private or public) in the First Nation’s territory. In these arrangements, the business partner provides experience, expertise and financial backing so that the JV can bid on contracts with commercial credibility. The aboriginal partner provides local legitimacy. Together, the JV can provide an attractive supplier for a project in the First Nation’s territory that needs the particular capability provided by the business partner, but also wants to gain social licence.

Having determined what type of relationship is being developed, consider closely whether your proposed business partner can uphold its end of the bargain. Just as a prudent lender performs due diligence on a prospective borrower, a business needs to conduct some due diligence on its prospective First Nation counterparty.

Here are some of the questions you will want to get answered: What is its governance structure?

Are you dealing with an elected government or hereditary system, and which one has true authority to make the commitments you seek to secure from the First Nation? If the government is elected, when is the next election? Can you get an agreement executed before then?

(Remember that these negotiations are rarely swift.)

What is the First Nation’s territorial claim? Does it overlap with other First Nations’ territories (which is likely), and if so, how much and where?

There is a huge difference between a project in the core of a First Nation’s uncontested territory, and one on the periphery, with overlapping territorial claims from other First Nations.

Consider your own capabilities, too. If you are promising to allocate

First Nation companies in British Columbia

1200

1,194

1000 800

630

600 400

302

240

180

200

95

134 50

0 Total number of companies

Companies on reserves

With more than 50% aboriginal employees

Joint Ventures

Development corporation

45 Community Partnership Unknown owned

Private company

Source: First Nations Economic Development / B.C. Database

a certain number of jobs to the First Nation’s members (a common component of both JV structures and impact benefit agreements), are you certain you will have the requisite number of positions available? Are a sufficient number of First Nation members available and interested?

Are you prepared to train them? How long will that take?

Nothing ruins a relationship more swiftly than broken promises. With unemployment levels high in many aboriginal communities, members and their representatives will be very critical if promised jobs do not appear.

Last but certainly not least, consider how the terms of each agreement fit into your overall

business and legal strategy. For a large or linear project, multiple impact benefit agreements are likely. The terms of one agreement may become known to other First Nations, so distinctions in commercial and legal terms offered one First Nation versus another must be defensible. Likewise with JVs, consider whether you intend to form similar partnerships with neighbouring Nations and, if so, be aware of the potential for overlap disputes.

If you ask these questions early on, and get answers before you make commitments, you will be able to establish your partnership on sound legal footing. ■

Roy Millen is a partner with Blake, Cassels & Graydon LLP of Vancouver.

WESTERNINVESTOR

17

FINANCING

Finding the money Sourcing alternative funds for commercial real estate development can be both imperative and challenging

The challenge faced by certain real estate developers is finding alternate sources of funding to fill the gap between traditional equity and traditional debt.

”

18

A

lthough interest rates are at historical lows, there are still places banks are reluctant to go. When it comes to commercial real estate, banks typically require a minimum investment which ranks behind, or subordinate, to the bank. The challenge faced by certain real estate developers is finding alternate sources of funding to fill the gap between traditional equity and traditional debt.

This is the world of alternative real estate financing. There are a host of alternative financing models out there, but two commonly cited options are mezzanine financing and crowdfunding. From a legal standpoint, these are both viable options for injecting additional funding into a commercial real estate project, however it is crucial that the developer have a clear understanding of what is this alternate funding method is and the associated risks.

the project, such as a percentage of revenues, bonus fee payments, or options to convert debt into (or acquire) an equity interest in the project.

Crowdfunding Mezzanine financing Mezzanine financing, also known as “subordinated debt” or “participating debt”, is a financing model which allows an owner to obtain additional funding where it is unable to or does not wish to increase the equity invested in the project, and traditional financing has been maxed out. The mezzanine lender has a higher level of risk than the traditional lender, and this added risk is usually balanced by a higher rate of return payable to the mezzanine lender, though these returns may be deferred or reduced during the initial stage of the project.

Whether or not mezzanine financing is appropriate for a particular investment depends on a number of criteria. Given the added risk, most mezzanine lenders will look for an established business with a solid cash flow. However, in a growing economy, mezzanine lenders may be prepared to accept less certainty in exchange for higher returns based on the success of

WESTERNINVESTOR

Crowdfunding actually been around for many years. However, it has come into its own in the age of social media as a means of funding everything from the latest inventions and video games to real estate developments.

With the introduction of the Start-Up Crowdfunding Exemption in 2015, the BC Securities Commission recognized crowdfunding as an alternative source of investment capital for certain types of businesses. Within the scope of this exemption, start-up companies are able to raise small amounts of private funds without being required to file a prospectus. While there are a number of rules and regulations which must be complied with and limitations on the amount which

can be raised (currently a maximum of $250,000 twice per calendar year), crowdfunding is an alternate way which a potential commercial real estate developer may be able to obtain the necessary funds to satisfy the equity and junior debt requirements of the traditional lender.

To date, public response to crowdfunded commercial real estate offerings in Canada has been less than enthusiastic. This may be a function of the fact that traditional debt is available at historically low rates, and other sources of raising capital are also readily available. On the other hand, crowdfunded real estate investment is still relatively new in Canada. As the process becomes more widely known, response to these types of offerings may increase.

As always, having an experienced legal advisor who can assist in assessing the various options and providing advice on how to best structure the project is invaluable. ■

Peter J. Anderson is a shareholder at Boughton Law, Vancouver and has a solicitor’s practice focused on commercial real estate and real estate related transactions with primary emphasis on commercial lease negotiating and drafting.

With more than 30 years of experience, he also deals with other commercial real estate transactions, including sales and acquisitions, property development and financing matters. See www.boughtonlaw.com

NORTHEAST BC

Ron Rodgers has been involved within the real estate industry in north east British Columbia for over 30 years

Realty Ltd.

Ron focuses his resources and time to the commercial real estate industry

Investing Our Energy In The North

He created the offices of Northeast BC Realty to be the only brokerage in the area to focus on commercial real estate From sales and leasing to development and investing, Ron has assisted in a wide variety of commercial transactions over the years and is proud to have received the 2011 thru 2016 MLS® Top Commercial Realtor® as awarded by the Commercial Council of the BC Northern Real Estate Board

250 785 4115 10220 101 Avenue Fort St John BC V1J 2B5

(based on the highest dollar value and/or total number of units for commercial transactions sold in BCNREB area)

www.NEBCRealty.com

Ron has been a long standing member of the Canadian Commercial Council of Realtors and member of the BC Northern Real Estate Board and BC Northern Commercial Council Ron has Chaired the BC Northern Commercial Council since 2013 and been a strong advocate for specialized commercial real estate practices in the industry

RON RODGERS

Theresa Mucci-Rodgers ASCT, ASTTBC / OWNER In addition to being Ron’s wife, business partner and co-owner of NEBC, Theresa is also a Civil Engineering Technologist; a unique designation that provides her the ability to work effectively with property owners, buyers, regional districts and municipalities. Theresa provides services & knowledge regarding the technical and development aspect when it comes to municipal issues associated with many commercial properties. This allows Ron to offer his clients the benefit of understanding up front, the scope of work and potential concerns involved with some commercial properties prior to and after entering into the purchase or sale of a property...and when Theresa is not in the office, the golf course beckons!

OWNER MANAGING BROKER Email: ron@northeastbc.com

Specializing In COMMERCIAL REAL ESTATE

NORTHEAST BC REALTY www.NEBCRealty.com

ATTENTION: COMMERCIAL MORTGAGE BROKERS

About Us: Loans from $1 - $10 Million Quick Approval Process Over $135,000,000 Funded Western Canadian Based

Call us at 1-855-855-5085 Areas Serviced: Manitoba, Saskatchewan, Alberta & B.C.

Loan Types: Condo Inventory Hotel & Motel Construction Multi Family

100 – 6700 76 STREET • RED DEER, AB • T4P 4G6 • TF: 1.855.855.5085 • FAX: 1.403.309.3505 EMAIL: info@cobramortgage.com WEBSITE : www.cobramortgage.com WESTERNINVESTOR

19

FEATURE

BEST

Landlord markets Five of our six picks are in British Columbia, but Winnipeg seen as a star performer on the Prairies in 2017

Victoria, with a growing high-tech sector and steady retiree demand, is among the top six landlord markets in Western Canada for 2017. | CHATEAU VICTORIA

Landlords will find that nearly all of B.C., while expensive, offers perhaps the best potential for income and appreciation.

By FRANK O’BRIEN

T

ake urban British Columbia out of the mix and the potential for landlord investors across Western Canada looks fairly grim, as rental vacancy rates soar to nearrecord levels in Alberta and big-town Saskatchewan.

But Winnipeg is proving a bright light on the Prairie horizon.

Landlords will find that nearly all of B.C., while expensive, offers perhaps the best potential for income and appreciation.

Here are Western Investor’s six picks for the best landlord markets in Western Canada over the next 12 months.

” 20 WESTERNINVESTOR

1. VICTORIA Rental vacancy rate: 0.8 per cent through 2017 Average two-bedroom rental in 2017: $1,200 British Columbia’s capital represents one of the best landlord markets in the province, if not in Canada. The rental vacancy rate is now a tight 0.7 per cent and expected to remain below 1 per cent for the next two years, according to a forecast from Canada Mortgage and Housing Corp.

Rental demand is driven by a trio of tenant pools: students, employees in the high-tech sector and seniors. Net migration for people aged 16 to 25 has added

2. WINNIPEG Rental vacancy rate: 2.8% through 2017 Average two-bedroom rental in 2017: $1,100 Winnipeg’s rental vacancy rate was 2.8 per cent in 2016 – lowest on the Prairies – according to Canada Mortgage and Housing Corp. and is expected to rise only slightly this year. “Strong migration figures have put downward pressure on the vacancy rate,” the corporation noted. In the second quarter of last year, immigration to the city increased by 27 per cent. The province gained a net population of 8,455 people during the first half of 2016.

With capitalization rates in a healthy 5.5 per cent range and the average city apartment building selling for $93,204 per door, Manitoba’s capital offers the best landlord potential on the Prairies, despite a rush of new rental construction this year. One developer is planning Winnipeg’s first micro-suites, pitching 275 square-foot apartments from $950 a month.

18,000 since 2006, representing the largest single cohort of migrants to the capital region. Many of these are university and college students or are working in the city’s burgeoning high technology sector, which now employs 23,000 people.

Layered on that is demand from seniors seeking rentals in Canada’s most popular retirement market.

There is a very active short-term rental market.

The downside is the high cost for rental apartment buildings, currently in the $185,000 per-door range and trending upwards. Also, capitalization rates for multi-family properties are in the 4 per cent range, among the lowest in B.C.

Rising house prices will keep many young people renting in Kelowna.

3. KELOWNA

CITY OF KELOWNA

Rental vacancy rate: 1.5 per cent through 2017 Average two-bedroom rental in 2017: $1,050 With the completion of Kelowna’s Okanagan Centre for Innovation, the Okanagan’s biggest city has emerged as a top centre for what is known as the Tami sector – technology, advertising, media and information, and the hundreds of millennials it employs. There are now 140 Tami firms in Kelowna, driving a forecast of employment growth of 2.2 per cent into 2017.

The rental vacancy, now at 0.5 per cent, is expected to inch up next year but remains among the lowest in Canada.

Rising house prices will keep many young people renting in Kelowna.

Investors can find older rental apartment buildings in the $85,000-$90,000 per-door range with capitalization rates of 6 per cent.

Also, Kelowna’s Rental Housing Grants program provides up to $320,000 in annual grants for purpose-built rental housing projects.

”

4. NEW WESTMINSTER Rental vacancy rate: 1 per cent through 2017 Average two-bedroom rental in 2017: $1,300 With five SkyTrain stations and new rapid transit link into Coquitlam, the Royal City is a hub for rental demand in the geographical heart of Metro Vancouver. It also has a growing economy, fired by a $1 billion expansion of medical facilities and a citywide makeover that has created a new waterfront park and other quality amenities over the past few years. New Westminster has a history of providing rental housing, mostly clustered in the uptown area. Older apartment buildings sell for an average of $153,600 per door, up 10 per cent from 2015, but the lowest price of any Metro municipality north of the Fraser River.

Rental vacancy rate: 0.8 per cent through 2017 Average two-bedroom rental in 2017: $1,460 East Vancouver is a landlord’s heaven, despite the high cost of entry. Soaring prices are keeping many potential condo buyers as renters. Meanwhile, an eastern shift will see a new Emily Carr College, a new hospital and a rapidly expanding tech sector creating higher rental demand. While new rental projects are being built, they are not enough to meet demand in a market with the tightest vacancy rate in Canada.

Even old rental apartments in East Vancouver are selling for north of $250,000 per door, but that is offset by the availability of CMHC-insured mortgages at 2.1 per cent, the cheapest money available. Capitalization rates are in the 2.5 per cent range.

TOURISM VANCOUVER

5. EAST VANCOUVER

6. ABBOTSFORD Rental vacancy rate: 1 per cent through 2017 Average two-bedroom rental in 2017: $895 Abbotsford is the best mid-range rental market in B.C’s Lower Mainland, according to Bob Dhillon, founder and president of Mainstreet Equities Inc. and one of the largest landlords in Western Canada. Canada Mortgage and Housing Corp. forecasts that Abbotsford’s rental market will remain tight because the population of those aged 25 to 44, and above the age of 60 is growing by 2.8 per cent annually. Abbotsford has a strong manufacturing base and industrial employment, balanced by public sector employees, students and downsizing retirees. There is a low inventory of apartment buildings for sale, but older properties often sell for less than $90,000 per door, with capitalization rates in the 5 per cent range. ■ WESTERNINVESTOR

21

RESIDENTIAL MULTI-FAMILY

Financing multi-family Canada Mortgage and Housing Corp. insured mortgages are often the least expensive money available

CMHC will require that the borrower have sufficient net worth and a good credit history.

”

A

partment buildings as an asset class are considered stable and low-risk investments, and most commercial lenders are willing to provide great financing for this type of property. Typically lenders will consider it to be a commercial multi-family property if it is five or more units. Financing can usually be done conventionally or with Canada Mortgage and Housing Corp. (CMHC) insured financing.

Conventional Financing: Lenders will usually do a maximum of 75 per cent loan to value of the appraised value or purchase price, whichever is less. The net income of the property will need to service the loan not just at a 1:1 ratio, but usually for this asset class, at 1.25 times (also known as a debt coverage ratio of 1.25). For example, if the monthly mortgage payment is $5000 per month, lenders will look for the net income of the property to be 5000 x 1.25 = $6,250 to allow an additional amount of safety.

Lenders will want a current commercial appraisal, and an environmental Phase 1. Some lenders also require a building condition report.

CMHC Insured Financing: The main benefit to obtaining CMHC insured financing are the low interest rates that can be locked in for long term financing. Because the loan is insured, there is virtually no risk to the lender, so they are able to offer their absolute best rates.

Indicative rates for a five-year term are currently around 2.53 per cent and around 3.33 per cent for a ten-year term. These float with the Canada Mortgage Bond rate, and fluctuate daily.

Compared to conventional rates, these are usually around a full 1 per cent to 1.5 per cent less. This can make a huge difference in the cash flow of a property, especially when you are looking at larger loan amounts.

The maximum loan that CMHC can provide is 85 per cent loan to 22

WESTERNINVESTOR

value. Note that the value would be determined by underwriting criteria set out by CMHC. This includes additional expenses, such as a caretaker expense, property management (regardless if the property is to be self-managed by the borrower), maintenance and repairs, and appliance reserve. They will also determine what capitalization rate and vacancy rate to use for the area, which will ultimately affect what the overall value is for the property.

For properties of five to six units, the minimum debt coverage (DCR) ratio is 1.10, which is significantly lower than for larger rental properties.

For larger properties, the minimum DCR requirement is 1.30 for a fiveyear term and 1.2 for a ten-year term.

There is an application fee to CMHC of $150 per unit that borrowers have to provide up front in order to have CMHC review the file.

There is also an insurance premium that is charged, that will be based on the loan to value. For example, the premium is 1.75 per cent for loan to

value of 65 per cent and rises to 4.5 per cent for maximum loan to value ratios of 85 per cent.

The amortization would normally be based on 25 years. The application process takes about three to four weeks for CMHC approval (certificate of insurance), and then another couple of weeks to obtain a commitment from a lender.

It should be noted that CMHC will require that the borrower have sufficient net worth and a good credit history. If the borrower is a corporation, a review of audited financial statements may be required.

CMHC does not require a commercial appraisal. The value of the property is derived from the annual rental income of the property called the net operating income (NOI).

Generally speaking, CMHC uses stabilized income (that is rent levels sustained for one full operating year) at the time of insurance application as substantiated by the property rent roll to determine the gross rental income. ■

Michael Lee is an experienced B.C.-based commercial mortgage consultant with Alliance Mortgage. Lee can be reached at 604-565-6370 or via email at mlee@mortgagealliance.com.

The most credible source for commercial real estate news!

GET INFORMED BEFORE YOU INVEST

Exclusive regional content you can’t find anywhere else!

Commercial Property Financing

Get the inside scoop with more real estate news than ever before!

We find you the financing you need.

Mul -Family & Mixed Use (CMHC insured & Conven onal) Strata Retail/Office/Condo & Townhouse Developments Office Buildings | Warehouses | Hotel/Motel R/V & Mobile Home Parks | Land Acquisi on | Servicing Subdivision | Construc on.

We have access to some of the finest and most aggressive lending op ons available. We act as an extension of your team, and put the best commercial financing in place for you.

CALL TODAY

MICHAEL LEE, AMP, B.COMM Commercial Mortgage Broker Tel: 604-565-6370 mlee@macommercialcanada.com

WESTERNINVESTOR.COM

Corp. Office: #310, 130 Brew Street, Port Moody, BC V3H 0E3 An independently owned and operated franchise of the Mortgage Alliance Network

GREG WALTON

GORD HOUWELING PREC*

604.864.1610 greg@bcfarmandranch.com www.bcfarmandranch.com

604.793.8660 gord@farmrealtor.ca www. farmrealtor.ca

We sell acreages just like yours.

35+ YEARS

ACREAGE

FULL MLS

EXPERIENCE

SPECIALISTS

EXPOSURE

Hmall house and acreages, hobby farms to commercial farms" we are your acreage specialists.

Using our proven marketing strategy, full MLS exposure and unmatched industry contacts, we offer a competitive edge when selling your property. Greg and Gord have farming backgrounds and offer 35+ years of experience of acreage sales with effective marketing and negotiating skills.

Call Greg or Gord today to take advantage of today’s current market!

WESTERNINVESTOR

23

RESIDENTIAL MULTI-FAMILY

Strata assembly Selling the entire building for development: some sites, decades old, are worth more in redevelopment value than as individual units

Time will tell what parameters the BC Supreme Court will establish to determine the best interests of the owners as a whole.

”

C

hanges to BC’s Strata Property Act allow for strata owners to dissolve their strata corporation on an 80 per cent vote for voluntary windup, which has spurred developer interest in older strata properties for redevelopment purposes.

Prior to the July 29, 2016 change in the statute, the requirement was unanimous approval, which was difficult to meet – one holdout vote was all it took to defeat the wishes of a significant majority.

The new provisions bring B.C. into line with most other provincial condominium statutes.

In anticipation of the new changes, developers have been busy identifying feasible sites and likely candidate strata corporation owners willing to consider wind-up and sale for redevelopment. And strata councils/owner groups have been consulting with their advisors to sort out the navigation processes required for such wind-ups and sales.

Some sites, decades old, are worth more in redevelopment value than non wind-up, as-is value.

Some buildings are not built to full allowable or potentially allowable density, or are close to newer rapid transit lines. Other buildings have such high deferred maintenance and repair costs that sale to a developer could yield owners greater returns, while also relieving them from having to pay for significant repair costs to the building, and from the mess and stress of carrying out the repairs.

Complex process However, the termination and sale process, for both developer buyers and owner sellers, can be complex and lengthy. There are requirements for the winding-up, mandatory where five or more strata lots are on the strata plan, including court order approval, procedural rules for obtaining approval, and notice requirements.

24 WESTERNINVESTOR

The court approval requirement gives those opposed to termination and sale the opportunity to try to convince the court there is significant unfairness to one or more owners or holders of charges, or significant confusion and uncertainty in the affairs of the strata corporation or of the owners.

This is new law for B.C. and as such, time will tell what parameters the BC Supreme Court will establish to determine the best interests of the owners as a whole, and what factors it would consider in its determination of whether or not there has been significant unfairness or confusion to deny approval.

Fairness A good approach, for both the developer and the majority owners who wish to sell to a developer, is to ensure there are terms benefitting the sellers which show fairness to all owners. As an example, provision for a long turnover possession date where

the sellers can live rent free for 12 to 18 months after closing would show the sellers are being given time post closing to find alternate housing.

Some developers have considered entering into contracts with sufficient numbers of owners to enable the developers to effect the 80 per cent vote for wind-up only after it completes the purchase with those owners.

In such instances the obtaining of a court order approving the voluntary wind-up and sale by all owners would not be a condition of its purchase.

Buyers should understand there could be considerable delays and holding costs to factor in if they opt to go this route, as getting court approval is not guaranteed. Also, if a court does not order a wind-up on an application, a developer buyer may be left, for the short to mid-term, with an 80 per cent or more ownership of a property requiring costly repairs.

Working with legal advisors in advance and during this new process is suggested, for developers and owner sellers alike. Q

Carol Lee is a Shareholder at Boughton Law. She has over 25 years’ experience advising on real estate and corporate commercial law, acting for clients in real estate acquisitions and sales, transaction financing for lenders and borrowers, real estate management, and commercial lease negotiations and preparation.

RESIDENTIAL MULTI-FAMILY

Multi-family cap rates Capitalization rates reflect a complex formula based on product availability, quality, and investor demand

Cap rates vary greatly from market to market, for new versus old buildings, by quality level, and fluctuate over time based on economic conditions.

”

C

apitalization rates, or cap rates, are a way of estimating the general rate of return of an apartment building by buyers or sellers.

The cap rate for an apartment transaction is calculated by dividing a building’s net operating income or NOI into the total value of the transaction or sale.

This is the calculation made by brokers and industry observers for each transaction and these people often provide their clients with a summary of typical cap rates by product type, or publish cap rate ranges in quarterly reports and newsletters.

For example, a major Canadian real estate firm recently released its fourth quarter cap rate summary report that lists cap rate ranges for A- and B- grade apartments in Canada’s major cities.

These cap rate ranges stretch from a low of 3.25 per cent (in Toronto and Vancouver) to a high of 5.5 per cent (in London and Windsor) for A-grade apartments, and from 4.25 per cent (in Toronto and Vancouver) up to 6.25 per cent (in London and Windsor) for B-grade apartments.

Although it is tempting for building owners to take these cap rates and apply them to their own buildings, in reality cap rates and cap rate spreads are very complex and need to be understood within the context of product availability, quality, and investor demand.

Apartment building owners want to know the value of their buildings to help them decide if it is time to sell, especially in market conditions in which demand for investment properties exceeds the supply of listings.

An unsophisticated seller may take their NOI and divide it by an expected (or hopeful) cap rate, arriving at a potential total value.

What most owners don’t realize is this approach is unreliable because the cap rates they use are often not the right ones; using an industry average cap rate, or worse, another transaction’s cap rate, can yield the wrong value and expectations, often to

the detriment of the potential seller.

Cap rates vary greatly from market to market, for new versus old buildings, by quality level, and fluctuate over time based on economic conditions (ex: a flood of foreign investors to the stable Canadian market).

Therefore, it is unwise to assume because an apartment building sold at a 5 per cent cap rate in Vancouver, that a similar building would also sell at a 5 per cent cap rate in Victoria or Ottawa, for example.

Cap rates vary based on the following factors: (1) product availability, (2) product quality, and (3) interest by foreign investors.

Of these factors, the impact of the first two should be self-evident to anyone in the apartment industry and can be quickly explained by saying an apartment building in a secondary city will have a different cap rate than a similar building in Vancouver, and an A-grade building will have a different cap rate than a B-grade building.

A third factor — interest by foreign

investors — requires some explanation.

We have observed an interesting trend: currently, large numbers of foreign investors are paying high prices to obtain apartment buildings in Canada, prices above and beyond what we would have expected a building to attract under normal circumstances.

Building owners, brokers, and industry observers should not interpret the low cap rates paid by these investors as a reflection of apartment building values in the broader market, or an indication of expected cap rates for other transactions.

So, what can building owners do to make sure they’re using the right cap rates and valuing their buildings accurately?

It is important the broker whom apartment building owners hire to sell their buildings not only knows selling, but also knows the subtleties of the market and, more importantly, its active buyers, and can translate this knowledge into the right sales package and presentation. Q

Derek Lobo is the founder and CEO of SVN Rock Advisors Inc., Brokerage and Derek A. Lobo & Associates (DALA). For over a quarter century, Lobo has served Canada’s commercial real estate industry, bringing consulting and brokerage services to developers, owners, and investors in the rental apartment sector.

Lobo can be reached at 905-331-5700 WESTERNINVESTOR

25

INDUSTRIAL

Hot property Industrial real estate makes up in demand what it lacks in glamour. Here’s how to invest - and why

Expanding your portfolio to include industrial will likely offer the financial benefits you’re looking for

”

26

T

ypically outshined by trendier commercial asset classes, investing in the industrial real estate sector often takes a backseat to more highprofile addresses and innovative architectural design projects. Located in discrete areas of the city that garners little public attention, to the average investor, property types like warehouses and manufacturing tends to fall off the radar.

However, what it may lack in glamour, it makes up for in demand.

In regions like Metro Vancouver, Calgary, and Edmonton, vacancy rates are far lower than any other commercial asset. In Metro Vancouver, the industrial vacancy is currently 2.2 per cent, according to a recent Q1 2017 Industrial Market Statistics report by CBRE. In Calgary and Edmonton, vacancies are approximately 9 per cent; a significant difference compared to 25 per cent vacancy rates in downtown offices.

From real estate investment trusts (REITs) to private business owners, the historically low interest rates have made the industrial sector more accessible and attractive than ever before. Beth Berry, director of industrial development at Beedie Development Group, said private investors and pension funds are all looking to increase the amount of industrial in their portfolios, particularly in key markets like Metro Vancouver, Calgary, Edmonton, Toronto, and Montreal.

“There is a huge appetite for industrial income producing product, which has been increasing over the past few years. The key drivers for investors are tenants with good covenants in long-term leases or rental upside potential in markets with low vacancy. It goes without saying the biggest demand is for Class A, high ceiling distribution space or newer multi-tenant facilities. With these in short supply, there is also a lot of demand for older multi-tenant buildings with low vacancy.”

Like any investment, there are always a number of factors to consider before you sign the dotted line.

From surrounding infrastructure to location, look for key demands that

WESTERNINVESTOR

are currently driving the market.

Ceiling heights: Depending on the type of tenant you want to attract, ceiling heights are always an important consideration. In general, 26’ ceilings are often sufficient for companies that need less than 50,000 square feet. However, larger users typically require 32’ to even 40’. Retailers who are doing their own distribution typically fall into this category, as do third party logistics companies, who require flexibility with their storage as contracts are won and lost.

Chris MacCauley, Senior Vice President at CBRE Limited, is seeing even greater demand.

“Automation groups are now looking at 40’ to 60’ ceiling heights.

However, the issue in some industrial areas will be the poor soil conditions that will prohibit these heights or higher, or require substantial expense that may make the building not financially feasible.”

Strata: In Western Canada, the industrial real estate industry is made up of two types of markets: those that are owned (called strata in B.C.) and those that are not. While some feel strata limits tenants, others

believe it helps create a more stable market.

“A typical profile of a strata purchaser is a local owner occupier or investor, as national companies or foreign investors to date have not been active in the strata market. The bulk of strata buyers are purchasing unit sizes under 5,000 square feet, and very few over 15,000 square feet,” said MacCauley.

“Strata also gives an investor the opportunity to own industrial real estate at a value that may be more palatable,” Berry said.

As tenant turnover remains low, investing in industrial real estate is a safe bet for longevity and return.

And while it’s clear that demand for industrial properties continues to rise, so too does the competition. In hot markets, it’s said that for every one property, there are five buyers, and more than 50 per cent of the Metro Vancouver industrial properties that are coming onto the market are already spoken for.

Expanding your portfolio to include industrial will likely offer the financial benefits you’re looking for -- whether or not you can secure a property is another story. ■

Jarvis Rouillard, is president of NAIOP (National Association of Industrial and Office Properties), Vancouver, and vice -president at PCI Developments Corp. www.naiopvcr.com

FEATURE

SEXY

INDUSTRIAL Once boring, industrial space is now the rage of alt-real estate demand

By FRANK O’BRIEN

Chard Development merges sophisticated light industrial space with offices in a 50,000-square-foot project in Vancouver’s Mount Pleasant neighbourhood. Such “stacked strata” projects are an emerging trend in the suddenly sexy industrial sector. | CHARD DEVELOPMENT

FEATURE

An increasing amount of new industrial is not being leased but sold to owneroccupiers and investors.

”

M

ovie and TV producers have seized 28.9 per cent of all the industrial space leased in Metro Vancouver in the past year, often outbidding traditional tenants to becoming the dominant player in a tight market.

One of the biggest industrial deals of 2016 in Alberta involved Aurora Cannabis Inc. building a marijuana grow-op the size of nine football fields at Edmonton International Airport in Leduc.

And, in Vancouver, Calgary and Saskatoon, industrial users are as likely to be a video game maker or architectural design studio, as the entire definition of industrial users adopts a lighter and broader definition.

As well, an increasing amount of new industrial is not being leased but sold to owner-occupiers and investors.

Suddenly, industrial is sexy.

LIGHTS, CAMERA, ACTION The unprecedented demand from the billion-dollar B.C. film industry, which has leased 1.5 million square feet in Metro Vancouver since mid2015, has helped to drive the Metro industrial vacancy rate to a Canadalow of 1.5 per cent, according to Sean Bagan, an industrial specialist with Colliers International in Vancouver.

“They have completely changed our industry,” Bagan said, due to film producers’ demand for short leases and a willingness to pay above-

market rates, which “had previously never happened.”

Industrial tenants traditionally sign three-, five- or 10-year lease agreements, but film shoots only need studio space for about six months, Bagan explained. As a result, TV and film companies are paying full lease rates, and up to $1 per square foot above that, and even signing two-year agreements to secure the space.

The film producers are scrambling for high ceiling heights in no-column open warehouses of at least 40,000 square feet with enough bay space to turn big trucks, exactly the type of modern buildings sought by the next biggest industrial tenants: retail/ wholesale distributors and logistics/ transport companies.

But Bagan doubts industrial developers, even those known for speculative plays, would purpose-build for the film industry.

Landlords would not want to deal with continual rollovers and there is skepticism that the B.C. film industry will remain as active, even by next year, Bagan noted.

POT LUCK There is a similar caution with marijuana growers, despite a federal government pledge to make pot legal by July 1, 2018, and the industrial demand potential.

The 800,000-square-foot Aurora Sky production plant – capable of growing 100,000 kilograms of

cannabis annually at full capacity – is being built on 30 acres leased from the Edmonton Regional Airports Authority in Leduc, an industrial zone that has seen a fifth of its industrial real estate space go dark since oil prices fell 60 per cent in 2014. Aurora, a licensed producer of medical cannabis, already operates a 55,200-square-foot production plant in Alberta’s Mountain View County.

Legalization could create a $10 billion industry in Canada, according to a CIBC World Markets study. As shown in Leduc, a big winner could be the industrial real estate sector, according to a CBRE survey of what happened in Colorado, which legalized pot in 2014.

Marijuana producers have accounted for 35.8 per cent of all the industrial space leased in Denver since 2009 and the marijuana industry is credited with driving Denver’s industrial vacancy rate down from 6 per cent in 2009 to 0.3 per cent in 2015.

“Marijuana industry buyers paid up to four times the market value for retrofitted warehouse space to avoid delays in harvesting,” the 2015 CBRE report noted.

But Terry Thies, an industrial specialist with Avison Young in Vancouver said owners of obsolete industrial property are unlikely to wait for marijuana legalization. “They are more likely to tear an old building down and redevelop it is as strata [for sale] industrial,” he said.

Industrial space is being sold, not leased for “light industrial” such as in this new mixed-use Vancouver project by Conwest Group, where high-ceiling ground level industrial has office space above. | CONWEST 28

WESTERNINVESTOR

Marijuana grower Aurora Cannabis leased 30 acres for 800,000 square feet of user-built industrial space in Leduc: one of the biggest Alberta industrial deals of 2016. | AURORA CANNABIS INC.

YUPPIE INDUSTRIAL The sale of industrial space, often referred to as “yuppie industrial” is indeed attracting both developers and investors who sell or buy and lease the property to low-impact occupiers, often from the high-tech industry.

When Conwest Group broke ground on the 200,000-square foot mixed-use Ironworks project, half of the 48,000-square-feet of industrial space had already sold at from $330 per square foot.

The site, just north of East

Hastings Street, falls under a 2009 spot zoning initiative of the City of Vancouver that bonuses higher density for job-generating projects in East Vancouver.

PC Urban, which is developing light industrial buildings in Vancouver and Calgary, presold 167,000 square feet of new industrial strata space before they even started construction on its Marine Drive site in Vancouver.

Wall Financial is building Vancouver’s first mixed-use industrial and residential complex, Strathcona Village, on East Hastings

Street, which includes 54,000 square feet of light industrial and 283 residential condos. All the residential condos pre-sold before the project even broke ground.

The industrial strata space is priced from $450 to $700 per square foot.

Investors are taking note.

“When you can sell four concrete walls and a totally empty space for $500-$700 per square foot, it can make residential condos appear much more complicated,” noted real estate consultant Ozzie Jurock in a recent Insider newsletter. ■

When you can sell four concrete walls and a totally empty space for $500$700 per square foot, it can make residential condos appear much more complicated.

”

INDUSTRIAL DEMAND SHIFT Total square feet leased by industry type – Metro Vancouver Film .................................................................................... 28.92% Logistics/transport ................................................. 21.13% Distribution and storage ............................................. 17% Retail ................................................................................ 11.57% Manufacturing and construction .................... 10.44% Food/beverage .............................................................. 6.41% Ceramics and stone .....................................................3.48% Electronics ....................................................................... 1.06%

Source: Colliers International Industrial Review, Metro Vancouver 2016

WESTERNINVESTOR

29

RETAIL MARKET

Investing in retail For smaller investors, the neighbourhood strip centre is the safest route: the returns are generally good and the risks are low

Community malls are losing significant ground in the retail landscape and are struggling to keep up.

T

”

REGIONAL MALL: At the top of the pyramid is the regional retail mall, often sprawling in size. Think of major landmarks, like the Toronto Eaton Centre or West Edmonton Mall.

These are tourist attractions in themselves that have high value and often operate as a large entity or corporation.

While Canada has some of the most commercially successful malls in the global market, growth in this area has been curtailed by land development limitations. Since 1989, only three major shopping malls have been built in Canada: Vaughan Mills in Toronto, CrossIron Mills in Calgary and Tsawwassen Mills near Vancouver, which opened in 2016.

oo often you hear a phrase that is commonly used and you have a rough idea what it means without fully grasping its proper definition. For many, commercial real estate may be one that is widely talked about but not always understood.

In fact, it is an umbrella term that covers many categories of real estate. So let’s move away from the headlines and look at how commercial retail real estate can be part of your investment strategy.

To do this, we will break retail down to four different categories.

POWER CENTRES: Power centres have taken hold in the Canadian market since the late 1980s in the form of unenclosed stand-alone “big box” stores such as Staples and Walmart. Despite economic challenges, tenancy increased from 8,627 in 2006 to 12,086 in 2010 – a rise of just over 40 per cent.

Today, we’re noticing a tremendous upsurge in power centres. The number of locations in Ontario have nearly doubled and across the country we are seeing a widening of the services available (from banking to fashion).

COMMUNITY MALLS: Unlike regional malls, community malls are losing significant ground in the retail 30 WESTERNINVESTOR

Five most profitable shopping malls in Canada Mall

Location

Sales per square foot

Yorkdale Shopping Centre

Toronto

$1,650

Oakridge Shopping Centre

Vancouver

$1,537

Pacific Centre Mall

Vancouver

$1,523

Toronto Eaton Centre

Toronto

$1,488

Southgate Shopping Centre

Edmonton

$1,155

Source: Retail Council of Canada, Canada Shopping Centre December 2016

landscape and are struggling to keep up.

Analysts still believe there is a market for Tier 2 malls if there is a commitment to redesign or if the property is being sold for other purposes.

NEIGHBOURHOOD RETAIL: Small retail areas anchored in wellestablished residential areas and mature communities make up what is known as neighbourhood retail, or strip malls. Here, you often find local food stores, coffee shops and hair salons. And that’s exactly why this type of retail tends to perform better than others in the long term – it’s based on services and products

consumers will still purchase even when there is economic downturn.

For family trusts and other investors, neighbourhood retail is an effective way to diversify an investment portfolio. The returns are good and the risks are relatively low.

Last year, the national vacancy rate was about 4.8 per cent. In comparison, neighbourhood retail areas were averaging about 2.6 per cent vacancy rates.

Similarly, overall sales tend to stay steady during economic bumps, catering to the local neighbourhood needs. The more mature the neighbourhood, the more likely there will be low vacancy rates and increasing growth. ■

Richard Crenian is the founder and president of ReDev Properties. Since its founding in 2001, Richard and ReDev Properties have grown the asset management company using a long-term approach to manage over 25 commercial properties, primarily located in Western Canada. To learn more visit www.richardcrenian.ca

OFFICE INVESTMENTS

Office space investing Location and timing crucial when investing in the office space sector across Western Canada

Modern tenants present a spectacular opportunity for landlords of nontraditional office space.

”

C

apitalization rates and investment activity in Western Canada’s three major markets, Vancouver, Calgary and Edmonton, experienced disparate trends between 2010 and 2016, largely influenced by economic events and shifting investor demand.

Class A cap rates for the Alberta markets ran in tandem over the past six-year period, holding an average of +42 basis points difference (Edmonton versus Calgary), with Calgary maintaining a lower yield throughout the entire period. The Class B market for the two cities experienced more ebb and flow during this time period, with Calgary eventually flattening between 2014 and 2016, while Edmonton continued to rise.

The Vancouver Class A office asset, on the other hand, massively outperformed the two Alberta cities, maintaining a lower yield through the same six-year period. Interestingly, Vancouver’s highest point in Q1 2010 at a 6 per cent capitalization rate, still outperformed the Edmonton Class A market over the six years.

Vancouver’s Class B market also eventually started to outperform the Calgary and Edmonton Class A markets from Q2 2014 to Q4 2016, averaging at a 4.94 per cent capitalization rate, versus 5.97 per cent and 6.41 per cent, respectively.

For the Class B market, the average cap rates were 5.52 per cent, 7.01 per cent and 7.19 per cent, respectively.

Investor appetite to purchase office buildings in Vancouver remains apparent despite the decline in capitalization rates. This demand is largely due to the city’s occupier diversity and market stability. Investors see Vancouver as economically diverse and a magnet for local and international talent, driving companies to continue to invest in this city.

Class B & C markets: Modern tenants, particularly those in the technology sector, present a spectacular opportunity for landlords

$2.5 B $2 B $1.5 B $1 B $500 M $-

2010

2011

Metro Vancouver

2012

2013

Greater Calgary

2014

2015

2016

Greater Edmonton

The office sales volume across Vancouver, Calgary and Edmonton was nearly $14 billion between 2010 and 2016, with an average annual volume of $2 billion. | COLLIERS INTERNATIONAL of non-traditional office space outside the downtown core, as these companies primarily look for “non-corporate” or “edgy” spaces as a means to attract and retain talent. Older buildings typically offer the ability to build out the “creative spaces” that these organizations prefer. These buildings can accommodate cosmetic updates, such as brick-and-beam or art murals, or design adjustments, such as the switch to an open-plan concept or the addition of entertainment areas.

Non-traditional spaces also offer technology firms the opportunity to be located amidst like-minded companies, which facilitates knowledge sharing and commerce.

That said, access to amenities, transit (and other travel options) and the urban core is crucial for these firms to even consider moving into an older building. An efficient commute and immediate access to entertainment and social venues are must-haves for these organizations’ employees.

Alternatively, as urban centres struggle with affordability, “tech hubs” or satellite offices in suburban

markets could be a feasible option for the investor. Employees living outside of the city centre express challenges with commuting and achieving work-life balance. Landlords of non-traditional office space outside the city core could thus seize the opportunity and reposition their assets to attract these tenants. This doesn’t signal the revival of the suburban office park; rather, it points to the redevelopment or resurgence of space in suburban cores offering amenities and multi-modal access.

By the same token, technology firms that have a strong position downtown and face challenges with attracting and retaining talent due to the high cost of living could look to partner with local developers to construct residential projects on, or near, their site. The new Telus project in Vancouver (and soon in Calgary) is an example.

Telus partnered with Westbank to construct a new office building and neighbouring residential towers to provide housing options to support the attraction and retention of employees. ■

Curtis Scott is manager of marketing intelligence, Western Canada, for Colliers International. Covering the western commercial real estate market, Scott brings nearly 10 years’ experience in real estate and holds a degree in Urban Planning from the University of Concordia. www.colliers.com WESTERNINVESTOR

31

LEASING

Office lease negotiations Landlords arm themselves with all the tools they need to succeed – so why wouldn’t a tenant do the same?

Flexibility is arguably the most important factor when considering a long term lease commitment.

”

32

O

ffice buildings in major Canadian cities are usually owned or managed by large sophisticated private entities or institutional groups such as real estate investment trusts, insurance companies, or pension funds.

During a lease transaction, the landlord’s goal is always to maximize shareholder return.

To do this, a prudent landlord will arm himself with the tools required by way of expert representation and extensive market research.

The obvious question – if a professional landlord is taking these necessary steps, why wouldn’t a tenant do the same?

And, first, it is not all about location and size. But it should be about having a tenant representative to support you.

With the amount of information offered online through a multitude of websites, it is fairly easy to prepare a list of potential locations.

But exploring the market with the sole parameters being size and location rarely renders the optimum locations. Two of the most common considerations which are often overlooked are ownership structure and the building’s tenant profile.

The modern landlord community consists of many different ownership types. What type of ownership is the right fit for you, the tenant? Let’s explore a hypothetical scenario: you identify an opportunity in an office building, owned by a local investor with few commercial holdings.

Although this particular landlord is one of the most diligent and reasonable landlords in the market, it doesn’t necessarily mean that he will be the best fit for you.

In order to make these premises work for your organization, extensive improvements and customizations must be made within the interior of the space at a considerable cost. It is often the case that this type of landlord will be reluctant to contribute financially to a tenant’s specific build out, as opposed to

WESTERNINVESTOR

a larger or institutional landlord. It is not necessarily the case of the landlord being unreasonable – they simply may not have the access to capital. Should you wish to have a significant portion of your office improvements financed by a tenant improvement allowance, you may need to focus on an alternative building where the overall deal structure will be a better fit for your specific situation.

Flexibility is arguably the most important factor when considering a long term lease commitment.

Growth and contraction plans are typically at the forefront of most progressive organizations’ business planning. At face value, one would think that the larger the building or complex, the greater level of scalability which offers the required flexibility. But often, it soon becomes clear that this is not the case.

The tenant profile within a building will dictate the flexibility of an incoming tenant’s tenancy.

Many assume that a large building

will automatically accommodate expansion plans due to the size and many moving parts. Often overlooked are the many prenegotiated “rights” that are likely scattered throughout the building by a number of existing tenants.

These rights can dramatically change the landscape of the perceived future flexibility for the incoming tenant. You may have the ability to negotiate terms on future expansion plans but, more importantly, where in the lineup are you? In essence, comprehensive due diligence on the existing rights of all tenants within a building is essential, but often overlooked. Whether overlooked or not fully understood, the effects can be severe.

Looking at the tenant representation service on the surface, it is a three-step process in the order of strategy development, site identification and lease negotiations. A comprehensive service requires detailed analysis of each of these steps. ■

Ronan Pigott is vice-president, office leasing, with Avison Young, Vancouver.

Phone 604-757-4959. www.avisonyoung.com

Managing over 6 million square feet of office, retail, industrial, residential, and strata properties for investor clients throughout BC.

Property Management Leasing Asset Management

Give us a call at 604-602-1887

www.warringtonpci.com

BUSINESS BROKERAGE

Selling a business

WITH REAL ESTATE

The opportunity for selling a business and property together will be both a financial and strategic consideration An option may be to sell the property and agree on a lease-back to operate on those premises with the buyer.

”

S

elling your business can be a successful, organized process or it can be stressful and out of control, with money left on the table. Compound that with the sale of land and buildings and you have even more to consider.

Only you know when it is time to sell. But are you ready to commit to planning 1-2 years in advance so as to best position your business for sale?

Empowered business owners will seek the advice of a qualified business broker or advisor to define a business exit plan.

When done well, this plan will be dynamic should sale timing coincide with an economic downturn, health issues or some other issue.

Typically, the initial exercise is to normalize the financials and adjust for discretionary and non-operational expenses, thereby defining the true earnings capacity of the business.

Factors such as industry experience, current market conditions, future growth, etc. will also be considered.

In general, potential buyers will want a sound and accurate presentation of your financial picture, including: ■ Business earnings ■ Company assets ■ Present value of future earnings ■ Discretionary cash flow ■ Employ required management ■ Debt service capacity ■ Return on invested capital ■ Growth potential

Real estate Should you sell the real property at the same time as selling the business? Fundamentally, operating a business is far more complex than real property.

Licensed business brokers or other professionals might assess property value using the following parameters: ■ Convert current earnings directly into expression of market value (Cap rate) ■ Review of comparable market data ■ Apply market value rent to the business valuation to normalize operating performance.

34 WESTERNINVESTOR

The opportunity for selling the business and property together will be both a financial and strategic consideration.

Here are some considerations: In some cases, real estate is an intrinsic part of enterprise performance and valuation; for example, motels, care facilities, nurseries, etc. Certain enterprises also may have structural, market proximity and other attributes that make the real property sale strategically significant. These value drivers should be identified in the business valuation and reflected in fair market property appraisals.

A buyer (more often than not) will seek to acquire both entities and benefit from additional financing options.

Retiring business owners may also not want the task of managing an investment property, including dealing with tenants and maintenance.

A plausible scenario may exist where market demand for real estate is booming while the demand for the business is weak. To extract cash from your holdings, an option may

be to sell the property and agree on a lease-back to operate on those premises with the buyer. The focus should then be to enhance business value for sale at a later date.

Another alternative is to sell your business, negotiate a market-base lease with the buyer and collect income while holding the property.

This will reduce the amount of capital required by a purchaser and potentially create a wider market for the business. The owner can then sell the building with the market rent lease in place and the buyer does not have to be someone who wants to run or own the business. This results in a potentially larger group of purchasers and the building sells for a higher price than could have been realized if sold with the business.

While selling a business and real property is done often, it is often done incorrectly. Ideally, the goal is to sell the business before selling the real estate or, if it’s listed in combination, at the same time. ■

Arthur Klein is an merger and acquisitions advisor with Vancouver-based Pacific M&A and Business Brokers Ltd. He can be reached at 778-329-9558, or through www.pmabb.com

Weâ&#x20AC;&#x2122;ve put the roots down.

Now we need you to help us

GROW. NANAIMO

KELOWNA

LANGLEY VICTORIA Retail

Hotels

Office

Land & Development

Investment

Business Advisory

Multi-Family

Tenant Solutions

Industrial

Landlord Services

Time for a change of scenery?

Call 604-683-7535 today.

VANCOUVER Strategic Foreign Investment Advisory

Accounting & Financial Statements

Property Management

Records & Lease Management

Tenant Negotiation Commercial, Residential & Strata Services

Emergency Services

1075 W Georgia St, Suite 1300, Vancouver, BC V6E 3C9 +1 604 683 7535 | naicommercial.ca

“Top Investment Town in Alberta” Western Investor, 2016

• Steady residential and commercial growth.

• 617 acres designated for non-residential development.

• Highly skilled workforce with 67% of population (age 25+) having post-secondary education.

• Average household income of over $136K annually.

Learn more about St. Albert and why investing here is a smart choice at cultivatebusiness.ca.

cultivatebusiness.ca