Because of its size, the deal is being cited in a motion to Vancouver city council, submitted by Coun. Jean Swanson and calling for “protecting tenants from real estate investment trusts.”
REITS TAKE LONG VIEW OF VANCOUVER’S RENTAL MARKET EVEN AS VACANCIES RISE, RENTS DROP
The COVID pandemic has lowered demand for rental properties and thus what landlords are charging, but investors looking to buy apartment buildings to earn a financial return believe this is temporary, says a B.C. real estate executive.
Lance Coulson, an executive vice-president at commercial broker CBRE, sold 15 rental apartment buildings, nine of them of concrete construction and on the west side, for almost $300 million in late January.
It asks Ottawa to base tax rates for REITs “on the amount of affordable housing they provide or destroy” and for the federal and provincial governments to help facilitate the buying of rental stock by non-profits and co-operatives. Other proposals include tying financing for these deals with clear conditions to prevent rent increases upon tenant turnover.
More real estate investment trusts, which have deep pockets and make investments so they can pay shareholders, are interested in Vancouver and B.C. properties, but it’s hard to predict if other large deals like this are coming, said Coulson.
“Vancouver is not a big market compared to Eastern Canada. In Ontario and Quebec, they’ve got more land, more product and stock, and these portfolio sales are more common,” he said.
He said that apartment buildings, which offer a basic need of shelter, are a “defensive asset class” for institutional investors like REITs that want to offset some of the losses they face with their retail or office properties that have been hard hit by the pandemic. Interest rates are also very low with financing available on multi-family purchases as low as 1.7 per cent, he added.
Investors have confidence that “when students and migration return” after the pandemic, vacancy rates will once again be very tight and rents will increase.
August writes that InterRent REIT looks for markets that are “fragmented in terms of ownership and are not generally the focus of larger REITS” and that it identifies “greater opportunities for rent increases” in these markets.
That would be a dim outlook for tenants in those buildings with prime locations who, even with housing costs dampened by the pandemic, face significant affordability issues in an expensive market. Critics of rising REIT ownership of apartment buildings say rent controls would temper rising costs.
However, said Coulson, many of these existing rental apartment buildings need investment. “If your operating expenses are going up and you can’t grow your rents, you’re getting negative cash flow,” said Coulson. “That money is going to go somewhere else.”
Story by: Vancouver Sun