Multiple-family dwellings are being targeted as long-term, cash-flow vehicles
Volatile stock markets and minuscule returns from fixed income have investors looking at global real estate. But rather than single-family residential property, the hot ticket these days is multiple-family dwellings.
At a luncheon for financial analysts with the Edmonton CFA Society, Eric Bonnor, senior vice-president with Brookfield Asset Management in Toronto, quoted from the publication Emerging Trends in Real Estate 2012, a survey of 950 realestate executives by the accounting firm PricewaterhouseCoopers and the Urban Land Institute.
"Canadian real estate remains the most stable in North America," Bonner said. "Canadian investors fed up with disappointing stocks and lowyielding bonds sit on lots of funds, looking for long-term, cash-flowing assets like real estate, and are having trouble placing the funds that they have."
The booklet lists Toronto and Vancouver as the most attractive realestate markets in Canada, being 24-hour destination points for businessmen and other visitors. Calgary is rated third and Edmonton fourth.
But there are problems with residential real estate in North America. The S&P Case-Shiller index shows house prices in 20 American cities are down 3.8 per cent in the 12 months ending Aug. 31, and have fallen 31 per cent since their 2006 peak. With three or four years of unsold inventory in the country, there are no signs of immediate reversal in prices. In Canada, there are concerns a housing bubble in certain parts of the country could cause homes in those areas to fall 20 per cent in value.
To avoid the risk of buying additional residential homes, people are looking at investing in commercial and industrial properties. Analysts say multiple-family dwellings have become treasures, filled by people leaving their homes because they can't keep up mortgage payments, plus those unable to afford buying a house in the first place.
Seamus Foran, a senior vice-president with Brookfield Asset Management, said the U.S. real-estate market has $180 billion US of known distressed assets, and that "the shining star for U.S. real estate today has been the multi-family market."
He noted that in most U.S. apartment buildings, the turnover ratio of tenants on a year to year basis is at least 50 per cent, considerably higher than in Canada.
"And the multi-family market really benefits from short-term leases, because it gives the owners opportunities to bring rents up, each time those leases fold," Foran said.
As for Canada, Emerging Trends says the multi-family sector "will stay tight as continuing immigrant flows sustain demand in the major cities . . . An increasing number of younger adults delay buying houses; they simply cannot afford them after recent price spikes. Aging demographics also favour more apartment demand; empty nesters and seniors move out of suburban homes into smaller, easier to maintain units with urban conveniences."
BY RAY TURCHANSKY, FOR POSTMEDIA NEWS