Upgraded building infrastructure slashes maintenance fees

Empty nesters transitioning to vertical living often make the mistake of moving into older condominium buildings because the units are bigger and, on a dollar per square foot basis, they’re priced competitively.

“People can get 1,500 sq ft not realizing they may be buying into a potential problem now or in the future,” said Sunny Sharma, broker and co-owner of Leading Edge VIP Realty. “We shy away from older buildings, and while they usually have larger units, which tend to be attractive for people transitioning from a house, they’re gravitating to older buildings not realizing a lot of problems will come their way shortly thereafter. They can do their due diligence, and that can help identify upcoming repairs, but what if it’s a major one?”

Maintenance fees rise for reasons ranging from property taxes to a condominium’s location, but older building infrastructure is also a major contributor to escalating costs. Although that problem can be rectified, the price tag is astronomical.

“To upgrade a 200,000 sq ft building, it costs about $1 million,” said Chandra Ramadurai, co-founder of Efficiency Capital. “To save $20,000 a month you may have to invest $1 million up front to optimize the equipment, which most buildings owners don’t want to do.”

There’s no shortage of the capital required for these upgrades, but Ramadurai noted that it is usually allocated toward constructing brand new buildings rather than upgrading boilers.

“Social housing is seriously underfunded as well, so it’s more allocation of capital than availability,” he said. “It’s not that upgrades are inherently risky; the problem with efficiency is you’re saving on something compared to what you did last year, and when you can’t measure something, you don’t know how much you’re making. So baselining is important, but it’s not easy because the baseline mechanism isn’t available.

“Capacity is also a problem—most managers struggle to keep up with their day-to-day activities, so targeting reductions doesn’t happen much because they’re trying to keep their heads above water.”

The way Ramadurai sees it, closing the fissure between capacity and technological availability is the missing piece of the puzzle. However, that was before the COVID-19 pandemic upended the world and redirected reserve funds towards unplanned costs.

Efficiency Capital replaces outdated building infrastructure for a lower upfront cost, subsequently receiving monthly instalment payments while retaining ownership of, and operating responsibilities for, the technology. In replacing the technology, for which Efficiency Capital provides building officers maintenance training, Ramadurai says reserve funds are no longer needed. And given that the company has done 55 buildings in the last 18 months, there’s clearly a need in the market.

“The building gets new equipment at a reduced cost because instead of paying $1 million, they pay $20,000 upfront and $10,000 a month, and in 10 years we give them the equipment and they get the savings,” he said. “We’re not lenders; we own and operate the equipment. We’re equity investors who don’t own the building, we own the equipment in the building.

“Because we replace the equipment, you no longer need the reserve funds, which means the $1,000 in maintenance fees goes down depending on how underfunded the building is. A condo with adequate reserves will have reductions that are even higher because they don’t need to collect these reserves for the next 10 to 15 years, so there’s a 10-20% reduction on energy costs and another 10-20% on reserves, which means 20-40% is being saved.”

In addition to benefiting condo unit owners, the entire building’s value increases too, added Ramadurai.

“Typically, cash flows are counted into value, and by reducing the cost we increase the cash flow, which means that, at the same cap rate, you end up having higher value of the building.”

2021-02-26 14:49:50

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Despite pandemic, Canadians spending extravagantly on homes

Purchasers are spending money on more expensive homes in Canada’s biggest cities and it’s trickling down the ladder, making housing more prohibitive for the people most affected by the pandemic.

“Existing home sales have shifted towards more expensive housing types in Vancouver, Toronto, Ottawa and Montreal and away from generally less expensive apartment condominiums and attached dwelling,” said a new report from the Canada Mortgage and Housing Corporation. “These markets have also seen a shift in the distribution of sales towards higher price ranges.

“This shift likely reflects the uneven distribution of the economic impacts of the pandemic, with higher-income households able to maintain their income through adapting to work from home. In contrast, those employed in lower-paid industries were less able to adapt to pandemic conditions so that, in combination with a sharp decline in new migrants to Canada, relative demand for less expensive housing types fell.”

To be clear, demand from immigrants and lower wage earners for less expensive housing has greatly diminished, but relatively well-heeled Canadians priced out of the single-family market are climbing down the housing ladder and buying whatever they can afford. According to Robert Mogensen, a mortgage broker, their ranks are swelling.

“If they had their sights set on a single-family home, with the way pricing has gone on more modest ones, they’re being pushed down into townhouses and condominiums,” said Mogensen of The Mortgage Advantage. “I’ve had a number of clients you’d assume would have no trouble, like dentists, doctors and lawyers, who’d be looking specifically for single-family homes, not qualify. Maybe because they were getting started in their professions, but they’d have to start looking at townhomes, which are typically for middle-of-the-road income earners, and now it’s driving the price of townhomes up.”

Mogensen says the fierce competition at the higher end of the housing market—where he’s seeing multiple offers on almost everything, as well as “crazy offers with no conditions”—is trickling as far down as the condominium market.

“Buying activity for higher-end homes has picked up from where it was a year ago, and now it’s working its way right down the scale. The condo market is starting to heat up as well for exactly the same reason the townhouse market is.”

At the same time, the economic impact of the pandemic is disproportionately affecting younger Canadians and lower-income households, who are watching the cost of housing soar to new heights from the sidelines.

“Despite increased government transfers to these households, their exposure to negative employment effects meant they were less likely to purchase a home during the pandemic than other households,” said the CMHC report.

2021-02-26 14:58:07

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Low interest rates, favourable exchange turn U.S. into hotspot

Savvy Canadian real estate investors have, for years now, known about real estate hotspots south of the border, and with the pandemic catalyzing interest rate cuts courtesy of both the Bank of Canada and the Federal Reserve, there’s arguably never been a better time to invest in the United States.

“Over the last two months, we’ve seen record-high requests for mortgage preapprovals from Canadians looking to buy real estate here in the U.S.,” said Alain Forget, RBC Bank’s director of business development. “A lot of Canadians are COVID- and winter-fatigued and they are getting ready to make a move, and of course the U.S. market in a state like Florida has a lot to offer.”

In fact, between March 2019 and March 2020, Canadians invested $9.5 billion in the American real estate, $4.75 billion of which was in Florida. RBC recently hosted a briefing outlook on the economy and determined that the Canadian dollar should remain at about $0.78-0.80 until mid-2021, at which time the U.S. dollar will return closer to $0.76.

“The currency exchange is one of the best at around $0.78-0.80, which is close to a 25% exchange and one of the best rates in the last three years,” said Forget. “When you factor those together, it’s another opportunity for Canadians to contemplate the U.S. market from an investment standpoint.”

The first step, however, is getting preapproved—RBC helps Canadians do it online within two or three days, and the letter is valid for 120 days

RBC helps Canadian investors plan out their investments. From helping them determine their monthly payments to coming up with a financial plan—as well as putting them in touch with experienced realtors and cross-border legal and tax experts—the bank saw a marked increase last month in interest from Canadians.

Unlike in Canada, where the Office of the Superintendent of Financial Institutions introduced a 200 basis point stress test called B-20, no such thing exists in the U.S. According to the National Association of Realtors, Canadians primarily purchase single-family homes, followed by condominiums, in the U.S. Florida, for example, is often chosen for its turnkey properties, Forget says, and it’s replete with popular investor markets, as are Arizona and California.

“The beauty of the Florida market is it offers everything at relatively affordable price points,” said Forget. “If your budget is starting at $200,000, there are a lot of inland options, and for oceanview condos you should expect to pay over $500,000.”

Florida is already a popular destination for east coast Americans who, because of COVID-19, are escaping large metropolises like New York. Forget says Canadians have expressed similar intentions.

For their part, Western Canadians have grown fond of Arizona and California, the former in particular for its affordability and robust market fundamentals. However, even for investors in Central Canada, where the metropolises offer diminishing return on investments, the United States offers densely-populated markets with strong fundamentals and no shortage of rental demand.

“Florida has a lot of different markets that still offer great returns, and even with prices rising slightly, they’re far more affordable than the GTA, Vancouver and Montreal,” said Forget. “Western, Southeast and Central Florida offer different lifestyles and buying opportunities—the latter is a hot market year-round for long- and short-term rentals. Depending on your investment objective, Florida has a lot to offer at a wide range of prices.”

2021-02-26 14:46:34

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Technology is helping drive housing sales to new heights

Canadians have grown remarkably comfortable with the electronic homebuying process, and the convenience factor even appears to be driving sales higher.

Proscriptions on open houses and in-person meetings have actually made purchasing homes more convenient, if not leisurely—a virtual property tour can be taken from the comfort of one’s own living room couch—and, abetted by platforms like DocuSign, deals are closing faster.

Last summer, Plaza Corp. launched King East Estates, a 255-lot single-family subdivision, in Richmond Hill, but instead of opening a sales centre, the Plaza team digitized the entire process with virtual tours and virtual walk-throughs, client meetings on Zoom, and a ton of electronic marketing. By mid-September, Plaza opened a sales centre and began accepting interested buyers by appointment only, and not long after, this hybrid strategy started bearing fruit.

“We’d do everyone’s sales through DocuSign,” recalled Scott McLellan, senior vice president of Plaza Corp. “We introduced technology into the process because we were forced to, and our project did about 100 sales from November until now in a very hybrid situation where, yes, you still needed a tangible, touch-and-feel sales centre, but we were able to integrate technology in order to make the consumer feel safe and comfortable, and having a little bit of both drove a ton of sales for us.”

McLellan is quick to note that sales upsurged specifically when technology, and its myriad conveniences, was married to the physical experience of buying a home—and not merely one or the other.

“We probably had a handful of sales before then, but we realized that once we had the sales centre things would take off, and they did,” he said. “It’s interesting how it didn’t go 100% back to the old way of selling; it was a mixture of technology—purchasing from a laptop with DocuSign and taking virtual tours—and people still needing and wanting to come into a sales centre and touch the materials, take a look at the site map, get a feel for where the sun shines in the afternoon. Those are things we still need in our business. There has to be human-to-human interaction and the other physical requirements one may need in a sales centre. It was a pre- and post-COVID way of doing business.”

Crowded sales centres generally aren’t conducive to making good buying decisions, perhaps underscoring the importance of 10-day cooling off periods, because—especially in the low-rise market where lineups have been known to form on the eve of project launches—under the duress of high pressure sales tactics and the threat of another buyer waiting in the wings, people can feel rushed into purchasing. That could partly explain buyers’ enthusiastic adoption of technology.

“The most important thing is the buyer has an opportunity now to actually take some time, from the comfort of their own home and on their own schedule, to make their buying decision,” said Mark Cohen, managing partner of The Condo Store in Toronto. “When people go into sales offices, they have to deal with their own time constraints, like coming in after work or on the weekend, and all this stuff we do as marketers to bring them in with big crowds and lineups. But it’s a pivotal time in the industry right now because people have the opportunity to shop on their own schedule and without having to leave their homes. This is an amazing opportunity I haven’t seen in 35 years in this business. Sales are better than they’ve ever been.”

The low interest rate environment is doubtless the primary reason for record-breaking housing sales in Canada, but Cohen advises not to underestimate how crucial feeling secure and empowered is for buyers.

“Purchasers appreciate it and they’re buying faster and more comfortably because of it,” he said. “They have the opportunity to review a document in 24 hours instead of having to sign it on the spot. There’s no longer someone shoving it down their throat and saying, ‘Buy it otherwise somebody else will, and you have 10 days to cancel.’”

McLellan noted that another major advantage to digitizing sales is people from outside of Canada can purchase homes here before they even arrive. It’s difficult to imagine that tangibility will ever be removed from the process of buying a home, but the pandemic appears to have permanently changed how people shop for them.

“We’re still seeing it. We’re back under lockdown, but it seems like the buying population is getting more comfortable with DocuSign and more comfortable with electronic-based presentations,” said McLellan. “Traditionally, people still want to come in and touch and feel things, but our last 30 or 40 sales have been done on DocuSign.”

2021-02-24 13:29:54

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Investment strategies for Calgary’s real estate market

Calgary is slated to have a flat rental market in 2021, says a new report.

“For the first time in decades, tenants have a lot of negotiating power, as listings increased significantly in 2020. Many tenants are no longer constrained by their commute, and seeking cheap accommodations, or more space,” Ben Myers, president of Bullpen Research & Marketing, said in the joint report with Rentals.ca, referring to most of Canada’s markets.

Like every other major Canadian market, Calgary’s rental market took a hit in 2020 because of the COVID-19-induced moratorium on immigration. According to the report, that caused the city’s apartment vacancy rate to increase by 6.6%—the highest level since 2016—despite the average rent climbing to $1,195.

Moreover, rental supply in Calgary’s primary and secondary rental markets rose by 2.5%, or 1,650 units.

According to Brett Turner, broker and founder of Calgary-based Redline Real Estate Group Inc., it is an ideal time to invest Calgary because the city’s rent-to-price ratio is very strong.

“Conventional buy-and-hold is the ideal way to manage the best risk versus return, so we have excellent rents relative to purchase price cost in our suburban markets,” he told CREW. “Just outside the inner city core, we have a nice band where properties are priced anywhere between $425,000-500,000, and you can get excellent rents in those areas and cash flow well.”

Additionally, Turner recommends properties that require renovating and refinancing because the market is replete with motivated sellers.

“We’re not a bad market to flip in, either,” he said. “You want to be in a suburban environment near the Calgary Ring Road. That seems to generate the greatest rental interest at present. Northeast Calgary or the southwest are the busiest parts for that.”

Another interesting strategy, albeit one requiring very specific conditions, is renting a unit to students near the Calgary’s colleges and universities for eight months of the year, and then putting it on the short-term rental market through the summer just in time to capitalize on tourist season.

“It only works where investors self-manage,” said Turner. “You have to be near the universities for it to work well, and with the right type of property with the right rooms for students. It could be a great arrangement for both the students and the landlord—an eight-month lease and in the summer you can take advantage of the great market activity and weather.”

2021-02-24 14:16:43

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Calgary’s real estate market has roared back to life

Seemingly nobody anticipated that Calgary’s real estate market would come back to life the way it has, but perhaps the reasons for its reemergence aren’t so surprising.

“The most obvious reason is all of the pent up demand we’ve had for years here. Our market has been through a lot of economic hardship going back to 2015, where we saw a dramatic drop in sales and never really recovered,” Brett Turner, broker and founder of Redline Real Estate Group Inc., told CREW. “Five years into it, sellers have more equity after paying down their mortgage balances, so they have more room in terms of mobility to get into new deals. That’s combined with interest rates that have come down considerably, and there’s also the relative affordability.”

The first indications that the market was roaring back to life were in autumn when buyer interest was higher than it typically is during that time of year. In Q4-2020, sales increased compared to the fourth quarter of 2019.

“Not only were there more sales relative to the same period in 2019, there were fewer listings,” said Turner. “There were better months of the supply metric all the way through the fourth quarter of last year, which is typically the slowest time of year for Calgary.”

Market psychology is not to be underestimated. With the narrative around the COVID-19 pandemic taking a slightly more optimistic turn late last year with news that not only were there multiple vaccines ready for distribution, but that most Canadians would be inoculated before the end of 2021, Turners says that brought homebuyers in Calgary out of the woodwork.

The strong end to 2020 has spilled over into 2021. Last month, total residential sales increased by 41% year-over-year to 1,208, according to statistics from the Calgary Real Estate Board (CREB), while the benchmark price of a home in the city climbed by 2% to $424,000. To understand the “relative affordability” Turned is alluding to, consider that the average price of a home in the GTA was $967,885 last month and that the Toronto Regional Real Estate Board anticipates it to reach $1,025,000 this year.

Although Calgary’s economy has seen better days, housing affordability and low interest rates have conspired to renew interest in the city’s housing market.

“Discount lending rates are exceptionally low, which is likely attracting all types of buyers back into the market,” Ann-Marie Lurie, CREB’s chief economist, said in a Feb. 1 statement. “New listings in the market were also slightly higher than what was available over the past two months, which is providing more options to purchasers.”

2021-02-24 14:18:49

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10940 150 Street Northwest, Edmonton. Click for more photos and pricing

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Located in the established community of High Park, this home features air conditioning for comfortable summer nights, huge backyard, extended single garage with storage space, and the addition of a 3-season sunroom attached to the back of the home. Easy access to downtown, River Valley and great schools. Great for a first-time buyer, investor, or potential infill.

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10940 150 Street Northwest, Edmonton. Click for more photos and pricing


10404 24 Avenue Northwest, Apt 205, Edmonton. Click for more photos and pricing

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10404 24 Avenue Northwest, Apt 205, Edmonton. Click for more photos and pricing


1723 Adamson Crescent Southwest, Edmonton. Click for more photos and pricing

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1723 Adamson Crescent Southwest, Edmonton. Click for more photos and pricing