British Columbia Real Estate Investment Review - Avison Young

British Columbia Real Estate

Investment Review Mid-Year 2015

Private investors continue to dominate sales activity, leaving institutions and others sidelined

First Half 2015 Total value

$879 million

(sales > $5 million):

Total no. of transactions:

67

Most active buyers:

Private

Most active sellers:

Private

Most active asset class:

P

Industrial

(based on # of transactions)

BC Investment Sales by Dollar Volume ($ Millions) and Number of Transactions (Properties >$5 Million) 2015

$879 (67)

2014

$852 (56)

2013

2008 2007 2006 2005 2004

$2.12B (119)

$1.39B (60) $594 (36)

2010 2009

$1.95B (118)

$1.4B (61)

$724 (58)

2012 2011

$1.1B (62)

$968 (57) $889 (49)

$1.48B (85)

$1.03B (45) $643 (23)

$316 (24)

$920 (54) $715 (37)

$535 (38)

$765 (41) $438 (32)

$1.95B (99)

$1.36B (60)

$734 (30) $651 (23)

$2.35B (117)

$1.27B (68)

$967M (47) $246 (13) $1.01B (54) $950 (42)

$633 (37)

$1.39B (74)

$893 (45)

Sales by Property Type and Dollar Volume

$1.53B (82)

First Half 2015

$213m

24%

$358m

41%

$307m

35%

First Half Second Half Total Transactions

Office Industrial Retail

rivate investors continue to provide the lion’s share of the financial capital powering BC’s commercial real estate market as pricing and the lack of available investment-grade properties keep institutions and others sidelined. With 67 transactions completed in the first six months of 2015, and proceeds of more than $879M, the BC investment market was dominated by private purchasers who were involved in 93% of acquisitions and collectively deployed 78% of the total dollar volume (or almost $689M) in the first half of 2015 to acquire office, industrial and retail assets. (Avison Young tracks investment deals valued at more than $5M.) While the ratio of private buyers has fluctuated between 60% and 87% of purchasers annually since 2006, the previous record was in 2014 (87%). The percentage of private purchasers declined to 67% as recently as 2011, but has been steadily rising ever since. The number of institutional purchases declined to 4% of acquisitions in the first half of 2015, but the deals did capture 20% of total dollar volume. Of those three deals, one was for a sizeable retail asset (~$123M) – The Bay Centre in Victoria. The remainder of the institutional purchases involved two industrial assets: Ocean Ridge Business Centre ($11M) in Delta and Knightsbridge Business Park ($40.25M) in Richmond. A 50% interest in the redevelopment of the Langara Gardens multifamily complex was the only multi-family asset acquired by an institutional investor in the first half of 2015. Institutions remain largely unwilling to transact as purchasers in the BC commercial real estate market due to the significant capitalization (cap) rate compression – a measure of yield for a real estate investment – that continued on back page

Partnership.Performance.

I 1

Buyer purchases by asset & land deals

Two notable Vancouver buildings are set to change hands in the second half of 2015, including the BMO Building at 2601 Granville Street (left) and the former Telus building at 555 Robson Street (right), soon to be the new head office of Avigilon Corp. Source: Google Earth Pro

Buyer Purchases by Asset Type: First Half of 2015 1st Half Office

*Institutional

Retail Industrial

Private Investors Government

* Institutional investors include pension funds and life insurance companies

REITs

Note: Foreign buyers have also been active investors. Rather than identifying them separately as foreign, Avison Young is categorizing them as institutional or private as the case may be.

Public Companies Non-Profits Financial Institutions $0

$100

$200

$300

$400

$500

$600

$700

$ Millions

SELECT ICI LAND SALES (GREATER THAN $5 MILLION AND EXCLUDING PARKS AND AGRICULTURAL/AGRICULTURAL BUSINESS LANDS) JANUARY 1 TO JUNE 30, 2015

TOP FIVE RESIDENTIAL LAND SALES (METRO VANCOUVER) BY PRICE JANUARY 1 TO JUNE 30, 2015

Transaction Name

Region

Price

Size (Acres)

Land Use

Date

Address/Name

Region

Price

Size (Acres)

Size (SF)

Density

Date

19118 40th Avenue & 3803 192nd Street

Surrey

$14,352,300

38.80

Government

April 2015

4750 Kingsway

Burnaby

$100,000,000*

8.94

389,209

High

June 2015

Dogwood Lands (500 West 57th Avenue)

Vancouver

$81,600,000*

5.81

253,127

High

April 2015

6380 Silver Avenue & 6420 Silver Avenue

Burnaby

$38,411,579

1.9

82,764

High

April 2015

6347-6367 West Boulevard; 2109-2111 West 48th Avenue; 2108-2110 West 47th Avenue

Vancouver

$26,300,000

0.71

31,102

Medium

March 2015

7100 Elmbridge Way

Richmond

$24,550,000

2

87,120

Medium

June 2015

1431 & 1441 West Broadway

Vancouver

$13,500,000

0.26

Government

April 2015

6736, 6758 & 6780 Glover Road

Langley

$7,400,000

5.46

Commercial

May 2015

1330 Marine Drive

West Vancouver

$21,036,796

0.61

Commercial

April 2015

1550 Alberni Street

Vancouver

$47,080,000

0.48

Commercial

March 2015

Sopa Square (3000 South Pandosy Street)

Kelowna

$29,500,000

1.70

Commercial

February 2015

1316 West Broadway

Vancouver

$10,000,000

0.29

Commercial

January 2015

10582 120th Street

Surrey

$6,450,000

6.29

Industrial

June 2015

9410 River Road

Delta

$12,464,000

15.19

Industrial

May 2015

8051 92nd Street

Delta

$7,451,671

5.17

Industrial

April 2015

8811 Laurel Street

Vancouver

$10,750,000

4.62

Industrial

April 2015

8050 92nd Street

Delta

$6,443,850

4.52

Industrial

April 2015

34-54 West 7th Avenue

Vancouver

$8,510,000

0.42

Industrial

April 2015

Campbell Heights North Business Park

Surrey

$14,352,300

38.8

Industrial

April 2015

4298 & 5115 North Fraser Way

Burnaby

$32,940,000

40.83

Industrial

March 2015

370 & 450-460 Prior St; 550 Malkin Avenue

Vancouver

$18,033,000

2.16

Industrial

January 2015

*According to land title transfer documents

Land remains a very sought-after commercial real estate investment in BC. Avison Young has initiated coverage of ICI land deals (with some exclusions) and the top residential land sales in an effort to better inform our clients and reflect our full-service approach to all real estate asset classes, including land. The changing nature of growth in Metro Vancouver and the approval of various updates to official community plans (OCPs) throughout the region have led to numerous land deals that reflect future development plans.

Source: RealNet and Avison Young

Partnership.Performance.

I 2

Buyer Profile Private purchasers remained the dominant force in BC’s commercial real estate market in the first six months of 2015. Private buyers accounted for 93% of all transactions and 78% of total dollar volume, besting the record set in 2014 in terms of a single buyer type capturing dollar volume and deal activity. In comparison, private purchasers accounted for 80% of transactions and just 54% of total dollar volume in 2013 – marking a 12% and 24% increase, respectively, in 18 months. Institutional purchases accounted for just 4% of all trades in the first half of 2015, but totalled 20% of dollar volume.

First Half 2015: Number of Transactions by Type of Buyer

93%

First Half 2015: Value of Sales by Type of Buyer 1% 1% 20%

78%

Institutional Government Non-Profit

One REIT and one public company made up the remainder of buyers in the first half of 2015, which totalled just 2% of transactions and 2% of dollar volume. Partnership.Performance.

Private buyers continued to take advantage of low interest rates and inexpensive debt to acquire properties on an increasingly off-market basis. An overall lack of available institutional-grade assets and heightened competition among an expanded pool of sophisticated investors further established the dominance of private capital in the BC market. Institutional buyers, while acquiring the single most expensive asset to transact in the first half, were involved in just three deals of 64.

Seller Profile

1% 1% 4%

Private Investors REIT Public Co. Financial Institutions

Private buyers spent $689M in the first half of 2015 and acquired $307M worth of industrial assets, while also spending $213M on office product and $169M on retail properties. Institutions managed to secure select retail and industrial properties for a total of $174M.

Private vendors accounted for 81% ($582M) of the total proceeds in the first half of 2015. Institutional sellers banked $204M, while public companies realized $36M. Financial companies ($29M) and a non-profit ($21M) made up the majority of the balance. Reluctant sellers have begun to indicate they would consider offers on an off-market basis as they sense that peak pricing has been sustained for an extended period and may start to waver. More than 40% of deals transacted off market in the first half of 2015 as the dollar volume banked by private vendors spiked 16% from year-end 2014. Private sellers, long the leading class of purchasers, also now dominate the sales side. Many vendors who had been resistant to committing to a sales process (and being forced to make a decision based on the offers received) are instead deciding to sell on an off-market basis based on opportunistic timing designed to take advantage of the insatiable demand among investors for commercial real estate in BC. Many private property owners who had been sitting on their hands are starting to act, in part due to their previously optimistic pricing

expectations being met by a steady supply of purchasers (fuelled by low-cost debt and a battered Canadian dollar) who have grown frantic in unsuccessful attempts to acquire assets (and place capital). The absence of institutional vendors – even in the face of realizing a significant lift from the sale of an asset – is testimony to the bind in which such organizations find themselves. Institutions are unable to purchase assets due to a lack of supply of suitable assets of scale that also offer returns that meet investment requirements and thresholds. This inability to acquire property has also forced institutions to stand pat and not sell off assets for fear of the impact a disposition would have on their portfolio mix and allocations. In the current environment, most assets owned by institutions and, to a lesser extent, REITs, will be challenging for potential purchasers, private or otherwise, to acquire.

First Half 2015: Number of Transactions by Type of Seller 4% 1%

1% 6%

6%

81%

First Half 2015: Value of Sales by Type of Seller 1%

4% 2%

3% 23%

66%

Private Investors REIT Public Co. Financial Institutions

Institutional Government Non-Profit

I 3

Office Office investment sales activity in BC was muted in the first half of 2015 with 17 transactions only capturing 24% of total dollar volume. Only four deals exceeded $15M and they accounted for nearly 50% of office’s overall dollar volume. In comparison, there were 15 office transactions ($380M) in the first half of 2014 but just 10 deals ($165M) in the same period of 2013. There were 20 office transactions ($764M) in the recordsetting first half of 2012. Even though more than two-thirds of the properties that sold were located in Vancouver, none were considered prime locations. However, the acquisitions did highlight where within Vancouver’s city limits overwhelmingly private purchasers were seeking to secure assets. Four Downtown properties – all east of Granville Street – were sold and included 750 Cambie Street, 555 & 569 Richards Street, 837 Beatty Street and 626 West Pender. The Broadway corridor remained popular with the properties at 395 West Broadway, 532 West Broadway and 1867 West Broadway changing hands. The increasingly popular Mount Pleasant office node was the location of three sales: 33 & 53 East 8th Avenue, 127 East 4th Avenue and 375 West 5th Avenue. Three office buildings were sold in Surrey, while the largest office transaction dollarwise was located in Richmond at 3600 Lysander Lane. A relatively rare strata office sale of scale was booked in Burnaby and just a single office building outside Metro Vancouver was sold in Victoria.

themselves in the office market and have heightened the level of competition for those assets that do come available. It is no longer a discussion of when Mainland Chinese capital will start to flow into BC’s office market, but now a question of how much more is still to come. A weakened Canadian dollar and record low interest rates are further exacerbating the situation as both private foreign investors and local interests seek to outbid each other in an effort to secure office assets. Local developers are increasingly making their mark on the office market, particularly on class B and C assets located Downtown or along the Broadway corridor, as they invest the proceeds generated from their development activities in order to diversify their real estate portfolios by adding a steady income stream to smooth out the uneven cash flow sometimes associated with development activity. The assets these developers acquire often serve as potential future redevelopment sites.

All commercial real estate transactions in Metro Vancouver increasingly include an underlying land value aspect to them and office transactions are no different. As an example, the $47M sale in the first half of 2015 of 1550 Alberni Street, a 100,000-sf office building built in 1972, was considered a land deal due to the redevelopment potential the site offered to its new owner, which was reflected in its pricing.

OFFICE TRANSACTIONS PROPERTY

MUNICIPALITY

PRICE

VENDOR TYPE

BUYER TYPE

DATE

375 West 5th Avenue

Vancouver

$12,600,000

Private

Private

June 2015

127 East 4th Avenue

Vancouver

$5,280,000

Private

Private

June 2015

The London Building (626 West Pender Street)

Vancouver

$27,645,000

Institutional

Private

June 2015

Russell Professional Building (15261 Russell Avenue)

Vancouver

$6,000,000

Private

Private

June 2015

7 East 6th Avenue

Vancouver

$9,850,000

Private

Private

May 2015

837 Beatty Street

Vancouver

$9,880,000

Private

Private

April 2015

3600 Lysander Lane

Richmond

$33,000,000

Private

Private

March 2015

Graphic Arts Building (33 & 53 East 8th Avenue)

Vancouver

$7,455,000

Private

Private

March 2015

555 & 569 Richards Street

Vancouver

$11,000,000

Private

Private

March 2015

Guildford Court (10428 153rd Street)

Surrey

$9,860,000

Private

Private

March 2015

Croydon Business Centre (unit 400 - 2630 Croydon Drive)

Surrey

$5,868,798

Private

Private

March 2015

CGA Building (1867 West Broadway)

Vancouver

$16,125,000

Private

Private

February 2015

The delivery of almost 1.4 msf of new Downtown office supply in the first half of 2015 did not have an impact on building sales and is not anticipated to factor into a vendor’s decision to sell moving forward or mute a buyer’s enthusiasm to acquire. Most building owners and/or landlords, particularly of class B and C assets, continued to reinvest in their properties to help maintain face rates and retain tenants in the more balanced leasing environment that has emerged.

395 West Broadway

Asian investors continued to assert

Total Deals/Investment

Partnership.Performance.

Vancouver’s historic London Building at 626 West Pender was sold to a private Asian investor for $27M.

532 West Broadway

Vancouver

$7,850,000

Private

Private

February 2015

Sovereign (#301 - 4501 Kingsway)

Burnaby

$13,148,231

Private

Private

February 2015

Centennial Building (750 Cambie Street)

Vancouver

$21,500,000

Non-profit

Private

February 2015

908 Pandora Avenue

Victoria

$10,050,000

Private

Private

January 2015

Vancouver

$5,950,000

Private

Private

January 2015

17

$213,062,029

I 4

Retail Sales of BC retail assets were restricted by a lack of supply in the first half of 2015 with 21 transactions totalling $295M, a decline compared with the first half of 2014 that recorded 28 transactions valued at $310M but on par with the 24 deals ($292M) that closed in the same period in 2013. The sale of the Bay Centre in Victoria was responsible for more than 40% of the overall retail dollar volume in the first half of 2015. Other than Victoria’s Bay Centre, only three retail transactions were valued at $15M or greater. Walnut Grove Town Centre in Langley and The Village at Sardis Park and a Sears store, both located in Chilliwack, represented the three largest retail transactions (after the Bay Centre) in the first half of 2015 but made up just $51M in dollar volume. The majority of retail deals involved properties valued at less than $10M. The sale of the Bay Centre was the only commercial real estate transaction in BC in the first half of 2015 to involve an institutional vendor and purchaser. The only transaction in BC in the first half of 2015 involving a REIT was the acquisition of 1225 Douglas Street in Victoria. A number of residential developers also acquired small retail assets, primarily in the Fraser Valley. Open-air shopping centres have historically been sought after for their redevelopment potential due to the typically large land area associated with such properties. While the supply of such assets has diminished, purchasers remain vigilant in their attempts to acquire them on an off-market basis. Underlying land value has come to define the pricing achieved in many commercial real estate transactions, particularly retail acquisitions. Retail transactions were primarily located in secondary markets in the first half of 2015, particularly in the Fraser Valley communities of Langley and Chilliwack. Smaller deals also closed in Squamish, Duncan and Kelowna. Despite a slow start to the year based on historical first-half levels of activity, it is anticipated that retail deal and dollar volume will increase significantly in the second half of 2015. Partnership.Performance.

Demand remains strong but the asset pricing that has been achieved (driven in large part by land values) remains disconnected to a degree from the redevelopment and rising construction costs that would be incurred if construction proceeded during this cycle. A clear distinction between the value of retail assets located in primary and secondary markets is solidifying as vendors in secondary markets seeking pricing parity with assets in primary markets are being forced to reconsider their expectations in order to close the deal. Retail sales activity is anticipated to rise in terms of both deal and dollar volume in

The sale of the Bay Centre in Victoria was the largest transaction in BC in the first half of 2015.

the second half of 2015 with a number of significant deals under contract and set to the close in the coming months.

RETAIL TRANSACTIONS PROPERTY

MUNICIPALITY

VENDOR TYPE

BUYER TYPE

DATE

1549 Johnston Road

White Rock

$6,300,000

PRICE

Private

Private

June 2015

45410 Luckakuck Way

Chilliwack

$5,200,000

Financial

Private

June 2015

Ladner Village Inn (4841 Delta Street)

Delta

$5,230,000

Private

Private

June 2015

2159 West 41st Avenue

Vancouver

$5,090,000

Private

Private

June 2015

45495 Luckakuck Way

Chilliwack

$15,000,000

Public Co.

Private

June 2015

Park West (1402, 1408, & 1412 Marine Drive)

West Vancouver

$5,250,000

Private

Private

May 2015

39150 Queens Way

Squamish

$6,830,000

Private

Private

May 2015

2346 West 4th Avenue

Vancouver

$6,650,000

Private

Private

May 2015

Alexandra English Bay (1708 & 1722 Davie Street, 1209 Bidwell Street)

Vancouver

$8,600,000

Private

Private

May 2015

The Village at Sardis Park (6640 Vedder Road)

Chilliwack

$15,170,000

Private

Private

April 2015

20450-20500 Logan Avenue

Langley

$7,100,000

Private

Private

April 2015

4850-4898 Mackenzie Street; 2885-2895 West 33rd Avenue

Vancouver

$6,403,600

Private

Private

April 2015

Walnut Grove Town Centre (8850 Walnut Grove Drive)

Langley

$21,340,000

Private

Private

April 2015

843 Granville Street

Vancouver

$6,250,000

Financial

Private

March 2015

2621 Enterprise Way

Kelowna

$5,000,000

Private

Private

March 2015

The Bay Centre (1150 Douglas Street)

Victoria

~$123,000,000

Institutional

Institutional

February 2015

6456 Norcross Road

Duncan

$6,908,240

Private

Public Co.

February 2015

Unit 15 & 16, 228 Schoolhouse Street

Coquitlam

$8,785,000

Private

Private

February 2015

Willowbrook Drive (20121 62nd Avenue)

Langley

$8,775,000

Financial

Private

February 2015

City Centre Square (20300 Fraser Highway)

Langley

$5,450,000

Private

Private

January 2105

2310 & 2320 Kingsway

Vancouver

$13,700,000

Public Co.

Private

January 2105

Johnston Place (2429 152nd Street)

Surrey

$6,530,000

Private

Private

January 2015

1225 Douglas Street

Victoria

$8,798,229

Financial

REIT

January 2015

Total Deals/Investment

23

$307,460,069

I 5

Industrial Industrial investment activity surged in the first half of 2015 with 27 transactions contributing $358M, a significant increase from the 13 sales valued at $163M recorded in the first half of 2014 and the 25 deals ($256M) registered in the second half of 2014. Deal and dollar volume in 2015 is anticipated to surpass 2014 as demand for industrial assets will likely remain strong. Industrial sales activity accounted for 41% of total dollar volume and 40% of deal volume in the first half of 2015. Private purchasers spent more than $307M on industrial assets in the first half of 2015, while institutional purchasers acquired properties valued at $51M. Industrial vendors included private owners primarily, but also institutions, government and a public company.

While the majority of industrial deals are located in Metro Vancouver, industrial development in other parts of the province, particularly northern BC, have become more common. First-half deals in Prince Rupert and Prince George represent the slowly rising tide of industrial development in the province’s hinterlands. Deal volume in the second half is going to continue to be largely made up of offmarket deals rather than listed product. With interest rates expected to remain low and the Canadian economy demonstrates signs of weakness, some real estate transactions may be triggered in the

second half of 2015 by corporate users selling assets to raise cash for operations.

INDUSTRIAL TRANSACTIONS PROPERTY

MUNICIPALITY

Keith Business Centre (1225 East Keith Road)

North Vancouver

Three key deals totalled more than $156M and accounted for more than 40% of the total industrial dollar volume recorded in the first half of 2015. The $63M-sale of 7931 Alderbridge Way in Richmond marked the largest industrial deal of the first half of 2015 – and the third largest in Metro Vancouver in the first half – while the $53M transaction at 5016 72nd Street in Langley was the result of the buyer exercising its option to acquire the property. The $40M-sale of Knightsbridge Business Park in Richmond marked one of only two transactions in the first half of 2015 that involved both an institutional vendor and purchaser (The other was the sale of the Bay Centre in Victoria).

River's Edge Business Park (Unit 1120 - 1150 572 Nicola Place)

While private investors dominated industrial sales transactions as both buyers and sellers, many were also owner/ occupiers. Private sellers continue to take advantage of low capitalization rates and high prices while private buyers are taking advantage of low interest rates and inexpensive and available debt. Almost half of the transactions were off-market deals, a trend which is expected to continue as vacancy remains tight and property owners hold assets due to the difficulty in securing new premises. Partnership.Performance.

The $40M sale of Knightsbridge Business Park was one of two industrial deals involving an institutional vendor.

VENDOR TYPE

BUYER TYPE

DATE

$23,700,000

Private

Private

June 2015

Port Coquitlam

$6,039,530

Private

Private

June 2015

6380 Miller Road

Richmond

$6,010,814

Private

Private

June 2015

2200 - 2400 Vauxhall Place

Richmond

$7,425,000

Private

Private

June 2015

7900 Nelson Road

Richmond

$10,334,000

Private

Private

June 2015

3681 Victoria Drive Road

Vancouver

$7,400,000

Private

Private

June 2015

12211 Horseshoe Way

Richmond

$13,000,000

Institutional

Private

May 2015

Tilbury West Corporate Centre II - Phase II

Delta

$5,323,465

Private

Private

May 2015

1620 Prince Rupert Boulevard

Prince Rupert

$5,750,000

Private

Private

April 2015

Knightsbridge Business Park (13140 - 13260  Delf Place)

Richmond

$40,250,000

Institutional

Institutional

April 2015

758 Harbourside Drive

North Vancouver

$7,250,000

Private

Private

March 2015

7720 Anvil Way

Surrey

$7,028,300

Public Co.

Private

March 2015

31825 & 31867 Marshall Place

Abbotsford

$5,600,000

Private

Private

March 2015

7046 Brown Street

Delta

$6,600,000

Government

Private

March 2015

19675 & Lot 1 98th Avenue

Langley

$9,750,000

Private

Private

March 2015

5016 272nd Street

Langley

$53,011,165

Private

Private

March 2015

7931 Alderbridge Way

Richmond

$63,000,000

Private

Private

February 2015

5284 Still Creek

Burnaby

$5,181,000

Private

Private

February 2015

1750 McLean Avenue

Port Coquitlam

$6,398,100

Private

Private

February 2015

11480-11500 River Road

Richmond

$17,500,000

Private

Private

February 2015

875 - 889 East Cordova Street

Vancouver

$6,380,000

Private

Private

January 2015

940 - 950 Old Victoria Road

Nanaimo

$6,115,000

Private

Private

January 2015

18371 McCartney Way

Richmond

$5,875,000

Private

Private

January 2015

19676 Telegraph Trail

Langley

$7,200,000

Private

Private

January 2015

13301-13299 72nd Avenue

Surrey

$6,150,000

Private

Private

January 2015

Ocean Ridge Business Centre (1687 Cliveden Avenue)

Delta

$11,000,000

Private

Institutional

January 2015

7818 S Highway 97

Prince George

$9,212,500

Private

Private

January 2015

27

$358,483,874

Total Deals/Investment

PRICE

I 6

Multi-Family Multi-family investment activity rebounded in the first half of 2015 after recording 26 deals valued at $370M in comparison with the back half of 2014, which registered just 20 transactions totalling $186M. Multifamily investors’ first-half performance in 2015 was on par with the levels of activity in the first half of 2014, which featured 23 deals valued at $396M. (Avison Young only tracks multi-family investments trading at more than $5M.) Pricing has continued to rise for welllocated assets (if and when they come to market) with the lack of supply further boosting pricing and compressing cap rates to levels that seem to defy conventional investment wisdom. The acquisition of multi-family assets is now more about wealth preservation as opposed to earning a return or even acquiring a property with an eye to redevelopment. Land banking also remains a key consideration for investors seeking to acquire multi-family assets, but it is certainly not the only one or even the most important. Competition remains intense. The $102M-sale of a 50% interest in Langara Gardens to Concert Properties represented the largest multi-family deal in the first half of 2015 and the second largest transaction in BC overall. With only one other deal greater than $15M in value – Mainstreet Estates Apartments in Surrey – there were eight properties priced between $10M and $15M. The remainder sold for less than $10M each. With demand strengthening, the challenge that remains is locating vendors willing to sell despite the premium pricing that such assets continue to command. Some potential vendors have become more opportunistic and willing to entertain offmarket offers whereas in the recent past they may have rebuffed such advances. Rising rental rates in Metro Vancouver are also proving to be an incentive for Partnership.Performance.

investors to secure multi-family assets. For the most part, rental rates in general have not kept up with the rapid rise in the value of multi-family properties in Metro Vancouver. The public’s increasing willingness to rent (due to the difficulties many people find getting into the region’s expensive real estate market) and forego property ownership is pushing many would-be home owners who are able to afford higher rental rates into the market.

A 50% interest in the redevelopment of Langara Gardens was valued at $102M.

MULTI-FAMILY TRANSACTIONS (Greater than $5M) PROPERTY

MUNICIPALITY

PRICE

PRICE PER UNIT

VENDOR TYPE

BUYER TYPE DATE

13979 104th Avenue

Surrey

$6,670,000

$151,591

Private

Private

June 2015

Cook Place (8251 Cook Road)

Richmond

$11,700,000

$260,000

Private

Private

June 2015

The Brighton (5375 204 Street) & The Claymore (5374 203 Street)

Langley

$12,700,000

$117,593

Public Co.

REIT

June 2015

Riverside Apartments 5170-5190 203rd Street

Langley

$14,900,000

$165,556

Private

Private

June 2015

The Grange (1395 West 14th Avenue)

Vancouver

$6,200,000

$176,471

Private

Private

June 2015

Hotel Empress (235 East Hastings Street)

Vancouver

$7,700,000

$101,316

Private

Private

May 2015

2121 Alma Street

Vancouver

$14,500,000

$337,209

Private

Private

May 2015

620 West Pender Street

Vancouver

$6,998,000

$134,577

Private

Private

May 2015

Stewart Arms Apartments (450 Stewart Avenue)

Nanaimo

$7,880,000

$107,945

Private

Private

April 2015

2235 West 6th Avenue

Vancouver

$7,000,000

$350,000

Private

Private

April 2015

Celtic Court (5615 & 5621 Dunbar Street)

Vancouver

$5,400,000

$540,000

Private

Private

April 2015

1550 West 10th Avenue

Vancouver

$11,500,000

$348,485

Private

Private

April 2015

Villa Roma (5220 Capitol Drive)

Burnaby

$5,700,000

$190,000

Private

Private

April 2015

Baywest Apartments (1310 Burnaby Street)

Vancouver

$7,300,000

$270,370

Private

Private

April 2015

Oceanside Apartments (1847 Pendrell Street)

Vancouver

$8,195,000

$327,800

Private

Private

April 2015

Freidas Villa (1968 West 2nd Avenue)

Vancouver

$6,150,000

$256,250

Private

Private

March 2015

Leeside East & Leeside West (1134 & 1214 King Albert Avenue)

Coquitlam

$9,350,000

$141,667

Private

Private

March 2015

2225 Acadia Road

Vancouver

$10,700,000

$594,444

Private

Private

February 2015

9005 Centaurus Street

Burnaby

$10,500,000

$194,444

Private

Private

February 2015

Donegal Manor (2533 Dowler Place)

Victoria

$5,675,000

$131,977

Private

Private

January 2015

1925 Woodland Drive

Vancouver

$5,245,000

$175,000

Private

Private

January 2015

Mainstreet Estates Apartments (10772 150th Street)

Surrey

$33,650,000

$101,662

Private

Public Co.

January 2015

Suffolk House (1540 Haro Street) Vancouver

$7,590,000

$271,071

Private

Private

January 2015

Langara Gardens (50% interest)

Vancouver

$101,857,500

$328,043

Private

Institutional

January 2015

Parklyon Apartments (110 Douglas Street)

Victoria

$5,250,000

$154,412

Private

Private

January 2015

26

$369,810,500

$173,620

Total Deals/Investment

Avison Young tracks investment deals valued at more than $5 million. Sources: Avison Young and RealNet Canada

I 7

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characterizes most assets, particularly those of scale and recent construction. This, in turn, results in the majority of assets not meeting the necessary investment returns generally required for an institution to act to acquire a real estate asset. A significant lack of available investment-grade assets further restricts an institution’s ability to act. Despite premium pricing, which often represents a significant lift in the value of those assets already owned by institutions, many are unwilling to sell their properties in the BC market because they cannot be easily replaced (if at all). The geographic and asset allocations necessary in an institutional portfolio can be challenging to maintain in BC’s commercial real estate market and has severely curtailed their investment activities.

For more information please contact:

All types of commercial real estate transactions in BC, particularly those in Metro Vancouver, have been increasingly incorporating an underlying land value component when determining pricing. While this is not necessarily a new consideration, the rising value of land (and its redevelopment potential) has come to define the value of a property more than other more traditional criteria such as lease rates, tenant covenants, holding income and building condition. While those factors remain important considerations, the rising value of land has contributed to the increasing compression of cap rates, which has squeezed out almost all other market participants other than private capital. While private investors have filled the void left by institutions and REITs to the tune of hundreds of millions of dollars annually since at least 2012, an increasing number of those private investors has stepped up the search for properties offering higher yields and, resultantly, has contributed to the further compression of cap rates.

Bal Atwal* [email protected]

Douglas McMurray [email protected]

Michael Buchan [email protected]

Amanda Payne [email protected]

Carey Buntain [email protected]

Struan Saddler* [email protected]

Diandra Durando [email protected]

Mehdi Shokri [email protected]

Michael Emmott [email protected]

Terry Thies* [email protected]

Michael Gill [email protected]

Evelyn Tian [email protected]

Robert Greer* [email protected]

Ian Whitchelo* [email protected]

Income properties that have a high land value component of the selling price are achieving historically low cap rates (or holding return) in Metro Vancouver – so low, in fact, that many investors (and developers) have essentially been “priced out” even though it is their preferred asset type. Some of these investors have turned their focus to more traditional income-producing assets that have less upside on land value but generate higher returns. This has put downward pressure on cap rates for income-producing assets as well, which may not offer as much potential upside from a land perspective, but provide stronger returns.

Robert Gritten [email protected]

Chris Wieser [email protected]

Robert Levine [email protected]

Susan Wu* [email protected]

Michael Keenan, Principal & Managing Director Direct Line: 604.647.5081 [email protected] Andrew Petrozzi, Vice-President, Research (BC) Direct Line: 604.646.8392 [email protected] Sherry Quan, Principal & Global Director of Communications & Media Relations Direct Line: 604.647.5098 [email protected]

Investment Team

* Personal Real Estate Corporation

Essentially, high land values have imposed extremely low yields for properties that are prime for redevelopment. This, in turn, has created a trickle-down effect, compressing cap rates for many income-producing properties as local and offshore buyers seek to achieve marginally better yields. An example is a hypothetical case in which two side-by-side properties have the same zoning, but one lot has a single-storey retail building and the other lot has a 10-storey office tower. While the single-storey retail building may achieve a cap rate of 2.5% to 3%, the cap rate for the vertical income of the office tower has also been compressed by investors despite an inability to directly capture any further lift from the land. In essence, these buyers are willing to “overpay” for the underlying land in order to achieve the higher return offered by the office tower. It is these purchasers who are primarily applying the strongest downward pressure on cap rates for “traditional” income-producing assets. Local investors continue to be involved in the majority of transactions, but Asian buyers and capital, particularly from Mainland China, continue to make inroads into the BC commercial real estate market. This trend is anticipated to accelerate as foreign investors’ familiarity with the market continues to improve and their risk tolerance becomes more calibrated to operating in one of the most unique commercial real estate markets in North America. 

Avison Young #2900-1055 W. Georgia Street Box 11109 Royal Centre Vancouver, BC V6E 3P3, Canada

avisonyoung.com © 2015 Avison Young. All rights reserved. E. & O.E.: The information contained herein was obtained from sources which we deem reliable and, while thought to be correct, is not guaranteed by Avison Young Commercial Real Estate (B.C.) Inc.; DBA, Avison Young.