By GRAHAM HICKS
What do the Big Guys know that we don’t?
Alberta’s economic indicators have been lousy since the great oil crash and are not predicted to get any better in 2019.
The average value of residential homes in Edmonton has dropped for three years in a row.
Yet the city’s commercial real estate market, as reported earlier this week, had a rosy glow in 2018.
Within that sector, high-rise rental apartment buildings are the new gold standard.
Pension funds, REITS (real estate income trusts) and other institutional buyers have been piling into Edmonton in recent months, buying up every high-rise rental apartment building that’s come on the market and offering premium dollars to do so.
The paint was barely dry on the 260-unit Hendrix at 9733 111 St. when builder/owner Edgar Development sold it in November for a handsome $96.1 million.
Ditto for the Vibe (10620 116 St.), a 176-unit apartment block built by Carrington in 2017, sold in September for $47 million.
The trend started in late 2016, when the Regency Group finished the final phase of its Edgewater complex along Jasper Avenue East. Its 694 units were sold that December for $191 million.
The list goes on. The Pinnacle, Panorama, Avalon and Edgehill apartment towers have all recently changed hands, from family-held companies to national real estate investors or their agents.
“Family-owned properties held for assured, long-term income are now being sold,” says Apogee Commercial Realty’s Ari Bernstein. “It’s an opportune time, given the high prices per door and the proper sales terms. Prices are so good (because of institutional interest) that more buildings are coming on the market.”
So what do they – the big boys who buy and sell these residential towers without batting an eyelash – know? What’s the inside story?
No more than any other investor, say Edmonton-based CBRE commercial realtors Bradley Gingerich and Bradyn Arth.
There’s no real “inside” information to be had. Pension funds and their ilk have deep pockets, and are always on the hunt for safe, income-producing real-estate investments. Interest rates, to finance the purchases, are still attractive.
Many institutional investors like to spread out their real estate investments geographically, to avoid over-exposure in any one city.
“Rental-income investment opportunities have been scooped up elsewhere (i.e. Vancouver and Toronto),” says Arth. “Many of the big players are already in Edmonton with industrial/commercial assets. They know the market. They know rental properties here are a fairly sound investment. Not that many Edmonton apartment buildings have come on the market before.”
On the demand side, an interesting consumer trend is shaping up.
With condominiums depreciating in value, renting a high-quality apartment is being seen as better use of household funds.
Another glaring reality: Stricter mortgage rules (i.e. higher down payments) have disqualified many a would-be condo buyer.
In other words, keeping apartment rental towers full is not expected to be a problem – the buyer knows the income stream from such buildings will be constant.
Is Big Money simply betting on a major uptick in Edmonton’s real estate prices?
That’s a partial motivation. Oil & gas are cyclical in price. The price per barrel or gigajoule will recover, pipelines will eventually get built, Edmonton and Calgary will once again boom …
“The Warren Buffet theory (buy when nobody else is buying, sell when everybody is buying) may be part of the equation,” says Gingerich. “I’m more inclined to see the growing rental market being the result of tighter mortgage borrowing rules.”
There’s always dozens of reasons to explain any major market trend.
No matter what, the high-rise rental apartment market in Edmonton is on the upswing, and, eternally-optimist realtors say, should be good for a few more years.
Who knows? Maybe the optimism will filter down … and the houses we own will actually increase in value when the time comes to sell!