“I believe any success in life is made by going into an area with a blind, furious optimism.” – Sylvester Stallone
GET READY FOR THE EXTRAORDINARY 2017 LAND RUSH EVENT – MARCH 4, 2017
Get ready for what will be the blow-out real estate event of the year:
Land Rush 2017, held all day March 4 in Vancouver.
While the Springboard will get you started on taking action and achieving real estate success this year, Land Rush will deliver information that could serve you for a lifetime.
I am not kidding.
Land Rush 2017 is shaping up to be the one of the most important real estate events of all time, certainly in the volatile Vancouver market.
We have drawn together 12 expert speakers, including, ahem, Ozzie Jurock, and they will tell, in detail, where to make money this year (also where not to lose it!) and for the long term. Land Rush dissects local conditions, and Canadian and U.S. real estate markets to answer all the question investors need to know.
Some exhibit booth space is still available and ticket sales are already pointing to another full house event.
IN THIS WEEK’S FACTS BY EMAIL:
- 8000 MILLIONAIRES CAME TO CANADA LAST YEAR!
- EUROPEAN INVESTORS COULD UPSURP CHINA AS BEIJING PLAYS HARDBALL
- SOON ONLY OUTLAWS WILL INSTALL NATURAL GAS
Vancouver bylaw will ban B.C.’s most promising resource
- CALGARY: TWO VIEWS OF OIL CITY OPPORTUNITIES
Small landlords suffer but big investors gain confidence
- DEVELOPERS MAY WRESTLE OVER CHURCH LANDS
- CENTRAL SURREY AN INVESTORS DREAM DESTINATION
- REMEMBER TUMBLER RIDGE? IT’S BAAAACK
- PRIMER ON MULTIFAMILY FINANCING
- CROWDS AND BUZZ BUILDING FOR LAND RUSH 2017
- NORTHERN EMPLOYMENT IS SURGING
- QUESTIONS, QUESTIONS
Following the Michael Campbell show last Saturday I got a number of calls – mostly left as a message, some I took personally:
Q: At Landrush: Will you forecast the winner of the BC election?
Q: Can you move your talk into the morning rather than the last speech in the afternoon?
A: No … but I will talk in the morning as well as the afternoon.
Q: Will you tell me when single family home sales will improve?
Q: Will I make money if I attend?
A: Only if you take action.
Q: Will you tell your old jokes?
A: Only the time-tested ones.
Q: I’m bringing out of town guests. They would like to meet you personally? Possible?
A: I will be at the hotel from 8 am till 5. Lots of time to meet everybody.
Q: Will the event be taped?
A: Yes … you can pre-order it at www.landrushcanada.com
Q: Are you going to forecast the certain bust or just another boom and why?
A: All my speeches are well reasoned, slightly brilliant and whatever I forecast will be founded on solid reasoning, guided by vast experience (I am seasoned) and extraordinary good looks.
• International •
European Investors In Canada Could Upsurp China As Beijing Plays Hardball
European investors are expected to turn to Canadian real estate in greater numbers, even as China-based buyers withdraw in the face of more scrutiny and a crackdown by China’s authorities. A court ruling in Vancouver this week could be a harbinger.
The numbers on foreign buyers is already staggering. Of all Canadian commercial real estate deals over $10 million in the third quarter of 2016, foreign purchases totaled $3 billion. This represented 41% of the overall investment volume and was up from 22% in the first half of 2016.
“We are in a global low growth environment that is expected to endure for several years and Canadian commercial real estate assets offer investors solid returns in a yield-starved world. Government bond yields are at all-time lows and the stock market is trading on historically high price-earnings ratios which is driving interest into hard assets such as real estate,” said Peter Senst, president of CBRE Canada Capital Markets. “Canada, with its stable real estate market in a country that protects property rights, is about as a safe a bet as there is.”
“When you break down the sources of foreign capital in 2016, buyers from China and Hong Kong make up 65% of foreign capital transactions by volume. However, nearly a third of the total foreign investment volume came from European buyers. This is more than double the historic five-year average and appears to reflect the growing geopolitical uncertainty in the EU.
“We could see European investor appetite for Canadian assets increase further due to the market volatility arising from the Brexit vote and subsequent economic dislocation. In the first weeks after the vote, we saw seen a wave of UK property funds gating their funds from further redemptions and, that capital will be looking elsewhere for redeployment,” CBRE noted.
Last year, German billionaire Klaus-Michael Kuehne bought the Royal Centre office and retail tower in downtown Vancouver for $425 million.
Meanwhile, as we noted in last week’s FBE, China is now playing hardball with its currency controls to restrict the outflow of its sinking yuan. The People’s Bank of China and the State Administration of Foreign Exchange (SAFE) have begun to aggressively intervene to curb capital outflows. In January, it was ruled that all buyers of foreign exchange must now sign a pledge that they won’t use their $50,000 annual quotas for offshore property investment. Violators will be added to a government watch list, denied access to foreign currency for three years and subjected to money-laundering investigations.
In an email exchange, this week with Jurock Insider, Joe Zhou, head of research with JLL in Beijing, forecast a substantial decline in Chinese offshore property investments this year. “We expect a slowdown in outbound investment by Chinese investors because of strict capital controls, which is not likely to be loosened any time soon. The impact will be felt across all the major global cities,” Chou said.
An indication of the new reach and teeth of the China dragon was seen this week when China’s Citic Bank won a landmark ruling in BC Supreme Court which ordered a Chinese national to repay the bank US$7.3 million, plus interest, that the bank says was spent on real estate in Vancouver. The defendant, Yan Shibiao, borrowed from Citic Bank and then fled to Vancouver where he bought expensive homes in Surrey and Vancouver without telling his bank or making payments to Citic Bank, the court ruled. The ruling, which backed up a court order from China, could open the floodgates for the pursuit of illicit Chinese funds in Canada according to a Vancouver money-laundering expert.
More importantly, it sends signal to all China investors that they are subject to greater scrutiny if they move money into offshore real estate.
Major Point: As well as the Europeans, we could add the U.S. is emerging as big foreign buyers in Canadian real estate, as witnessed by the sale last year of Whistler Blackcomb to a Colorado group. The key reason, aside from Canada’s stability and the new U.S president, is that the Canadian loony is dirt cheap when compared to the U.S. dollar.
8000 Millionaires Came To Canada Last Year!
According to a new report from market research group New World Wealth, 8,000 or so millionaires moved to the country last year. Even though that is a big number, we are still third overall, behind Australia and the U.S. (11,000 and 10,000 respectively). Of course Canada welcomed 320,000 migrants into the country in one year, but 8000 millionaires (with seven-figure bank accounts) are no chicken feed either. Particularly if they buy real estate in BC! Migrants planned in 2017? A minimum of 300,000 people!
According to the report, millionaires everywhere are leaving their countries (82,000 emigrating last year, up from 64,000 in 2015). Of course, we at JREI have predicted and reported this since 2011. Andrew Amoils, head of research at New World Wealth, told CNBC that millionaires are leaving their country based on education, health care and mostly personal safety. Which countries are seeing the outflow? Countries such as France, China and Brazil are seeing a mass exodus of millionaires to the tune of 12,000, 9,000 and 8,000 respectively. Amoils told CNBC that millionaires are fleeing France because of elevated taxes on the wealthy and growing religious tensions.
Major Point: We also reported that Iranians are buying West Vancouver and Germans are buying (see commercial piece) Montreal and Toronto condos as well as Nova Scotia waterfront.
• Canada •
Calgary: Two Views Of Oil-city Opportunities
Small landlords suffer but big investors gain confidence. There are signals that Calgary’s rental vacancy and rental rates have bottomed out and that big investors, some international, are placing hefty bets on the recovery of Canada’s premier oil town.
Leading indicators suggest that rental rates appear to have hit bottom, and have been in a state of stability for the past three months, a reprieve from the month over month declines throughout 2015 and 2016, according to a study released this week by Calgary’s Hope Street Management Corp., a residential property management firm.
The data points to a shift in the province’s rental markets, which have been in decline for the past 36 months. The current blended average rent for all types of rentals in Edmonton is $1,161, while Calgary’s average rate is $1,469. Neither city’s rates have shown any significant decrease in the past 90 days. Private landlords in Alberta have endured a rough ride over the past 24 – 36 months, rental rates dropped while vacancy rates climbed rapidly.
Hope Street manages the tenancies of nearly 3,600 people in Alberta, with most of its clients being investors owning individual houses, townhouses or condos, not apartment buildings.
But not every small landlord has seen uplift, according to Hope’s survey. The average rent for a one-bedroom condo in Calgary in February was $1,051 per month, while a two-bedroom averaged $1,220. This compares with a one-bedroom average of $1,162 and a two-bedroom average of $1,323 in September 2016. Also, the average rent for a three-bedroom detached house in Calgary this month was $1,505, compared to $1,642 in September of last year.
!!! Hope also dismisses the official Canada Mortgage and Housing Corp. vacancy rate of 7% in Calgary, which is based on surveys of apartment buildings. Hope estimates there are about 8,200 total rental units available in Calgary and 37% of them are vacant!!!
However, there are signs that the big boys appear confident in Calgary’s recovery from its current real estate slump.
In a national survey of commercial real estate investments in the third quarter of 2016, Calgary posted its best quarter in over two years with total investment of $1.2 billion, more than double the average of the previous 10 quarters, according to CBRE. This compares with $1.6 billion in Vancouver investments and $3.5 billion in Toronto during the same quarter.
“With oil prices beginning to slowly drift upward and improved market sentiment, we’re seeing increasing activity in Calgary, particularly for prime, well-leased assets. Although a few large transactions helped make Q3 a very strong quarter for Calgary, what’s more encouraging is the 21% increase in the number of deals made compared to the previous quarter,” CBRE reports.
Major Point: We also believe Calgary will recover, but not soon enough for residential landlords to make much money this year. Keep your powder dry.
• British Columbia •
Employment Is Surging In The North
Jobs are suddenly flowing back into northeastern B.C. Two years of retrenchment … and now oil and gas companies have dramatically stepped up drilling this winter.
“It’s been crazy,” said Dawson Creek Mayor Dale Bumstead. “It was like somebody turned a switch on about November, December. Before Christmas, all our hotels were almost at 100% occupancy and rental accommodation was filling up.”
“There’s optimism out there right now,” said Mark Salkeld, CEO of the Petroleum Services Association of Canada (PSAC).
Between 2015 and 2016, new oil and gas rights sales dropped dramatically and drilling in northeastern B.C. slowed to a trickle, thanks to a sustained plunge in oil and gas prices and growing uncertainty over large liquefied natural gas (LNG) projects.
But on January 18, the auction for petroleum and gas rights generated more sales in a single day – $40 million – than the total reaped in all auctions held in 2015 and 2016! PSAC recently bumped up its estimate for the 2017 winter drilling season in B.C. to 367 wells from 280.
“We’re seeing it in company guidance,” said Mark Oberstoetter, lead oil and gas analyst with Wood Mackenzie. “A lot of companies are doubling or adding a lot of spend in 2017, versus the low scene in 2016. So, we’re seeing a lot of optimism.”
Major Point: Taylor Steele will talk about the new north in his speech on Saturday at Landrush: “Why the time is now for Northeast BC.”
Remember Tumbler Ridge? It’s Baaaack
Fifteen years ago, we at JREI recommended the northern BC coal town of Tumbler Ridge, which had houses for sale for $25,000 after the coal mines shut down. The town rallied briefly when one mine reopened, only to sink back into oblivion. (Interestingly, our Internet company “FeatureWeb” at the time build one of the first downloadable video websites … which promptly crashed several times until we figured it out).
When Canada Census takers surveyed Tumbler Ridge last May, the found half of the houses in the town were vacant. Tumbler Ridge had lost 723 people in the five years between the censuses, a drop of 26.7%. It now has a population of 1,987. But Tumbler Ridge has tumbled back on its feet again. Last September, Conuma Coal Resources reopened the Brule Mine and, in January of this year, it restarted the Wolverine Mine, the largest and first mine in Tumbler Ridge.
Major Point: If you like the lifestyle of Northern BC, this could be a fine place to raise a family. And the house prices? You can still buy a Tumbler Ridge house for less than $25,000 (MLS 163761) but a fancy condo may cost as much as $45,000(!?) (MLS 164142), but most of the 65 houses listed for sale this week were north of $120,000.
• Vancouver •
Central Surrey An Investor’s Dream Destination
We already like Central Surrey (full disclosure, we have been buying and selling pre-sale condos in the area) but recent news on what is being planned in the heart of the fastest-growing city in B.C. increases the attraction.
Last week, Lark Group announced it will spend about $1.1 billion creating the second phase of its high-tech and health hub in Surrey’s City Centre. It will comprise more than 20 firms and an estimated 15,000 jobs, mostly in the medical industry. When built out over the next few years, City Centre 2 will cover more than 1 million square feet of labs, offices and medical technology outfits. In fact, the first phase of the development is well underway and companies have already moved in.
Central Surrey has SkyTrain, City Hall, the new city library, a RCMP headquarters, the new head office of a major credit union, plus the expanded Surrey Memorial Hospital.
It also has some of the lowest-cost condos and lowest rental vacancy rates in Metro Vancouver. Just checking out rew.ca this week, we found newer one-bedroom condos in the $185,000 range.
Tip: it appears Lark Group will be selling some of the City Centre office space as strata – medical practitioners like strata – which could be another investment opportunity.
Major Point: At Landrush 2017, Ace developer Charan Sethi, will discuss sharply growing inward migration into Surrey, the benefit of buying close to migration and pre-sale opportunities as well.
Soon, Only Outlaws Will Install Natural Gas
Vancouver bylaw will ban B.C.’s most promising resource. On May 1, the City of Vancouver will ban the use of natural gas for home heating or cooking in all future new homes in the city. The Net Zero Emission Zoning Bylaw requires that only gas from renewable sources will be allowed, because natural gas is said to create too much greenhouse gas emissions.
But, according to supplier FortisBC, renewable natural gas, such as biofuels, can supply only 1% of the natural gas in the province, not nearly enough to meet the city’s bylaw requirement. FortisBC also notes that natural gas is one-third cheaper for home heating than electricity, which the new zoning bylaw will virtually mandate in new homes.
B.C. is a major global producer of natural gas and thousands of workers depend on its production and transportation.
Major Point: The Vancouver zoning bylaw comes in this May, but since it takes from four to seven years for a large new housing development to move from rezoning to construction in Vancouver, we can hope that technological, or perhaps political change will reduce the costly consequences of the new zoning bylaw.
Developers May Wrestle Over Church Lands
We expect a holy battle to erupt in the next few weeks over the remains of an East Vancouver church property that is being marketed for higher-density development. At stake is a 28,400-square-foot development site with Rm-4 zoning, that would allow 1.45 FSR along Main Street near East 15h Avenue in Mount Pleasant, currently home to a house and the Bethlehem Lutheran Church. It is also one of the hottest development areas in the city.
Major Point: Based on recent per-buildable-foot costs in the neighbourhood, the 0.61-acre site could fetch in the $9-$10 million, perhaps more?! HQ Commercial has the listing and is selling the parcel in a bid process with no formal asking price. Let the battle begin.
TOOLBOX 1: Multifamily Financing
Yep, it’s different than residential! A lot of investors who were in the housing market are now looking at buying a smaller apartment building – multi-family assets – and they must first realize that financing for commercial property is completely different than financing for residential property.
To a large degree, it is a different set of lenders and a different set of lending criteria. One of the main differences regarding qualification for commercial financing versus residential financing is that the borrower’s personal income is generally not a factor.
From the lender’s point of view, the property should be generating enough net income to stand on its own merit.
This is not to say that lenders don’t need to see any income from the borrower. They will look at the whole picture, and consider all factors, in their assessment of a loan request (property location, its condition, personal net worth, credit, etc.). The lender will want assurance that the borrower has additional personal income to supplement potential cash flow shortfalls.
On multi-family loans, lenders will usually do a maximum of 75% loan to value of the appraised value or purchase price, whichever is less. The net income of the property will need to service the loan not just at a 1:1 ratio, but usually for this asset class, at 1.25 times (also known as a debt coverage ratio of 1.25).
For example, if the monthly mortgage payment is $5000/month, lenders will look for the net income of the property to be 5000 x 1.25 = $6,250 to allow an additional amount of safety.
Lenders will want a current commercial appraisal, and an environmental Phase 1 (it can be an older report). Some lenders also require a building condition report (BCR).
CMHC-insured financing: The main benefit to obtaining CMHC insured financing are the low interest rates that can be locked in for long term financing. Because the loan is insured, there is virtually no risk to the lender, so they are able to offer their absolute best rates.
Indicative rates for a 5-year term are currently around 2.53% and around 3.33% for a 10-year term. These float with the Canada Mortgage Bond rate, and fluctuate daily.
Compared to conventional rates, these are usually around a full 1% to 1.5% less. This can make a huge difference in the cash flow of a property, especially when you are looking at larger loan amounts.
The maximum loan that CMHC can provide is 85% loan to value. Note that the value would be determined by underwriting criteria set out by CMHC. This includes additional expenses to use such as a caretaker expense, property management (regardless if the property is to be self-managed by the borrower), maintenance and repairs, and appliance reserve. They will also look to their historical records in determining capitalization rate and vacancy rates for the area, which will affect the property’s value.
For properties 5 to 6 units, the minimum debt coverage ratio is 1.10, which is significantly lower than for larger rental properties. For larger properties, the minimum debt coverage ratio (DCR) requirement is 1.30 for a 5-year term and 1.2 for a 10-year term.
There is an application fee to CMHC of $150 per unit that borrowers have to provide up front in order to have CMHC review the file. There is also an insurance premium that is charged, that will be based on the loan to value. For LTV of up to 65%, the premium is 1.75%; at up to 70% it is 2%; and for up to 85% it is 4.5%, as examples.
Both the application fee and the insurance fee can be added into the mortgage, but the application fee needs to be paid upfront.
The amortization would normally be based on 25 years. CMHC also allows you to extend the amortization from 25 years to 30, 35 or 40 years, with a surcharge of 0.25% for each extension of 5 years (It’s rare that they will do more than a 30-year amortization).
The application process takes about 3-‐4 weeks for CMHC approval (certificate of insurance), and then another couple of weeks to obtain a commitment from a lender.
– Courtesy of Michael Lee, commercial mortgage broker with Mortgage Alliance – Commercial. Phone 604-564-6370.
TOOLBOX 2: An Ultimate Insider’s Tips On Closing A Deal
Ralph Case, president of the Real Estate Action Group, (also a speaker at Landrush this week – how to make money in a flat market!) has been a long-time residential real estate investor. Together with myself and with other REAG members, Case has bought and sold literally thousands of homes over the past few years. He almost invariably makes money for himself and his partners.
Here are some of the steps he takes to find and close on residential deals. Tips from the ultimate insider:
Buy pre-sale condos: you can wrap up the property until the building completes, sometimes for two years, and achieve appreciation of the unit before you even have to take possession. You also have the option of selling your sales contract as an assignment.
Use assignments in the detached market. In a rising market, convince the vendor to take a long closing (some actually want to). This gives you time to get the financing together or to find someone else to buy the sales contract off you.
Use options: By securing an option on a property, the piece of paper is worth the cost of the property.
Write the offer before you do the due diligence. The tip is to quickly evaluate the deal and get a sales agreement in place. Then do the due diligence. After that, renegotiate the price based on the problems you have found with the house. As Case explains, the vendor believes he has already sold the house and is making relocation plans and won’t accept a lower price rather than let the dead die.
Consider each negotiation as a “black belt” battle. Be ready to walk away if your price and terms are not met.
Finally, hire a property manager to handle your rentals. In the real estate market, property managers represent a low-cost investment that will save you time, money and hassles.
CROWDS AND BUZZ BUILDING FOR LAND RUSH 2017
Come and see: Charan Sethi, how Surrey city Centre creates opportunities, Sam Perren talks about the great market in Kamloops, Kelly Fry shares cash flow secrets and both she and Brent Roberts showcase deals in the Fraser Valley, Rick Hoogendoorn is showing properties and Joint Venture opps in booming Victoria. Taylor Steele shows bargains in the BC North, Shane Doyle will show storage opportunities and Todd Smith again demonstrates how to make money in Phoenix, Arizona. Most importantly also…financing your deals: The mortgage outlook in Canada with Kyle Green, mortgage outlook in the US with Ryan Kohl. Further:
Marc Jurock will be showing investment condos from $106,000 (yes) and extraordinary pre-sales in Richmond. Tammy Sharp in North and West Vancouver, Derek Peever presents high-end upscale property management.
At Land Rush 2017 these are just some of the topics covered as the experts guide investors into and through the dynamic and challenging 2017 real estate market. Conference 2017 focus: ‘Positive cash flow properties. How to make money and how not to lose any in 2017’.
Yes, you can make good money this year and in some surprising places!
But you have to hurry if you want to find out first and where.
Land Rush 2017 is heading for another sell out – as it has every year for the past quarter-century. Last year we had 700 eager investors packed to the back of the ballroom. Depending on your subscriber package Land Rush 2017 is FREE, dear subscriber – you can bring guests for only $30. We will be all-day Saturday on March 4 at the Marriott Pinnacle Hotel, 1133 West Hastings Street in downtown Vancouver. For details, phone 604-583-1111 or click on landrushcanada.com
1. Guildford, Surrey, 2-bedroom condo – large balcony $179,900;
2. Surrey, 1 bedroom condo $158,000;
3. Surrey House, beautiful mountain view! Basement entry home renovated upstairs and down! 2 new kitchens, new bathrooms, new furnace, new flooring, and two laundry rooms. Huge separate double garage. 2 bedrooms on main level and 2 bedrooms’ suite down. $699,000.
(As we have stated many times, you are welcome to send in your ‘best deal’. There are no fees from us, nor any guarantees that your deal will be featured here or even is a good deal. It is up to you to study, evaluate and negotiate. Look up our disclaimer under the Hot Property section on your website. Interested parties – go to your website and get in contact directly with the owners/realtors or write to firstname.lastname@example.org)
WONDERING ABOUT THE HOTLINE?
Hotline Text Alert System and Hotline Code Changed
To get on the Hotline Text Alert System and receive a text update when the Hotline is ready, please text ‘Jurock‘ to the number ‘393939‘ and you will be added to the system. You will receive no more then one text a week.
The Hotline Code has also been changed. Our new Hotline access code is 8080. The Hotline phone number is still 778-328-8887.
To subscribe to Jurock’s Facts by Email call 1-800-691-1183 or 604-683-1111 or fax 604-683-1707. While the above information is compiled from sources believed to be reliable, its accuracy cannot be guaranteed. Any type of investing carries inherent risks; as such, JREI cannot assume responsibility for any subscriber’s actions.