Only 2 Industrial Property transactions have taken place in Oakville during the past 2-and-a-half months (Sept. 01/08 - Dec. 08/08):
(1) 750 Weller Court sold on October 15th, 2008. This was a 28,750 sq.ft. industrial building on 1.99 acres (so there is some excess land for a further addition). The sale price gives a price point of $66 per square foot. The building was sold vacant. A Vendor-Take-Back mortgage was a critical part to this deal.
(2) 1296 South Service Road West. This was a first-class single-user industrial building fronting the QEW. The building is 80,000 sq.ft. and sits on 6.3 acres so there is excess land on which to build. The sale price gives a value of $91 per square foot. This was a Sale/Leaseback transaction with the purchaser being a pension fund. The price per square foot is skewed a bit as the purchaser was recieving extra land in the deal. If you allow 50% coverage, then there are 2.63 extra acres of land. At $750,000 per acre this would represent $1.97 Million. Subtracting this value from the purchase price gives us a net price of $5.33 Million (or $66 per sq.ft.). I like this deal: cash flow in the near term, great exposure to the QEW, excess land to work with in the future.
Thursday, December 18, 2008
Wednesday, December 17, 2008
A Sign of The Times - Real Estate Funds Halting Redemptions
A Sign of The Times:
I have just been informed that Great-West Lifeco has halted the redemptions at 2 of its segregated funds that invest in high-quality commercial real estate. The 2 funds are the Great-West Life Canadian Real Estate Fund and the London Life Real Estate Fund.
Both Funds hold a diversified portfolio of high-quality Canadian commercial real estate.
These assets typically have a stable cash flow that forms the basis of their value.
As investors suffer in the current downturn they are looking to liquidate assets and generate cash to pay off accumulated debt, the so called "deleveraging" effect that the entire economy is going through.
The problem is that real estate is not a liquid investment and that it takes a great deal of time to complete a transaction, especially when it comes to the larger properties, such as those in these portfolios, where the transactions can be quite complex and require a great deal of due diligence.
So the net effect is that the funds would not have the available cash on hand to fund all of the redemptions being requested.
How long will the moratorium on redemptions last? That's a good question.
The problem surfaces from the fact that these funds are not REITs. This means that they are not publicly traded (if they were then an investor who wants to get out simply sells to another investor and the REIT does not have to sell any assets - the investor cashes out and the REIT continues to own the real estate). Instead here we have the situation where the only way to generate cash to an investor wanting out is to sell assets (the fund had 9.5% of the fund in cash, and 1.9% in bonds, but these, I presume, have been wiped out by recent redemptions).
Obviously, the 2 funds would be reluctant to sell any assets in the current environment as the probability of getting high valuations would be minimal.
It really does boggle the mind that such an illiquid asset has been put into such a liquid vehicle.
What does the future hold for these investors?
Depending on the economy's future, there could be a number of different scenarios. If the economy picks up (which is doubtful) the redemption requests would slow and the need to sell assets would be minimal. If the economy stabilizes, or continues to fall (more likely), and redemptions continue to mount, then the management might see what properties they can sell to recoup maximum value and try to attract a sale. One other option would be to convert into a REIT, but then their agents would lose the fees they get for putting clients into such a liquid investment vehicle in the first place.
I have just been informed that Great-West Lifeco has halted the redemptions at 2 of its segregated funds that invest in high-quality commercial real estate. The 2 funds are the Great-West Life Canadian Real Estate Fund and the London Life Real Estate Fund.
Both Funds hold a diversified portfolio of high-quality Canadian commercial real estate.
These assets typically have a stable cash flow that forms the basis of their value.
As investors suffer in the current downturn they are looking to liquidate assets and generate cash to pay off accumulated debt, the so called "deleveraging" effect that the entire economy is going through.
The problem is that real estate is not a liquid investment and that it takes a great deal of time to complete a transaction, especially when it comes to the larger properties, such as those in these portfolios, where the transactions can be quite complex and require a great deal of due diligence.
So the net effect is that the funds would not have the available cash on hand to fund all of the redemptions being requested.
How long will the moratorium on redemptions last? That's a good question.
The problem surfaces from the fact that these funds are not REITs. This means that they are not publicly traded (if they were then an investor who wants to get out simply sells to another investor and the REIT does not have to sell any assets - the investor cashes out and the REIT continues to own the real estate). Instead here we have the situation where the only way to generate cash to an investor wanting out is to sell assets (the fund had 9.5% of the fund in cash, and 1.9% in bonds, but these, I presume, have been wiped out by recent redemptions).
Obviously, the 2 funds would be reluctant to sell any assets in the current environment as the probability of getting high valuations would be minimal.
It really does boggle the mind that such an illiquid asset has been put into such a liquid vehicle.
What does the future hold for these investors?
Depending on the economy's future, there could be a number of different scenarios. If the economy picks up (which is doubtful) the redemption requests would slow and the need to sell assets would be minimal. If the economy stabilizes, or continues to fall (more likely), and redemptions continue to mount, then the management might see what properties they can sell to recoup maximum value and try to attract a sale. One other option would be to convert into a REIT, but then their agents would lose the fees they get for putting clients into such a liquid investment vehicle in the first place.
Friday, December 12, 2008
I'm Looking for Inflation in my Top Right Corner Drawer of my Desk
It seems to me that the U.S. Government is laying the foundation for massive inflation down the road.
Now, a lot can change as we head down the road to the future, but it just makes sense to me that increasing the monetary base by 40% just is asking for inflation to rear it's ugly head.
Let's look at the details:
The U.S. Government has commited roughly $8.5 Trillion to Financial Rescue Incentives.
This is broken down into various government arms. The Federal Reserve has committed $5.5 Trillion to back the ailing Financial System. The FDIC has guaranteed around $1.1 Trillion in loans to banks, Citigroup and G.E. The Treasury has backed about $1.1 Trillion (including the $700 Billion TARP). Congress is crafting a 2nd stimulus package estimated at $500 Billion. The Federal Housing Administration has committed $300 Billion to help borrowers. The Federal Reserve has committed $1.8 Trillion to Commercial Paper Programs, and the Federal Reserve has committed $200 Billion to help unfreeze the Consumer Loan Market.
It is estimated that the Government has already tapped $3.2 Trillion in Bailout Spending.
And all of this comes on top of the Treasury last spring helping finance a stimulus package costing $168 Billion!
America truly is "Bailout Nation!"
If you go back in history to the Great Depression, you will see that the lack of liquidity caused a severe defationary period. It was always thought that this tragedy could be averted by creating massive liquidity if such a crisis occurred again. Well, we have such a crisis now and the U.S. has responded, by indeed, creating massive liquidity. So instead of a severe deflationary period, I predict that we will have a period of massive inflation.
The U.S. will have to send interest rates sky high to attract the money it needs to pay for the current bailout. There will be severe pressure on the U.S. dollar.
And we in Canada will have to increase our interest rates to attract the capital we need for our debt.
So keep an open mind when making investments. Massive inflation could be in the cards down the road.
Now, a lot can change as we head down the road to the future, but it just makes sense to me that increasing the monetary base by 40% just is asking for inflation to rear it's ugly head.
Let's look at the details:
The U.S. Government has commited roughly $8.5 Trillion to Financial Rescue Incentives.
This is broken down into various government arms. The Federal Reserve has committed $5.5 Trillion to back the ailing Financial System. The FDIC has guaranteed around $1.1 Trillion in loans to banks, Citigroup and G.E. The Treasury has backed about $1.1 Trillion (including the $700 Billion TARP). Congress is crafting a 2nd stimulus package estimated at $500 Billion. The Federal Housing Administration has committed $300 Billion to help borrowers. The Federal Reserve has committed $1.8 Trillion to Commercial Paper Programs, and the Federal Reserve has committed $200 Billion to help unfreeze the Consumer Loan Market.
It is estimated that the Government has already tapped $3.2 Trillion in Bailout Spending.
And all of this comes on top of the Treasury last spring helping finance a stimulus package costing $168 Billion!
America truly is "Bailout Nation!"
If you go back in history to the Great Depression, you will see that the lack of liquidity caused a severe defationary period. It was always thought that this tragedy could be averted by creating massive liquidity if such a crisis occurred again. Well, we have such a crisis now and the U.S. has responded, by indeed, creating massive liquidity. So instead of a severe deflationary period, I predict that we will have a period of massive inflation.
The U.S. will have to send interest rates sky high to attract the money it needs to pay for the current bailout. There will be severe pressure on the U.S. dollar.
And we in Canada will have to increase our interest rates to attract the capital we need for our debt.
So keep an open mind when making investments. Massive inflation could be in the cards down the road.
Wednesday, December 10, 2008
Apartment Building Sales in Oakville over $1 Million
Let's take a look at recent (over the past 12 months) Apartment Building sales in Oakville.
I have located only 3 transactions:
41 Speers Road - 135 unit Building sold for $15,555,000 ($115,222 per unit) - Dec.14th/07
2300 Marine Drive - 47 unit Building sold for $5,525,000 ($117,553 per unit) - Dec.19th/07
435 Kerr Street - 30 unit Building sold for $2,931,000 ($97,700 per unit) - August 27th/08
Not many transactions, but the ones that did take place were quite substantial. Two of the three were purchased by "large" operating entities, while the Kerr Street property looks like it was purchased by individual through a corporate entity.
The trend continues in that the larger properties are being gobbled up by the well-known REITs and well-financed groups that already have substantiall apartment buildings in their portfolio.
Not any great deals here, but solid deals on properties that are well located and should provide solid and growing cash flows for these new owners for years to come.
I have located only 3 transactions:
41 Speers Road - 135 unit Building sold for $15,555,000 ($115,222 per unit) - Dec.14th/07
2300 Marine Drive - 47 unit Building sold for $5,525,000 ($117,553 per unit) - Dec.19th/07
435 Kerr Street - 30 unit Building sold for $2,931,000 ($97,700 per unit) - August 27th/08
Not many transactions, but the ones that did take place were quite substantial. Two of the three were purchased by "large" operating entities, while the Kerr Street property looks like it was purchased by individual through a corporate entity.
The trend continues in that the larger properties are being gobbled up by the well-known REITs and well-financed groups that already have substantiall apartment buildings in their portfolio.
Not any great deals here, but solid deals on properties that are well located and should provide solid and growing cash flows for these new owners for years to come.
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