The rental housing industry enjoyed another exceptional year in 2012, Cushman and Wakefield National Apartment Group reports in its fourth-quarter newsletter.
The low interest rates, rising rents, lower heating costs, falling vacancies and cap rate compression have positioned the market in a way that we have rarely seen, states the newsletter prepared by investment sales representative Tony Manganiello. “It has also been a record year for transactions; new benchmarks have been set all around from cap rates to prices per unit.”
The increase in sales activity has been largely spurred by the belief the market has likely peaked, leading many to monetize their assets. The Greater Toronto Area, in particular, has seen prodigious sales activity. Year to date in 2012, there have been 142 trades of properties with 10-plus units overall in GTA, with an impressive average unit price of $144,272.
The lowest price per unit was $67,143, with a high of $605,000 for an upscale rental building in Rosedale.
One GTA trophy property featuring six 17 and two seven-storey buildings sold for more than $173 million.
REITs redefine the apartment owner profile
Cushman & Wakefield attributes much of the increase to the creation of apartment REITs in the late 1990s, which redefined the typical apartment ownerï¿½s profile.
ï¿½They are now more sophisticated than ever and able to take full advantage of the capital markets using extensive corporate financial discipline, an advantage not typically available to smaller private owners,ï¿½ the newsletter says. ï¿½The ready access to capital is a significant advantage, but they do have to answer to investors; REITs live and die by their distributions so free cash flow is critical when deciding to purchase an asset.ï¿½
Thatï¿½s not to say that the traditional investor has been sidelined, however. ï¿½(They) have options that allow them to outbid these larger players in many cases,ï¿½ the newsletter concludes. ï¿½Many well-capitalized private buyers have accepted delayed gratification when deciding to bid on an attractive asset and going long. The result has been more aggressive offers for the right assets, and recent market evidence is certainly pointing to more activity in that direction.
CMHC financing favours private buyers
ï¿½This coupled with their unfettered access to CMHC insured financing (means) the private buyers now have the edge in many bid call situations, a trend that is expected to continue as sellers continue to demand ever higher prices for attractive assets.ï¿½