Looking back at 2012 it is yet another year where the lack of income and yield opportunities for an aging Canadian population have continued to fuel the availability of capital for public markets.
A tsunami, in the best sense of the word, in the form of cheap money, continues to drive real estate markets across Canada to achieving record levels of investment activity. That was the key message delivered by Pierre Bergevin the President & CEO of Cushman & Wakefield Ltd. in Canada (shown in the photo) who provided a recap of 2012 at the Toronto Real Estate Forum last month.
This trend is no more evident than in the performance of public market indicator the S&P Capped REIT Index Bergevin explained. Over the last 24 months the return for the Index has outperformed the TSE Composite Index by 41%.
On the ground, this translated into increased participation of public companies in real estate markets with the creation of several new public vehicles where REITs and REOCs displaced pension funds as the big spenders in 2012.
Public buyers of real estate accounted for 59% of office, 57% of retail and 66% of multi-family sectors transactions in 2012. The industrial sector, in which only 10% of the buyers were public in 2010 had over 40% in 2012 with anticipated closings of 11.5-million square feet of industrial property according to Cushman and Wakefield research.
Image from a Cushman and Wakefield Canada presentation at the Toronto Real Estate Forum on November 28, 2012
At the time of the Toronto Real Estate Forum there had been $6.3 billion raised in the public markets well in excess of 2011 level. “Everyone is still desperately seeking yield”, is how Bergevin described it.
CAP rate compression has forced some buyers to adapt, in particularly the pension funds, who are expanding around the world, moving up the yield curve to direct development or partnership, explained Bergevin.
For the first time, and despite global economic instability and uncertainty within corporations around the World, in the third quarter Canadians bought more international assets than they did at home. Canadians made $8.6-billion in real estate transactions in the fall of 2012 most of which were completed in the UK, Germany or Australia. This amount nearly matches the $9.0-billion spent in all of 2011 in foreign transactions.
Image from CBRE Canada Limited presentation at the Toronto Real Estate Forum on November 29, 2012
Following are several significant and some record breaking transactions from 2012 that illustrate the high level of activity in the market. These sales occurred before the recent news creation of Loblaw REIT and the prospect of a hostile takeover of Primaris REIT by Kingsett Capital and its backers.
Purchase of Bentall V in Vancouver by Canadian pension funds
In May 2012 Bentall Kennedy bought the Bentall V office tower in downtown Vancouver from German pension fund Deka Immobilien Investmen for a record $400 million on behalf of Canadian pension-fund clients. Bentall V is a the 33-storey, 583,000-square-foot office tower Deka bought in 2009 for $297 million from the previous owner SITQ the predecessor of Ivanhoe Cambridge a subsidiary of the Caisse de Depot du Quebec.
Sale of the Bank of Nova Scotia tower in Toronto to Dundee and H&R REIT
Bank of Nova Scotia’s landmark office tower in downtown Toronto sold for $1.27-billion, the highest price yet paid for a Canadian office building. Toronto’s Dundee Real Estate Investment Trust partnered with H&R Real Estate Investment Trust to buy the 68-storey tower with two-thirds owned by Dundee with the remainder held by H&R.
Calgary Place Sale Transaction
No selection of transactions would be complete without a sale from Calgary, Canada’s most robust commercial real estate market. This Image was selected from presentation materials prepared by Brett Miller the CEO of Jones Lang LaSalle Canada for the Toronto Real Estate Forum.
Gatineau’s largest shopping mall sold to Oxford Properties
Gatineau's largest shopping mall Les Promenades de L'Outaouais sold to the Oxford Properties Group and investment firm Montez Corp in March 2012 for an undisclosed sum. The 835,000-square-foot facility at 1100 Maloney Ouest has about 185 stores, mainly in high-end fashion. Anchor tenants include The Bay and Costco, and there is also an office for the Canada Revenue Agency.
A hot mult-residential market in Quebec
The Quebec multi-residential market saw numerous transactions in 2012 including the three sales illustrated in the following image from a presentation at the Toronto Real Estate Forum by Brett Miller the CEO for Jones Lang LaSalle in Canada who took over the position after many years as a property executive with CBRE based in Montreal.
The 2012 review of commercial real estate in Canada from the Toronto Real Estate Forum last month continues with a sector by sector breakdown in Part 2 of Real estate investors in 2012 still desperately seeking yield.