Real Estate prices in Vancouver are among the highest in the world according to Financial News Magazine Forbes. In a complicated way of measuring how overpriced real estate is Forbes has concluded that Vancouver is in the top 10 most overpriced real estate.
Vancouver among overpriced-land leaders
Forbes' formula deals us in for dubious honour
Ashley Ford
The Province
We all know Vancouver real estate is in nosebleed territory -- but globally overpriced?
According to a somewhat complex formula arrived at by Forbes magazine, Vancouver allegedly has the sixth most overpriced real-estate market in the world.
Monaco, the Mediterranean haunt of the rich and plastically-improved, tops the list of the globe's most overpriced real estate followed by Rome.
The rankings were compiled by calculating an effective annualized rate of return on a property based on annual cash flows derived from renting and adjusted for capital gains tax, transaction fees, operating costs and maintenance, appreciation and inflation.
"We then flipped the return rate to resemble the more familiar price-to-earnings measure," says the Forbes report.
That left the champion Monaco with a P/E ratio of 74.07.
The next nine are Rome (50.51), Paris (37.45), Madrid (30.30), Los Angeles (26.88), Vancouver (26.81), Vienna (25.77), Auckland (25.64), Zurich (25.19) and Oslo (23.45).
The study looked at 50 financial capitals in every continent, except Antarctica, of course. For the most part this meant one city from each country but for countries like India, China, the U.S., Australia, Canada and Switzerland where there were multiple, distinct financial centres, several cities were measured.
If you are thoroughly lost by now, Forbes offers a somewhat simpler way of absorbing their numbers.
"Think about each market like you would a stock: The higher the price-to-earnings figure, the more you have to pay to get one dollar of return," it says.
The valuations were based on data from GlobalPropertyGuide.com, an international real-estate research firm. For each market, it assumed no debt financing, a constant cost of capital, a 10-year hold of the property and a non-primary residence.
Tuesday, August 28, 2007
Tuesday, August 14, 2007
Commercial Real Estate Is Set For A Nose Dive If The Markets In The US Continue On The Current Negative Trend
Commercial real estate is set for a nose dive if the markets in the US continue on the current negative trend. Analysts report that rising borrowing costs may make some commercial real estate ventures unappealing, and the owners will start to sell. Full Article from the Financial Post.
Teetering towers
Commercial Real Estate industry braces for a fall in prices
Garry Marr
Financial Post
Saturday, August 11, 2007
Falling real-estate prices? It sounds like a contradiction in terms. But rest assured, it can happen and many in the sector are bracing for a declining commercial real estate market -- something that hasn't happened in the past seven years.
"I promise you [prices] can go both ways. I've seen enough of that in my career," said veteran real-estate analyst Frank Mayer, who retired this year after 35 years in the sector. "Just think of 1989 through 1994."
The latest statistics from real-estate firm CB Richard Ellis Ltd. show that for the first time this century capitalization rates are actually inching up in some markets, albeit slowly. Cap rates, as they are known in the industry, are the real estate sectors' method of pricing property.
The cap rate is determined by taking a building's positive cash flow and dividing by the value of the asset. A building with $100,000 in positive cash flow that's valued at $1-million would have a 10% cap rate. Much like the yield on a bond, rising cap rates are indicative of falling prices.
The concern in the real-estate community is that rising borrowing costs are going to make it harder for companies to make profitable leveraged real-estate purchases. As borrowing costs go up, cap rates will have to rise too in order for transactions to make financial sense.
"There's a raging debate in the real estate community," says Mr. Mayer, about whether higher borrowing costs will ultimately impact real-estate prices. The thinking among some commentators is there is some institutional and pension-fund money, immune to debt concerns, waiting to buy real estate. That demand would mean prices won't budge.
Cap rates are already at an all-time low in most markets in the country. The starkest example is probably Vancouver's apartment market where investors are willing to accept a 3.5% return on a high-rise unit. If that sounds low, consider the Bank of Canada's 10-year bond -- a risk-free instrument in terms of potential default --generates about a 4.5% return.
The Vancouver apartment building pays one percentage point less than the Government of Canada debt and presumably carries a little more risk than the bond. But investors in Vancouver and other hot markets such as Calgary and Edmonton are paying a premium for potential growth in income and capital.
"If you are [investing in] Alberta where rents are up 40% from a year ago and are going up sharply again, a 5% cap rate really isn't a 5% cap rate. You know the returns are going to be higher in future," said Mr. Mayer.
Michael Cooper, chief executive of Dundee REIT, which last month pulled off a $2.4-billion real-estate sale that many say will be the last of its kind in this cycle, says pricing real estate can be tricky these days.
Dundee sold most of its assets in Ontario, Quebec and Newfoundland to GE Real Estate. Dundee held onto to $1.5-billion of assets in western Canada and GE Real Estate agreed to buy $165-million of outstanding units in the REIT, about 18% of Dundee, at $47.50 a unit.
"He got that deal done right under the wire. No way it would get done today at that price," said one analyst.
But Mr. Cooper says there is a new reality in the marketplace that is impacting pricing. "From 1995 to 2005 it was all about current income, but now we have growth in rental rates in almost every market in the country. More of the value is coming from [anticipated] growth," he says. "Today, sure you pay more interest and cap rates are lower but that's just Day 1. We all anticipate that income will grow."
He says publicly traded REITs are recording huge jumps in income because rental rates just keep rising on their existing portfolios. In fact, says Mr. Cooper, buildings with long-term leases and low rental rates are going to drop in value.
"Five years ago if you had a locked-in lease people said 'this is fabulous.' Today people say 'you've given up so much on the asset'," he says.
CB Richard Ellis actually thinks there could be some downward movement in cap rates, but, for the most part, thinks prices have stalled. "We are seeing a trend where rates have flattened compared to where we were three or four years ago," said Ray Wong, national research director of CB Richard Ellis. "Some investors are starting to question the pricing of assets."
Ross Moore, the research director of Boston-based Colliers International, is more pessimistic. "I can't go to a meeting or get on a conference call these days without somebody talking about a deal that is falling apart," he says. It's all about the rising cost of debt and Mr. Moore says it's leading to a lot of renegotiating.
"There is a general tone in the marketplace of caution," said Mr. Moore, who doesn't believe improving fundamentals and rental rates will carry the day in the market. "I learned a long time ago fundamentals do not drive real-estate values; liquidity and access to capital drive values. Period. That may sound cynical but that's what I believe. Capital markets are global. This isn't just a U.S. problem," said Mr. Moore, about some of the deals now falling apart. "This will happen in Canada."
Teetering towers
Commercial Real Estate industry braces for a fall in prices
Garry Marr
Financial Post
Saturday, August 11, 2007
Falling real-estate prices? It sounds like a contradiction in terms. But rest assured, it can happen and many in the sector are bracing for a declining commercial real estate market -- something that hasn't happened in the past seven years.
"I promise you [prices] can go both ways. I've seen enough of that in my career," said veteran real-estate analyst Frank Mayer, who retired this year after 35 years in the sector. "Just think of 1989 through 1994."
The latest statistics from real-estate firm CB Richard Ellis Ltd. show that for the first time this century capitalization rates are actually inching up in some markets, albeit slowly. Cap rates, as they are known in the industry, are the real estate sectors' method of pricing property.
The cap rate is determined by taking a building's positive cash flow and dividing by the value of the asset. A building with $100,000 in positive cash flow that's valued at $1-million would have a 10% cap rate. Much like the yield on a bond, rising cap rates are indicative of falling prices.
The concern in the real-estate community is that rising borrowing costs are going to make it harder for companies to make profitable leveraged real-estate purchases. As borrowing costs go up, cap rates will have to rise too in order for transactions to make financial sense.
"There's a raging debate in the real estate community," says Mr. Mayer, about whether higher borrowing costs will ultimately impact real-estate prices. The thinking among some commentators is there is some institutional and pension-fund money, immune to debt concerns, waiting to buy real estate. That demand would mean prices won't budge.
Cap rates are already at an all-time low in most markets in the country. The starkest example is probably Vancouver's apartment market where investors are willing to accept a 3.5% return on a high-rise unit. If that sounds low, consider the Bank of Canada's 10-year bond -- a risk-free instrument in terms of potential default --generates about a 4.5% return.
The Vancouver apartment building pays one percentage point less than the Government of Canada debt and presumably carries a little more risk than the bond. But investors in Vancouver and other hot markets such as Calgary and Edmonton are paying a premium for potential growth in income and capital.
"If you are [investing in] Alberta where rents are up 40% from a year ago and are going up sharply again, a 5% cap rate really isn't a 5% cap rate. You know the returns are going to be higher in future," said Mr. Mayer.
Michael Cooper, chief executive of Dundee REIT, which last month pulled off a $2.4-billion real-estate sale that many say will be the last of its kind in this cycle, says pricing real estate can be tricky these days.
Dundee sold most of its assets in Ontario, Quebec and Newfoundland to GE Real Estate. Dundee held onto to $1.5-billion of assets in western Canada and GE Real Estate agreed to buy $165-million of outstanding units in the REIT, about 18% of Dundee, at $47.50 a unit.
"He got that deal done right under the wire. No way it would get done today at that price," said one analyst.
But Mr. Cooper says there is a new reality in the marketplace that is impacting pricing. "From 1995 to 2005 it was all about current income, but now we have growth in rental rates in almost every market in the country. More of the value is coming from [anticipated] growth," he says. "Today, sure you pay more interest and cap rates are lower but that's just Day 1. We all anticipate that income will grow."
He says publicly traded REITs are recording huge jumps in income because rental rates just keep rising on their existing portfolios. In fact, says Mr. Cooper, buildings with long-term leases and low rental rates are going to drop in value.
"Five years ago if you had a locked-in lease people said 'this is fabulous.' Today people say 'you've given up so much on the asset'," he says.
CB Richard Ellis actually thinks there could be some downward movement in cap rates, but, for the most part, thinks prices have stalled. "We are seeing a trend where rates have flattened compared to where we were three or four years ago," said Ray Wong, national research director of CB Richard Ellis. "Some investors are starting to question the pricing of assets."
Ross Moore, the research director of Boston-based Colliers International, is more pessimistic. "I can't go to a meeting or get on a conference call these days without somebody talking about a deal that is falling apart," he says. It's all about the rising cost of debt and Mr. Moore says it's leading to a lot of renegotiating.
"There is a general tone in the marketplace of caution," said Mr. Moore, who doesn't believe improving fundamentals and rental rates will carry the day in the market. "I learned a long time ago fundamentals do not drive real-estate values; liquidity and access to capital drive values. Period. That may sound cynical but that's what I believe. Capital markets are global. This isn't just a U.S. problem," said Mr. Moore, about some of the deals now falling apart. "This will happen in Canada."
Labels:
Commercial Real Estate
Wednesday, August 08, 2007
Edmonton Real Estate Has Begun To Cool After Huge Surges In Prices And Sales In The Last Year
Edmonton real estate has begun to cool after huge surges in prices an sales in the last year. Last month the price of a home in Edmonton fell for the first time in many months, triggering concern that the housing market is cooling in the city. The Edmonton Journal Reports.
Real Estate in Calgary is still flying high, too high for most. The average home price is now $500,000 in cow town. This is way out of reach for most working people in the city. The rising oil prices will only further fuel high home prices. On the positive side MLS reports a very high inventory in Calgary, relatively speaking. Alberta Index reports.
Real Estate in Calgary is still flying high, too high for most. The average home price is now $500,000 in cow town. This is way out of reach for most working people in the city. The rising oil prices will only further fuel high home prices. On the positive side MLS reports a very high inventory in Calgary, relatively speaking. Alberta Index reports.
Friday, August 03, 2007
Calgary Real Estate Is Poised To Level Off
There are now more homes on the market in Calgary than at any other time this year. The Calgary Real Estate Board says as of the end of July there were almost 9,000 homes up for sale.The average price of a single family home in Calgary last month was almost $510,000.The average condo price was just over $318,000.The real estate board says with all this inventory, prices can be expected to level off.
BC's Biggest Deal
British Columbia real estate has reach new highs. The largest deal in BC history has seen $246 million change hands for a 25 story high rise. Full Story.
Central City Tower has been sold in what is described as the largest real estate deal in B.C. history.
The Insurance Corporation of British Columbia (ICBC) announced Wednesday it sold the 25-storey tower to Blackwood Partners Inc. for about $246 million. Blackwood is a real estate transaction group, which bought the property on behalf of a consortium of Canadian pension funds.
ICBC has had the property listed for a few years, describing it as “not appropriate for the company’s investment portfolio.”
The components of the Central City project that have been sold include 570,000 square feet of office tower and podium space, and 490,000 square feet of retail mall space. Simon Fraser University continues to own 305,000 square feet in the tower and podium.
It’s also believed the company is preparing to make an offer on the Zellers store.
All tenants of the building are expected to remain.
Central City has a long and colourful history.
The Leader first reported in 1999 that ICBC had purchased the Surrey Place Mall property in North Surrey for $40 million. The purpose of that acquisition was to construct the current tower and provide a home for the now defunct TechBC, a technical university created by the former NDP government.
In 2001, the newly elected Liberals folded TechBC in favour of SFU, and the government set about off-loading the tower property.
At the time, a number of Liberals blamed the NDP for the acquisition. Former finance minister Gary Collins said it was a scandal equivalent to the fast ferries fiasco.
“The only difference between this and the fast ferries is that this one doesn’t move,” Collins said in 2002.
Two years later, the Liberals announced they were spending $70 million to acquire 305,000 square feet of the building for the Surrey SFU Campus.
Earlier that year, Central City won the prestigious International Property Market’s Special Jury Award as the world’s best overall new development.
ICBC has said the proceeds from the sale will be reinvested to help keep auto insurance rates down and stable.
The Insurance Corporation of British Columbia (ICBC) announced Wednesday it sold the 25-storey tower to Blackwood Partners Inc. for about $246 million. Blackwood is a real estate transaction group, which bought the property on behalf of a consortium of Canadian pension funds.
ICBC has had the property listed for a few years, describing it as “not appropriate for the company’s investment portfolio.”
The components of the Central City project that have been sold include 570,000 square feet of office tower and podium space, and 490,000 square feet of retail mall space. Simon Fraser University continues to own 305,000 square feet in the tower and podium.
It’s also believed the company is preparing to make an offer on the Zellers store.
All tenants of the building are expected to remain.
Central City has a long and colourful history.
The Leader first reported in 1999 that ICBC had purchased the Surrey Place Mall property in North Surrey for $40 million. The purpose of that acquisition was to construct the current tower and provide a home for the now defunct TechBC, a technical university created by the former NDP government.
In 2001, the newly elected Liberals folded TechBC in favour of SFU, and the government set about off-loading the tower property.
At the time, a number of Liberals blamed the NDP for the acquisition. Former finance minister Gary Collins said it was a scandal equivalent to the fast ferries fiasco.
“The only difference between this and the fast ferries is that this one doesn’t move,” Collins said in 2002.
Two years later, the Liberals announced they were spending $70 million to acquire 305,000 square feet of the building for the Surrey SFU Campus.
Earlier that year, Central City won the prestigious International Property Market’s Special Jury Award as the world’s best overall new development.
ICBC has said the proceeds from the sale will be reinvested to help keep auto insurance rates down and stable.
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