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Benjamin Tal on outlook for 2012

Here are notes from the event.  Benjamin Tal is the chief economist for CIBC World Markets and viewed as one of the top experts on real estate in Canada.  Here are his thoughts on Europe, China, the US recovery, and the impact on Canadian real estate.  Excellent information!

See notes from the event here…

Don Campbell on 2012

Don is another top expert that we follow closely as an active member of REIN.  Here are his thoughts on the market moving forward – ignore averages, ignore stats, be aware of key influencers, always invest based on cash flow, “buy green” & the four Fs.  See the full blog here & contact us today for how to invest for as little as $10,000 to capitalize on this market.  Read the full article on Don’s blog here…

Why we’re buying in AB and not the US or other foreign markets

High uncertainty, low growth the outlook for international real estate.  The year 2012 is shaping up to be a challenging time for real estate companies, headlined by the “wildcard” of the European debt crisis, China’s decelerating growth and continuing weakness in the U.S., according to Graeme Eadie, vice-president of Real Estate Investments with the Canada Pension Plan Investment Board (CPPIB)

RENX.ca article here…

Multi-family a safe haven real estate investors

Rather than single-family residential property, the hot ticket these days is multiple-family dwellings. At a luncheon for financial analysts with the Edmonton CFA Society, Eric Bonnor, senior vice-president with Brookfield Asset Management in Toronto, quoted from the publication Emerging Trends in Real Estate 2012, a survey of 950 real estate executives. Edmonton Journal article here…

REMINDER….. all cell phone numbers are being released to telemarketing
companies and you will start to receive sales calls.
YOU WILL BE CHARGED FOR THESE CALLS

To prevent this, go to the following web-site for Canadian Telephone
Numbers:  www.lnnte-dncl.gc.ca

It is the National DO NOT CALL list. It will only take a minute of your
time.  It blocks your number for five (5) years.

I see china slowing down, but I see the government responding in a very quick and appropriate way.  US economy is moving in the right direction.  We will outperform most economies, but still low growth of 2%  Yield like reits will enjoy the benefit of uncertainty in that the BOC will not want to change rates.

INTRODUCTION AND PRESENTATION BY BRYDON CRUISE – BROOKFIELD – NOTES:

TOTAL $32B market cap for securitization of real estate in canada.  Brydon suggests there is room to grow this internationally.  In Germany for example, there was an IPO with a 35% discount to NAV for the launch of an offering.  Just not a very mature market yet.  In other words, there is huge room to grow for real estate securitization in the rest of the world and particularly in Europe.

In Canada, while we account for about 2.5% of the World’s GDP we have been very active in foreign markets and have been making 12% of the trades globally.  $5.7B of total capital raised for canadian reits/recos in 2011 – 25% of transaction activity occurred internationally and was deployed outside Canada.  Foreigners have not been buying in canada to the same degree – mostly we presume because they are dealing with issues on their own soil.

CHART: STABILITY OF THE INDEX SPREAD

Spread over the GOC 10-year and the yield of the REIT index was at a minimum in June 2007 (.4%) and a maximum in March 2009 (10.7%).  Currently the spread is at 3.3%

REITS have been growing their cashflow more than their dividends.  REITS have done a good job of holding their dividends stable while cashflows have increased and as a result their payout ratios have been reduced to below 90% (below the dividends), thus eliminating some of the concerns of a few years ago regarding the dividends REITS were issuing in excess of cash flows. A healthy place to be.

CHART: HISTORIC CLASS A TORONTO OFFICE – current cap rate is 5.9%; current debt is approximately 3.8% and the spread is approximately 2.1%

If I have a worry it is interest rates.  Spreads and Margin are pretty vulnerable to changes and have kept our system healthy.  Rates are forecasted to rise, and managers should act accordingly.

BENJAMIN TAL – CIBC WORLD MARKETS NOTES 

I spent 2 hrs with BOC yesterday – and they have no clue. Everyone is uncertain.  More uncertain than usual. “The real measure of intelligence is what you do when you don’t know what to do”.

“So what do you do, you don’t take chances”

Monetary policy will be extremely conservative as a result.  With possible reductions in interest rates.

EUROPE

In Europe, Greece will default.  They will not call it a default.  But if you bought Greek debt you will call it a default.  Italian financing requirements for italy is $790B euro by 2015.  ECB will start printing money eventually.  But before that you will see more blood.  ECB is not in favour of quantitative easing.

Possible Outcomes:

1. Eurozone collapse.  Germany can not allow.  Germany needs the Euro more than the Euro needs Germany.  60% of exports go to Eurozone.  If Eurozone falls it will kill this exporting machine called Germany.

2. Smaller Eurozone – without portugal, greece – if Greece exits, migration etc… nobody wants this, and it is unlikely.

3.  Eurobond – ECB buying eurobonds to allow some time.  Between now and then, it will be extremely volatile. The euro will go down.  They will start printing money in a different way then they have been, perhaps more like Bernanke.

CHINA

China is slowing down.  Because it wants to slow down.  Until now, inflation was 6-7%.  China can shift/stop policy so quickly.  Real estate bubble in China is softening.  BC Lumber exports to China is at a 34 month low.  In 2008 China’s infrastrucutre stimulous was double the size of Obama’s.

Much of the first round of infrastructure investment money was borrowed by Special Investment Vehicles.  A lot of leverage.  From here on in, the government is ensuring that lending is secured on the basis of the project and not on the basis of the government.

We are all SO dependant on China. If china goes to hard lending – we are in a huge global recession. However, the Governent in China can react so quickly and they are already moving towards soft lending. In the next 6 months I would be defensive on commodities due to the Chinese situation.  Thereafter, probably not. With respect to Gold, it will continue to shine during all of this global uncertainty.  But at one point gold will be crushed when it no longer becomes comfort food.  Gold is ok.. for now.

USA

I can spend 2 hrs telling you how bad things are in the US.  But I am starting to see some interesting things.  This american consumer is de-leveraging at a phenomenal rate.  They have ALMOST brought household debt to disposable income levels to the historical trendline.  US credit card charge off rates almost back “to normal”.

US Employment – Obama – despite all of the unprecedented stimulous, QE, and investment unemployment actually got so much worse than it was previously.  Unemployment went to 10% and resulted in a very severe economic recession.

Economics 101 will tell us something: If the unemployment rate doubles, lower wages should come in to place and counteract.  HOWEVER this is the first recession ever, that wages DID NOT GO DOWN.  2/3 of the jobs that were lost in the recession were manufacturing and construction.  Can you really re-shift this expertise to other tasks?  You can’t.  Obama can spend as much as he wants but the structural change in unemployment can not be solved that quickly/easily.  All of the jobs created in the recovery WERE ALL MEN – men suffered the most.  Investment rising far faster than employment.

The most important derivative lesson for Economics students from this recession will be The ongoing renaaissance in the US manufacturing sector.  The sector has been expanding for the past 20 months.  For the first time these manufacturers have an emerging market.  The consumers in the emerging markets are big enough to make a huge difference (China.. etc). What these new emerging consumers want is not Junk.  They want quality and a brand name.  Competition is based on QUALITY and not COST.  Penetration in these markets by North American firms is 20%

Previously manufacturing was to produce products that suited needs of a highly-leveraged US consumer.  IT HAS BEEN TURNED THE OTHER WAY.  And it is allowing North American Manufacturing to compete in a big way. FIRST RECESSION EVER WHERE INVESTMENT IS RISING FASTER THAN EMPLOYMENT.  Investment has not created any jobs AND the fastest growing export from US to China is TOYS!!! We thought all of the toys in the world were made in China!

CANADA

We have to be a bit careful with economic data.  40% of GDP over the last ten years has been the government.  Can’t last forever.  Must be replaced.  Hasn’t been the consumer.  Has been business investment.  Business investment is the real pioneer of this investment cycle.  Moving away towards leverage into business expansion.

Composition of growth more important than growth itself.  Have to go even deeper: we must talk about debt.  The debt to income ratio in canada is rising and it is rising faster.  Everyone is talking about it.  However, The debt to income ratio is meaningless.  You are comparing the stock of debt to the flow of income – it is not apples to apples.

Consumer Credit is now rising at the slowest rate since 1992.  Mortgages rising at slowest rate since 2001. SO, Debt to Income is rising and credit is decreasing.  So, its not the debt story.  It is the income story and incomes have not been rising.

There are 7 countries with higher Debt to Income ratios than Canada.  Many of them are AAA economies.  So this alone may not be a concern. What might be a concern is that 1/3 of borrows in Canada are heavy borrowers.  This group is increasing.  Older people are taking on more debt as well. We need to pay attention to this group, and thankfully most of our banks are.

The big question: “To what extent is this country sitting on a real estate bubble?”

There is no doubt in my mind that house prices in this country have overshot.  In order to crash, you need a huge increase in interest rates or a subprime situation.

INTEREST RATES:  I’m convinced that this central bank will not increase rates in the foreseeable future – simply because when you don’t know what to do is that you don’t take chances.  This Bank is very strong compared to predecessors and they do not want to take risks.  This central bank is not going to change rates anytime soon.

SUBPRIME: Debt is slowing down.  Prices will be falling.  Prices stagnating a little.  10-15% price softening – but not a crash unless the ratios of highly leverage buyers continues to rise closer to the point where interest rates will be increased.

CASH: There is so much corporate and indiviudal cash.  $35B of extra cash looking for direction.

BANK OF CANADA HAS INDICATED WE ARE AT RECORD HIGH DEBT BUT THAT WE HAVE RECORD HIGH CASH. Can’t we just write a cheque?  Problem is that people with the cash are not the same people with the debt.

Majority of the people with the cash are over 55 yrs and this is the nature of the demand of the REIT market – the search for demand and the search for yield.  This is not a linear recovey.  The first half was BOC, government, second half has been private and business investment.

SUMMARY:

I see china slowing down, but I see the government responding in a very quick and appropriate way.  US economy is moving in the right direction.  We will outperform most economies, but still low growth of 2%  Yield like reits will enjoy the benefit of uncertainty in that the BOC will not want to change rates.

It has been a busy year in 2011.  In a market climate with global uncertainty, occupy movements, major world economies being debt downgraded, and volatility in equity markets, the majority of investors in the world today are looking for stability and security.  Canadian commercial investment real estate has attracted a lot of interest and markets have been very active.  Foreign investment has been flooding into Canada, and certain asset classes and cities in Canada are receiving the lion’s share of this direct foreign investment causing some overheating and drop on returns for investors as the demand for a safe place to put their money is highly competitive.

Where does this leave you? The investor looking for your opportunity in the current investment climate, knowing that times like these provide rare opportunities to capitalize.  How can you take advantage and know where to put your hard earned capital?

Continue reading full article here…

Alberta is booming again…RBC Report

Amid the heightened economic uncertainty spreading globally in the past several months, Alberta’s steady progress toward full recovery from the recession is refreshing.  RBC Report here… 2012 12_RBC_economic outlook – AB

Multi-family is the in demand asset class!  Momentum Expected to Carry Over Into 2012

In an era where stability is prized, multi-housing properties will continue to be in favour. This is the only commercial property type in Canada that is performing similarly in the U.S. With only 2.7% vacancy across the country, strong fundamentals and little new supply will result in even lower vacancy and rising rents in 2012. There is little construction across the country, but future construction is likely to occur in Alberta where significant population growth and a lack of rent control exist. The rush to homeownership will continue to slow and improving youth employment prospects will increase demand from this important cohort. Investors will continue to seek opportunities to purchase multi-housing assets, but supply will remain tight in 2012 if economic uncertainty persists.  Report from CBRE on all Canadian markets here…

Multi-family properties are the hot ticket over single family

Rather than single-family residential property, the hot ticket these days is multiple-family dwellings.  At a luncheon for financial analysts with the Edmonton CFA Society, Eric Bonnor, senior vice-president with Brookfield Asset Management in Toronto, quoted from the publication Emerging Trends in Real Estate 2012, a survey of 950 real estate executives by the accounting firm PricewaterhouseCoopers and the Urban Land Institute.   Edmonton Journal article here… •   REIT.com article here…

Real Estate Executives views on the risks & opportunities for 2012

An opinion poll taken at the closing session of this year’s Toronto Real Estate Forum on December 1st found that the majority of those participating in the session were ‘slightly pessimistic’ about 2012. This is a change from the 2011 Forum where the attendees were ‘cautiously optimistic’.  Real estate executives on the panel seemed to share a similar sentiment as expressed by the poll but nevertheless they are moving ahead with their corporate strategies that utilize the seemingly endless supply of capital that continues to be available in Canada.  Renx.ca article here…

Contact Parkhurst today to find out how you can capitalize on this growth in one of our Limited Partnership offerings.  1.888.317.3337 or email us here…

Beginning early Monday afternoon, the bond market began to rally sharply as word came out that S&P were going to place 15 (out of 17) eurozone sovereigns on negative watch for possible downgrade, including all six AAA-rated nations (Germany, France, Austria, Netherlands, Finland, and Luxembourg). S&P is apparently concerned about the impact of systemic stress within the eurozone on economic growth, although the downgrades themselves are very likely to amplify such stress, possibly leading to a negative feedback loop. A euro summit is taking place this coming weekend where Germany and France will push forward a plan to enhance governance and oversight rules to better enforce the Maastricht Treaty criteria. As mentioned before, this is the best plan I’ve heard on how to tackle this ongoing problem and likely a precondition for popular German support of broader bailout measures.

This morning the bond market in Canada reversed course and began to sell off somewhat as BoC Governor Mark Carney held the overnight rate at 1.0% yet again – in line with expectations – citing concerns about Europe and global growth, while at the same time suggested he is not willing to lower the rate either, citing the existence of considerable monetary stimulus in Canada, momentum in household spending and strong business investment.

Also, building permits in Canada increased by 11.9% MoM (+1.6% expected) in October.

Quoted from our friends at First National Financial LP - http://www.firstnational.ca/

The Canadian Press – 10/26/2011 7:26:22 PM

Perspective: Losing our Sense of it . . .

By Mary Beth Hicks

Call it an occupational hazard, but I can’t look at the Occupy Wall Street protesters without thinking, “Who parented these people?”

As a culture columnist, I’ve commented on the social and political ramifications of the “movement” – now known as “OWS” – whose fairyland agenda can be summarized by one of their placards: “Everything for everybody.”

Thanks to their pipe-dream platform, it’s clear there are people with serious designs on “transformational” change in America who are using the protesters like bedsprings in a brothel.

Yet it’s not my role as a commentator that prompts my parenting question, but rather the fact that I’m the mother of four teens and young adults. There are some crucial life lessons that the protesters’ moms clearly have not passed along.

Here, then, are five things the OWS protesters’ mothers should have taught their children but obviously didn’t, so I will:

Life isn’t fair. The concept of justice – that everyone should be treated fairly – is a worthy and worthwhile moral imperative on which our nation was founded. But justice and economic equality are not the same. Or, as Mick Jagger said, “You can’t always get what you want.”No matter how you try to “level the playing field,” some people have better luck, skills, talents or connections that land them in better places.

Some seem to have all the advantages in life but squander them, others play the modest hand they’re dealt and make up the difference in hard work and perseverance, and some find jobs on Wall Street and eventually buy houses in the Hamptons. Is it fair? Stupid question.

Nothing is “free.” Protesting with signs that seek “free” college degrees and “free” health care make you look like idiots, because colleges and hospitals don’t operate on rainbows and sunshine. There is no magic money machine to tap for your meandering educational careers and “slow paths” to adulthood, and the 53 percent of taxpaying Americans owe you neither a degree nor an annual physical.

While I’m pointing out this obvious fact, here are a few other things that are not free: overtime for police officers and municipal workers, trash hauling, repairs to fixtures and property, condoms, Band-Aids and the food that inexplicably appears on the tables in your makeshift protest kitchens. Real people with real dollars are underwriting your civic temper tantrum.

Your word is your bond. When you demonstrate to eliminate student loan debt, you are advocating precisely the lack of integrity you decry in others. Loans are made based on solemn promises to repay them. No one forces you to borrow money; you are free to choose educational pursuits that don’t require loans, or to seek technical or vocational training that allows you to support yourself and your ongoing educational goals.

Also, for the record, being a college student is not a state of victimization. It’s a privilege that billions of young people around the globe would die for – literally.

A protest is not a party. On Saturday in New York, while making a mad dash from my cab to the door of my hotel to avoid you, I saw what isn’t evident in the newsreel footage of your demonstrations: Most of you are doing this only for attention and fun. Serious people in a sober pursuit of social and political change don’t dance jigs down Sixth Avenue like attendees of a Renaissance festival. You look foolish, you smell gross, you are clearly high and you don’t seem to realize that all around you are people who deem you irrelevant.

There are reasons you haven’t found jobs. The truth? Your tattooed necks, gauged ears, facial piercings and dirty dreadlocks are off-putting. Nonconformity for the sake of nonconformity isn’t a virtue.

Occupy reality: Only 4 percent of college graduates are out of work. If you are among that 4 percent, find a mirror and face the problem. It’s not them. It’s you.

Marybeth Hicks is the author of “Don’t Let the Kids Drink the Kool-Aid:

Confronting the Left’s Assault on Our Families, Faith and Freedom.” Find her on the Web at www.marybethhicks.com.

(c) Copyright 2011 The Washington Times, LLC.

Alberta’s oil sands are a key factor in global oil pricing, says head the of Total S.A. chairman. In an article by the Globe & Mail, he explains Alberta’s resources are an increasingly important source of energy in a world where finding and extracting oil is becoming more and more difficult.

This is leading to increased investment in Alberta, which creates jobs, housing demand, and ultimately rising real estate prices. See here for a visual example of the impact energy appetites over the coming years.  Is now the time to buy real estate in Alberta?

Hiring spree at Ledcor, other companies

Ledcor, a major industrial employer, is hiring 9000 people in 2011 in anticipation of a major Alberta labour shortage that is predicted to last for years.  Many other well known companies are doing the same – hiring now for jobs in the near future.

When there is a high demand for workers, a simple cause and effect takes place; people move to Alberta for work, rental demand increases, rents increase, and finally, real estate prices increase.  Be prepared for this to unfold over the next 12-24 months.

Click here for the details of Ledcor’s hiring plans.

2012: Vacancy down, rents up, prices up

According to the latest CMHC report, we’re heading for another period of growth in Alberta.  Vacancy rates are expected to drop to levels not seen since 2008, and this will push prices higher in 2012.