What Will Be The Opportunities to Invest in Commercial Real Estate in The GTA in 2016?

The minor decline in Canadian economy and consequently the commercial real estate sector has prompted people to become concerned about 2016 for commercial real estate investment. The presence of decline cannot be denied; however, it should not give way to pessimism as the silver lining still exists in the year 2016 who wish to make something out of commercial real estate investment in GTA.

The price of Canadian dollar is going down, the decrease in oil prices has effected the economy, the condo boom continues unabated and the stability in US dollar is attracting attention of people. All these make conditions look favourable for investment, yet there are opportunities in the market that can get you through this economic recession.

The best and most conventional commercial real estate investment opportunity available is the investment in Warehouses/Industrial properties and neighbourhood shopping centres. These types of commercial real estate investments have been historically proven to work in economic downturns. The retailers have more to store than to sell and instead of shopping malls people start going to neighbourhood shopping stores, therefore, these are the opportunities that await you in 2016 and can help you generate sufficient return to pass the downturn and invest in lucrative opportunities. 

The other opportunity that can be favourable to commercial real estate investment in 2016 are medical offices and health care facilities. Baby boomers are coming of age now and as prominent and numerous they are getting, their demand for increased and better health care is increasing. The investors will see this as an opportunity and provide for the increasing need of baby boomers, thus, this area is also a good opportunity if you are looking to invest in GTA commercial real estate.

Another commercial real estate sector that can turn to be fruitful for investment in 2016 is the investment in rental units. The condo boom had its effects and the effects are the sky high housing prices which are forecasted to go even higher in the days to come. The increasing house prices has caused a change in behaviour of people and now people are preferring rental units compared to buying a house. The trend has risen to a height that old retirees have started to sell their houses and are shifting to rental units. Therefore, developers and investors are considering investing in rental units to meet the increasing long-lease rental unit demand of GTA people.

The Canadian market has been known to twist and change when the conditions don’t seem favourable. Although the aforementioned are good enough opportunities to invest in GTA commercial real estate in 2016, however, if you are still skeptic of these opportunities, then the low Canadian dollar still stands as a hope which will attract foreign investment and set things on the right course. So, no matter how saddening it seems, there is hope and you can still get fair return on your investment if you invest wisely.

Which Commercial Real Estate Sector Will Standout in GTA in 2016?

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The fact is obvious that the boom which the Canadian real estate sector had been experiencing for the past few years has slowed down gradually and the predictions are that in the coming year the situation will remain the same: the market will remain fairly stable in its current situation and not experience any substantial growth or boom.

Although the market appears to be on a very slow trending decline and will continue to exhibit the same behavior. Accordingly, there is no point for pessimism. The market should remain the same throughout 2016. There are sectors within in the GTA that can still be acquired affording the opportunity to make a profit in the years to come. Before these lucrative sectors are discussed, it is important that you get a glimpse of the existing situation of the Canadian commercial real estate market.

The growth of online shopping, high currency exchange rates and even higher consumer debt levels are making life increasingly more difficult for the retail sector. The office sector is also facing somewhat the same situation where the record new construction has prepared an abundance of office space bringing down the rate of per square foot acquired. The industrial market appears to have held its own with a stable vacancy rate. Older properties are beginning to experience vacancy due to built in obsolescence. The condo boom has slowed somewhat but is still moving forward. 2016 appears to be the first year where may see new purpose built residential rental buildings outstrip condos in construction, with the burgeoning growth in this sector. All in all, the market is at a relativelow this year and the prediction is that it will continue on being the same for the rest of the year in these sectors.

The decreasing energy prices and the plunging Canadian dollar has made the market suitable for manufacturing, transportation and warehousing commercial real estate sector, especially in the Eastern part of Canada with prime activity to take place in GTA and Montreal. In 2016, developers and real estate investors will turn their attention towards the GTA and invest in manufacturing, warehousing and the transport sector.

With energy prices decreasing, resources and workforce will come cheaper to the manufacturing sector, thus, more and more investors will turn towards industrial sector and the rates of real estate in this sector will increase. The same goes for transportation as well, where the low oil prices along with the increasing need of transport for the suburban population will drive the transport sector, thus the associated transport facilities and depots will require real estate sector to accommodate and fulfill the increase in transport needs. Ergo, industrial and transportation are two commercial real estate sectors in GTA that will give you profit even in the steady market of 2016.

The third sector that can also bring you profit despite the saddening situation of the market is warehousing commercial sector. With cost of manufacturing going down and the production increase forecasted in the years to come the need of warehouses as storage units is going to increases. Moreover, warehouses and transport facilities is a trend that is going to rise in the coming year, therefore, the warehousing sector will also grab its fair share in the days to come in the GTA.

In spite of the fact that market is not expected to change much in 2016, yet not only one rather three sectors are expected to give substantial profits in the GTA commercial real estate market. Industrial, transportation and warehouse real estate is what you should be eyeing on in 2016 to make even the market decline look profitable.

How Can I Create Better Lead Generation for Commercial Real Estate Through Internet?

The fact cannot be denied that the use of internet has become an integral part of life and without it we may as well live in the Stone Age. Like other areas of business, the use of internet has changed the commercial real estate industry and now in addition to being a sharp person, a commercial real estate agent has to be an internet savvy person as well.

Online marketing has become an absolute part of a business’s marketing strategy. It can generate loads of leads for your commercial real estate business and help you find suitable leads for your commercial real estate clients. In the following lines, I will share with some tips on how you can generate better and greater leads for your commercial real estate clients through internet.

Internet2Website is ‘The Office’:

The most common way of being found on the internet is through search engine result. The search engine results show your website and upon landing on your website the prospects might consider contacting you for further services.

Pertinent to website firstly, you have to make sure that your website is search engine friendly. You should consider all the SEO factors like keywords, metadata, backlinks and so on to ensure that when people search for some real estate property in your area, your website comes at the top and most prospects visit your site.

Secondly, make sure that when the prospects land on your website, they drop you a query and become a lead. This can be done by designing the website in a user friendly way and making things of interest available to your prospects easily. Make sure that all your commercial properties are listed in a position where they get maximum exposure.

social-media-419944_1920Use The Power of Social Media:

Another platform that is perhaps as strong as search engine is social media. In the world of internet, social media has the same benefit as does word of mouth marketing, and people interested in commercial real estate always stay active and vigilant on social media platforms. All the social media platforms like Facebook, Twitter, Redit, Google+ can all help you spread the word and find prospects that might be interested in commercial real estate. Just make sure that you offer real value to your fans and followers on social media, if you do this, you will notice a hike in your leads.

9365641519_ab84697e21_beBooksAre Influential:

With regards to generating commercial real estate needs through the internet, there will be people who would be telling you to resort to email marketing. Although email marketing has its benefits for general prospects, but if you are looking for commercial real estate leads, you need to show your understanding of market and its behavior. An eBook with your or your agency’s name on it will definitely be a boost in the confidence of investors and thus help you find more investors and greater leads for your commercial real estate clients.

4514786253_5e52bec725Grab Them With Google AdWords:

With organic Search Engine Marketing generating leads might become hard on the internet. If you are facing such competition doing things ordinarily, then you need to utilize Google AdWords and make a Pay-per-Click campaign. With its comprehensive network and sharp algorithm, Google will serve your commercial real estate ads to the investors and consequently you will experience an increase in leads.

Blog_(1)Have A Blog With Industry Information:

The commercial real estate prospects are quite keen about knowing who they are going to do business with, therefore, earning their confidence is important. If you can’t write an eBook as I mentioned above, then the other way you can ensure that the visitors landing on your website become your lead is by establishing a blog that shares industry information. Instead of sharing content of others, you must share your own genuine posts on the blog with industry information. Your knowledge of industry will add to your reputation and will provide the prospects with necessary information regarding investment.

I’ve shared my holistic view of generating commercial real estate leads through the internet. What are your thoughts on it? I look forward to your insights and recommendations.

 

 

What Tech Tools will a Commercial Real Estate Agent Need in His Tool Kit to be Successful in 2016?

Although you might never use some of them, but it never hurts to have a kit that contains tools for solving all kinds of problems. On contrary, the presence of a diverse range of tools makes you feel confident about yourself and this confidence leads to better performance. Same is the case with commercial real estate agents and the presence of tech tools in their tool kit.

The fact cannot be denied that human reliance on technology is increasing with every day; therefore, there is nothing strange in 2016 being more technology oriented compared to 2015. Ergo, in order to make greater sales, earn better profits and experience growth, it is imperative that real estate dealers in general and commercial real estate agents in particular resort to using best tech tools for success in 2016. The lines below discuss some effective tools that can help Commercial real estate agents in this regard.

Drone Wars Begin:Coptercam8_aerial_camera_system

Drones with a camera attached to their end are becoming an increasingly common thing. Commercial real estate agents who utilize drones as a means of capturing an aerial view of their property will have a distinct advantage over those who use models as a means of explaining the 3dimensional view of the property to their clients. If you haven’t bought a drone yet, make sure you have one by the end of this year so that you have a holistic view of the property in the literal sense.

Mobile Scanner:

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The work of real estate agent involves handling documentation and record keeping. In this regard, Xerox’s Mobile Scanner is a device that can come in handy for a commercial real estate agent as it eliminates the need of taking the documents back to office and scanning them, rather, the device allows you to scan the document instantly and keep it stored in it for later printing purposes. Save the redundant trips to office just for scanning a document by carrying Xerox’s Mobile scanner with you in 2016.

 

Google SketchUp:Google_sketchup_logo

Another great tool which commercial real estate agents should get their hands on is Google SketchUp. This tool allows you to create and remodel 3D view of your property, so that the property can be viewed in a more lifelike manner instead of simple images. You can create 3D models of the properties you have enlisted with you and give your entire clients and customers a better virtual view to the property.

Use Sitegeist:GainInsightsKattner_Small

The success of commercial real estate agents is highly dependent upon the insights they have to the area or region. The better the insights the better are transactions. In this regard, one app that I recommend to every commercial real estate agent is Sitegeist. This app can tell you all that you need to know about an area, such as;political contributions, the way people use commute, temperature of the area, the age of residents and so on. With such insights an agent can make a better decision about any commercial property.

Use Cloud Servers:2000px-Cloud_computing.svg

In addition to the risk of theft and data loss in case of system failure, the other drawback of storing client’s information on your laptop or personal system is that you can’t access it all the times. For a commercial real estate agent, the use of technology should mean ease of access to information, therefore, to make sure that you are connected with your information database all the time is to use cloud servers for information. With cloud servers, you can save information and share it with others as well at the time of need without the worry of making your own personal device available to you. In 2016, you should make switching to cloud your top priority if you wish to protect and easily access your information.

In short, to me, the aforementioned tools are a must for every real estate agent’s toolkit in 2016. If you agree or think otherwise about any of them, please share your opinion.

 

 

Where Will The Real Estate Market Of Canada Be In 2020?

When weighing the productivity and profitability of real estate market, there is a variety of factors that need to be considered to arrive at an effective forecast. Every factor contributes a little to shaping the market, ergo when predicting the future of the market, it is imperative that each factor is given due consideration.

Pertinent to the future of Canadian real estate market in general and GTA commercial real estate in particular,numerous factors will directly affect the market and reshape investors’ response to the market by 2020.

“By 2050, the urban population will increase by 75% to 6.3 billion, from 3.6 billion in 2010.” Department of Economics, Population Division, United Nations.

The never-ending chain of cranes in Greater Toronto Area is an example of Canada experiencing increased urbanization. This trend of people moving to the urban regions and increasing the density of urban core will continue in the years to come, which will put the constructors to test. To accommodate the increasing influx, they will have to be innovative pertaining to space utilization and develop commercial as well as residential units that are smaller, yet utilize space with optimal effectiveness.

“By 2030, the fast-growing population will need 50% more energy, 40% more water and 35% more food.” – ULI’s Emerging Trends 2014 presentation

The figures imply that in the days to come, sustainability will be a major factor effecting the commercial real estate market of Canada. Major investors, including Pension funds have already started investing in sustainability in their real estate across Canada. Not only will sustainability save cost of energy for the real estate owners, rather, it will be a demand of tenants as well. Moreover, corporate sector will also require eco-friendly office space because it will add to their ‘green credentials’.

“By 2017, the global social network audience will be 2.55 billion, which will be 70% more compared to 2012.”Pwc Research

Technology will be another major player in shaping the commercial real estate market of Canada by 2020. With more and more people going online, businesses will also shift their focus to the online audience resulting in the space of retail space minimizing. Similarly, offices will have more employees working for them from home or on the go, decreasing the need for office space.However, on the other hand, the demand for distribution centers will increase. Hence, in the coming years, the industrial real estate is to witness an exponential increase in demand.

So, if the market is going to be effected by such factors, then how should an investor respond to it?

Firstly, an investor should develop partnership with financial institutions so that they share the risk and cost of the increasingly dynamic Canadian commercial real estate with the investor. Secondly, in the years to come the investors will need to be adaptable and flexible if they want to become successful players in the commercial real estate market of Canada. Flexibility in terms of considering a wider range of real estate investment options and adaptability in terms of complying with the changes in market, both of which will ensure success for the investors in Canadian real estate market of future.

Which Sector of Commercial Real Estate To Invest in the Greater Toronto market 2015

“We have never seen the capital markets so deep, with domestic and global capital pursuing commercial property across Canada.”Peter Senst, CBRE Canadian Capital Markets President

Senst’s statement is evident of the fact that Canadian economy is prospering and with every passing day, the national and international investment in Canada is increasing in 2015. The Canadian commercial real estate industry is as diverse as it can be, especially in the Greater Toronto Area; therefore, the investors have to carefully weigh all the sectors with regards to their profitability, before making an investment decision.

Research statistics show that over 5.8 million sq. feet of office space is being built as a part of 2013-2017 constructions, and the office space leasing activity will remain strong throughout the year 2015. Although the number of office space being constructed is slightly lower compared to 2014, yet the market offers great potential for the investors. The baby boomers have taken over the millennials as workforce, and their expectations from a workplace, especially in terms of sustainability have increased and this demand will shape the office space demand in 2015. The way the demands of baby boomers will change and the respond of constructors to it is a question that remains unanswered for office space investors in 2015.

“The industrial market is very prudent and is capable of quick adjustments since new constructions usually take less than 12 months to complete.”Andrew Wright, CBRE’s Industrial Practice Leader Canada

Contrary to the slight confusion in the future prospects of office real estate, the industrial market is reliable and has a brighter future in terms of return on investment. The foreign investment complemented with industries being established onshore will support the increasing demand of industrial space in GTA in 2015. Industrial market is more demand and less confusion compared to office space real estate market.

As far as the residential commercial real estate (multi-family apartments) is concerned, this sector of commercial real estate will hold its demand if not experience growth in it. “Rents haven’t decreased despite significant new construction, but we’re starting to see deal structures that are slightly more favorable for tenants.”John O’TooleExecutive Managing Director, CBRE, Toronto. This statement goes on to show that as far as the productivity of this sector in terms of investment is concerned, even if the rental rates become favorable for the tenants, it will result in an increase in the demand of the residential units, thus investment in this sector will be safe in 2015.

On contrary to those investors who analyze everything in detail, there is another kind of investors that can benefit from commercial real estate of GTA region. The GTA commercial real estate market has a sector that can work for the benefit of investors who have a vision and who plan on taking bold steps. “In an environment of change, the bold and the visionaries will benefit most. Many will pause and assess changes on the retail front in 2015, but those who seize opportunities will win big because Canada remains a relatively strong market and the long-term outlook for the retail sector is solid.”Tom BalkosDirector CBRE’s Retailer Service Group.

With Target and Sears investing heavily in GTA, the demand of retail sector will also increase in future; however, this investment is not for those who make decision upon analysis of previous data, rather, the retail commercial real estate investment in 2015 is for investors with vision and guts to take risk.

Among the different sectors of GTA commercial real estate, the industrial sector at this point of time seems the most reliable and shows great promise in terms of its increased profitability in 2015. For rest of the commercial real estate sectors, the future is steady in terms of profitability and growth.

Q1 of Industrial & Commercial Real Estate 2015 of Toronto Compared With Q1 2014

“5,776,322 square feet was leased in office space, industrial space and commercial/retail space during first quarter of 2015 in Toronto.”TREB

This figure is a sum of reports submitted by TREB Commercial Network Members who are spread all across Toronto. The 5,776,322 square feet of leased space is a 28.2 percent increase compared to the entire previous year.This is representative of the fact that industrial as well as commercial real estate market is experiencing a surge compared to the entire 2014.

In addition to the general square feet of lease, the reports contain other information related to commercial real estate of Toronto. The constituents of the reports shed light on several other components and variables of real estate of Toronto when making a quarter-quarter comparison.

The average per square foot lease rate for industrial property in Q1of 2015 was $5.39 which is 4.8 percent greater compared to the same quarter in 2014. On the other hand, the average rate for commercial/retail lease was down by 4.9 percent, making it $19.46 per square foot in Q1 2015. The average rate for office space was $12.64 per square foot, which showed a 2.8 percent increase compared to the first quarter of 2014.

“The economic situation in Canada remained uncertain through the first quarter of 2015 … the industrial leasing news for the Greater Toronto Area was certainly a positive.”Eherington – President, TREB.

At the start of 2015 and throughout its first quarter the economic situation of Canada was not clear and the investors remained uncertain about the direction the economy was going to take. However, the news that the industrial firms in Canada were taking more space retained the confidence of the investors in industrial and commercial real estate of Ontario in general and GTA in particular. Industries leasing more space in an uncertain economic situation meant that the firms had experienced or they hoped to experience some increase in their sales, which for GTA meant that it could actually benefit from the receding Canadian dollar value. All assumptions proved good for GTA and it actually did become the key beneficiary by experiencing a boom in first quarter leases.

Besides all the increase in per square foot price and the general lease space figure, the one area in which the first quarter of 2015 was down compared to Q1 of 2014 was the number of transactions or total sales. The figure in sales for the first quarter of 2015 was 187 which was 28.9 percent less compared to the figure of 263 in Q1 2014. This decrease in transactions was experienced equally by all the major three market segments. It is the increase in per square foot price that covers up for the decrease in the number of transactions and still makes Q1 of 2015 more profitable compared to the first quarter of 2014.

“GTA economy and commercial real estate market is comparatively well-positioned within Canada for 2015.”  saidEtherington.

With the arrival of spring, the economic condition of Canada will become clearer.Only then can the exact impact of it on the commercial real estate could be judged. There is also a possibility that in the remaining quarters of 2015 the GTA industrial and commercial/retail estate market might show volatility in the leasing and sales figure, yet the commercial and industrial real estate of Canada in general, GTA in particular is on a path of boom, and it will continue on prospering throughout the year.

The doomsayers predicting the new bubble are coming at our market from all angles. HilliardMacBeth’s  new book; When The Bubble Bursts, Surviving the Canadian Real Estate Crash, which I just finished reading, provides a very interesting perspective of the market. This book clearly focusses on the residential market, but typically residential fluctuations, whether positive or negative tend to have an impact on the commercial sectors which usually follows. The book looks into  and provides a very insightful look at the level of debt and types of debt compared to the U.S. debt landscape and why we could just as easily be in a bubble which is ready to burst!

Neil Warshafsky and Fraser MacDonald featured in The Hot List 2015

NeilandFraserNeil Warshafsky and Fraser MacDonald have been in commercial real estate business together for 10 years, and with the kind of comforting confidence that clients demand the every-changing commercial market. For the reason, it’s not surprising that the duo had one of their best years in 2014, helping Planned Canada expand to the second floor and brokering the the sale of Toronto’s iconic EL Mocambo music venue.

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Decrease In Office Space Requirement And Its Impact On Commercial Real Estate Of Toronto

“In the Greater Toronto Area the government wants to decrease the real estate footprint by reducing the space requirement from 250 square feet to 200square feet per employee.” TD Economics

The Greater Toronto Area (GTA) does not require any introduction. It is one of the most populous metropolitan areas of the country and attracts a great number of immigrants from foreign lands on daily basis. Moreover, the big corporates also establish their head offices in this region, as it helps them in controlling and monitoring rest of the province and country with ease.

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Retirement Homes: A Lucrative Commercial Real Estate Investment In Toronto

As strange as it might seem, Retirement Homes are increasingly becoming a lucrative component of the real estate market in Toronto. The obvious reason behind this surge in demand is the increase in aging population. Real estate investors know that aging is inevitable; therefore, for them the lucrativeness of retirement homes will increase with the passage of time.

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Office Space Expectations – A Crucial Player in Commercial Real Estate Market of Toronto

The key to success in any market lies in meeting the expectations of the customers or consumers. The more proactive and responsive a business is in meeting the expectations of its target audience, the greater share it captures from the market ensuring dominance. Same is the relationship between the office space expectations of businesses and the commercial real estate owners in Toronto.

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With Companies Trending Towards A ‘No-Desk’ Concept: Will This Affect The Office Market?

Organizations are quite rational to assume this much space for every employee working under their roof. The allocation of this much space is what an employee requires to make his/her personal working space according to their likings; and organizations support it for productivity. However, the trend is changing and now large corporations in general and startup or small businesses in particular are moving towards a ‘no-desk’ concept within their working environment.

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Will The Internet Affect Retail Leasing In Toronto?

There is no denying the fact that internet has transformed our lives and has caused a great shift in the way things were done. Consumers as well as businesses have gone online and they have established an online market where the competition is the same, if not more severe as is in the conventional market.

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Downtown Toronto Is the Place to Invest In Commercial Real Estate

The need of the people pertaining to the kind of living they prefer is what drives the real estate market. If people are more inclined towards convenience where every facility of life is easily accessible then they prefer living in downtown, while if they want a more elegant living that keeps the hustle and bustle of the city at bay, then their preference is the life of suburbs. In Toronto, the former preference is prevalent at present.

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Dragons’ Den Star Reveals He’s the El Mocambo Buyer

Dragons’ Den star and entrepreneur Michael Wekerle revealed last week that he’s the purchaser of the legendary El Mocambo club on Spadina Avenue. He bought the property for $3.78M and says he plans to keep it going as a live-music venue. “It’s afirm deal,” says Royal LePage Commercial’s Neil Warshafsky, who brokered the transaction between Michael and club owners Sam Grosso and Marco Petrucci. The deal is expected to close in December, Neil tells us.

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How many cranes are too many in Toronto?

“We have more cranes in the sky than any major city in North America right now. It’s fantastic.” – Rob Ford

This was the statement of Robert Ford in April 2012 when he was asked about his future action plan pertaining to the betterment and prosperity of Toronto. This statement goes on to show the economic development in general and the construction boom that Toronto was experiencing particularly in 2012.

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Commentary on Where Interest Rates Are Going in Canada

The interest rates have peaked at lower levels for as long as anyone could have imagined, and Canada is no exception.

The Bank of Canada the interest rates are likely to remain “new neutral” – the level that would sustain the economy at full capacity. The rate benchmark has been at 1% for more than four years. Senior Deputy Governor of Bank of Canada, Carolyn Wilkins, stated in the last month that the nominal neutral rate has dropped to a range of 3 percent to 4 percent even further than they have in the past.

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Real Estate Trends 2015– Canadian Commercial Market Value Under Observation!

Even with the tepid job growth, the Canadian office market is in the midst of new development cycle as 14.1 Million sq. ft. of new office space is under construction in downtown markets.

The Chairman of one of the large national brokers states, “The Canadian economy may not be firing on all cylinders, but the Toronto and Calgary office markets turned out quite a performance last quarter.”

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Real Estate Market Trends 2013 – Canadian Market Value Continues To Escalate!

During the recent months, the investors have been receiving mixed signals from Canadian real estate market, as the sales volumes remain uncertain. Some experts are not so encouraging. These pundits have predicted a dangerous trajectory in the National real estate market and an over-heated purchasing scenario. Whereas the consumers and investors look more positive as the market value continues to escalate.

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GTA Commercial Real Estate Investments Scales High, Despite the Dip.

The great metropolitan area, Great Toronto Area, has become an endless war chest of capital with too little commercial inventory for the downpour of the property purchasers. The demand of everything from apartment buildings to retail storefronts and industrial buildings in Toronto is soaring high among the investors, but the sales in all those sectors remains depressed.

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Your burning question debated

Canadian Real Estate Wealth pitted two industry experts against each other to answer a burning question about real estate investing

The QUESTION

Residential or commercial:

Which is the better type of property investment?

The answers

Neil Uttamsingh

uttamsingh

An Oakville, Ont.-based investor and founder of FirstRentalProperty.com. He also works as a real estate agent, and was previously involved in the financial services industry.

There was a time, early in my real estate investing career, in which I thought that commercial real estate was a better investment than residential. I was young and naïve at the time and have come to realize that residential real estate is the far Superior investment.

Residential real estate is better because the possibility of owning a rental property is not out of the reach of the average income earner. All things being equal, you do not have to be making a six-figure income if you want to acquire a rental property in the residential world. If you are an average income earner, with the help of a quality investment focused mortgage broker, you can purchase a rental property with relative ease. Once you purchase this rental property, you can rent it out and have your tenant pay down your mortgage over the next 25 to 35 years, depending upon the length of the amortization period.

What this means to the average person is that once you have reached the age of retirement, you will have an asset that is free and clear of a mortgage. This strategy of investing in residential real estate is realistic and it is attainable. If you decide to purchase multiple rental properties, it is the best way to amass over a million dollars in equity over the course of your lifetime.

Neil Warshafsky

uttamsingh

Is a broker with Royal LePage Real Commercial Advice in Toronto, Ont. Specializing in commercial property investments, Warshafsky has helped many buyers find the best commercial properties for their needs.

Commercial real estate investment is a different form of investment than residential. The two are as different as investing, in say, bonds or equities. Commercial investment differs in the following main points: may offer superior yields as the growth in value results from market gains, property changes of use (higher and best use concept), increase in rents, better calibre of tenants, renovations, and a myriad of other factors. There are many more ways in which the value of a commercial real estate investment can be increased. Commercial real estate investment requires the investor to possess a different level of expertise, a certain degree of risk tolerance, an understanding of differing laws, which affect their asset. The possibility of more capital outlay (may be accumulated by investors grouping together in many legal structures) should also be considered. The investor should also have a network of professionals, such as environmental consultants, appraisers, engineers, architects, lawyers and other commercial real estate specialists. Commercial management is more formal, which less hands on work to be done as the tenants treat their premises as a professional space and not their home.

Typically, tenants who occupy commercial property pay all the associated costs involved in operating the property. Accordingly, the owner can insulate their investment from the exposure of incrementally increasing utility expenses, realty taxes and other associated costs, which are typically not recoverable under residential leases. It is possible to amortize the costs of certain capital replacements, such as air conditioning and other similar upgrades depending on the circumstance. Commercial real estate typically affords the investor a unique combination of cash flow and a payout on the sale; therefore it can generate a fairly good yield and internal rate of return.

Investing in Commercial Properties – Part 3

In Part 3 of Canadian Real Estate Wealth’s commercial investing series, Mark David reports on how to conduct due diligence when investing in commercial properties.

The best kind of property investor is an informed one, and the more knowledge they have, the better their situation will be. Neil Warshafsky, a top commercial broker with Royal LePage Real Estate Services Ltd, echoes that statement.
“A serious due diligence exercise is integral to the success of investing in real estate,” says Warshafsky.”
Performing due diligence not only arms prospective buyers with the necessary knowledge about what they would like to
acquire but is also vital to helping them identify certain issues that may present them with difficulties later on.
Warshafsky explains: “It is highly recommended that all buyers complete a responsible research and analysis in advance of firming up of a purchase. Due diligence will serve to identify any concerns that may affect the viability of the investment.
Such concerns may be financial constraints, which could reduce the value, legal issues, environmental and a host of other issues, which may reduce the interest in the property, hence value.”

A STEP-BY-STEP PROCESS

STEP 1 – Initial Review

“Typically, an initial review of the property and all background material that is available from the seller for review by the buyer is performed by the buyer and any advisors that they feel would be in a position to confer the best feedback,” says Warshafsky.
First-time commercial investors should focus their attention on the following criteria before engaging in the purchase process.

  • Location

This includes any background information about the area the property is located in. Examples include property values, vacancy rates, and key demographics (especially applicable if the chosen property will be used as a retail outlet).

  • Type of property

What type of commercial property is best and offers the greatest chance of good returns (retail, industrial, office space, etc.).

  • Ownership history

This includes when the property was built, who previously rented it, and whether or not any extensive renovations were made by the previous owner(s).

  • Background information on the seller

This includes whether or not they have a proven track record.

  • Long-term cash flow potential

 

STEP 2 – Legal and Financial Matters

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Legal matters are an important part of any real estate acquisition, however large or small. First-time buyers may encounter difficulties in this area, so it is best for them to have all the information they need before pursuing a deal. “The buyer would likely engage its lawyer to complete a review of the leases, along with the balance of the legal matters, which may affect the real property,” Warshafsky explains. “[The buyer’s] accountant may review the income statement and the financial issues.”

Both residential and commercial real estate deals are bound by legal issues, and there are many differences between the two. “Commercial real estate is much more complex than residential, as it has its own nuances and mode of doing business,” says

Warshafsky. “Each type of commercial real estate investment has its complexities.

Simply put, office buildings have different measurement standards from industrial o retail properties. Issues like ownership, lease histories, and zoning may also prove to be a thorn in a prospective owner’s side if they are not properly reviewed prior to closing the deal. “You must complete a careful review of all leases, offers to lease and any other contracts which can serve to bind the property and affect the bundle of rights that the owner may enjoy,” says Warshafsky. “Issues such as rights of way, easements and other legal rights which may affect the real property should be reviewed. Municipal concerns should be looked into as the zoning and by-laws are constantly changing and may affect the value and use of the property.”

Also important are the legal ramifications of commercial tenancies. “There are different legal issues in the lease form for each type of tenancy,” Warshafsky says. “HST is applied against rent and all expenses including realty taxes. In essence,it is more complicated for real estate ownership. Concerns over encumbrances and other financial debt should be reviewed and addressed.”

Warshafsky adds that “one must be experienced in the understanding of leases, legal ownership, environmental concerns, and

a myriad of other factors.”

STEP 3 – Structural Analysis

“Typically, a soil test is conducted to determine the stability, compaction and nature of the soil,” says Warshafsky. “A review is completed of the foundation and walls to determine the structural soundness of the building. Normally, these tests will yield a result as to the structural integrity.” Following these three steps will allow buyers to learn as much as they can about the property before the deal goes through and the final signature is scrawled on the contract.

“This process affords the buyer with the time to identify any concerns that may affect his buying decision and whether the contract that was negotiated properly reflects the value of the asset being acquired,” Warshafsky says of the steps of the due diligence process.

How much due diligence is enough?

“The simple answer is that one can continually search for answers and keep on asking questions, and the due diligence process could conceivably continue for an infinite period,” says Warshafsky. Commercial investors tend to focus their due diligence on four specific areas of concern when on the lookout for new property acquisition opportunities. “These pillars of concern would be broadly classified as follows: legal, financial, environmental and physical,” Warshafsky clarifies. “If these areas of concern are found to be satisfactory, many buyers would typically move forward with the contemplated acquisition.”

Informed investors will generally perform the correct amount of due diligence, usually paying attention to these four factors. However, some investors, especially first-timers, might overanalyze these and other factors, a habit that has resulted in the death of many a deal. “Many investors, especially first-time buyers, can become paralyzed due to overanalyzing what should be simple concerns and overemphasizing these issues,” says Warshafsky. “Accordingly, they may focus too much on one particular [aspect] and ultimately convince themselves to not proceed with the contemplated purchases.” Warshafsky adds that it is fairly typical

with less experienced buyers and those who have very little risk tolerance. “They are unable to quantify the concern and address

it through many possible solutions, and the matter may get in the way of their intended purchase, he says.”

Commercial Investment Primer

Commercial Investment Primer

With real estate markets in major centers on the rise, commercial properties are quickly becoming hot commodities. In Part 1 of this series, Mark David reports on why the time to buy commercial properties is now

When a prospective real estate investor looks for properties to purchase, there are a number of options available to them. The majority of first-time investors will choose to go the residential route, and will begin to build up a portfolio of residential properties over time. Some investors will tend to stick to the residential market, as it others good chances for a decent ROI and cash flow. Plus, hot residential markets will allow for them to purchase more properties and earn even more positive capital. However, as good as that may seem, these investors often overlook the fact that great opportunities also lie in commercial properties.

The  Ontario commercial real estate market has enjoyed a protracted period of positive sustained growth,” explains Neil Warshafsky, Broker of Record with RCA Toronto, Inc. “ is has been fueled primarily through a combination of low interest rates, higher rents greater occupancies low unemployment and a host of other positive factors.

There are a number of key factors, Warshafsky adds, that influence the demand for commercial properties. “Demand has spurred as a result of many influences such as higher immigration, the consolidation of real estate ownership into fewer hands through syndication, securitization and other forms of corporate ownership, and concerns over alternative investments such as bonds and equities,” says Warshafsky. “Accordingly, with fewer properties trading coupled with greater demand, property values should continue to escalate. We are still on the up- slope of the current commercial real estate cycle,” Warshafsky continues. “A generous supply of fresh capital into the market mixed with a growing economy has served to foster an ideal time for investors to step into the commercial real estate market.”

Variety is the spice of commercial properties

Just as is the case with residential investing, there are various types of different commercial properties available to buyers who are eager to make the jump to commercial real estate. there is something for everyone in the world of commercial investing, and each type of property has its own merits.

There are many types of commercial properties available to invest in. they include office, industrial, retail and multi-family buildings as the industry cornerstones,” Warshafsky says. “Also included would be hotels, nursing/ retirement homes, and other special purpose properties.”

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Regarding the types of buyers these kinds of properties would attract, it all really depends on the investors and what they are looking for. Indeed, the investors themselves are often just as varied as the types of properties available on the market. “Investor profiles would include a diverse range of individual investors, insurance and other investment companies, trusts and other institutional ownership structures,” says Warshafsky. the type of real estate investment and investor may be determined by the equity requirement, location, risk tolerance and a myriad of other factors.”

The majority of buyers like to start small when purchasing commercial properties. A “first-time commercial buyer might choose to purchase one or more smaller properties in the beginning, such as storefronts, for example. As they continue their commercial investment journey and gain more valuable experience, they might cast their nets out further and move up to offices, mid-sized industrial buildings, and other such properties.

Seasoned commercial investors might go after significantly larger purchases, which include factories, strip malls, larger shopping malls, high-rise apartment complexes, or entire office towers. e more experience the investor has with commercial investing, the more likely he or she would be to chase after the big game on the market.

The Financial Details

Commercial and residential real estate may differ from one another in many ways, but there is one unifying thread between the two – the fact that there may be risks involved when making purchases. One major issue that prospective buyers might encounter is cap rates, which are a measure of risk.

Commercial investing requires buyers to be more knowledgeable about aspects Of the purchase and ownership processes

“Capitalization rates differ depending on the type of property, the age, location, “financial covenants, size, environmental and other concerns,” Warshafsky clarifies. “Typically, the lower the cap rate, the safer the property is as an investment. Naturally, if a property is 100% leased to a national bank on a net basis, the cap rate or yield would be much lower than if it is leased to an independent ‘Mom and Pop-type’ independent restaurant.”

By examining cap rates on different types of commercial properties and the risks and rewards involved, investors can determine which types of properties are right for them. Says Warshafsky, “there is a direct correlation between the risk and reward when it comes to commercial real estate investments. As an example, cap rates for multi-family [buildings] or apartments are generally lower than those found for industrial properties.”

One important thing that “first-time investors should know before entering the commercial scene is that these types of properties tend to carry higher price tags. According to Warshafsky, “the main difference lies in the complexity, understanding and management skills required between the two. Commercial properties typically cost more on average than residential properties, so the barrier to entry is “financially greater.”

Warshafsky adds that commercial investing requires buyers to be more knowledgeable about various aspects of the purchase and ownership processes, in addition to being mindful of the “financial characteristics. “It [commercial investing] requires a better, more comprehensive understanding of leases, physical repair matters, zoning, legislative concerns, taxation issues, “financing and in general, a greater knowledge of the issues which affect real estate,” he says. “Residential ownership is a much simpler form of ownership. It is much more accessible due to the ease of buying a house or condominium.”

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Smaller Investor and Commercial Real Estate

Accessibility is another important part of the decision to buy commercial properties. Both veteran and smaller-time investors will “find that the commercial real estate market is readily accessible to them, something that may influence them to start diversifying their portfolios. Also important are the various means by which smaller investors can get into the market.

CREW14_74-79-3“Smaller investors may invest in and have access to commercial properties either directly using their own capital (such acquisitions will have disproportionately

large expenses upfront), or indirectly through REITs, buying stock in public real estate companies, through real estate syndication’s and other forms of group ownership,” Warshafsky says of smaller investors’ access to the world of commercial real estate.

However, as Warshafsky indicates, there are some “financial barriers that may make commercial investing a challenge for smaller investors. Caution should be exercised by smaller investors when dealing with these factors.

“There are significant “financial barriers to entry that will increase the cost of admission,” Warshafsky says. “Legal fees, environmental reports, physical assessments,

Appraisal costs, accounting fees, mortgage fees, management costs and other associated due diligence expenses will prevent the buyer from receiving benefits from any economies of scale.”

The fact that the majority of these costs are not scalable could potentially drive up the costs of acquiring a commercial property, which, in turn, could have an effect on profits in the future.

“Many of these costs are not scalable and as such, may disproportionately increase the acquisition costs for a commercial property,” says Warshafsky. “These expenses will affect the acquisition cost base and likely carry forward a burden which may unduly affect the returns and ultimate profit on sale.”

Although smaller investors with the capital for it are free to invest in commercial real estate, many of them expect it to be relatively simple, like buying residential properties. But in reality, it’s anything but. Certain rules and regulations for commercial properties differ greatly from residential, as do the kinds of occupants and various legal aspects.

TYPES OF COMMERCIAL PROPERTIES

There are various types of commercial properties available to investors.
They include:

  • Office space
  • Office complexes
  • Strip malls
  • Shopping malls
  • Factories
  • Warehouses
  • Storefronts
  • Hotels
  • Motels
  • Restaurants
  • Multi-family housing complexes
  • Medical centres
  • Hospitals
  • Nursing homes
  • Garages
  • Distribution centres
  • Sports facilities

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“Residential properties are somewhat easier to manage and understand. The tenants are residential occupants, so the laws, management issues and other related matters are fairly uniform,” Warshafsky explains. “Commercial leases, tenant issues are more complicated and challenging. Issues such as complicated amortizations, chargeback’s, exclusivity concerns and many other legal and managements concerns are the norm in commercial ownership.”

Proper knowledge of the commercial market is another requirement, as those who lack it are potentially liable to make costly mistakes. It is better for investors to arm themselves with as much knowledge as possible before closing a deal, for if something goes wrong, they may find themselves in a heap of trouble.

“A commercial investor must have a much broader knowledge of real estate issues,” Warshafsky advises. “Commercial properties are not as liquid as residential properties, so in the event of a disposition, the process may not be as smooth.”

Hot residential markets vs. commercial markets

Both residential and commercial markets in most major metropolitan areas can be incredibly volatile. Either market could alternate between periods of heavy activity and drought periods where fewer properties are sold. !e choice to invest in either type of property is always available, but those who invest in commercial real estate often choose to stick with their guns for as long as possible.

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“If the residential market gets hotter, it is likely that new, less sophisticated investors will enter that market,” says Warshafsky. “Certainly, investors will have a choice and some will remain and continue to  invest in the residential marketplace. Commercial investors remain dedicated to their choice of investments. !is [type of] investor is somewhat more sophisticated and knowledgeable. Many have experience through several real estate cycles and do not normally flip-flop between [the two types of properties].”

RESIDENTIAL VS.COMMERCIAL PROPERTIES

Both residential and commercial real estate offer worthwhile investment opportunities

for potential buyers, but the two have many differences, especially in terms of pros and cons. Here, Neil Warshafsky breaks down the pros and cons of each.

ACCESSIBILITY TO INVESTORS

Residential properties are much more accessible to an investor, and are much easier

to locate and acquire. They normally require less capital, and usually have less risk associated with them. Financing for residential properties is more readily available. Selling and disposing of residential properties is also much easier. There are many reasons why a typical investor may look at residential investments as an option. There may be renovation costs involved, but typically these costs can be quantified and controlled.

EXPERIENCE VERSUS CAPITAL

Commercial properties typically have more “moving parts,” and require more expertise. Generally, they require more capital and more upfront expenses, and may not be as liquid on exit. When being acquired, there is a much more comprehensive and complicated due diligence process which would likely include the involvement of a lawyer, accountant, environmental expert, physical inspectors, mortgage brokers and possibly other consultants. In addition, there may be costs upfront to renovate, for leasehold improvements, incentives to tenants, commissions, etc. Commercial properties are not as easily financed and the loan-to-value ratios are normally lower than that for residential properties and as such are much more capital intensive. Commercial properties are not for the faint of heart and require a lot more attention.

GENERATION OF GOOD RETURNS

Both can generate very attractive returns, but investors should be knowledgeable about the nature of each of the investments. The returns for either investment may be good; and commercial properties have the potential to generate high returns as they are influenced by many factors. These may include: increased rents, hence cash flow and value; change of use through zoning; and the possibility of increased density and many other potential factors which may produce greater yields.

Observing market trends for commercial properties

As there are various types of commercial properties available in most major markets, the outlook for each one is different. According to a recently-published report from PwC, rents and values for office spaces are on the rise. !is has allowed for the construction of many new office complexes across the country.

Demand for office space is also steadily increasing due to falling unemployment rates in some markets, and commercial developers will be looking to capitalize on this as much as possible. Environmentally-friendly developments will likely be a big hit with investors, as they seek to house more employees within smaller capacities.

For retail spaces, PwC indicates that the markets are tight and will continue to tighten, thanks to northward expansion by many major U.S. retail chains. A perfect example of this is American retail powerhouse Target’s displacement of nearly all of Canada’s Zellers department stores. !is, says the report, could signal “a dynamic moving around of tenants,” and could possibly “sound the death knell for some weaker domestic brands in the most Darwinian of property sectors.”

Property owners, however, are interested in this activity, as some U.S. brands have experienced difficulties in entering the Canadian market. Key factors like zoning issues and vigilant lenders have ensured that new developments will be kept in check for the foreseeable future.

Industrial properties are also part of the commercial sector, but unlike retail and office spaces, they have been on the decline. the PwC report specifically points to warehouses as having very limited vacancies across the country. Potential investors should take note of the fact that growth in the industrial sector has been relatively slow, and this can be attributed to high currency exchange rates and the state of the economy in the U.S.,

Demand for office space is steadily increasing due to falling unemployment rates in some markets

Which in turn, has had a significant impact on both imports and exports? Supply is not  the issue here, the report explains, as weaker leasing markets have forced developers to shift their focus away from new industrial starts, despite average rents that are lower than property replacement costs.

Looking ahead

Increases in population often have a profound effect on major markets. For residential properties, spikes in population result in the construction of numerous new starts in order to keep apace with the growing demand. !is is just as applicable to commercial properties as it is to residential properties. As Warshafsky explains, if interest rates remain low and demand increases, the outlook for commercial investing will be very favorable for potential buyers.

“In the NationalPost, it was stated that the population within the GTA is expected to increase by 2.6 million people by the year 2031,” Warshafsky says. “Assuming interest rates remain low over the next few years, and demand remains high, along with the fact that commercial real estate is falling into fewer hands, the picture for the commercial real estate market remains very positive.

“there are fewer transactions, as investors are concerned over where they can re-invest, and many of the institutions and REITs do not re-sell their assets on a regular basis,” he continues. “It appears at least for the next several years that the demand will continue to outstrip the supply.”

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20-12-2012 – ANNOUNCEMENT

We are extremely pleased to announce that we have joined Royal LePage Commercial within the Brookfield Asset Management owned Royal LePage Real Estate Services Ltd.   We both met at 33 Yonge Street in the 1980’s at Royal LePage Commercial and enjoyed some of the best years of our commercial real estate careers there. We are excited to be part of the team in the re-launching of this long-standing Canadian commercial brand in the company’s 100th anniversary.  Our group of seasoned commercial agents will join us at the new company. Our location and contact information will remain unchanged.

 

We remain committed to providing our clients Real Commercial Advice® at all times!

 

Neil Warshafsky, Broker Fraser J. MacDonald, Sales Representative
T: 416-907-8001 T. 416-848-1992
nhw@royallepagecommercial.com fmacdonald@royallepagecommercial.com
nwarshafsky@gmail.com macdonald.fraser@gmail.com
www.neilwarshafsky.com www.fraserjmacdonald.com

302 Bridgeland Avenue, Suite 100

Toronto, ON M6A 1Z4

www.rcatoronto.com

 

10 TIPS – Commercial & Residential Investing in Today’s Market

The Ontario commercial real estate market has enjoyed a protracted period of positive sustained growth. This has been fueled primarily through a combination of low interest rates, higher rents, greater occupancies, low unemployment and a host of other positive factors. Demand has spurred as a result of many influences such as: higher immigration, the consolidation of real estate ownership into fewer hands through syndication, securitization and other forms of corporate ownership, and concerns over alternative investments such as bonds and equities. Accordingly, with fewer properties trading coupled with greater demand, property values should continue to escalate. We are still on the up-slope of the current commercial real estate cycle. A generous supply of fresh capital into the market mixed with a growing economy has served to foster an ideal time for investors to step into the commercial real estate market.

Read more