Retailers are filing for bankruptcy at a record rate as they try to cope with the rapid acceleration of online shopping.
In a little over three months, 14 chains have announced they will seek court protection, according to an analysis by S&P Global Market Intelligence, almost surpassing all of 2016. Few retail segments have proven immune as discount shoe-sellers, outdoor goods shops, and consumer electronics retailers have all found themselves headed for reorganization.
Meanwhile, America’s retailers are closing stores faster than ever as they try to eliminate a glut of space and shift more business to the web. S&P blamed retailer financial struggles on their inability to adapt to rising pressure from e-commerce.
Urban Outfitters Chief Executive Officer Richard Hayne said as much on a conference call with analysts last month. There are just too many stores, especially those that sell clothing, he said.
“This created a bubble, and like housing, that bubble has now burst,” said Hayne. “We are seeing the results: Doors shuttering and rents retreating. This trend will continue for the foreseeable future and may even accelerate.”
Jim Elder, S&P Global Market Intelligence’s director of risk services, wrote that first quarter results suggest there’s no quick recovery in sight. Sears Holdings Corp., Bon-Ton Stores Inc., and Perfumania Holdings Inc. are among the most vulnerable in the coming year, according to an S&P analysis of public retail companies. Sears acknowledged in a March filing that there is “substantial doubt” about its future. Fitch named retail chains including Nine West Holdings, Claire’s Stores, and children’s clothing outlet Gymboree Corp. in a study late last year. A spokesman for Nine West declined to comment. (Representatives from Bon-Ton, Perfumania, and Claire’s didn’t immediately respond to requests for comment.)
Department stores, electronics retail, and apparel shops are at highest risk, according to S&P. The food and home improvement segments are safest.
Apparel retail has been particularly hard hit, with The Limited, Wet Seal, BCBG Max Azria, and Vanity Shop of Grand Forks each seeking court protection in 2017. The latest victim was Payless Inc., which filed for bankruptcy April 4 and said it would shutter 400 stores.
Rue21 may be next. The embattled teen apparel chain is said to be filing for bankruptcy as soon as this month, according to people familiar with the matter. Or perhaps it will be Gymboree, which Bloomberg News reported is preparing to file for bankruptcy as a June 1 debt payment looms.
Published on: April 22, 2017 | Last Updated: April 22, 2017 8:00 AM EDT
Montreal’s real estate market is about to become a game of musical chairs, and anybody who doesn’t get a seat soon could be left standing, permanently.
It might be easy to remain complacent about your ability to buy a house in Montreal. After all, Montreal’s median prices for single family homes – detached, semi-detached and row houses, among the first to become unaffordable to the average person – are $300,000 lower than they are in Toronto, and $500,000 less than in Vancouver.
An average person with average income can still entertain thoughts of buying a house downtown. The slow but steady increases in prices – two, three, four per cent – can act like the proverbial slowly heating water the frog doesn’t know is about to boil. But if you’re renting now, and figure you’ll buy a house someday when that next promotion comes through or the baby’s born, it might be too late.
All the signs of a market on the brink of unaffordability are there. Worries about a saturated condo market sagging in 2015 turned around sharply in 2016. Montreal registered the lowest unemployment rate in 30 years last December, and immigration levels are skyrocketing, with the first six months of 2016 – the latest figures available – outstripping all of 2015.
And foreign investors are almost certainly already on their way to the next undervalued, untapped real estate market now that Ontario has imposed a 15 per cent tax on foreign buyers in Toronto as B.C. did for Metro Vancouver. More money drives prices up. So does more people. Put them both together in a city with the obvious and perennial attractions of Montreal, and it might spell the end of the affordable house on the island.
The jig’s already up in Vancouver and Toronto, of course. Anyone of average income who didn’t buy at least 15 years ago can only peer through the windows as she walks through downtown neighbourhoods. But these cities can serve as object lessons for Montrealers, glimpses into the future, as it were. Vancouver and Toronto were ranked the first and second most unaffordable cities in Canada for 2016, according to the Royal Bank of Canada, which has been tracking housing affordability since the 1980s. Montreal is No. 3.
Though median incomes are almost precisely the same in all three cities, the home price index, a figure that some real estate boards calculate to represent as close to a true average as they can, should be enough to shock you out of your complacency. In Toronto, the number is $727,300. In Vancouver, it’s $906,700. And that’s including condos. (Vancouver’s benchmark price for a single family dwelling is more than $1.2 million.)
But for the moment, things are looking pretty good, even if it does increasingly seem like the quiet before the storm. According to Montreal-based real estate market analyst JLR, the median price for a home in Montreal last year was $410,000, up four per cent from 2015. Compare that with the median income – median being the middle entry in a list of numbers, as opposed to the average, which is the sum of all divided by the number of entries, a figure that can be greatly swayed by extremes on either end – which was $75,010 in 2014, the latest year for which figures are available. That income, depending on your debt situation, could get you a mortgage for a house in the $350,000 range. That’s pretty close to the median, which means that there are still a lot of houses that are still perfectly affordable for average folks. Those salaries are not going anywhere fast – Montreal’s median is within about $1,000 of both Toronto and Vancouver – but housing prices are a different story. And that’s where RBC’s affordability index tells the clearest story.
The bank calculates the total cost of home ownership – interest rates, Taxe de Bienvenue, everything – and expresses it as a percentage of the median household income.
“The rule of thumb,” says senior RBC economist Robert Hugue, “has been that 32 per cent is what we call affordable.”
Montreal passed that point way back in 2003, but it’s now at 40 per cent for all housing types, meaning 40 per cent of your gross income would have to be spent on your house. Toronto is at 64 per cent, and Vancouver at 92 per cent. There are two important points to note here.
First, looking only at single family dwellings, Toronto jumps to 76 per cent, and Vancouver to a ridiculous 130 per cent, whereas Montreal climbs just one per cent to 41 per cent. That means there’s not that much difference between condo and single family home expenses (when you factor in things like condo fees), which means it still makes more sense to buy a house. Second, that 40-per-cent mark where Montreal is sitting right now? That’s exactly where Toronto was 15 years ago. Nobody’s saying Montreal’s market will reproduce those steep climbs, but that affordability number doesn’t have to go much higher before those island houses slip out of the average grasp for good.
And in case you’re hoping the province’s political rollercoaster might lend a helping hand by dowsing the prices from time to time to give you a second chance, don’t.
“We haven’t seen any price decreases since the middle of the ’90s,” says Paul Cardinal, head of Centris, the central listing for all properties in Quebec. “We tried to empirically test that hypothesis, but we weren’t able to see any significant effect of politics on real estate prices.”
Condos are a different thing, and there will always be some small ones available at the lowest end of the market. But if it’s a house you want, JLR analyst Joanie Fontaine figures you should probably act now.
“As population grows, there will be fewer and fewer single family houses,” she says, “and the price of these types of houses will grow faster, and you will need to be farther from the centre of the city, and you’ll need to leave the island.”
So if you want to own a piece of the place, you’d better do it, and quick. Here’s how and where:
If you’ve got the financial wherewithal, or have a parent who can help, what are you waiting for? But if you don’t, or don’t think you do, it can pay to get creative.
Buy with a friend
If you’re not part of a couple, or even if you are, buying a first property with a friend or relative can make it a hell of a lot easier. According to Teddy Kyres, a mortgage specialist at BMO’s Quebec HQ in the Vieux Port, the bank simply sums up your collective debts, assets and incomes when determining your eligibility. You’ll want to get a lawyer to draw up an agreement to avoid any misunderstandings later in case one of you wants to buy the other out, needs to exit the deal or wants to add another name to the title (in case of marriage, for instance). It’s nothing too complicated and something to consider.
Buy a plex
The plex, or multiplex, is an idiosyncrasy of the Montreal market. Sure, other markets have houses that can be or have been divided into units, but on the Montreal real estate market, they’re a feature, and an affordable one. The median price for a plex (anywhere from two to five units) in the Plateau is $669,000. You would need to come up with a 10-per-cent downpayment, but half the income from the rental units is factored into your mortgage application. It’s not a no-brainer – 10 per cent of $669,000 is almost $70,000 after all, but there’s no other major market in Canada where it’s easier to go from tenant to landlord in one step.
Sell the car
As affirmed by Statistics Canada, Montrealers are less dependent on their cars than other Canadians, but if you own a car, sell it. If the sale price could help you get from, say, a five-per-cent to a six-per-cent downpayment on a $350,000 mortgage, you could save about $738 a month: $20 a month in reduced mortgage payments, and $718 in car expenses, according to CAA. That’s about half of the $1,488 that mortgage would cost you each month if you negotiated it right now.
Montreal’s assets are spread pretty thick on the ground. The markets, the canal, the pedestrian streets, the strips of cafés, bars, restaurants, and boutiques that anchor neighbourhoods’ continued attractiveness and value are all over the island, but the property values have only just begun to reflect the fact. Here are four ways you can stay ahead of the curve. We’ve used the statistics for single family detached homes – which represents about 32 per cent of Montreal’s households (second only to multi-family dwellings five storeys or less) because this is the alpha house, the top of the hierarchy, the one we tend to picture living in when we’re settled, and the first to pop off the top of the affordability chart.
Median price for a single family detached: $337,500 (all figures from centris.ca)
Go to Mile-Ex, and ask the first young woman with Dries lounge pants and mom-style sneakers where she’s opening her next pop-up DJ kiosk/bone broth stand she’ll tell you Villeray. Just like Mile-Ex was the next Mile End, and Mile End was the next Plateau, Villeray is the next Mile-Ex, and if you get in now, you can get ridiculous deals. Bonus incentive: According to CMHC rules you can get a mortgage with just five per cent down on the entire price of a home under $500,000. There aren’t many neighbourhoods in many Canadian cities – including Montreal – where this means you can get away with a pure five per cent down, but Villeray’s one of them.
And Mercier-Hochelaga-Maisonneuve’s another. Both Cardinal at Centris and Fontaine at JLR mentioned this part of town as one they thought still had good values, but where prices would rise quickly. According to Fontaine, the number of families earning more than $80,000 a year doubled in this neighbourhood between 2010 and 2016, from 10-20 per cent. “It seems like it’s a neighbourhood worth investing in,” Fontaine said. The housing stock here is largely ‘60s- and ‘70s-style duplexes, the sort of squat, light brick jobs with below-grade garages out front that the typical Mile End dweller might scoff at. But look at Google Maps. It may not seem it quite yet, but this is downtown.
There’s a price jump here, but look at that median – still well under the $500,000 mark. And I presume you’ve seen the Botanical Garden, at the Sherbrooke St. edge, as well as Jean-Talon Market. This neighbourhood’s going nowhere but up, and is the very definition of the sort of place – like Toronto’s St. Lawrence neighbourhood, for instance – that first-time buyers in 2030 are going to dream about living in on their commute from Terrebonne.
Le Sud-ouest didn’t used to be a well taken care of part of town. But of course that’s changing now, and the property values have reflected it north of the Lachine Canal in Griffintown and St-Henri, but south of the canal is still a very good value, and will only get better as ice cream stands and street artists start to populate more of the 14.5-kilometre stretch of urban potential. Montreal’s newest and possibly coolest gin-maker, Cirka, set up shop there just last year. You could, too.
“I hear a lot of times, ‘what’s going to happen to the mall? The mall is doomed,’ ” said Franco Custodinho, senior vice-president leasing at Ivanhoé Cambridge.
“(But) I’m firmly of the opinion that there is some place for the shopping centre. It’s still a meeting place; it serves as an entertainment venue for a lot of people that see shopping as entertainment and they want somewhere to go, somewhere to meet.”
Speaking at a session on the future of retail, Custodinho noted the sector is always evolving, with many retailers that were flourishing 10 years ago now gone, including Aeropostale, HMV and Blacks Camera.
Consumers today want retail experiences they cannot replicate simply by picking up their smartphone and going online, said Sarah Kimes, associate vice-president, brand strategist, of architectural firm CallisonRTKL‘s Dallas office. The firm designs shopping malls around the world.
“They have all the power they’ve ever wanted in the palm of their hand. If they’re getting off of their phone and going into a store, it has to be something special (and) unique.”
E-commerce looks to bricks-and-mortar
Custodinho said e-commerce retailers are opening brick-and-mortar stores because their customers want to be able to touch and feel what they buy. “That’s not to say they won’t continue to shop online, (but) they want a tangible store.”
Retailers want to draw consumers into brick-and-mortar stores so they can upsell and get additional business they wouldn’t get online, he said.
“The most successful brands have multiple channels as opposed to just one,” said Kimes, citing Amazon, Bonobos and Blue Nile as examples.
The business model also has to evolve, she said.
“If I go into Macy’s and try on a pair of shoes, but I (then) open up my phone and click on Macy’s and have them deliver to my house, does it count as an in-store purchase or an online purchase?”
Retailers are attempting to develop in-store experiences that can’t be replicated online, Kimes said, citing Sephora’s makeup application service as an example.
Better customer experiences
Every shopping centre Kimes’ company is working on is either adding a food hall or some sort of unique food destination, she added.
While shopping used to be the No. 1 experience in the mall, today’s strong centres provide a unique customer experience, are well-located and have the right offerings, Kimes said. The mall of the future will be more about flexibility, community, a mix of uses and access to public transit.
Scott Lee, principal of Northwest Atlantic Canada, was on hand to provide an update of the leasing status of former Target and Future Shop stores across the country.
Of the 141 Target stores, 104 are occupied and 37 are vacant. Among those that are vacant, 16 are vacant with interest expressed in leasing. Some stores are being left off the market for redevelopment potential.
Fifty-two of 79 Future Shops are occupied, 26 are vacant and one is vacant with interest.
Derick Fluker, principal of FORM Retail Advisors, noted many Future Shop landlords are still receiving rent and “there’s zero motivation to do a (bad) deal if you’re still being paid by what is a great covenant.”
Asian, European retail influx
Lee said many Asian and European retailers are looking to enter the Canadian market. That means there is a huge opportunity for local operators “who can steer them through the headaches of operating in Canada” and through issues like logistics, HR and taxation.
Custodinho said the Vancouver market is faring better than the national average in terms of retail sales growth. It has increased 8.2 per cent during the past three years, compared with three per cent nationally.
Fluker said Vancouverites feel wealthier because of rising house values, but might have less disposable income to pay for housing costs.
The Canadian Press Published Monday, April 10, 2017 8:06AM EDT Last Updated Monday, April 10, 2017 8:23PM EDT
DENVER — A ski resort company that stretches from Quebec to Colorado was purchased Monday by the Aspen Skiing Co., setting up seismic changes in a sector with few multistate ski operators.
Aspen Skiing Co. is partnering with Denver-based KSL Capital Partners to acquire Intrawest Resorts Holdings for about $1.5 billion, including debt, Aspen Skiing said in a statement.
Intrawest owns Steamboat Ski Resort in Colorado, Snowshoe in West Virginia, Stratton Mountain in Vermont, Mont Tremblant in Quebec, Blue Mountain in Ontario and the Canadian Mountain Holidays heli-skiing operation in British Columbia. Intrawest also operates Winter Park ski area in Colorado.
KSL Capital Partners owns Squaw Valley and Alpine Meadows in the Lake Tahoe area.
Aspen Skiing Co. owns the Snowmass, Aspen Mountain, Aspen Highlands and Buttermilk resorts.
The consolidation gives the industry a huge new player. Aspen Skiing has long resisted consolidation with larger owners, focusing on its smaller size and mix of ultra-wealthy out-of-town visitors and ski-savvy locals.
After Monday’s acquisition, the company now stretches coast to coast and in two countries, though the acquired resorts will retain the Intrawest name. The heli-skiing operation that was sold is the world’s largest operator of helicopter ski trips that put skiers atop mountains so they can ski virgin snow.
The Aspen Skiing Co. acquisition gives its main competitor, Vail Resorts, a challenge.
Vail recently acquired North America’s biggest and busiest ski resort, Canada’s Whistler Blackcomb Holdings Inc. The purchase brought Vail Resorts to a dozen ski areas, all of them destination resorts that court overnight guests.
The consolidations — not new in a ski industry that has seen long periods of consolidation in the past — won’t be noticed by customers in the short term, said Mike Kaplan, Aspen Skiing’s president and CEO.
There are no immediate plans to change lift ticket prices or amenities at any of the acquired resorts, he said.
“What’s unique about each community and each mountain, we’re going to preserve that,” Kaplan said. “We’ll make sure they’re authentic and present to a long-term customer, ‘This is why I love this place.”‘
It’s unclear whether Aspen Skiing will try to use the purchase of the resorts to imitate Vail’s wildly popular Epic pass, which allows skiers to buy one pass to ski multiple times at its different resorts.
Kaplan said Intrawest’s Super Pass will continue as usual next year. It skiers access to Eldora, Copper Mountain and Winter Park plus days at Steamboat Springs and Crested Butte —
Aspen Skiing Co. will continue to offer its Max Pass, which offers just a couple days at 44 resorts spanning North America, from Taos, New Mexico, to Mont-Sainte-Anne near Quebec City Canada.
Kaplan said skiers increasingly want to try ski resorts far from their homes and prefer to use a ski pass that works for a number of them instead of buying pricier per-day lift tickets at the different resorts.
“They’re crazy about getting out and going skiing and they want to go out to more places,” Kaplan said.
by Lindsey Rupp, Lauren Coleman-Lochner, and Nick Turner
The battered American retail industry took a few more lumps this week, with stores at both ends of the price spectrum preparing to close their doors.
At the bottom, the seemingly ubiquitous Payless Inc. shoe chain filed for bankruptcy and announced plans to shutter hundreds of locations. Ralph Lauren Corp., meanwhile, said it will close its flagship Fifth Avenue Polo store — a symbol of old-fashioned luxury that no longer resonates with today’s shoppers.
And the teen-apparel retailer Rue21 Inc. could be the next casualty. The chain, which has about 1,000 stores, is preparing to file for bankruptcy as soon as this month, according to people familiar with the situation. Just a few years ago, it was sold to private equity firm Apax Partners for about a billion dollars.
“It’s an industry that’s still in search for answers,” said Noel Hebert, an analyst at Bloomberg Intelligence. “I don’t know how many malls can reinvent themselves.”
Americas Retailers Are Closing Stores Faster Than Ever
The rapid descent of so many retailers has left shopping malls with hundreds of slots to fill, and the pain could be just beginning. More than 10 percent of U.S. retail space, or nearly 1 billion square feet, may need to be closed, converted to other uses or renegotiated for lower rent in coming years, according to data provided to Bloomberg by CoStar Group.
The blight also is taking a toll on jobs. According to Labor Department figures released on Friday, retailers cut around 30,000 positions in March. That was about the same total as in February and marked the worst two-month showing since 2009.
Urban Outfitters Chief Executive Officer Richard Hayne didn’t mince words when he sized up the situation last month. Malls added way too many stores in recent years — and way too many of them sell the same thing: apparel.
“This created a bubble, and like housing, that bubble has now burst,” he said. “We are seeing the results: Doors shuttering and rents retreating. This trend will continue for the foreseeable future and may even accelerate.”
Year-to-date store closings are already outpacing those of 2008, when the last U.S. recession was raging, according to Credit Suisse Group AG analyst Christian Buss. About 2,880 have been announced so far this year, compared with 1,153 for this period of 2016, he said in a report.
Extrapolating out to the full year, there could be 8,640 store closings in 2017, Buss said. That would be higher than the 2008 peak of about 6,200.
Retail defaults are contributing to the trend. Payless is closing 400 stores as part of a bankruptcy plan announced on Tuesday. The mammoth chain had roughly 4,000 locations and 22,000 employees — more than it needs to handle sluggish demand.
HHGregg Inc., Gordmans Stores Inc. and Gander Mountain Co. all entered bankruptcy this year. RadioShack, meanwhile, filed for Chapter 11 for the second time in two years.
Other companies are plowing ahead with store closures outside of bankruptcy court. Sears Holdings Corp., Macy’s Inc. and J.C. Penney Co. are shutting hundreds of locations combined, reeling from an especially punishing slump in the department-store industry.
Americas Retailers Are Closing Stores Faster Than EverOthers are trying to re-emerge as e-commerce brands. Kenneth Cole Productions said in November that it would close almost all of its locations. Bebe Stores Inc., a women’s apparel chain, is planning to take a similar step, people familiar with the situation said last month.
“Today, convenience is sitting at home in your underwear on your phone or iPad,” Buss said. “The types of trips you’ll take to the mall and the number of trips you’ll take are going to be different.”
But even brands moving aggressively online have struggled to match the growth of market leader Amazon.com Inc.
The Seattle-based company accounted for 53 percent of e-commerce sales growth last year, with the rest of the industry sharing the remaining 47 percent, according to EMarketer Inc.
While high-end malls continue to perform well, the exodus away from brick-and-mortar stores is taking a toll on so-called C- and D-class shopping centers, according to Oliver Chen, an analyst at Cowen & Co. There are roughly 1,200 malls in the U.S., and those classes represent about 30 percent of the total, he said.
The glut of stores is far worse in the U.S. than in other countries.
“Retail square feet per capita in the United States is more than six times that of Europe or Japan,” Urban Outfitters’ Hayne said last month. “And this doesn’t count digital commerce.”
Still, the Class A malls continue to thrive, Chen said. And most Americans continue to do shopping in person: Customers prefer physical stores 75 percent of the time, according to Cowen research.
The key is creating the right experience, whether it’s online or off.
Retailers should “refocus on customers,” Chen said. “Management needs to be fixated on speed of delivery, speed of supply chain, and be able to test read and react to new and emerging trends.”
The drivers behind the need for new office space have been evolving over the past few years, as have the types of spaces they’re looking for, presenting challenges for landlords.
“Owners have to do whatever is necessary” to give tenants what they want, Allied Properties REIT (AP.UN-T) president and chief executive officer Michael Emory said during a panel discussion at CIBC’s 22nd annual real estate conference on March 30.
“It’s not voluntary. If you don’t, you’ll fall behind.”
What Allied tenants want
Allied owns, manages and develops urban office environments and specializes in modernizing former light industrial spaces while still maintaining their original character. Its portfolio is worth more than $5 billion.
Emory stressed that the three primary things Allied tenants are looking for are “good air, good natural light and configurations that facilitate open planning,” and that “it’s incumbent on us to make whatever investment is necessary to afford them those attributes.”
Companies also consistently ask for terraces and Allied has secured several tenants by providing them, even though Emory said there are so many restaurants, bars and other amenities around most of his REIT’s buildings that the occupants usually make little use of them.
President and CEO Jan Sucharda said his company has been receiving more requests for bicycle storage and showers for people who use pedal power or jog to work. Smaller and mid-size firms are also looking to share meeting spaces with other tenants so a board room of their own isn’t sitting empty much of the time.
“We have a hybrid evolving with a number of tenants, where they come in and want a combination of traditional space and some areas that could be considered communal space, like a kitchen and staff lounge that would be open concept and open ceiling,” said Sucharda.
“It’s a way to change the culture of an organization.”
While companies attempting to reduce costs may look at reconfiguring and reducing office space to make it more efficient, it generally doesn’t mean they’re cutting employees but are raising head counts to more than one per desk.
More firms are employing the office hoteling format, in which workers dynamically schedule their use of desks, cubicles and offices.
Slate and KingSett trying to cater to tenants
Slate Office REIT (SOT.UN-T), one of Canada’s most active acquirers of commercial real estate, looks for value in office space inventory often overlooked by large commercial real estate platforms focused on the biggest buildings in the cores of the largest cities.
The REIT has a portfolio of 35 office properties in urban and suburban locations, and CEO Scott Antoniak said his tenants desire parking and access to mass transit.
“There’s no universal solution for all tenants,” said Antoniak, who believes owners have to be flexible and shouldn’t dictate what a space has to be, but should work with tenants to see what they want.
KingSett Capital executive managing director Joe Mazzocco said access to public transit is also a priority for his company’s tenants, along with options for expanding.
“Tenants want to know that as they grow their business they can do it in the same space or the same building,” said Mazzocco, whose national private equity real estate investment firm manages assets of $6.7 billion in a $9.2-billion portfolio.
Tech companies helping to drive office market
Technology companies are undergoing the greatest expansion at KingSett properties, according to Mazzocco, followed by non-banking financial institutions and healthcare and education tenants.
Sucharda said more tech, communications and media companies are moving from older brick-and-beam structures to more traditional office buildings, while Emory said more conventional office users such as banks are starting to adopt the types of properties that Allied works with.
Toronto is Canada’s key office market and shows no signs of relinquishing that title, though the tech sector is growing in importance in Vancouver and Montreal and is likely to become a more important player in Calgary.
Gradual recovery for Calgary office market
All of the panelists’ companies own assets in Calgary and they expect its office market to recover, though the consensus is that it will take time. Sucharda said there’s been a “flight to core” in Alberta’s largest city as some companies are taking advantage of low downtown rents and consolidating their operations.
“Prices in Alberta have fallen materially so, if you’re looking for somewhere that you can make a big bang, Alberta is that spot,” said Mazzocco, noting the importance of making decisions on a risk-adjusted basis in a volatile market.
“While it has the highest potential upside, there’s also risk to it.”
“We would be prepared to consider acquiring assets in Calgary that fit our investment focus, but there are simply no opportunities available,” said Emory. “There is no apparent distress in the ownership base of the sort of assets that we focus on.”
The orange cones that have been bedeviling Montreal motorists appear to be paying off. Montreal’s real estate community is decidedly buoyant about the high number of construction projects in the city.
The Maison Manuvie, a 27-storey development being constructed by Ivanhoe Cambridge in Montreal.
“This is an exciting time to be a Montrealer,”Montoni Group director of business development Mike Jager said at the recent Montreal Real Estate Forum. “For the last 40 years, we saw the rest of Canada grow while we stood still.”
But for the first time in decades, people are moving back to the city, he says.
Jager should know: He moved back to Montreal after a stint in Toronto. “I missed the city. Success without happiness had no meaning.”
Bernard Poliquin, senior vice-president, office-Quebec at Ivanhoe Cambridge, notes there are a number of developments underway in the city that are worth billions of dollars. “We’re living through something in Montreal that hasn’t been seen since the 1960s,” he says.
Major developments underway in Montreal
Here’s a look at some of the developments on the island of Montreal that have the real estate community so optimistic:
* Champlain Bridge – The new bridge connecting the island of Montreal to the South Shore is expected to cost $4.23 billion and is slated for completion by December 2018. More than 50 million vehicles use the existing bridge annually, making it one of North America’s busiest. The bridge will include three lanes of traffic in each direction, a cycling and pedestrian path and will house a new electric train to the South Shore;
* The réseau électrique métropolitain (REM) or Metropolitan Electric Network – The $6-billion light rail electric train system will link the airport, West Island, South Shore and North Shore to downtown. It’s being built by the Caisse de depot’s infrastructure division CDPQ Infra. The Caisse estimates it will bring $5 billion in real estate investments in its wake;
Pierre Elliott Trudeau International Airport – An additional $1.07 billion in investments is planned for the airport between 2017 and 2021, adding to the $1 billion invested since 2012. Renovations will include new airport parking terminals and a recladding of the main terminal building, says Charles Gratton, vice-president, real estate and commercial services, Aeroports de Montreal.
With 16.6 million passengers in 2016, the Trudeau Airport saw a seven per cent increase over 2015. It should soon reach the symbolic 20-million passenger level – which would transform its designation from a medium-sized to a major airport, Gratton says. “Air Canada wants to make Montreal a small hub,” he says, which will boost traffic further.
City of Montreal concentrating on infrastructure
After decades of neglect and crumbling roads, water mains and potholes, the city is taking infrastructure seriously. It will try to complete repairs on an average of 676 kilometres of infrastructure each year for the next 10 years.
The construction plans are expected to cost an average $702 million per year, an increase of 89 per cent from 2016.
“In 10 years, you won’t recognize the infrastructure of Montreal,” says Alain Marcoux, managing director of the City of Montreal.
* Turcot Interchange – The crumbling 50-year-old interchange, which connects Highways 15, 20 and 720 and has a traffic volume of more than 300,000 vehicles daily, is being rebuilt at a cost of $4 billion. The project includes the reconstruction of Angrignon, De La Verendrye and Montreal-Ouest interchanges, and adjacent sections of Highways 15, 20 and 720;
*Centre hospitalier de l’Universite de Montreal (CHUM) – The $3.1 billion new downtown hospital is set to open its doors by the end of the year. It will bring together the Hopital Notre-Dame, Hopital Saint-Luc and Hotel-Dieu in its downtown setting;
* Bonaventure Expressway – The elevated stretch of the expressway from the Lachine Canal to downtown is being transformed into an urban boulevard at a cost of $142 million by the City of Montreal. Green spaces will fill in much of the area freed up by the demolition of the elevated highway. The new public spaces are being touted as a link between Griffintown, Old Montreal and downtown;
* Ste. Catherine St. – A four-year plan to revamp the iconic shopping street is scheduled to begin in 2018 and last until 2022. It will include heated sidewalks on a 2.2 km. stretch of the street.
Downtown development also in works
A number of office towers and mixed use projects are underway or planned in the downtown area. Here’s a look at some of them:
* Devimco has announced plans for a $400-million project to build six highrise towers ranging from 20 to 32 storeys at the site of the former Montreal Children’s Hospital in western downtown. The six-tower site would include a hotel, office buildings, park, library, community centre and social housing for the elderly;
* Construction is well underway on the 27-storey Maison Manuvie. Developed by Ivanhoe Cambridge at a cost of about $200 million, the building will have 486,500 sq. ft. of office space;
* Ivanhoe Cambridge is also renovating Fairmont The Queen Elizabeth horwl at a cost of $140 million. The common areas and about 500 guest rooms are scheduled to open in time for Montreal’s 375th-anniversary celebrations, while the rest will be renovated by the end of the year;
* Cogir and the Fonds immobilier de solidarite FTQ are developing Humaniti, a $200-million-plus, mixed-use project that will combine a hotel, office space, commercial space, rental apartments and condominiums.
Completed in 2003 and 2004, respectively, and originally known as Cité du commerce électronique (E-Commerce Place), the buildings have about one million square feet of space. They were owned by KanAm Grund of Germany.
Five per cent cap “new benchmark”
The sale at a five per cent cap rate represents “a new benchmark” for Montreal, said Bernard Poliquin, senior vice-president, office-Quebec at Ivanhoe Cambridge.
Poliquin said the sale also shows interest in Montreal has increased among Quebec, Canadian and foreign investors and that the investment market is becoming very competitive.
“We’re living through something in Montreal that hasn’t been seen since the 1960s,” added Poliquin, citing a number of developments in the city that are worth billions of dollars.
He was one of the speakers at the Montreal Real Estate Forum on March 28 who discussed the evolution of the Montreal office market.
Brian Salpeter, senior vice-president, development at Cadillac Fairview, said the five per cent cap rate sale is “a positive sign for the value of buildings downtown.”
Downtown vacancy rates should remain stable
Marie-France Benoit, senior director, commercial products, data solutions, Altus Group, said the office vacancy rate for class-A space downtown has stabilized in the last year and is now at 10%. Vacancy rates downtown should remain relatively stable for the next two years, she said.
Other positive signs include an unemployment rate in the city that is at its lowest in 30 years and the fact the number of office buildings downtown with 50,000 square feet of vacant contiguous space has fallen from 22 to 15.
She added the midtown area of Montreal, which includes the Mile Ex area north of downtown, is becoming popular for the conversion of former manufacturing spaces into loft office space. The area has seen more than two million square feet of recent conversions and is fertile ground for start-ups and a creative workforce.
Continued trend of absorption
Mid-market loft inventory now represents more than 10% of the office space in the Montreal area and there is a continued trend of absorption in the midtown market, said Vincent Chiara, president and CEO of Groupe Mach.
Richard Hylands, president of Kevric Real Estate, said the growing popularity of Mile Ex “is not at the detriment of downtown. It’s complementary. Downtown is undergoing renewal,” he said, citing the decline in the availability of large spaces for leasing.
“We’re feeling a renewal in Montreal,” he added, noting the timing for this year’s 375th anniversary festivities in the city is excellent.
Salpeter said he is convinced there is room for new development downtown, despite the fact the area has recently seen the development of one million square feet of class-A space.
Definition of downtown is expanding
He added the definition of downtown is expanding, with the area now continuing toward Griffintown, south of the traditional downtown. Cadillac Fairview is currently developing Quad Windsor around Windsor Station and the Bell Centre, an area that links downtown to Griffintown.
The space includes the office tower La tour Deloitte, two Tour des Canadiens condo buildings, three planned towers at 600 Peel consisting of condos, townhouses and shops and two planned office towers at 750 Peel with 1.2 million square feet of office space.
Chiara agreed the downtown core is shifting to the south but that much of the land has been bought by residential condominium developers who are willing to pay a premium price compared with office tower developers.
Municipal officials will have to ensure a balance is maintained between condominium and office development in order to keep the downtown area strong, Hylands said.
Montreal’s new electric train project will provide a major boost to real estate development in parts of the city, members of the local real estate community heard at a conference this week.
“For us, it’s major,” said Mario Monette, president and CEO of Technoparc Montréal, a major science, health and green technology industrial park in suburban Saint-Laurent. “It’s a game changer for us.”
Speaking at the Montreal Real Estate Forum on Tuesday, Monette said the Technoparc expects $625 million in investments in the next 15 years, due in large part to the new train.
It will run at ground level, above ground and underground and link downtown, South Shore, West Island, North Shore and Pierre Elliott Trudeau Airport as well as existing Métro stations and commuter rail lines via an automated, 67-km LRT system that will have 27 stations and operate 20 hours a day.
To reach the South Shore, it will cross the new Champlain Bridge, now under construction.
More than half would take the train
Monette said surveys have found only seven per cent of Technoparc employees currently use public transit to get to work and that those numbers have been declining. But 59 per cent of employees said they would take the train, which will have a station at the Technoparc.
The Caisse has committed to pay for about half of the $6-billion project, while the Quebec government promised $1.3 billion in its March 28 budget and is calling upon Ottawa to provide the same funding.
The Quebec and federal governments would each own 24.5% of the train system, while the Caisse would own 51%.
The train will be “a major economic plus for residential real estate,” added Jacques Vincent, co-president of Prével. The company is developing several condominium buildings in the booming Griffintown neighbourhood south of downtown, which will also be served by a new train station.
Expected to ease traffic congestion
Vincent said the train will ease traffic congestion in Griffintown, a high-density area with little in the way of public transit. It will also boost consumer confidence in Montreal and lead to significant construction even in built-up areas, he said.
For its part, the Caisse estimates $5 billion in private real estate investments along the project’s route.
Vincent said the real estate community should resist the opposition the train project has been receiving in some quarters, including Quebec’s environmental review agency the Bureau d’audiences publiques sur l’environnement (BAPE) which has declined to provide support.
Trainsparence, a coalition of environmental groups, has gone to court, arguing the Caisse did not respect the public-consultation process by not providing sufficient information to the BAPE.
Vincent noted several proposed real estate projects in the city have stalled in recent years due to opposition. “We should be confident in the Caisse which has proved itself worldwide.”
Also involved in Canada Line
The Caisse is also one of the builders of the Canada Line, the section of Vancouver’s SkyTrain that links downtown Vancouver with the airport and suburban Richmond.
Bernard Poliquin, senior vice-president, office-Quebec at Ivanhoé Cambridge, also called upon the business community to support the project which he said “is essential for Montreal.”
Vincent said his biggest worry is that train could make it easier for people to leave Montreal for the suburbs, which in turn would lower the city’s tax coffers and contribute to urban sprawl.
The Caisse hopes to begin construction by the end of the year with the first trains running by 2020.