One of the largest portfolios of Vancouver Island rental units hit the market in early June, underscoring the opportunities and challenges facing owners.
Built by Westurban Developments Ltd. of Campbell River, the six properties are home to eight buildings with 512 units.
“I’ve spoken to over 100 groups now in terms of the portfolio. No one has anything bad to say. They’re very turnkey, very efficient buildings,” said Paul Kim, vice-president with Macdonald Commercial Real Estate Ltd., who holds the listing. “We’ve attracted the major REITs, back east in Toronto … and even smaller mom-and-pop shops.”
The properties include two buildings in Squamish with 78 units, as well as six in Campbell River, Duncan and Nanaimo totalling 434 units. The buildings are being offered together or individually.
“The portfolio doesn’t have to be purchased all together,” Kim said. “If you break it up, it’s still fairly bite-sized. It doesn’t have to be institutional money to buy 40 units in Squamish.”
Occupancy of all but one of the buildings took place over the past 18 months, adding to the rarity of the offering.
The properties in Squamish also include commercial space, guaranteeing a diversified income stream.
However, the offering of nearly new properties in strong secondary markets is a distinctive feature of the portfolio. Secondary markets, especially on Vancouver Island, have been enjoying considerable in-migration and investment from developers keen to accommodate retirees as well as young families priced out of larger markets.
The run-up in interest rates over the past two years means a further segment of tenants may be waiting to purchase a property until interest rates come down.
“They’re OK to rent but they want to be in a nice building so you provide that opportunity, and also [WestUrban’s] are obviously higher-end product,” Kim said.
The demand has ensured steady cash flow for the properties, which is difficult to get in larger centres.
“With the cost of capital right now, it’s very difficult to underwrite a building to make it cash flow,” Kim explained. “If the lending rate is at about 4.5 per cent, plus or minus, it’s very difficult to get anything in Vancouver for 4.5 per cent or higher cap.”
The average rent in Campbell River, for example, was $1,451 a month last year, according to the ÎÚÑ»´«Ã½ Mortgage and Housing Corp., up 15 per cent from a year earlier. This compares favourably to $1,819 a month in Metro Vancouver after accounting for acquisition and operating costs, taxes and other factors.
“They have very strong rent per square foot, they have a higher yield from Day One and low vacancy,” Kim said. “I don’t think they’re going to be sitting for much longer.”
The lower risk opportunities in solid secondary markets provide is also key to a listing of five development sites Adam Lawrence of Goodman Commercial Inc. is handling.
A portfolio of four properties in Colwood, Ladysmith and Sechelt as well as a separate opportunity in Langford aim to generate revenue for the owners, who were tweaking portfolios.
“They’re looking to create some liquidity, reinvest it into projects that are bigger, larger scale and are able to get to market quicker,” Lawrence said.
Buyers have shown interest, because the shortage of housing makes development sites a good bet. The only question is the timeline.
“We’re seeing good action on well-located sites, especially if they have entitlements,” Lawrence said. “You’ve got builders that still need to build. They don’t want to let go of crews and lay people off and then have to rehire, because it’s still tight in the labour market. They’ve got to replenish inventory, otherwise they’re not going to be developers.”
