Practical Strategies to help you Raise Money & Find Deals

Calgary REIN Event Notes

Shane’s notes from at the recent Calgary Multifamily REIN event .

These are my personal notes.  I’ll  give credit to the Speakers as I remember them.  If there are inaccuracies, let me know and I’ll fix it.

You will find how this information relates to Calgary Multifamily properties – helping fill vacancies and stabilize rents.

Todd Hirsh ATB’s Financial Chief Economist:

Oil prices are volatile– which means, they have not found an equilibrium. 

  • Some oil experts say the reason oil prices have risen as of late is because short sellers are having to buy back their positions and is pushing oil prices up.
  • AB really needs $50-55/bbl oil to maintain jobs and would likely want $70-75/bbl for new projects to create new jobs.

The unknowns today are:

  • China- will their economy crash or continue to grow, albeit at a slower pace?
  • US is known as Just-In-Time Oil Producer.  With Shale technology today, US frackers can ramp up production very quickly when it it’s numbers that make sense ($55-60/bbl).
  • Alberta’s main problem- no Access to the international markets.

INTEREST RATES

Bank of Canada (BofC) in a recent speech used the term – Negative Interest Rates.  The BofC is intentional in what they say, so for them to put it out there, they could be preparing the public for lower interest rates.

The problem for Canada today is simple: Low Commodity prices.  This is not an AB problem, it’s a Canadian problem.

Importing costs are going up with Cad $ dropping, inflation is starting to show up on imported goods.  

  • Example, the cost of 4 heads of cauliflower = 1 bbl of oil (when oil was $27/bbl)
  • Econ 101:  Low Cad $ = Inflation Increases
  • BUT, with low oil (cheaper gas), is offsetting Inflation.  The Cad government can keep interest rates low (which means, lower Cad $).

Labor Market

Last time unemployment in AB was 8% was in 1993.  Today, we are at 7.9%

In 1984 – we hit 12%

Between 2010-14, we sat at 4.5% (which is perfect), in 06/07 it was 3% (which was too low).

There will be Net Migration out of AB.  The difference today is that in the 80’s and 90’s there were jobs in ON, so people left AB to work there.  Today, there really isn’t a boom of jobs in ON.  Lower mainland BC is growing, but it’s so expensive to live there.

Housing

  • ATB believes there is a 3:1 chance 5-10% correction will occur in 2016. 
  • There is a small chance we could see a 20% drop, but that is more like 7:1
  • Low interest rates are helping support the prices.
  • Lower oil prices are likely the new paradigm.  So, it’s important AB learn how to be profitable in low oil.
  • Important to remember: the Housing Market lags GDP/Job Growth by 18 months.
  • The first ones to feel it is the Rental Market.

Property Management Ideas: LLR Property Manager (Jared Hope)

Defense wins championships- protect what you have now, before you start going out trying to get more.

The Foundation: Excellent Customer Service to create Loyal (not happy) customers (tenants)

Today there are less tenants looking and more supply.  Creates an imbalance in the market.

The tenants know this, and are negotiating harder.

23 Ways to keep your apartment tenants happy?

  1. Gift baskets
  2. Coffee and muffins on first day move in.
  3. Handwritten thank you card
  4. Shoot a video to welcome the tenant
  5. Find ways to connect with the tenants personally
    1. It’s always harder to break up in person, vs. text or, if they have done something nice for you lately.
  6. Become likable to your tenants (not their buddy, but likable).
  7. Get them to meet 2 or more people in their complex– they are more than 75% likely to stay if they know their neighbors
  8. Gift cards
  9. Flowers
  10. Quarterly calls to check in with them
  11. Know what’s important to them (asking questions and know who they are, first name)
  12. Be aggressive
  13. Incentives- lower rent, free month, TV’s
  14. Call them 90 days out and ask if they need anything done in their unit.
    • Call 2 weeks later, and ask them what their plans are when their lease comes up?
    • Are they going to renew?
    • If they are going to move, then you need to start marketing the rental 60-75 days out
  15. Friend referral program – $100 off if they refer someone who qualifies (only to the tenants who you want more of)
  16. Free Draws when they refer someone- they are put into a ballot and every 3-6 months draw a name. this keeps people around to win
    • Gas for a month/year, 1 night stay in Banff
  17. Good Renters Deferral Program. The lease is $1,500/month, but, if they pay on time, they get a $100 credit.  If they are late, they pay $1500/month.
    • If they complete the term of their lease, they get a gift
  18. Secret shop your own properties
  19. Backend your incentives (vs. frontend)
  20. Get co-signers on the properties with poorer quality tenants
  21. Professional pics and prof written sales copy
  22. Consider allowing smokers (in room of 600 landlords, only 3 allowed smokers)
  23. Send a follow up email after the tenant views your property- no one else is doing this and they can’t remember the places they’ve seen.
    1. Thanks for viewing our property. We just wanted to let you know we believe in providing a safe and friendly place for you to live.  We pride ourselves on being responsive to your questions and requests.

The 4 Place to invest for Calgary Multifamily Owners:

  1. Kitchen
  2. Bathrooms
  3. Floors
  4. Curb appeal

A few idea’s on how to fill your vacancies fast:

  • Deposits go towards first month rent- this way, if they don’t do the deal, we get their first month rent.
  • Can we do Instant Rental Approvals?

There is no question it is getting harder to fill vacancies.  The true difference among those who will be successful, and those who feel the pain of lower rents and higher vacancies, will be their ability to be Creative and take action.  You’ll notice, many of the ideas above do not require big investments of money.  Instead, they require time and personal attention.

Good luck and feel free to leave comments below on what you’re doing to fill vacancies and keep your properties full.

 

Calgary Multifamily Apartment Rental Updates

CMHC’s latest report for Calgary Multifamily Apartment Rental Updates

show overall vacancy in Calgary at 5.3% up from 1.4% in October 2014.  The overall availability (the current tenant has given notice to leave and there is no new signed lease) is 7.7% vs. 2.7% in Oct 2014.

Through my conversations with landlords in Calgary, rents are down $50-150/unit for rentals under $1,500/month.  Higher-end rentals are off by as much as $250-500/month.  I suspect rents have a bit more room to fall than this. 

Games Landlords are playing:  to maintain face rents (either for financing purposes or for shareholders), landlords are offering up large incentives and free rent to keep and attract new tenants. 

For example.  You can show your monthly rents have stayed the same even if the overall Gross Income is down on an annualized basis.  It’s happening with office tenants and now, is taking place in multifamily in Calgary and area.  The strategy is not rocket science, but is important to know if you’re looking to purchase a building.

Lets say the the building you’re looking at has 20 units with an average rent of $1,200/month.  You look over the rent roll and the average rent is $1,200/month.  The mistake would be to assume that the landlord is getting $1,200/month x 12 months x 20 tenants.

If the landlord needs to give away 1 month free rent to attract a new tenant, the effective rent is 1,200x 11 months = $13,200 or $1,100/month (a $100/month reduction) x 20 tenants = 2,000/annualized.  At a 6% Cap rate it’s $33,333 in value.

If the concessions are greater than this or over more units, you can see it starts to be real money.

Effective rents won’t show up in many of the CMHC studies, because landlords generally report the street rates.  The public don’t get to see what it actually takes to get a new tenant into a building.  

Ok, so we know rents are falling and vacancies are climbing.

The obvious reasons are low oil prices and massive job cuts in Calgary (more than 40,000 in the past 12 months).

GDP is expected to contract in 2016.  Beyond just low oil prices and job loss, are there other factors contributing to higher vacancies and dropping rental rates?

The answer- Yes.

Below is the result of 12 months’ research on the Calgary Apartment rental market.

  1. New Supply

For the first time since the 1980’s, there is a major push by big developers to build new rental buildings (both wood frame and concrete).  Below is a graph from Altus which shows the number of residential units under construction.  Look at the Orange Bars– these are all the new Apartments being built. 

Calgary Multifamily Supply 2016
Calgary Multifamily Supply 2016

What is important to understand is that many of these were originally designated for condos to sell.  With the slide in oil prices and drop in the condo market, they are now pushed into the rental market. 

This means, supply of rental apartments could increase by several thousand per year over the next 5+ years.

For the first time in more than 20 years, there is focus on building new rental apartments in Calgary and surrounding area. 

The majority of Apartment construction is switching from Condominiums for sale to rentals.

Focus on the GREEN are Purpose Built Rental Supply– the first time high-rise rentals are economical. 

In the past, developers built and sold condos because the margins were too tight for rentals.  Today, rentals make economic sense, for several reasons:

Lower Return Expectations– with Institutional investors want residential rentals in their portfolio, and because they are relatively low risk compared to other commercial real estate assets, demand for new rental is growing.

Underserved: Calgary has the lowest rental apartment universe in Canada (2.44 Purpose built rentals per 100 people, source CMHC). 

Investors believe, long term that Calgary needs more and newer rental apartments. 

2.44/100 rental per person is a bit misleading.  Calgarian renters do have other options- 62% of rental properties in Calgary are supplied by private owners single and semi-detached and private condos.

Soft Condo Sales: the Beltline and Downtown are flush with cranes building new rentals apartments and condos.  Developers unable to sell units are converting to rentals.  Plus, it’s much easier to get financing for a Purpose Built Rental, than it is for a condo building, because you don’t need to pre-sale units.

Calgary Multifamily apartment rental updates
Future Highrise Multifamily supply in Calgary

Demographic Wants: demand for NEW rental apartments is on the rise. 

Gen Y want to be close to amenities, and live in new and modern accommodations.  Most rental inventory in Calgary today does not match what the Millennials are looking for.

This new supply is already starting to impact older inventory in Calgary.  With design improvements combined with lower development levies and decreased parking ratios (especially in the inner city)- developers are able to build new rental product economically.  The price per square foot of new builds (concrete and wood frame) are now competing directly with the older rental inventory.  The delta between a new building and older inventory has shrunk. 

Combine the fact that larger buildings have better economies of scale and the owners are prepared to accept lower rates of return (think 5% returns

Landlords have had it good in Calgary.  This is about to change dramatically in the next 18 months.

Renters are moving to quality buildings.  And, the Institutions investing hundreds of millions in new rentals are enticing the biggest demographic (Gen Y) to their buildings. 

In the next article, I’m going to go into the last of the 3 major trends affecting apartment building owners in Calgary.

If you have any thoughts or comments, please let me know.  As an owner of rental units and an apartment building, I like to keep on top of what’s working and share them with fellow owners.

3 Emerging Trends Affecting The Calgary Multifamily Market

Emerging Trends In Calgary’s Apartment Sector,
Which will drastically shape the future demand of Calgary apartments and condo development over the next 5-10
years.

My team and I have done the research, and what we found, is that there is a major shift in the underlying demand for apartment rentals.  This isn’t a localized situation, in fact, much of the research came from other cities in Canada and the US.

Today, I’ll focus on 1 part of 1 trend that I think you’ll find very interesting.

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