PwC Is “Pessimistic” on Commercial Real Estate

August 22, 2009

PwC Is “Pessimistic” on Commercial Real Estate

Commercial-Real-Estate-Trouble-Canada PricewaterhouseCoopers (PwC) issued a somewhat alarming report on Canadian commercial real estate yesterday.

Among the key points, PwC said:

  • “We’re very pessimistic, and we think there are going to be big issues in the Canadian real estate market.” (Canada.com)
  • “Credit markets remain tight in commercial real estate, with many companies facing the high cost of capital and others struggling to simply access funds.”
  • There is very little appetite for commercial mortgage-backed securities (CMBS). Yet, PwC says: “In each of the next three years, approximately $1 billion in Canadian CMBS alone will be maturing, with no clear directive on how funding gaps will be met.”
  • “We think there are going to be foreclosures and default situations…”
  • Alberta is especially vulnerable with resource money drying up
  • The market is expecting notably “higher capitalization rates.”

Frank Magliocco, a partner in PwC’s Canadian real estate division, warns:

“Owners need to immediately implement monthly or quarterly cash flow reviews to understand exactly what their short-, medium- and long-term capital needs are and, perhaps even more importantly, immediately identify what options are available to overcome inevitable refinancing hurdles.”

Properties that PwC thinks are especially risky include:

  • Commercial real estate in rural or industrial areas
  • Small-to-medium-size strip malls
  • Hotel and leisure properties
  • Suburban office and industrial space
  • Properties with economically challenged flagship tenants

PricewaterhouseCoopers (PwC) is one of the world’s largest professional services firms.  It focuses on auditing and consulting services and has over 5,200 partners in Canada.

Source: Canadian Mortgage Trend


REBGV – July 2009 Stats

August 7, 2009

Strong spring market carries into summer months

VANCOUVER, B.C. – August 5, 2009 – The Greater Vancouver housing market gained further momentum in July with record sales levels and a continued strengthening of home prices. The Real Estate Board of Greater Vancouver (REBGV) reports that the number of residential property sales in Greater Vancouver totalled 4,114 in July 2009, becoming the highest volume of sales ever recorded within the REBGV for that month, outpacing the 4,023 sales in July 2003, which is the only other year that July sales exceeded the 4,000 mark.

Since the beginning of the year, the MLSLink® Housing Price Index (HPI) benchmark price for all residential properties in Greater Vancouver has increased 9.2 per cent to $528,821 from $484,211. However, home prices compared to July 2008 levels are down 5 per cent.
“Home sales this summer are seasonally higher than normal, which is due in large part to the price correction that has taken place in the last year and low interest rates,” Scott Russell, REBGV president said. “Although wellpriced listings and lower-to mid-range priced properties remain in the highest demand across Greater Vancouver, recent activity from first-time buyers is beginning to boost demand in the “move-up” segment of the market.”
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Mortgage Rate – Bank of Canada

August 7, 2009

As the economy begins to creep out of its economic rut, the market has begun to speculate on when interest rates will rise.   The Bank of Canada pledged in April to hold interest rates at 0.25% until the end of June, 2010. The move was designed to ease credit pressures on financial institutions and consumers as the recession intensified.  However, the pledge — an unconventional monetary policy tool used to keep short-term interest rates and mortgage rates low — came with an exit clause. If price inflation begins to threaten the economy, the central bank could raise interest rates earlier.

But will they?  Two economists face off.
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