Blocks over stocks

Opinion

Hey there, time traveller!
This article was published 14/09/2015 (3683 days ago), so information in it may no longer be current.

The turmoil on the stock markets has a growing number of nervous investors turning to apartment blocks as a less risky investment, a local real estate industry official says.

“It’s slow and steady wins the race,” said Rob Preteau, an accredited real estate appraiser with the Winnipeg office of Colliers International. “(Investing in apartment buildings) is not exciting, but it’s probably the best thing to do.”

Preteau said multifamily investment properties seem to be particularly appealing to investors in their 50s who are seeking some safer options for their investment portfolios.

“If you look at the stock market, it could go down 10 per cent in one week, and you’ve lost that principal investment. And the thing with the stock market is if your investment goes down 10 per cent, it has to come up 20 per cent to get back to where it was,” he said. “Or, an easier way to look at it is that if you have, say, $1,000 and it drops by 50 per cent to $500, to get back up to that $1,000 it has to double (in value).”

He noted apartment blocks in Winnipeg have held their values pretty well over the last 10 to 20 years. And if properly managed and maintained, they have also provided a steady stream of income during that time.

Another appealing aspect about apartment buildings, Preteau said, is banks and other lenders also tend to consider them less risky investments because they have multiple tenants. So that can make financing easier to obtain.

“It’s a more diversified approach. That’s why more people see a lot of safety in apartment blocks, and that’s why the demand for them is so high.”

As an indication of how popular they’ve become, Preteau said Colliers’ Winnipeg office has done 35 to 40 apartment-block appraisals so far this year for clients purchasing a building or refinancing the mortgage on ones they already own. That compares to about 10 such appraisals in 2014.

He said most of the buyers he’s been dealing with are local investors who already own some apartment buildings in the city and are expanding their portfolio.

The other new trend Preteau has noticed is more apartment block owners are taking a different approach to renovating or upgrading their buildings.

In the last few years, the trend had been to evict all the tenants and do a building-wide renovation.

That not only allowed them to substantially increase rents, but it also exempts the building from provincial rent-control guidelines.

But this year, Preteau has noticed more landlords are opting to remain in the rent-control program, renovate suites as they become vacant and ask the Residential Tenancies Branch for a rent increase above the provincial guideline in order to recoup their costs. The guideline this year is 2.4 per cent.

Not only does that approach require less capital investment up front, he noted, but the landlord still has rental income coming in and doesn’t have to find replacement tenants for the entire building.

He also noted some of the rules governing tenant evictions have changed, so evicting everyone is less appealing for landlords. There’s also the concern that if they raise the rents too high, they risk pricing themselves out of the market.

“It kind of goes with the theme that there is a ceiling as to what people are willing to pay,” he said.

Winnipeg-based Globe General Agencies, which owns and manages about 5,000 suites in the city, is one local landlord that takes a more moderate approach to upgrading its properties.

Company president Richard Morantz said he’s never understood why a landlord would want to evict all his tenants and do a building-wide renovation.

“There is a business value to keeping the people who are in there already and are good tenants who are paying their rent and meeting their obligations. So why disrupt that?”

He said Globe’s approach is to ask the tenants if they’d be willing to pay a higher rent in exchange for having their suite upgraded. If they are, it does the upgrades. If they’re not, it waits until they voluntary leave, does the upgrades and applies to phase in the rent increases over a number of years.

“It’s not like (that approach) works as smooth as glass,” he said, noting some tenants end up leaving anyway after the rent is raised.

“But we find that the majority of people stay around. As long as you’re providing value, people will pay for it.”

Although most of Globe’s properties are in Winnipeg, the company also owns apartment blocks in Edmonton, Saskatoon and Montreal.

“We feel fortunate we’ve been able to buy in Winnipeg,” Morantz said. “It’s our hometown, and we want to keep active here. But to grow at the pace we want to, we’ve started to also look at other markets.”

Two of the company’s most recent Winnipeg purchases, both acquired last year, are the Armadale Hollows complex on Pembina Highway and Canterbury House on Roslyn Road.

Know of any newsworthy or interesting trends or developments in the local office, retail or industrial real estate sectors? Let real estate reporter Murray McNeill know at the email address below, or at 204-697-7254.

murray.mcneill@freepress.mb.ca