Tight markets in Canada’s traditional top-shelf real estate cities have investors looking for opportunities in other parts of the country — and many of them are landing on Calgary, Sano Stante told Green Street News.
Stante, an associate broker with Real Broker, has been working in the city for 25 years. He’s a former president of the Calgary Real Estate Board and a member of the RE/MAX Circle of Legends.
High interest rates and other market factors have slowed investment activity in Toronto and Vancouver, he said, but eager investors still need somewhere to go. While Calgary presents something of a learning curve for outsiders given that valuations there fluctuate more than in other markets, buyers are nonetheless checking out the scene. Stante expects them to play a bigger role there over time.
The multifamily sector in particular is attracting outside capital. Apartment rents in Calgary rose 12% year over year in the second quarter, according to Yardi, surpassing the next highest city — Saskatoon — by about 4 percentage points.
We spoke to Stante about the Calgary market and why investors from elsewhere are coming to call.
We’re hearing the Calgary market is in good shape. Do you agree?
The Calgary market is as healthy as it’s been in my memory. It’s very focused, though, on certain products. There’s a big appetite for good, income-producing properties and properties that have demonstrated a decent [capitalization] rate.
They’re getting harder and harder to find because of the demand. So that’s causing the market to be a bit tighter.
Where is that demand coming from?
Aside from the tremendous immigration and interprovincial in-migration, it’s coming from investors, developers and builders — often from Vancouver and Toronto — that can’t materialize projects in those regions. … You can still get a decent return out here, and sales are healthy out here.
What asset classes are tending to do better?
Well, the real focus right now is purpose-built rental, and that’s probably no secret based on the available financing; MLI Select financing. That really makes proformas work where they maybe can’t otherwise. So that’s been a real focus of investors.
Couple that with the recent loosening of the planning requirements from City of Calgary in allowing developers to achieve higher densities, and then the proposed blanket rezoning as well is a factor.
“I feel that they’re going to be sitting on their hands in Vancouver and Toronto for the next little while until those markets adjust”
Can you explain the blanket rezoning more?
The city has proposed blanket rezoning, where it would essentially eliminate R1 single-family zones. The broad effect is that you could allow [residential-grade-oriented infill] zoning in every area of Calgary, which means higher density. You can no longer have single-family.
You’re going to have essentially four suites on every lot, plus. And that fits in very conveniently with the MLI Select financing, where if you have more than four suites, it qualifies. So those things have been driving forces.
Calgary has always been touted as affordable compared with cities like Vancouver and Toronto, so why is the demand for purpose-built rentals increasing?
One factor is that more younger people are succumbing to being renters rather than homeowners. Not out of choice, but maybe just out of the simple fact that they don’t have the cash available to purchase. So that’s one factor.
But really the biggest driving force is just the financing. There’s capital right now, there is capital out there, but MLI Select offers such favourable financing rates and terms. Fifty-year plus amortization and interest rates that are roughly under 5%.
So, when the average cap rate is typically 5%, then the only positive leverage you can get in the market is through this program. Otherwise, you’re upside down, and it’s hard to make proformas work.
Is Calgary on the right path? What does it need to work on now?
We need to work on affordability, and I think we need to encourage homeownership and put less emphasis on rentals. To accomplish that, I feel that municipalities need to improve efficiency of providing infrastructure, so as to reduce development and servicing costs.
In the residential market from 2015 until 2020, we had price decreases every year, and so just recently, we’ve had some major price increases, probably over 10% a year until last month. And this last month we’ve actually seen a 10% increase in listings and a 10% decrease in sales. Now, that’s sales and inventory, which doesn’t reflect the price, that I was referring to earlier.
But in the last two years, we’ve had decreasing inventory and increasing demand. So, this last month has been a bit of an anomaly, and I don’t know if it’s an indication of a broader trend.
Any predictions for the year ahead or closing thoughts?
I think it’s going to continue to be robust. I don’t think that the hiccup in the last month’s statistics is an indication of longer-term trend. But I think it’s more of the same for the next two years as more and more investors from Toronto and Vancouver get comfortable with the Calgary market.
There’s always trepidation when they come to Calgary because their policies and proformas are not always attuned to our Calgary market. For example, If you’re a developer from Toronto, you often don’t even understand how to deal with the possibility the market could fluctuate, meaning go down, because their market has always gone up.
So, you don’t know how to write that into a proforma. They have to wrap their head around that.
