Investing in Commercial Real Estate

Many Canadians are already investing in real estate via their own homes. However, investing in commercial real estate can diversify an investor’s portfolio and bring other valuable advantages residential real estate can’t, such as ongoing passive income or multiple tax benefits.

In the past, commercial real estate has been thought of as more challenging than residential investing. And for new investors, the whole process can be overwhelming and scary.

While there are differences between the two and different procedures are needed, investing in commercial real estate doesn’t have to be intimidating. Today, there are many options investors can choose to help ease them through their investments. From commercial financing, third party partnerships and syndication structures, expert management is always accessible.

Before investing, here are five strategies that can lead you to successful commercial real estate investing:

Define your investment goals
Clarify how much you want or have to invest and know your limits
Layout timelines for when you want to start and how long you want your investment to carry on for
Research which investment types are best suited to you
Decide who can help, and what options are available

Commercial Real Estate Investing Continues to Grow

According to the latest figures, global real estate investments have grown by over 17 per cent to almost $790 billion, and this figure is expected to continue to increase in 2015.

In addition, sources are leading us to believe we’ve only seen the tip of the iceberg in investment portfolio restructuring. With London’s looming new capital gain tax on the horizon, it’s set to create a substantial shift in the market, sending significant amounts of capital flowing into new investments and new markets.

Some of the world’s largest real estate funds are also exiting their earlier investments and re-allocating them into new investments and industries.

Profits made in emerging markets like Africa and India by local entrepreneurs are also being reallocated and placed into more secure markets or for diversification.

Regardless of where international real estate trends are heading, we’re sure Canada will be part of it.

Continue Investing After Purchasing A Home

Buying a new home in the current economy can be intimidating. Besides creating a new budget for all the additional costs that come with purchasing a new home, buyers also want to ensure they have enough savings for emergencies, retirement and their children.

While everyone saves and budgets differently, investing in commercial real estate is a sound option that can help you stay financially healthy, even when buying a new home.

Commercial real estate generates passive income. This avenue of steady income can become a financial cushion, helping out on rainy days, retirement planning or funding for children’s education. Furthermore, investors can also benefit from multiple tax benefits.

Thanks to the development of new opportunities and partnership structures, most will find they can start investing in commercial property with far less capital and time.

With Current Stock Market Plunge, Should Investors Be Worried?

News headlines have been buzzing with alerts about the latest stock market plunge. While this may be a temporary slump in the stock market, analysts have been predicting as much as a 60 per cent dive in stock prices for some time. It’s difficult to estimate a precise moment, but the current fundamentals of the stock market suggest that a steep sell-off is inevitable.

Money markets have already been reacting to the mayhem with mortgage interest rates reportedly edging even further down. This creates significant opportunities for Canadian investors to expand in commercial property acquisitions with low rate financing, which will enhance the property’s cash flow and NOI.

Existing commercial property owners can find lower rates ideal for restructuring debt leverage to improve investment property performance. Individual investors can also find it to be an ideal moment for refinancing their homes and even accessing additional capital to invest.

Smart Leasing Strategies

Many Canadian retailers are fighting for space in Canada’s top markets like Edmonton. Some commercial centers, such as the West Edmonton Mall and Calgary’s Chinook Centre have even been reportedly combating each other for brand name tenants.

Attempting to draw big name tenants and offering exclusivity has long been common practice in retail property investment and management, but this may not be the most profitable strategy going forward.

Historically, lower demand for retail space used to dictate that retailers could demand exclusivity in their domain within a shopping centre and landlords would oblige. However, this is quickly changing, especially in markets such as Alberta where retailers are competing with each other to secure floor space.

Big names are desirable, but they can also present issues. For example, well-known retailers may already have an extensive e-commerce presence. This can become a disadvantage, as it can reduce in-store sale performances and additional traffic to the shopping centre.

Furthermore, popular retailers are not always the most profitable tenants due to their negotiating power and prestige. Competing for these tenants gives the larger retailers more negotiating power, thus decreasing the landlord’s profit even further.

In order to combat this, landlords should diversify their tenants. Local and boutique tenants, especially stores revolving around services and food, can prove to be just as profitable as big name tenants.

Investing in Properties can Help Startup Entrepreneurs too

According to Benjamin Tal and a new CIBC World Markets report, Alberta remains the “most favourable place for small business to flourish.” A recent infographic via Medium, documents a dramatic and exponential rise in new business startups and investment activity in Edmonton, flowing through 2014. Popular pitching and funding platform AngelList listed 87 startups and almost 4,000 angel investors in Edmonton.

However, while tech and startups are hot, there are many good reasons for angel investors and entrepreneurs to be prioritizing commercial real estate investments right now too.

For a start, these small businesses need to secure and maintain affordable office spaces going forward. Whether they remain boutique-sized, work in co-working office spaces or plan to expand into retail storefronts, one of the best ways for them to ensure survival in this rapidly appreciating commercial real estate market is to own a slice of it.

Many might not be able to afford or justify acquiring a whole office building, office condo, or shopping plaza, but they could utilize partnerships to own part of a building without having all the obligations. This will also provide them the benefit of sharing the wealth created from the lift in values.

For many it can be a strategy to pull in additional income, depending if they sublet part of the building or invest close to home.

How E-Commerce is Boosting Retail Investments

A new report shows that almost 80 per cent of Canadians are now using smartphones to shop and make their purchases.

Furthermore, coverage of the latest surveys by the Edmonton Journal shows that 79 per cent of Canadians between the ages of 18 and 29 years old and as many as 77 per cent of those aged 25 to 54 are using mobile devices in conjunction with shopping in Canadian retail stores.

While 10 per cent of the surveyed Canadians have used mobile payments, less than a quarter of shoppers say they feel comfortable using their smartphones to make payments, rather prefer  to use credit cards and cash in stores.

This shows us that e-commerce and the latest apps and smartphones are generating a significant amount of business for retailers, especially in helping consumers make purchasing decisions.

Done right, new technology and a complimentary online presence for retailers can increase in-store sales, sale per square foot and same customer sales. This can provide a tremendous boost for retailers, property owners and investors.

These online and tech tools can also provide a substantial lift to in-store traffic and sales via recommendations, positive online reviews and social media contacts.

As property managers and landlords begin to capitalize on this increased community and engagement, they can expect improvements to the overall results achieved by retail tenants and investors.

Those investing in local shopping plazas are also well positioned to benefit from the continued adoption of these technologies and their lift to rental rates and Net Operating Income.

Richard Crenian

Ways to Finance Your Next Commercial Property Investment

There have been no better time than now to capitalize on the opportunities in Canada’s commercial real estate market. Values and demand are both trending up and interest rates remain low.

Here are some ideas to look at when analyzing gow to fund new investments in the current market.

Cash Purchases

Many Canadians are currently flush with cash or have cashed out other types of investments to help restructure and optimize their portfolios. Cash can be a great asset to have when capitalizing on attractive investment opportunities, as it enables investors to negotiate from a position of strength and achieve above average returns – all while retaining the benefits of a solid equity position.

It’s always wise to keep some cash on hand to retain liquidity and ensure diversification across your portfolio.

Commercial Mortgage Loans in Canada

Commercial mortgage capital appears to be freely available from global markets, especially for solid properties in Canada’s growing provinces and top cities.

Interest rates are low and capital markets are becoming increasingly aggressive. Terms may vary, but qualified investors with performing income producing properties shouldn’t have issues finding attractive long term mortgage financing.

Crowdfunding

Crowdfunding is increasingly becoming a preferred form of leverage and fundraising for commercial property in North America. Beyond access to low cost capital, crowdfunding offers many perks for investors. This includes visibility, as more individuals are invested in the success of the project.

The one catch here is that organizers must be prepared to compete in this blossoming space and understand the strategy and tactics required to stand out and attract contributors. This can demand significant marketing expertise and can often require a sizable upfront capital requirement.

Partnerships

Crowdfunding is simply a glitzy, technologically-fueled version of how sophisticated real estate investors have partnered together for decades.

Before rushing into launching a crowdfunding campaign, taking out a mortgage with a personal guarantee or funneling all of your available cash into a single commercial property, consider the advantages of partnering with others in a proven on your next commercial real estate investment in Canada.

Canadian Retail Property Investors can Boost their Returns Now

What can Canadian retail property investors do to elevate their returns now?

Commercial property returns in Alberta and specifically Edmonton are already very healthy. However, it always pays to get ahead of the curve and maximize margins while the opportunity to get ahead is there.

Here are nine ways retail property investors in Canada can improve on their annual and lifetime returns;

1. Curb Appeal

Improving a shopping plaza’s curb appeal, including signage can go a long way to attracting new tenants, earning loyalty from existing tenants and boosting traffic.

2. Parking Spaces

Having a substantial amount of parking spaces and a well-maintained parking lot can encourage customers to continue shopping at the plaza. It can also maintain a positive flow within the centre.

3. Increase Community

Make efforts to build community around retail centers to generate traffic, increase loyalty among local residents and retain prominent anchor tenants.

4. Energy Efficient Improvements

Going green is now expected of many companies. Healthier and more environmentally-friendly spaces not only draw positive attention and boost NOI, it can also enhance employee productivity resulting in compounding improvements over time.

5. Reduce Debt Service Cost

Consider refinancing, buying back shares, getting a better deal on insurance and investigate other ways of reducing holding costs to increase investment yields.

6. Use Technology to Reduce Labour

Technology can be used to reduce labour requirements at all levels when it comes to retail properties. Take advantage of any technology that can help you improve efficiency and maximize your returns.

7. Better Property Management

Property management companies have never been able to add more value than they can today. Professional third party property managers can help maintain daily issues and achieve optimal investment returns.

8. Better Leases

There are many ways to improve the performance of a retail property. One way to achieve this is through smarter leases, which applies to both new leasing activity and negotiating renewals. Consider which clauses and elements could elevate income, reduce expenses and minimize risk.

9. Expand Commercial Real Estate Portfolios

Now is an incredible time for expanding Canadian real estate portfolios. Demand for retail space, properties, interest rates and revenues are only expected to keep heading up. Those with inactive capital or other underperforming investments should consider how to leverage them into profitable commercial investments now.

Wrap up 2014's Investments Strongly

The end of the year is coming fast. The moves Canadian property investors make now can make all the difference in maximizing 2014 portfolio performance and setting themselves up for a great 2015. Here are some steps that can help end 2014 strongly.

1. Capitalize on Seasonal Acquisition Opportunities

This time of year traditionally yields many attractive real estate acquisition opportunities. Asset prices may rise significantly as we move deeper into the fourth quarter. So take another look at what’s on the market and act accordingly.

2. Take Advantage of Improving Retail Performance

Retailers are headed for a significant boost as we approach the holidays, carrying them into the new year on positive results.

Increased sales mean more revenues and better rental income for retail property landlords. So look out of retail property investment opportunities and opportunities to increase rent or execute performance based lease provisions.

3. Position Properties for Better Dispositions

The end of year can be extremely active for real estate purchase and leasing activity. Make the necessary moves to elevate your positioning now and increase value ahead of new offers to rent and buy your units.

4. Weatherize and Improve Energy Efficiency

Now is the time to weatherize homes and investment properties. Improve energy efficiency before the winter weather arrives. This can keep operating costs down, net income up, all while making properties more attractive to potential tenants and buyers.

5. Giving Tuesday

Giving is just as good as getting, sometimes even more so. Right after Black Friday and Cyber Monday comes Giving Tuesday. Find a way to give can benefit both parties.

6. Optimize Tax Liabilities

Investing in tax preferred vehicles, contributing to plans and making donations ahead of the end of year can increase your tax liabilities.

How to Add Value to Your Investment Property

Commercial real estate properties are excellent long-term investments. However, many believe to have a successful property investment, vast amounts of time and money needs to be applied. Many don’t realize there are various ways to increase and optimize the value of a property in basic ways.

In fact, one of the easiest ways to increase the value of a commercial real estate property is to capitalize on the Net Operating Income (NOI). Before spending extra money on renovating or updating the space, an initial option property owners can look into is to review their leases.

For example, ReDev Properties Ltd. often shops for properties where tenant’s leases are close to expiry. This way we can re-evaluate the leases and terms to ensure they’re competitive and profitable for both new and existing tenants.

As under-market leases expire, property owners have the opportunity to renew them at higher market rates, which in turn will increase the NOI of the property.
Finally, when looking to sell a property, it’s important to have it fully leased. This ensures the property will receive its highest value, as every portion of the property will be producing income.

Things to Consider when Expanding Your Wallet Size

Who wants to be a millionaire? Making smart moves and applying a few proven principles can help continually grow your bank account.

1.  Diversify

Regardless of what type of investment you’re interested in pursuing, it’s always wise to stay diversified. There are few guarantees for the future, technology is constantly changing things and reshaping industries.

2.  Don’t Rush

 There will certainly be moments when Canadians will need to move fast to get in at the right time. However, it’s not always a race. Newspapers are always covering stories of those that took unethical short cuts. Instead, opt for the steady path and leverage the benefits of compounding interests and returns.

3.  Always be Learning

Leveraging the time, knowledge and network of existing experts is a great strategy for learning more about investment opportunities. Investors should strive to constantly learn and understand their investments and the industries they are invested in. This way you can recognize the optimum times to sell, buy or restructure portfolios.

4. Preserve Capital

Rather than chasing the biggest prize in investments, it’s just as beneficial to look for solid investments offering a high probably of return of your investment capital. Making sure your initial capital is safe is key.

5.  Break Bad Habits

 The road to millionaire status is paved with good habits. Developing these habits starts with eliminating the bad one replacing them with better ones.This applies to everything from how you spend your time to overcoming procrastination and taking action.

Have A Variety of Tenants

Multi-tenant commercial properties can offer Canadian investors increased security and work to keep cash flow and investment returns consistent. The strategic diversification of tenants and property types can offer even more protection, higher yields and appreciating property values.

This concept of diversification is not as advantageous in multifamily apartment buildings where similar tenants work best together. In contrast, smart leasing and tenant selection in retail can enable investors to significantly elevate returns over other sectors and competing properties.

So what are some of the tenant types that shopping plaza landlords should be incorporating and what are their advantages and disadvantages?

Brand Name Anchor Tenants

Big name anchor tenants such as Target and Wal-Mart can be very desirable. Other retailers that can be placed in this category may be notable grocery store chains and to a lesser extent popular banks and fast food chains. Name familiarity helps bring in automatic traffic to the entire plaza or shopping center.

Founder of SkyFive Properties in Miami, Kaya Wittenburg, says this goes far beyond having a solid tenant to creating value in brand equity. At the extreme this has been seen in residential developments in South Florida where Porsche and Armani are attaching their names to buildings. Well recognized names in shopping, as with hotel flags can also help when it comes to obtaining attractive financing and can add real value to the price per square foot when it comes time to sell.

However, it is important to acknowledge that licensing names and national credit tenants can come with a high cost. Sometimes this can actually become counterproductive for yield seeking investors, as big name brands have a lot of negotiating power and can be very demanding.

Small Businesses

Small local businesses, boutique stores and startups are often seen as being riskier by experienced property investors and advisors. They typically have fewer back-up resources and may be more likely to fail or leave unexpected vacancies.

However, these tenants can also offer many advantages to commercial property landlords. Property owners have more negotiating power with these tenants, resulting in more opportunities for higher rents and performance-based bumps to rental rates. They can also bring new excitement and buzz to a shopping plaza.

Necessities

Necessity stores and services are the type of tenants that often fall in the middle of the large anchor tenants. Businesses such as auto service companies, pharmacies and coffee shops can bring in steady traffic to retail centers because they offer services that are necessary to the needs of the local community.

Commercial property investors should be careful about preconceived notions when it comes to tenants and property performance. By leveraging the points above, investors can further elevate their returns and create even more equity in their holdings.

Commercial Real Estate Continues to be Top Investment Option

Private Canadian commercial real estate investors are continuing to find their edge in direct investment opportunities.

A Globe and Mail columnist recently wrote an appeal to investors stating they should look to invest in real estate rather than company stocks.

In particular, there are two reasons to the media’s encouragement to move away from long-term stock investments; the extremely volatility of the equities market and the vast layers of administration.

The recent news of HP being replaced as a technology supplier to the Canadian government for 10 years is an example of how companies can be susceptible to stock market volatility.

In contrast, direct investment in real estate, even through partnership structures, can provide individual investors with the advantages of tangible investments.

Furthermore, these investment options blend both business and direct real estate investment allowing investors to benefit from the best of both worlds.

Sustainable Technology in Canada

Recent news surfaced Hewlett-Packard Co. is now facing a 10 year ban on supplying technology to the Canadian government. The news is unfortunate for HP, however it also indicated the sustainable and ethical direction Canada is taking.

Under new rules, companies face automatic bans if they or any affiliates are convicted of violating rules in Canada, as well as anywhere else in the world.

The rulings are a wake-up call for many major technology firms across the world. Even Apple experienced a similar issue in California after failing to comply with green environmental standards.

While many smaller companies and entrepreneurs in recent years are quickly jumping on this trend, many larger corporations are lagging behind.

Beyond technology, the move towards tougher regulations, more environmentally friendly and ethical businesses will likely also impact the Canadian real estate market in a significant way.

With Canada leading the charge in ethical and sustainable business, beyond just the realms of the technology industry it’s creating an environment of trust and security for investment capital and ultimately more sustainable growth and returns.

Canada has once again found another edge in standing out on the world map.