Natalka Falcomer

Natalka Falcomer is a lawyer, real estate broker and Certified Leasing Officer who started her real estate career in private equity. She created, hosted and co-produced a popular legal call-in show on Rogers TV and founded and recently sold Groundworks, a firm specializing in commercial leasing law. She is currently the Chief Real Estate Officer of Houseful.ca, leading the development and expansion of the company’s personalized home buying and selling experience for the Canadian market. She sits as an advisor on NAR REACH Canada and is the former multi-year board member of the Ontario Trillium Foundation.

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In the latest episode of the Canadian Real Estate Investor podcast, hosts Daniel Foch and Nick Hill delve into the ramifications and explore its potential effects on the Canadian real estate market. 

The duo explores key aspects of the Evergrande situation, its historical significance and how it might shape the real estate landscape on Canadian soil.

Evergrande’s significance and collapse

According to Foch and Hill’s research, China’s property sector represents more than half of global new home sales and home building, with a market value of approximately $62 trillion. This collapse raises concerns about managing regional government debts, as many rely on real estate revenue.

Foch and Hill’s analysis 

The hosts look at potential outcomes: being “priced in” and the “domino effect.”

Foch introduces the concept of “priced in,” explaining how markets often anticipate and factor events into asset prices before they occur. Applying this concept to the case of China Evergrande Group’s bankruptcy, market participants might have already factored in the potential consequences of this event on financial assets like stocks and bonds.

Hill explores the “domino effect” scenario, where one event triggers a chain reaction of disruptions across markets. In this context, the collapse of Evergrande’s real estate market could potentially lead to broader market turmoil and investor panic.

Negative wealth effect

The podcast also explores the negative wealth effect, where

 a decrease in asset values leads to reduced consumer spending. Foch and Hill note that if Chinese investors experience a decline in their perceived wealth due to falling property values, they may become more cautious about spending. This could have a dampening effect on the global economy and potentially influence Canadian real estate markets.

Flight to quality

The hosts also explore the “flight to quality” phenomenon, where investors seek safer assets during times of uncertainty. Chinese investors concerned about the stability of their domestic market might consider investing in Canadian real estate, given its historical stability and well-regulated environment. This flight to quality could potentially drive demand in the Canadian real estate market.

Impact on Canadian real estate

So, considering Chinese investment patterns and potential outcomes, what consequences could Evergrande Group’s bankruptcy have in Canada?

Chinese investors have historically played a significant role in Vancouver and Toronto’s real estate markets. A potential influx of properties for sale by Chinese investors looking to liquidate assets might increase supply. This, in turn, could influence property prices and market dynamics.

Consumer sentiment and mainstream impact

Foch emphasizes that as news about Evergrande’s bankruptcy becomes more widespread, it may impact not only market sentiment but also consumer sentiment on “Main Street.” This mainstream awareness could lead to shifts in overall market dynamics and investor behaviour beyond just the financial markets.

China’s approach and possible impacts

The hosts provided context on China’s approach to the real estate market and its broader economy. They discussed the Chinese preference for a capitalist approach focused on goods and services rather than land ownership. This preference could lead to unique outcomes for China in comparison to other economies facing similar crises.

Listen to the full episode: 

REM Editorial Team

realestatemagazine.ca

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In episode 89 of The Canadian Real Estate Investor, hosts Daniel Foch and Nick Hill delve into the significance of this policy change. They explore the implications of this decision not only for Toronto but for the entire country, highlighting the opportunities and challenges it presents to real estate investors.

Shifting household dynamics

The dynamics of household sizes in Canada and the United States are changing. According to Foch and Hill’s research, over the past century, average household sizes have significantly decreased, with more people opting to live in smaller households. However, a recent trend shows a reversal, as the average number of people in a household is growing.

Empty bedrooms and housing inequality

The hosts also shed light on the prevalence of empty bedrooms in Canada. Despite a significant number of spare bedrooms across the country, many households still struggle with overcrowding, revealing an imbalance in housing outcomes. 

According to a 2017 report by the Canadian Centre for Economic Analysis, there are more than five million spare bedrooms in Ontario alone, while a substantial portion of the population remains under-housed. Toronto, with an estimated 2.2 million empty bedrooms, further exemplifies this issue.

Toronto’s fourplex policy 

Toronto’s recent policy change allows low-rise housing with two, three or four units in a single building to be developed city-wide. The move aims to expand housing options, accommodate the growing population, and remove exclusionary zoning practices. Foch and Hill note that this change presents a significant opportunity for investors to meet the demand for affordable housing in the city.

Cities and regions worldwide have successfully implemented similar policy changes to address their housing crises. Examples include Oregon, California, Minneapolis, Tokyo, New Zealand, Copenhagen, and Barcelona. These cities have seen positive outcomes such as increased housing supply, improved housing affordability, and better integration of missing middle housing.

The impact on Toronto’s housing market 

With Toronto projected to attract 700,000 newcomers by 2051, low-rise housing supply has consistently lagged behind demand. The new policy aims to bridge this gap and provide a more feasible environment for multiplex development. Additionally, multiplexes will be exempt from Floor Space Index (FSI) provisions, allowing for more practical construction.

Aging in place and neighbourhood preservation

The pair explains how multiplexes offer an ideal solution for older homeowners to age in place, allowing them to downsize while staying close to familiar surroundings. Furthermore, this policy change can contribute to the preservation of regional greenspaces by utilizing urbanized land more effectively.

Future implications and challenges

Foch and Hill emphasize that this policy change is just the beginning of a broader cycle. Initially, new units may come at higher prices, but over time, they are expected to become more affordable as they become normalized. They also touch on various factors influencing the policy’s success, including building codes, labour shortages, financing options, CMHC policy requirements, parking standards, construction technology, and transit availability.

So what does all this mean for real estate investors? Listen to episode 89 of The Canadian Real Estate Investor to find out. 

REM Editorial Team

realestatemagazine.ca

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Foch and Hill that while global inflation is decreasing, core inflation in major economies remains persistent. As a result, central banks are expected to continue to maintain restrictive monetary policies to achieve their inflation targets. This is anticipated to constrain global growth through 2023 and the first half of 2024, with growth projected to pick up in 2025 as the effects of policy tightening fade.

Turning to Canada specifically, the hosts note that consumer price index (CPI) inflation is expected to come down quickly to around 3.0 per cent in the middle of 2023 and then decline more gradually, reaching the 2.0 per cent target by the end of 2024.

Goods price inflation is easing quickly due to lower energy prices, improved global supply chains, and the effects of restrictive monetary policy on interest rate-sensitive sectors. However, the pair explains services price inflation is responding more slowly to the effects of restrictive monetary policy, which is why inflation is forecast to return more gradually to the 2.0 per cent target.

The hosts dive deeper into the report’s analysis of mortgage rates and housing. They note that the Bank of Canada expects household spending to be restrained by higher interest rates, with the share of income spent on interest payments continuing to rise as homeowners renew their mortgages. This is expected to have a particular impact on highly indebted households, more vulnerable to increases in borrowing costs.

This could lead to a slowdown in housing demand, Foch and Hill explain, particularly for higher-priced properties, as potential buyers are priced out of the market.

Despite this, the hosts note that Canadians are continuing to choose mortgages with shorter amortization periods and variable rates, which can offer more flexibility and potentially lower costs over the long term. They also point out that Canadians are spending the highest percentage of their disposable income on mortgages since the late 1990s, which could indicate a high level of confidence in the housing market despite the potential risks of rising interest rates.

Listen to the full the epsiode:

REM Editorial Team

realestatemagazine.ca

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Wilson is best known for the yoga pants that revolutionized athletic wear. He is, after all, the billionaire founder of Lululemon and while no longer CEO, he remains the apparel company’s single largest shareholder. The outspoken mogul aims to replicate his success in the athletic wear industry in real estate.

The burgeoning value of his sprawling Vancouver estate makes local news headlines annually, but apart from that, little is known about his billion-dollar real estate portfolio. He sat down for his first-ever interview on real estate with Daniel Foch and Nick Hill, hosts of the Canadian Real Estate Investor podcast. Wilson was joined by David Ferguson, CEO and co-founder of he and Wilson’s real estate investment, development and management company, Low Tide Properties. 

Ten years ago, Wilson says he and his family, alongside Ferguson, decided to invest 65 per cent of their wealth into real estate in three cities by 2030. The CEO explains, “Our other businesses have done so well that, you know, we haven’t reached that percentage… We’ll probably be lucky to get to 20 (per cent). And that’s buying almost as fast as we can.”

A decades-old friendship

Wilson and Ferguson were introduced through a mutual connection at a party in Calgary 38 years ago, and after both spent time in Toronto, the pair eventually reunited in Vancouver.

David Ferguson, co-found and CEO of Low Tide Properties, image via holditall.com

Wilson chuckles, “He’s very measured in what he says; I’m very unmeasured in what I say. So we were kind of a perfect combination.” 

Ferguson refers to himself as a “career real estate guy,” adding, “That’s all I’ve ever done. That’s all I’ve ever wanted to do. I love it.” After cultivating a friendship, the duo found their way into business together.

Wilson adds, “I recognized that he was probably the smartest guy in the world. And I’m maybe not as smart as Dave, but I had lots of money. So it was a perfect combination.”

Low Tide Properties 

Low Tide Properties was founded in 2011; the pair’s love for Vancouver and desire to reinvest in the local economy drives the company’s success. Ferguson explains that the region’s proximity to the mountains and Pacific Ocean and limited land supply has made it a popular destination for international immigrants and a favourable location for investment. The company purchases property in emerging neighbourhoods, not downtown, but near the city’s core, aiming to influence or be the catalyst for change in the area. 

He adds, “We know the city unbelievably well in the areas we invest. I know every single block; I’ve probably gone through half the buildings, maybe more. We’ve made offers on lots. So we really, really understand, we understand what block we want to be in. We understand what side of the street we want to be on.”

The company offers “creative office spaces,” catering mainly to smaller and local businesses. The company’s website boasts 30 properties in Vancouver alone, ranging from office space to laboratories and retail to multi-family. Wilson emphasizes the importance of understanding the target audience, focusing on what kind of lifestyle the future employees of the tenants want and appealing to them. The pair staunchly believe treating tenants well is crucial to their success.

“Your tenant is your customer. It’s your only customer, so you need to treat them really well…it’s a fantastic business. You have a customer that’s going to pay a fixed amount of money every single month for your product,” Ferguson notes.

In 2017, the founders diversified their portfolio by investing in Seattle’s multi-family rental market, aiming to avoid putting all their eggs in one basket. Wilson says they’re looking to add a third city to their portfolio, “We love places where land is constrained, and we really understand it. So we’ll probably look for somewhere like that.”

The company’s long-term investment strategy emphasizes holding onto properties for at least 25 years, with Wilson advocating for a 100-year strategy. He puts it simply, “We’re a long-term real estate investor.”

When asked about the real estate market’s tumultuous year, Wilson says, “Inside of downturns, there are opportunities, and you have to have enough cash on the sideline in order to take advantage of that.

Investment strategy

Wilson and Ferguson have built an expansive real estate portfolio with Low Tide Properties; they shared their top three investment strategies that have proven to be effective.

Location, location, location

Location is the most important factor to consider when investing in real estate. According to Ferguson, “You can change almost anything, everything about a property other than its location.” Therefore, one should look for a location where the economy is growing, jobs are being added, and there is limited real estate development. 

Boots on the ground

Conducting on-the-ground research by talking to people can provide useful insights to identify potential investment opportunities. 

Wilson suggests asking people about the top restaurants, coffee shops, and stores in the area and where they would like to see a second location of their favourite shops. This can help investors understand the demand for real estate in that area. 

Cultivate partnerships 

For investors with limited capital, partnerships can be an effective way to lower risks and increase knowledge. Wilson suggests finding partners who can bring different skill sets to the table, such as finance, property management and tenant relations. 

Through partnerships, investors can learn from each other and make more substantial investments with reduced risk. 

Investing in real estate requires building a team of experts with different skill sets. As Wilson notes, “There’s very little that you know, and your capital is limited” when you start out, but partnering with others who can complement your skills can help you achieve success.

“A leader is someone who creates a future that would otherwise not have occurred.” 

          – Chip Wilson

While Wilson and Ferguson are fiercely passionate about real estate, they recognize the importance of leaving the world a better place than they found it. 

“A leader is someone who creates a future that would otherwise not have occurred,” Wilson says. “We both believe that if we complain, we can complain a couple of times, but then we’re in action to do something about it.”

Ferguson adds that he is very conscious about what he does and focuses on enjoying his life to the fullest. “Who we do business with, who our employees are, everything is a very conscious choice to maximize the enjoyment of our lives.”

He finishes, “I think when you’re really enjoying your life and you’re happy, you will do much better than when you’re miserable.”

Listen to Foch and Hill’s full interview with Chip Wilson and David Ferguson: 

Jordana Springgay

Jordana is the editor of Real Estate Magazine. You can reach her by email. 

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Episode 74 of the Real Estate Investor podcast explores a myriad of topics, including a closer look at National Bank’s Housing Affordability Monitor. 

Hosts Daniel Foch and Nick Hill note that it was the largest improvement in over three years and ended the longest sequence of declining home affordability since the 1986 to 1989 episode, although the median home is still not affordable for many Canadians. Mortgage payment as a percentage of income is at 64.6 per cent, the second-highest level since 1981.

Office vacancies in Canada reach an all-time high

Foch and Hill also explore how the pandemic has impacted commercial real estate; office occupancy rate in Toronto stabilizing at around 42 per cent to 43 per cent of pre-pandemic occupancy, while office vacancies across Canada hit a record high of 17.1 per cent at the end of 2022 due to cost-cutting measures implemented by companies.

The podcast also discusses RBC’s recent report on the Canadian housing market correction, which suggests that the housing market correction is gradually letting up, with prices expected to level out in a few months. The report forecasts a 15 per cent peak-to-trough decline in the national RPS Home Price Index, with roughly half of that decline still to come.

Rental housing shortage could quadruple by 2026

Moreover, Foch and Hill explore another report from RBC highlighting the shortage of rental housing in Canada, which is expected to quadruple by 2026, despite a record number of apartments being built last year. 

The biggest gains in purpose-built rental stock were seen in Calgary and Ottawa-Gatineau, while Toronto and Montreal, popular destinations for newcomers, experienced the smallest gains. 

The rental housing gap, the difference between the projected rental stock and the rental stock required to achieve balance, is expected to exceed 120,000 units by 2026, nearly four times the current estimated shortfall.

The hosts explain that Canada needs to significantly increase the supply of purpose-built rentals to meet current and future demand and provide stability in the rental market.

For a more comprehensive discussion on the topics covered in this article, including insights and analysis from Foch and Hill, make sure to tune in to the full podcast.

REM Editorial Team

realestatemagazine.ca

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In episode 72 of the Real Estate Investor podcast, hosts Daniel Foch and Nick Hill explore the implications of the demise of SVB and Signature Bank and whether smaller financial institutions in Canada could suffer similar fates.

The hosts analyze SVB’s impact on the real estate industry, as about 15 percent of the loans on its books were secured by residential mortgages and commercial real estate.

While SVB’s fall may not significantly impact the borrower as the lender changes hands, it could cause a perception of systemic U.S. banks’ risk and impact the valuations of venture capital startups with millions at SVB.

The pair also discuss how SVB’s collapse marks the second-biggest bank failure in U.S. history and the largest since the 2008 financial crisis. Foch and Hill touch on other headlines out of California that suggest it could emerge as a ground zero for a U.S. real estate blowoff.

Foch and Hill also explore SVB’s commercial real estate exposure and the higher risk of default compared to other types of loans, given the uncertainty around the economy and residual effects of the pandemic on retail, hotels, and offices.

REM Editorial Team

realestatemagazine.ca

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