All Forum Posts by: Austin Gagne

See my reply via DM...

Challengers and Lessons Learned:

My brother and I looked into smaller (10-15 unit) multi-family for about a year back in 2020/2021. Some of the challenges we faced will still be relevant, others will have changed.

- Too many other investors willing to buy based on a proforma, rather than real financials.

- Too many other investors willing to pay prices that only pencil because they're (a) self-managing and/or (b) renovating/turning around the units themselves. I take it you're not Edmonton based, so you'll be competing with other's who's numbers don't make a whole lot of economic sense once you factor in the value of their time.

- Most of the deals that came our way were for 60-70yr old wood frame buildings, that had been owned by their current owner for 25+ yrs, and we felt there was a definite risk that the economic viability of the asset was less than our planned (buy and hold) time horizon, and we were also highly skeptical of the insurability of some of these buildings or that the cost of insurance would not balloon once the ownership transition forced the insurers to reassess the building.

Ultimately we pivoted to retail/light commercial mixed use properties. We'll still look at a multifmaily deal here and there, particularly if there's a retail component, but not currently our main focus.

Financing:

- CMHC has a multifamily specific program right now where the debt can be amortized over something crazy like 50yrs (others who do multifamily as their bread and butter will know the specifics).

- cap rates for multifamily seem to be in that 5-5.5 range currently as far as I can tell, which has come off a bit since the peak on 2022, but are still lower than other asset classes. Canadian population growth and current vary favourable CMHC financing terms are likely mostly responsible for that, and both of those factors are above/more favourable than historical norms, so if your time horizon is long, then I would not count on appreciation/cap rate compression as part of your underwriting.

Quote from @Stevo Sun:

Quote from @Taimur Khan:

Quote from @Austin Gagne:

Quote from @Taimur Khan:

Hi All, have spent a few days browsing these forums. Longtime entrepreneur (education & e-learning space) that is finally putting in more energy and effort into RE investment in Canada outside of REITs and personal homes.

We have a trip to Edmonton & Calgary next week for an initial scouting. Looking for a blend of income + cap gains. Given that other Canadian markets have appreciated immensely, we feel these two markets will be next despite cyclical dependence on oil in the past. Opinions? Are we completely off and it is just an energy cycle now? 

Also, if you were to invest in homes with legal suites or smaller multi-family (4-6 units)  which neighbourhoods would be on your radar? TIA.

Looking to learn more with everyone here!

Hi Taimur,

How your scouting trip go?

Here's my two cents on appreciation in the Alberta market:

Yes, with other Canadian markets going up and with positive population growth you would think that Alberta should be next to appreciate. But at the same time you have to keep in mind that cities in Alberta are not particularly geography or regulation constrained in the same way that other markets are (e.g. Lower Mainland). It's hard for housing to appreciate as much when you can just build a new neighbourhood on the next farm field over. On the other hand you can certainly get much better CoCRs.

Yes, I do believe that some Alberta neighbourhoods/micro-markets are likely set to appreciate, but I do not think that's going to be a trend across the board as in other places, so you're going to have to pick your spot. If you want some appreciation I would ask yourself, "if new units are build, is there something that STILL makes this more scarce than locations"? Personally, I do commercial/retail, so can't tell you exactly where that would be, but that would be my general framework. If you're worried about appreciation I would be very picky about buying in proximity to something that make it a desired location, and I would not buy in a peripheral market where new construction is essentially only limited by the cost of construction.

 Hi Austin,

Thanks for your feedback and thoughts. Yes, I reached the same conclusion with regards to Edmonton. It just does not make sense if a goal is cap appreciation. The inner city overall is not that attractive, and the suburbs are close enough, cheap enough, and new enough that infills hardly make sense. If only rental income is the goal, then yes, I saw some great returns on some row homes with no strata fees. But in that case I'd rather keep it in the markets as it's still just 7% ish and comes with extra work and distance. If local to me, could be more attractive.

Calgary left a better impression on me as an investment center, but as you mentioned, seems construction costs are what are setting the prices at this stage. 

Cap rates are still too low in today's interest environment. When you can GIC at 5.5% a 6-7 cap is not really worth it.

There's still some good opportunities out there, but more creativity is required. I would say right now it's all about find the win-win by solving a problem for the seller.

Quote from @Taimur Khan:

Hi All, have spent a few days browsing these forums. Longtime entrepreneur (education & e-learning space) that is finally putting in more energy and effort into RE investment in Canada outside of REITs and personal homes.

We have a trip to Edmonton & Calgary next week for an initial scouting. Looking for a blend of income + cap gains. Given that other Canadian markets have appreciated immensely, we feel these two markets will be next despite cyclical dependence on oil in the past. Opinions? Are we completely off and it is just an energy cycle now? 

Also, if you were to invest in homes with legal suites or smaller multi-family (4-6 units)  which neighbourhoods would be on your radar? TIA.

Looking to learn more with everyone here!

Hi Taimur,

How your scouting trip go?

Here's my two cents on appreciation in the Alberta market:

Yes, with other Canadian markets going up and with positive population growth you would think that Alberta should be next to appreciate. But at the same time you have to keep in mind that cities in Alberta are not particularly geography or regulation constrained in the same way that other markets are (e.g. Lower Mainland). It's hard for housing to appreciate as much when you can just build a new neighbourhood on the next farm field over. On the other hand you can certainly get much better CoCRs.

Yes, I do believe that some Alberta neighbourhoods/micro-markets are likely set to appreciate, but I do not think that's going to be a trend across the board as in other places, so you're going to have to pick your spot. If you want some appreciation I would ask yourself, "if new units are build, is there something that STILL makes this more scarce than locations"? Personally, I do commercial/retail, so can't tell you exactly where that would be, but that would be my general framework. If you're worried about appreciation I would be very picky about buying in proximity to something that make it a desired location, and I would not buy in a peripheral market where new construction is essentially only limited by the cost of construction.

Interesting outlook piece for 2024 from PWC re: for the Canadian CRE investors out there:

Emerging Trends in Real Estate® 2024

The TL;DR... They highlight three asset classes, which they think offer the best bet for growth in 2024:

1. Industrial Real Estate:
   • - Despite caution, industrial real estate remains a strong investment.
   • - Slower rent growth is expected, but the sector is still attractive.
   • - Opportunities are seen in manufacturing, warehousing, and data centers.
   • - Low vacancy rates across Canada contribute to the positive outlook.
2. Multifamily Residential Housing:
   • - Challenges in condo and rental projects, but fundamentals are solid.
   • - Federal GST relief for new construction projects generates industry interest.
   • - Growing interest in niche assets like student and senior housing.
3. Necessity-Based Retail Property:
   • - Retail sentiment improves, especially for grocery-anchored developments.
   • - Neighborhood shopping centers are highly ranked for investment prospects.
   • - Focus on retail properties serving communities with strong population growth.

... but less optimistically, they describe the Canada’s real estate sector as "facing the years of the great staring contest”, with capital availability being a challenge across the board.

Personally, don't have a strong view on industrial (not generally my focus), but for multi-family and small/local retail, this broadly does align with my view. I think both sectors can benefit population growth, even if real GDP per capita continues to fall. The nuance I would add though is that I wonder if "growth" if too strong of a word. For industrial and multifamily cap rates had generally compressed over the decade prior to 2022, and don't seem to have expanded much despite rising interest rates, I don't see them compressing more, and I think any increases in rents will likely be more than offset by increased debt service costs. For small ("necessity-based") retail, I think less money chasing deals will probably cause the gap between A Class/anchored (or high foot-traffic) property cap rates and everything else to expand.

Interested to hear other's takes.

Quote from @Michael K Gallagher:

Hey Austin, 

Welcome, I don't work in Canada so this may not apply, but the most success I've had is literally on county auditor's sites and good old google.  I don't find any "list services" to be all that accurate, especially in the commercial world.  We use a ton of google earth to pick out areas that look promising, and to identify specific lots/buildings etc, and that combined with a simple spread sheet has allowed us to take down many off market retail and land deals for our clients.  Its simple, but tedious, but there's been no substitute for the quality of leads/lists in my experience.   

Thanks Michael, very much appreciate your insights! Yup, good old google
maps/searching is I think what it's probably going to have to be. My
brother and I are both full-time ER docs, so main limitation for this
approach for us is time. If you've worked with any VAs that have a
particular talent for this kind of work please feel free to DM me their
contact info, or pass mine onto them. Thanks
again!

Quote from @Eliott Elias:

The commercial space is going to be tough because most properties are held under an LLC. Skiptracing companies are a lot harder than skiptracing non-LLC owners.

Also, taking over debt subject to for commercial real estate is a lot more risky with these commercial lenders. I would target single-family.

Thanks Eliott, appreciate your insights.

My brother and I are CRE Investors in Edmonton, with a specific focus on small retail properties. Previously, we've relied on brokers to source potential deals. However, given the current market dynamics, we're exploring a shift towards direct engagement with owners. While we've considered obtaining contact lists of CRE owners from Loopnet, however, the costs is a sizable hurdle for a smaller operation like ours.

I'm reaching out to the community in the hopes of gathering insights and experiences. Specifically, we're interested in learning effective methods to acquire contact lists of CRE owners for activities such as cold calling, email outreach, or direct mail campaigns.

Any thoughts or suggestions are highly appreciated!

Warm regards,

Austin

My brother and I invest in small retail CRE in Edmonton (2-6 bays). We've used brokers previously, but in the current market, we're seeking to reach out directly to owners open to creative deals. Services like Loopnet can generate owners' contactlists, but their costs are a bit high for us, so we're seeking advice on how to acquire CRE owners' contact lists for outreach (cold calling, email, direct mail).

Any insights would be appreciated!

Thanks, Austin

P.s. Edmontonian with a small retail building you’d consider selling? If so, DM me!

My brother and I invest in CRE in Edmonton. Our typical focus is small retail (2-6 bays). We've previously used brokers to bring us deals. In the current market we're looking for owners open to creative deal structures and finance, and we're looking to go directly to owners with our offers. We've looked into getting owners' contact lists from Loopnet, but their service is a little cost prohibitive for a small operation like ours.

I'm reaching out to seek advice or experiences from others re: how to acquire contact lists of CRE owners for purposes such as cold calling, email outreach, or direct mail campaigns. Any insights or suggestions to help point us in the right direction would be greatly appreciated.

Many thanks!

Austin

**keep in mind we're in Canada... i.e. fewer online RE databases and more privacy laws, so not all the approaches that work in the States are available.

***If you’re an Edmontonian with a small retail building you’d consider selling, DM me!