Canada Investors Forced To Look Elsewhere

TORONTO-Investment that had been focused on Canada before the global economic downturn has since turned away, leaving a shortage of quality investment going on in the country and many now-distressed properties, according to a local real estate expert. Martin Emmons, a real estate attorney with locally-based Fasken Martineau, tells GlobeSt.com that investors today should view Canadian CRE opportunities with both caution and optimism.

He says both US and Canadian investment has turned away from Canada, looking instead to other countries, including South America or the US. Examples include locally-based Brookfield Asset Management’s assistance with bankrupt Chicago-based General Growth Properties Inc., and locally-based Rio-Can’s 15% investment in Port Washington, NY-based Cedar Shopping Centers Inc. and its $138 million joint venture to own eight Texas-based retail properties with Inland Western Retail Real Estate Trust Inc.

According to Emmons, there were a number of US developers and US-based pension funds that entered the Canadian market and invested in Canadian real estate in the past few years, before the recession. These investors were attracted by the stability of the Canadian real estate market and the size of the industrial market in the greater Toronto area, the fourth largest industrial market in North America, he says.

However, with the global economic downturn, Emmons says these investors placed Canadian development plans on hold in order to focus more on home-based investment issues. “As a result, there’s a shortage of quality investment properties on the market in Canada. Properties that are listed for sale on the market often have an issue or a problem.”

Many of the properties are on the market at a loss, Emmons says. It’s a strange situation, he says, where investors have funds available, but there’s too much local risk to try to boost up Canadian investment. “I’ve been meeting with a lot of clients, everyone has money to spend, but there’s nothing worth spending on.”

He agrees with reports from firms such as Jones Lang LaSalle that the Canadian markets see a chance of resurgence in the first half of 2011. A recent JLL report on the country’s industrial market, for example, says a lack of new development will likely push landlords into a better position in the next year. Even though the Bank of Canada raised its overnight rate by 25 basis points on June 1, any further hikes will be dependent upon the state of the global economy, and if they do occur they will be modest in nature. “The expectation is that the that there will be substantially more quality product on the market available for acquisition later this year, at which time transaction volume should start to increase,” Emmons says.