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Turner Drake & Partners Ltd.
6182 North Street
Halifax, N.S.
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Canada

Tel.: (902) 429-1811
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Toronto, ON.
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# Wednesday, May 5, 2021


After listing a property for sale, you receive an offer from a prospective buyer. Then, before you’re able to present the offer to your seller-client, a second and third offer arrive with all of the buyers and their agents impatiently waiting for answers.


While handling multiple offers requires more diplomacy than handling a single offer, from a business standpoint there is really little room for complaint here. You have an attractive listing, which has a good chance of selling quickly, and your marketing efforts are paying off, which should please the seller.


However, there is plenty of room for problems if you don’t handle the intense demand for your listing with diligence and fairness to all – your seller-client and the prospective purchasers.

 


Verbal Offers Are Not Competing Offers

All offers must be presented in writing. If a seller’s agent is presented with a verbal offer, the seller must be told what was offered and the buyer’s agent must be instructed to put the offer in writing in order to be considered.

 


Disclosure to the Buyer

In Nova Scotia, the decision to disclose the existence of competing offers to buyers is entirely up to the seller.

Should the seller receive competing offers, the seller’s agent should:

  • inform the seller immediately;
  • recommend the seller review each offer prior to making a decision;
  • disclose the presence of competing offers to the buyers’ agents if the seller agreed to do so, however the content of the offers must remain confidential;
  • attempt to have all offers presented to the seller in the same time frame. The seller can delay the presentation by providing written consent; and
  • advise the seller of their options, such as:
    • accept one offer, reject all others;
    • counter one offer and set others aside pending the result;
    • reject all offers;
    • accept more than one offer with any offers after the first as back-up offers. Any back-up offers must remove the seller’s obligation from the first contract when moving on to the next through a condition included in the counter offer, such as “seller’s acceptance of this back-up offer is subject to the seller ceasing to be obligated in any way by [date] under the previously accepted purchase contract. This condition is for the sole benefit of the seller.”

 

Representing Buyers

The buyer’s agent has a duty to disclose competing offers and any terms that are known to them, but ultimately buyers might not be made aware of competing offer situations; that decision rests with the seller. If the seller does disclose that the buyer is in a competing offer situation, the buyer’s agent should:

  • immediately inform the buyer;
  • advise the buyer of the seller’s options;
  • ask to personally attend the offer presentations; and
  • advise the buyer of their options, such as:
    • increase the offer prior to presentation;
    • leave the offer as it is;
    • withdraw the offer; or
    • reconsider the fixtures, chattels, terms and conditions of the offer prior to presentation and have these changes reflected in writing.

 

Tips for Buyers

Once the buyer is made aware that they are in a competing offer situation, they may want to increase the offer price and/or reconsider a term or condition in effort to compel the seller. Financing and inspections are both examples of conditions that buyers could remove in effort to improve their offer. Doing so however, increases the level of risk for the buyer.

 

Price:

What can the buyer realistically offer on the property? Is the property appropriately valued? Buyers should understand the long-term risks of increasing their offer price and what impact it could have on their financials. Further, buyers should understand that increasing their purchase price above the asking price does not guarantee that their offer will be successful.

 

Property Inspection:

Buyers may be tempted to remove the inspection condition in an effort to present a more appealing offer to the seller, but there could be major risks involved in doing so. Property defects and major repairs are an expensive reality in many older buildings and foregoing the inspection will prevent the buyer from having a clear understanding of the current state of the property. Buyers are recommended to use extreme caution when deciding to remove an inspection clause for this purpose.

 

Financing Pre-approval:

If you don’t know exactly what you can afford, you may be looking out of your price range and wasting your time. You may also be looking below what you would have qualified for and not getting the right investment property for you.

If you start off by getting a pre-approval on the other hand, you can sort by price, identify the right neighbourhoods, and find your desired property much faster.

 

Offer & Acceptance:

There is no contract until all parties agree to its written terms, sign their names to express that agreement and communicate acceptance to the offering party. Until then, you have nothing more than a stack of offers – not a stack of contracts – any one of which could appeal to your seller-client. Do not advise a buyer or a buyer’s agent that the seller has accepted the buyer’s offer until the seller has signed the offer. A seller who orally expressed a willingness to accept an offer has not yet accepted the offer and has no legal obligation to do so. Thus, no contract has been formed.

 

The Back-up Offer:

When one offer is accepted, your client may be willing to negotiate another as a “back-up”. Of course, this would require agreement by the second buyer and would require special language indicating that the back-up contract has no legal standing unless and until the primary contract is terminated.

 

Only One Winner:

Unfortunately, in the case of multiple offers for one property, there will be those that lose. Someone will walk away disappointed for not having been able to buy their ideal property, but if everything is handled in an equitable manner, the seller should NOT be the losing party, but should walk away with a deal that is in their best interest.



James Dunnett is a Consultant in our Brokerage Division and has extensive experience in handling complex leasing and sales transactions. If you need help managing your leasing requirements, or are interested in purchasing or selling a commercial property, James will be happy to assist you through every step of the transaction. Contact him at (902) 429-1811 or jdunnett@turnerdrake.com.

Wednesday, May 5, 2021 12:10:44 PM (Atlantic Daylight Time, UTC-03:00)  #    -
Atlantic Canada | Brokerage | New Brunswick | Newfoundland & Labrador | Nova Scotia | Prince Edward Island | Turner Drake
# Thursday, April 22, 2021

The Covid-19 pandemic has had a tremendous impact on the commercial real estate industry.  Central Business Districts throughout Atlantic Canada (and beyond) have experienced the greatest impact as the market shifts away from traditional brick-and-mortar office space.  Many large employers anchoring multi-story office buildings have transitioned to a remote workforce to satisfy public health guidelines, while also providing their staff with more flexible working arrangements.  Vibrant, bustling downtowns are now a shell of what they once were – your morning pitstop is now closing its doors and is shadowed by dark buildings and empty parking garages, while office towers are being considered for possible sale, renovation, or conversion to multi-residential purposes. 

With a reduction in office occupancy, downtown districts have experienced a significant decrease in traffic.  During December 2020 our in-house regional market survey found that the majority of urban centers throughout the Maritime provinces have experienced increasing vacancy rates.  Halifax was the only market to see a slight decrease in the rate (of 1.39 percentage points). Downtown St. John’s on the other hand recorded the largest vacancy rate at a whopping 37.46%, substantially higher than that of the greater St. John’s area as a whole, and up 10.93 percentage points (PP) from the prior year. Moncton office vacancy rates increased 8.56(PP) from the prior year while Saint John and Fredericton followed with growth rates of 4.07(PP) and 3.83(PP) respectively.   

On a macro level, Statistics Canada report that the number of firms with 10% or more of their workforce working remotely doubled between February and May 2020. This trend may not be over any time soon, as one in five companies reportedly expect 10% or more of their staff to continue working from home post-pandemic. Canada did experience a decrease in remote working after the first wave of COVID-19, however since October 2020 remote working has increased and in December was sitting at 28.6% according to Statistics Canada.

Although the pandemic has brought a lot of doom and gloom, it has also created new opportunities and broadened perspectives. Our Lasercad® team have had the pleasure of helping our clients pivot and re-focus; assisting them in mapping out socially distanced office layouts in order to “future-proof” spaces, while also promoting continued in-person workflow amongst staff. We have provided landlords and building owners with accurate measurements and floor layouts to aid in managing and renovating their properties.

The long-term effects of the pandemic on local commercial real estate remain to be seen, however preparing yourself and your property for various outcomes is a great start. Having an electronic CAD inventory of your space allows the flexibility to run a variety of scenarios and can be a helpful tool while working with tenants, contractors and buyers. If you would like to hear more about our recent projects please don’t hesitate to reach out. Our Lasercad® team would be happy to discuss your concerns and requirements as you try to navigate these uncertain times. 

Mark Smith is a consultant in our Valuation Division and is heavily involved in many of our Lasercad® projects. For more information about our range of Lasercad® services, feel free to contact Mark at (902) 429-1811 or msmith2@turnerdrake.com.

Thursday, April 22, 2021 11:05:21 AM (Atlantic Daylight Time, UTC-03:00)  #    -
Atlantic Canada | Lasercad | New Brunswick | Newfoundland & Labrador | Nova Scotia | Prince Edward Island | Turner Drake
# Thursday, April 1, 2021

Expropriation is the forceable taking of property by an acquiring authority for a public project, such as a road, transmission line, pipeline etc. In the vast majority of cases, only a small portion of a property is taken, and sometimes only a partial interest is required.  Pipelines, for example, only require a sub-surface easement interest, allowing the owner to continue using the surface for anything that doesn’t interfere with the operation and maintenance of the pipeline itself.  Transmission lines are happy to share, requiring only an easement interest for the towers and the overhead lines.  Regardless of whether the interest is full (fee simple) or partial (easement), the acquiring authority pays compensation for the value of the interest taken, the boundaries of which are defined by a survey plan and a legal description, properly recorded at the Land Registry.

In some instances, however, an acquiring authority may exert control beyond the boundaries of what it has legally acquired.  In Nova Scotia, new highways are usually designated as controlled access highways under the Public Highways Act, imposing potential new restrictions on building setbacks.  A permit from the Minister is required for the construction of buildings and structures within 60 metres (197 ft.) of the limit of a designated controlled access highway or within 100 metres (328 ft.) of its centre line.  That is probably far more restrictive than the local By-Laws require, potentially sterilizing a fair chunk of land alongside the new highway unless Ministerial approval is granted.  In rural areas it probably doesn’t matter, but in urban areas it might, especially if there is a potential for development.  The Public Highways Act does allow compensation for so-called injurious affection resulting from a controlled access highway designation … but not for new highways.  So, any compensation in respect of new setbacks alongside new highways must presumably be claimed via the Expropriation Act, even though the restrictions are authorised under a different act.

Pipeline easements come with similar strings attached.  Oil and gas pipelines are regulated under the National Energy Board Act (which strictly speaking grants orders for rights of entry rather than expropriations).  The Act imposes an automatic 30 metre (98 ft.) Prescribed Area – or safety zone – on either side of the pipeline, within which so-called ground disturbances and construction activities are restricted. Some activities are totally prohibited and others require the pipeline company’s permission.  So, whilst the pipeline company only acquires the easement within which its pipeline sits, it casts a 30 metre shadow on either side.  Compensation for restrictions within the 30 metre safety zone is often challenged but has been awarded and upheld by the Federal Court in valid circumstances.  Again, in rural areas it might have little impact, but in urban areas it most likely will, especially if it interferes with development plans.


Lee Weatherby is the Vice President of our Counselling Division. If you'd like more information about our counselling services, including advice on expropriation matters, feel free to contact Lee at (902) 429-1811 or lweatherby@turnerdrake.com

Thursday, April 1, 2021 10:37:40 AM (Atlantic Standard Time, UTC-04:00)  #    -
Atlantic Canada | Counselling | New Brunswick | Newfoundland & Labrador | Nova Scotia | Prince Edward Island | Turner Drake
# Wednesday, March 3, 2021


From the tip of the Tuskets to the briny Bras d’Or, Nova Scotia hosts a buffet of islands along the coast and in our many inland lakes.  They provide visitors with a glimpse of wild beauty and an air of mystery; offering fantasies of self-isolation in a rustic cabin, or (in rarer cases) a self-sustaining luxury compound in the sea.

There is no denying the unique appeal of an island property: every trip is a journey and the setting is ripe for peaceful contemplation and an escape (geographically) from it all.  But not all islands are created equal, and one person’s paradise is another’s bare rock suited more to the gloomy vibes of a horror film à la The Lighthouse (filmed, incidentally, in the almost-an-island Cape Forchu near Yarmouth, NS).

On occasion we are tasked with placing a monetary value on islands in Atlantic Canada, and though it feels crude to reduce these special places to dollar signs, our valuation crew is beholden to the oath of Market Values and Highest and Best Use.  So, what factors into such an assignment? Before I jump into my canoe or take to the sky for the inspection, here are some considerations rolling around my head:

Location

The classic axiom of real estate applies most strikingly to island properties.  An island located many kilometres out to sea will attract a much smaller pool of potential purchasers than an island within a leisurely boat ride of the mainland.  For every additional hour spent travelling to an island, the cost of fuel, and risk of weather increases the difficulty in visitation and greatly increases the cost to move construction materials.  For this reason, inland islands (on mainland lakes, or the Bras d’Or Lake) are generally more accessible and desirable than their oceanic counterparts. 

Amenities

What better accessory for your yacht than a private island? Islands located near marina facilities, yacht clubs, and other services are immediately attractive to folks who enjoy Nova Scotia’s sailing culture.  This trend is best revealed in the market for islands between Lunenburg and Chester on Nova Scotia’s South Shore.  Here you will find the most expensive islands in the province, adorned with multi-million-dollar estates including the recently purchased “Kaulbach Island”.  With a price tag of $4,000,000 this property includes multiple high-end buildings, deep anchorage, and a farm to keep you stockpiled in the event of any cataclysm (yacht not included).

Waterfrontage

Sandy beach or granite cliff?  Both offer beauty but it is the former which is sought most by island purchasers.   Valuing an island property often involves two key unitised elements: the “Basic Land Value” captures the uplands which tend to vary in quality based on vegetative cover, topography, etc. and are expressed as a value per acre; and the “Waterfront Benefit” which varies based on coastline material (sand, stone, boulders, etc.), accessibility, topography, and aesthetic appeal; and is expressed as a dollar amount per linear foot of water frontage.  Breaking down value into both the Basic Land Value and the Waterfront Benefit is one of the ways we can leverage past sales of islands (which are inherently unique) to provide an estimate for islands yet to be sold.

Ecological Interest

As with many assignments involving wild places, the cold calculus of valuation has a redeeming quality when it can be leveraged to protect the land for future generations.  In Nova Scotia, organisations such as the Nova Scotia Nature Trust, Nature Conservancy of Canada, Ducks Unlimited, and the Provincial government have created a market for islands which explicitly recognises their ecological significance.  Islands which might otherwise be used to dry fishing gear can be justified with a Highest and Best Use “for conservation use” when there is demonstrable demand for islands hosting birds, mammals, and plant life unique to these coastal oases. 

It’s a small step, but by establishing conservation as a legitimate Highest and Best Use (backed by market data) we are opening a door to recognising the intangible values and relationships we have with land.  It is this humble appraiser’s hope that one day the valuation process will broaden even further, allowing for the legitimate weighing of non-market values and against the rigid confines of what is merely “financially feasible” or “legally permissible”.  Perhaps we can one day pit the spiritual value of land against its extractive value.

James Stephens is a consultant in our Valuation Division and is heavily involved in the valuation of lands for the provincial governments, private land owners, and land trusts including the Nova Scotia Nature Trust, Nature Conservancy of Canada, Annapolis Valley Farmland Trust, and the Island Nature Trust. For more information about our range of Valuation® services, valuations for land donations, feel free to contact James at (902) 429-1811 or jstephens@turnerdrake.com

Wednesday, March 3, 2021 10:32:49 AM (Atlantic Standard Time, UTC-04:00)  #    -
Atlantic Canada | New Brunswick | Newfoundland & Labrador | Nova Scotia | Prince Edward Island | Turner Drake  | Valuation
# Tuesday, February 23, 2021

Well, last year certainly was one for the history books. Of all the issues amplified by the pandemic in 2020, housing and its affordability has been among the most universal, and the most important. Tight vacancy and escalating rents, construction cost and process challenges, plummeting interest rates and a dearth of listings, CERB and eviction bans, renovictions and rent control, escalating homelessness and guerilla shelters. The jury is still far out on 2021, of course, but the challenges and conversations around housing show no signs of a speedy resolution.

I’ve been trying and failing for some time to write about housing; what’s been happening in our region, and how those trends have been affected by the ongoing pandemic. Part of my challenge has been simply keeping up to date – these days you can’t go more than a week or so without getting hit with some new and relevant information. Another part of my challenge has been the complexity of the issue. Housing is the bottom line that many personal, economic, and policy issues fall down to; it is difficult to understand one major facet of the issue without an appreciation for the others.

Originally my goal for this piece was to do a punchy listicle with a couple interesting data points. In my naivete, I established a working title of “3 Charts to Explain Housing”. However, I’ve found it impossible to weave together anything worth saying using so few threads. So, with apologies to our ever-patient marketing staff and any of you who were wishing for a light read, I give you: Seven Facets of Our Housing Situation Explained (with eight charts).  

POPULATION GROWTH

While the COVID-exodus to Atlantic Canada from elsewhere in the country has received much media attention over the past few months, it is really a sideshow. Despite the interesting anecdotes about sight-unseen sales in (formerly) sleepy markets, or Realtors® conducting showings via Zoom, overall interprovincial migration is not significantly different in 2020. We have longer term and more fundamental growth drivers affecting our region. Many of these have been a significant source of housing demand over recent years, but in some cases, have waned under pandemic conditions:

Oil Patch Kaput

During the tar sands heyday from late 2004 to late 2015 out-migration from Nova Scotia to Alberta averaged about 1,250 people every quarter. That’s one Antigonish per year. For eleven years straight. These days, with oil trading at half its price, the exodus has collapsed by a similar proportion while in-migration from Alberta has remained comparatively steady. The result: in the 62 quarters from Q1 2000 to Q2 2015, net migration from Alberta to Nova Scotia was positive only 3 times. In the 21 quarters since (no data yet for Q4 2020), it’s only been negative once. A penny saved is a penny earned.

Real Estate Refugees

Yes, there is certainly a notable inflow of population and home-buying capital from other Canadian regions that have experienced stronger price appreciation, and worse pandemic performance. The work-from-home narrative dominates the conversation on this, but it is not the whole story. This is a combined house price arbitrage play with the beginnings of a structural trend, principally from Ontario and British Columbia, driven by population aging as households execute longer-standing plans to retire Down East. It has been going on for several years, with 2017 being a breakout after Toronto and Vancouver posted eyewatering year-over-year house price increases. The after-spring bump in 2020 from ON and BC is only about 10% higher than the same period last year.

Increasing Immigration

The immigration story was really kicked off in 2016 with the much-publicized landings of Syrian Refugees however other streams for entry really took things from there. Nova Scotia went from welcoming about 610 international immigrants per year (2005-2015 average), to more than 1,390 per year since. Numbers have waned in 2020, obviously, but the Federal Government was early to state that immigration, and increased immigration at that, is a core element of its post-pandemic economic recovery plans. We therefore expect this trend to pick right back up as vaccination is rolled out globally.

Student Bodies

Efforts to recruit international students (and their sizable tuition fees) have been front and centre for post-secondary institutions for some time. However, the Trump presidency apparently supercharged things as a significant number of prospective students have diverted to other western countries who didn’t follow the same nationalistic and isolationist path. This is such an interesting twist of fate that it deserved its own chart:

Again, the pandemic has had an understandable dampening effect as travel has become restricted and classes moved online, but this is a temporary blip. With sanity restored to the White House, however, it will be interesting to see how quickly, and to what extent, this trend recovers in Canada.  

Added together, we get a picture of population growth which has been driving strong housing demand for a period well before a coronavirus turned the world upside down.


In fact, the pandemic has decelerated the net impact of these demand drivers, evidenced in CMHC’s 2020 Rental Market Survey which found apartment vacancy in Halifax rising significantly from its previous record low… though it remains too low.

 

SUPPLY RESPONSE

All of this new population needs shelter, demand requires supply. Adequate housing supply, in and of itself, does not solve all housing challenges. However, making sure we are expanding our housing inventory in pace with our population growth is a fundamental piece of the puzzle solving some issues, and making many others a lot easier to deal with. Supply and demand interact like tectonic forces in housing markets, any of the other actions we might take are done in their context. Let’s take a look at the Halifax area, which is generally where most of the province’s population growth is landing. How have we been doing? 

(Note: Household growth is derived by applying occupancy rates to population growth estimates from Statscan. Occupancy rates are interpolated/extrapolated from census figures, and are approximately 2.3 people/household for recent years. This approach likely underestimates the number of households added as the demographics of new arrivers lean towards smaller households than the general population.)

Not good.

Typically, it would be excessive to examine this data over a 30-year period, but here it is necessary to show just how unprecedented the current growth disparity between people and shelter is in Halifax. For the entire time series Halifax only rarely approached – and never exceeded – an even level of housing construction for each household added to the city. Each time that it did, the industry responded with stronger building rates. This is important as demand is also increasing from shrinking household sizes within the existing population in addition to this incremental demand from growth. In 2016 Halifax blew past that previous ceiling, adding more households than houses for the first time in at least three decades, and more importantly, sustained these historic levels of under-building for 5 years and counting! The first rule of getting out of a hole is to stop digging.

 

CREDIT

As debt becomes cheaper to carry and more easily accessed, it inflates the value of assets. Falling yields on risk-free vehicles like government bonds drive investors to seek higher returns, and the same low rates that motivate this behavior mean the system is flushed with credit on which to acquire these assets. For decades, interest rates have been in secular decline, and this was accelerated significantly in 2009 when the Great Financial Crisis ushered in the era of emergency near-zero rates which have seemingly evolved into permanently low rates. Or perhaps the emergency is now permanent, it is sometimes hard to say.

Real estate is an illiquid asset, which means transactions in the market are heavily influenced by the marginal buyer; those who are willing and able to outbid all others for the property, and thereby set the bar for valuation. We observe the impacts of this monetary policy context clearly in the commercial real estate sector as cap rates have compressed, amplifying the market value of properties independent of changes in the income they generate. A similar effect is felt in the residential sector, where increasing mortgage credit acts as an accelerant in any market with a whiff of demand, launching prices higher, even as the incomes that support them lag.

The chart below shows the results of a simple model that applies typical mortgage parameters to annual house price, income, and interest rate data to plot the changing relationships between income, purchase price, and mortgage carrying cost. In the data since 2000, incomes have increased by about 70%, new house prices by 200%, and average interest rates have dropped by 50%. 


The resulting price to income ratio skyrockets by nearly 190 percentage points as a result. However, the countervailing force of loosening credit means the actual carrying cost of that price, which is what households actually pay (because we don’t buy homes, we buy mortgages), is only up 5 percentage points over the same period and generally fluctuates up and down within a tight 15 point range.

This is the critical mistake made by those who talk about housing prices as being “detached” from incomes. House prices are attached to incomes, firmly, by the sinews of credit. As it has eased, that connection has lengthened, but the relationship is just as firm. In fact, it is more accurate to describe this relationship in the inverse; it is largely because interest rates have fallen that prices have gone up! If interest rates were to reverse their long-standing trend, we would see how quickly this detachment narrative disappears.  

 

DISAPPEARING NOAH

Naturally Occurring Affordable Housing, in housing policy parlance, is a somewhat new and misleading term that basically refers to unsubsidized housing that exists within the private market at a relatively affordable price. Think classic shoebox 3-story walkup apartment buildings (though it can come in any form). Without non-market interventions such as capital grants or operating subsidies, this housing is affordable mostly because it is less desirable relative to other options in the market, and this is principally a function of when it was built.  Buildings go down in relative value over time, or depreciate in valuation parlance, because they go out of style, they get rundown and tired, they lack design features and amenities that more recent buildings have, they are more likely to suffer pest nuisances… if competition is the mechanism by which markets work, these buildings are losing the competition.

This part of the housing inventory is critical for those employed in entry-level positions or lower-income industries. However, as NOAH is still firmly within the housing market, it is subject to market forces. In times of growing demand, the lower end of the market is generally where renovations and recapitalizations become feasible first. In and of itself, this is a good thing. We want our building stock to receive reinvestment and cycle back up through the market instead of declining into uninhabitability. However, that idyllic impression of market function is running into some cold realities.

The first is a quirk of our development history. The chart below shows the distribution of apartment inventory in Nova Scotia by building age (we have removed the comparatively minor contribution of buildings built pre-1950 for the sake of our x-axis). With regular maintenance and the occasional replacement of major building systems like roofs and HVAC, that typical midcentury shoebox building may be expected to last 50 or so years before a complete revamp is required to extend its lifespan.


At any given time there is a continuous stream of building stock aging down and being recycled back up through the market, but a disproportionately large section of the apartment inventory is now coming due. Units constructed during the boom of the 70s are turning over, and there are far fewer units next in queue replace them at the bottom. Particularly cruel examples notwithstanding, this dynamic is largely responsible for the increasing prevalence of “renoviction” stories that we’ve seen in the media over the past couple years. Our total supply of NOAH is dwindling.

 

INCOME INEQUALITY

The second reality affecting the ability of NOAH to adequately serve lower income households is the fact that those households are falling further behind. The majority of households in rental housing are in the bottom 40% of the income distribution. The chart below shows how incomes (adjusted for inflation) have changed over time.


This of course does not reflect the added issue of declining income mobility, highlighted in recent research from Statistics Canada. Still, even this incomplete picture is concerning: over four decades real family incomes in this lower 40% have, at best, increased by less than $4,000 or about 0.26% per year. Unfortunately, the operating expenses of the buildings they occupy (property taxes, utilities, construction materials, insurance premiums, contractor and trade labour, etc.) are growing at a much higher rate. Compounded over decades this means rent in stable, older buildings – even if run on a break-even financial model – will increasingly outpace the ability of many renter households to afford them.

This is mostly a renter’s issue, but it affects those in owner-occupied housing as well. Though interest rates have maintained affordability in the carrying costs of mortgages, other costs associated with home ownership, such as down payments, have become increasing barriers to entry. Ultimately, the spectrum of the population that the housing market serves is getting narrower, and a big part of that issue (especially the “crisis” part) is due to stagnant household finances and stagnant social supports as inequality in our society grows.

                                

SUPPLY OF NON-MARKET HOUSING

The third reality is the availability of housing options for those who are finding themselves outside of the limits of the market. Canada as a whole has not engaged much in the production of social housing, especially since the late 80s and early 90s as the federal government unwound their previous decades of involvement. Yet, even by these low standards Nova Scotia has the dubious distinction of being the second worst province in terms of adding to its stock of non-market housing since 1990:  


A brief pause here to look over the rim of my glasses at New Brunswick which has apparently built all of thirteen (!) units in the last three decades. This data is from CMHC’s inaugural Social and Affordable Housing Survey, so hopefully in future updates more units will be identified.  

Barely more than 7% of Nova Scotia’s non-market inventory has been built since the 90s, and I would wager the proportion for more recent decades is closer 0%. Over this same timeframe, all housing completions tracked by CMHC totaled nearly 98,000 units, meaning only 0.93% (910 units) of what we’ve built has gone towards increasing our non-market inventory.

Now, this is at least somewhat understandable. Up until recently Nova Scotia has been able to coast along without too much trouble thanks to stagnant population growth and the ability of NOAH to take considerable pressure off the waitlists for non-market options. Well, those days are over. If there was one thing the Province could do without having to wait for their Affordable Housing Commission to tell them, actually increasing the inventory of social housing would be it!

 

IMPORTED DEMAND

Finally, we get to the Boogeymen. For those who subscribe to the “detachment” perspective described earlier, the thought process is straight forward enough; if local fundamentals are not viewed as an explanation for housing costs, logic dictates that something else must be afoot. There is a fairly large goodie bag of these something-elses, but they are always fundamentally about pathways for external demand to enter and distort local market conditions: money laundering crime lords, capital from unstable regions flying to the local real estate of safer countries, foreign and local speculators turning houses into tax-advantaged capital gains, Wall St. and Bay St. financializing local housing in order to transfer wealth from residents to shareholders, wealthy tourists displacing locals via AirBNB conversions.

Like any good story, there is always an element of truth at the core. And like any good Boogeyman, a lack of information prevents us from ruling them out entirely. The issue with these explanations is not whether they are completely fabricated; most are true to some degree and documented to have occurred somewhere at some time. The issue really is whether they are happening locally, and if so, are they to a degree that would have a material effect. In our view, there are enough conventional and locally-based explanations for our housing conditions in this region. Occam’s Razor and all that…

Having said that, we fully agree with at least one of the proposed mechanisms by which outside demand has been imported into our local markets: the proliferation of short-term rentals. The number of housing units in our communities now dedicated exclusively to providing short-term accommodations on a commercial basis has exploded since the global advent of AirBNB and its imitators just a few years ago. While there are some interesting and ultimately beneficial facets to this trend, what demands the most attention currently is the resulting reduction in housing supply available for traditional forms of tenancy. 

In response, we have invested in access to world-leading data services covering this new sector of the real estate market. Currently we have market data coverage for all of Nova Scotia at the individual listing level, updated monthly. We have a few interesting extra-curriculars in the works for this resource, but alas, these are busy days and client needs come first (seems like a certain provincial government should be beating down our door on this one, but I digress). In the meantime, here is why Short-Term Rentals have our attention:   


This chart shows the growth of housing units (CMHC tracked housing completions) against growth in what we estimate to be commercially operated STR units (i.e. entire-home AirBNB listings that spend the majority of the year available on the platform rather than housing a long term resident). Starting with only a couple hundred in 2016, commercial STRs have grown rapidly, peaking at nearly 1,700 units in 2019. This negates about 18% of the 9,300 housing units completed in the municipality over the same timeframe. In a time when we need all the supply we can get, this is an unnecessary headwind. At the same time, these overall numbers are not earth-shattering; it’s hard to imagine that conditions would be that much different if the industry had been able to pump out 11,000 units instead of 9,300 over those three years.  

However, those are the overall numbers. The short-term rental market is not dispersed evenly throughout the housing market, it is having vastly different impacts within Halifax. Some locations have no loss of housing availability, others are under significant pressure. To illustrate, though STR units peaked at 18% of completions for HRM overall, if we narrow our analysis to just the Peninsula, that figure jumps to about 30%. You can imagine how that may escalate further looking at some of the high-demand neighbourhoods.

More on that in the future.



Whew, you made it to the end, but when it comes to housing issues there are no shortcuts! This is an immensely important challenge and we’re trying to do our part. We are proud to support the work of Nova Scotia’s Affordable Housing Commission through our involvement in their Data and Financial Modelling Working Group. Of course, Turner Drake is also engaged in numerous consulting assignments, including non-market housing feasibility studies, and Housing Needs Assessments from coast to coast. To see how your community can benefit from the unique expertise of our Planning and Economic Intelligence team, call Vice President Neil Lovitt at (902) 429-1811 or nlovitt@turnerdrake.com.

Tuesday, February 23, 2021 9:18:15 AM (Atlantic Standard Time, UTC-04:00)  #    -
Atlantic Canada | New Brunswick | Newfoundland & Labrador | Nova Scotia | Planning | Prince Edward Island | Turner Drake
# Tuesday, December 22, 2020

Among the fun things to look forward to at this time of year is PNC’s annual (37 years now!) Christmas Price Index, in which they calculate the prices of the twelve gifts from the classic song, “The Twelve Days of Christmas”.  The highest increase year-over-year was for the two turtledoves, up 50% to $450, which contrast to a few of the other avian gifts: swans, calling birds, and a partridge will cost you the same this year as last…as will minimum wage milk maids.  This year’s index accounts for cancellations of many live performances: the unavailability of dancing ladies, leaping lords, pipers, and drummers means that the total cost of these gifts is down over last year.  How far down, though, is a matter of measurement.  If you were to buy just one of each of the gifts – one goose, one ring, one French hen, etc. – you’d pay 58.5% less than last year, for a grand total of $16,168.14 (USD).  But you can also measure by the full cost of all the gifts –   both the turtle doves, all the geese, none of the performers – to arrive at grand total for 2020 of $105,561.80, down just 38% since 2019.  Or, and I’m assuming this is based on the one-of-each option, PNC also provides a “core” index, which excludes the Swans-a-Swimming, the price of which is apparently the most volatile.  The core index for 2020 costs $3,043.14, down 88.2% from 2019. 

So, the same index has three different year-over-year price changes.  That provides a perfect segue into a discussion of the critical thought, and careful consideration required before relying on Price Indices for decision making, planning, and policy purposes…there are many available from which to choose, including the overall, oft quoted, Consumer Price Index (CPI).  This is not to say that price indices are not a valuable tool – just that care needs to be exercised in choosing and using them.

Twice a year, we undertake a comprehensive market survey of rental office and warehouse space; the summary results include average net rental rates, realty taxes and operating expenses, and gross rental rates.  As part of our analysis, we look at the relationship between the All-Items CPI and the total for realty taxes and operating costs (RTCAM), over a five-year period.  The CPI is a measure of the cost of a certain “basket of goods”, and as such generally measures the rate of inflation – which is expected to be reflected in the costs to operate a building.  The fact that the cost to operate a building includes a different basket of goods than that required to run a household – more cleaning and heating, fewer sneakers, school supplies, and food items – makes it unsurprising that, while these two measures usually move generally in concert, there can be significant variation.  This year, where costs have shifted up and down across various sectors, particularly highlights the challenge of relying on the CPI as a surrogate for other baskets of good: the five-year ratio between CPI and RTCAM, describing how the RTCAM moved for each 1 percentage point change in the CPI, varied from a 1.14 percentage point decrease in office RTCAM in Saint John NB, to a 1.01 percentage point increase in Fredericton, with Moncton, St. John’s NL, and Halifax falling at varying points along that range.  December’s survey includes both office and warehouse space in Halifax, and there is a differential between the ratio of CPI to RTCAM for the two sectors, with office RTCAM coming in at 0.59 to 1 percentage point change in CPI, and warehouses coming in at a ratio of 1.2 to 1. 

PNC says about their index:

The PNC Christmas Price Index® is an annual tradition which shows the current cost for one set of each of the gifts given in the song "The Twelve Days of Christmas."

It is similar to the U.S. Consumer Price Index, which measures the changing prices of goods and services like housing, food, clothing, transportation and more that reflect the spending habits of the average American.

The goods and services in the PNC Christmas Price Index® are far more whimsical, of course. And most years, the price changes closely mirror those in the U.S. Consumer Price Index. This year, the approach to PNC’s CPI takes into account the sociopolitical environment brought on by the pandemic by using the Index to provide an analysis of current market conditions, while including the impacts of COVID-19 as highlighted by the data. 

It’s a fun way to measure consumer spending and trends in the economy. So, even if Pipers Piping or Geese-a-Laying didn’t make your gift list this year, you can still learn a lot by checking out why their prices have increased or decreased over the years.

It’s definitely worth checking out.  And if you’re interested, we publish the summary results of our market surveys on our website and through email distribution.  Watch for them in the New Year – or contact us to subscribe.  Wishing you and yours all the best for the holidays, from all of us at Turner Drake & Partners Ltd.  

Alex Baird Allen is the Manager of Turner Drake's Economic Intelligence Unit. If you'd like more information on market research or our semi-annual Market Survey, you can reach Alex at 902-429-1811 Ext.323 (HRM), 1-800-567-3033 (toll free), or email ABairdAllen@turnerdrake.com 

Tuesday, December 22, 2020 11:30:32 AM (Atlantic Standard Time, UTC-04:00)  #    -
Atlantic Canada | Economic Intelligence Unit | New Brunswick | Newfoundland & Labrador | Nova Scotia | Prince Edward Island | Turner Drake
# Thursday, November 5, 2020

Photo Credit: istockphoto

The Asking Price is a critical element when listing a commercial property. If it is too low you may under sell your property. If it is too high it will scare away prospective purchasers and the listing will go stale: it may then be necessary to withdraw the property from the market and re-introduce it at a later date, or alternatively reduce the price substantially to reignite interest. But while property sells at Market Value, owners often measure its worth in terms of Intrinsic Value. This can give rise to a difficult conversation between real estate broker and property owner.

 

Market Value is generally defined as "the most probable price which a property should bring in a competitive and open market as of the specified date under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus”. More specifically, market value is based upon a property’s Highest and Best Use. The Highest and Best Use of a property is the probable and legal use of land, or an improved property, that is physically possible (what can be physically built on the site?), legally permissible (what uses are permitted under the current zoning?), financially feasible (will the purchaser achieve an acceptable return within a reasonable investment horizon?) and maximally productive (what use generates the highest return?). Simply put Market Value is the highest price attainable assuming the property is expertly marketed to the widest pool of prospective, knowledgeable purchasers.

 

Intrinsic value is the owner’s perception of the inherent value of their property to them. This value can be based on the actual amount of money they have invested in the asset, any sweat equity by the owner, emotional attachment, or just their perception of current market conditions. Sometimes the property owner may be constrained by the debt burdening the property, or the net cash they need to realise on sale after paying capital gains tax and transaction costs.

 

How do you bridge the divide between Market and Intrinsic Values? It starts with the acceptance by both parties, broker and property owner, that they have a common goal… to sell the property on the most advantageous terms to the owner. Before we undertake to market a property for sale, we sit down with the owner (vendor) to go over the marketing plan for their property, the pricing strategy, and the listing agreement, to ensure the vendor understands the selling process and each party’s obligations under the contractual arrangement. Since an appropriate asking price is critical, we research the property, its zoning and planning considerations, and sale prices of comparable properties, to develop an asking price based on the Market Value. Because Intrinsic Value frequently differs from Market Value the vendor may have price expectations that cannot be realised on sale and it may be better to withhold the property from the market until prices increase…. realising of course that there is always the risk that prices may fall too, as is the case currently in some market sectors. However if the owner is serious about selling, it is imperative that the asking price be reflective of Market Value plus a negotiating buffer (every purchaser likes to feel like they have negotiated a good deal for themselves). Otherwise, the overpriced property will sit on the market and become stigmatised: potential purchasers will wonder why it has been on the market for longer than is typical, if there is something wrong with the property, or will want to try to use the long marketing exposure as negotiating leverage. On the other hand if a property is reasonably priced and is properly exposed to the market, a vendor will have much better chance of consummating a sale at a price, and within a time frame, that optimises their sales transaction.

 

Reduce Stress: Live Longer


Selling your property, even commercial real estate, is rarely anybody’s idea of fun… so we have compiled a list of the difficult questions you meant to ask your real estate broker but were too embarrassed, simply forgot… or did not know you should ask. Questions such as “I don’t want my staff to know I am selling: what can I do to keep it quiet?” or “I am already talking to a prospective purchaser: do I still have to pay you a commission if I sell to them?” and even “Why do I need a real estate broker anyway?”. Better still we have provided our answers in the way we do best… frank, forthright and brutally honest! Call or email me, I will happily send them to you.



As Senior Manager of our Brokerage Division, Ashley Urquhart assists both landlords and tenants meet their space requirements, and vendors and purchasers optimise their property portfolios. For more real estate brokerage advice, you can reach her at aurquhart@turnerdrake.com or (902) 429-1811.

Thursday, November 5, 2020 11:25:55 AM (Atlantic Standard Time, UTC-04:00)  #    -
Atlantic Canada | Brokerage | New Brunswick | Newfoundland & Labrador | Nova Scotia | Prince Edward Island | Turner Drake
# Monday, October 5, 2020

Residential fires are soaring, causing millions of dollars in damages, and claiming the lives of many. While this headline may sound shocking, this has become a catastrophic reality for many apartment owners across Canada and worldwide. It’s quite clear how the ongoing pandemic has changed our daily lives in a socio-physical sense - most notably the way in which we interact with others, and how we navigate the shopping malls and hallways in our apartment or condo buildings. What many have not considered however, is the increased risk of fire-related emergencies resulting from higher daytime occupancy levels in multi-unit residential buildings.

National Fire Prevention Week runs from October 4th to 10th. This might not be something you typically note in your calendar, however, if you are an apartment owner or manager, you should! If you have yet to equip your building and tenants with clear evacuation plans, or reviewed your latest fire-insurance policy, these items should be top of mind.



Given the ongoing COVID-19 pandemic, and the attempt to abide by physical distancing protocols, employers worldwide have been forced to encourage remote, work-from-home policies.  According to StatsCan, 32.6% of companies reported 10% or more of their workforce were teleworking in the month of May, compared with just 16.6% in February.  Furthermore, 22.5% of companies expect 10% or more of their staff to continue working from home post-pandemic.

It’s a typical noon hour on the fourth floor of your apartment building, and you’re finishing up a conference call while lunch simmers on the stove. The kids are racing around the apartment while the laundry machine chugs through the spin cycle. There’s a knock on the door - another amazon delivery… Sound familiar?! Working from home has allowed significant flexibility in a world of fast-paced multitaskers however; it also raises concerns surrounding at-home fire emergencies.

Building owners, managers and insurance companies are quickly growing concerned as the slightest distraction can have severe (and sometimes fatal) consequences.  A recent article by Greg Meckbach of the Canadian Underwriter noted that the number of fatal at-home fires in Ontario has risen by 65% compared to this time last year. Local sources including the Halifax Fire Investigation Summary also highlight this issue, shedding light on the growing frequency of fires in predominately multi-residential apartment buildings across the Halifax Regional Municipality.

It is crucial that building owners ensure the safety of their residents by establishing a formal fire emergency and evacuation plan.  To the surprise of many, this is also a requirement set forth by most municipalities and within the National Fire Code of Canada (see our March blog post for specific details/requirements).




Sadly, the majority of buildings do not have adequate fire plans or procedures in-place. These protocols are an added level of insurance that are typically overlooked until it’s too late. Now more than ever, apartment owners and managers should be establishing or reviewing existing fire protocols for their buildings. We also suggest reviewing your current fire insurance policy to ensure you are equipped with adequate coverage. On the face of it, these suggestions may seem like an added expense however; they could be invaluable in the event a fire arrives at your doorstep.  

In my dual roles of Manager of Turner Drake’s Lasercad® Division and consultant in our Valuation division, I have experience in both the preparation of Fire Escape floorplans, and the completion of Fire Insurance reports.  I have worked with a number of building owners and managers to implement Fire Safety Plans in apartment buildings throughout Atlantic Canada. If you have any questions regarding our Fire Safety Plans or how to go about reviewing your current Fire Insurance coverage for your property, feel free to contact me at 902-429-1811 or mjones@turnerdrake.com


Monday, October 5, 2020 8:10:22 AM (Atlantic Daylight Time, UTC-03:00)  #    -
Atlantic Canada | Lasercad | New Brunswick | Newfoundland & Labrador | Nova Scotia | Prince Edward Island | Turner Drake
# Thursday, August 27, 2020

It goes without saying that the COVID-19 pandemic has directly and abruptly affected both short-term cash flow and long-term economic prospects for real estate owners in the Atlantic region. Commercial and investment property has been particularly hard-hit, with hospitality and retail property profoundly (and in many cases, irreversibly) impacted. 

Not surprisingly, my colleagues and I field multiple inquires a week respecting the potential for property tax relief.  Unfortunately, we find ourselves delivering the unwelcome news that there’s very little immediate aid available; in some cases, not for years to come. A little background will help to explain why this is so.

Property taxes are the product of a property’s assessed value (a point in time estimate of market value which is calculated as of a legislated date: in assessment parlance, the “base date”), and the applicable tax rate.  In most Atlantic Canadian jurisdictions, assessment and taxation are separate functions.  Assessed values are calculated by assessing authorities (the Property Valuation Services Corporation in NS; Service New Brunswick in NB; the Department of Finance in PEI; the Municipal Assessment Agency and the City of St. John’s in NL); mil rates are set (and taxes collected) by the municipalities.

In providing relief, Atlantic Canada’s assessing authorities and its municipalities are stymied by legislative authority that varies from jurisdiction to jurisdiction.  The ability for the pandemic to be reflected in assessed values (which, in all four provinces, are to market value) depends to large degree on the base date:

On the taxation side, we have prepared a reference guide detailing the myriad of programs available in various Atlantic Canadian cities, towns and municipalities[1]It is available on our websites at https://www.turnerdrake.net and https://www.turnerdrake.com/products/propertytax.asp. The vast majority have been limited to extension of tax deadlines and reductions in interest rates applied to arrears.

There is little that can be done with respect to the tax rate applied to your property[1]; your tax management strategy should therefore focus on your assessed value.  What will be the impact of the pandemic on values?  In my opinion, few property types will escape unscathed, and for many, recovery will be protracted. While I don’t have a crystal ball, we do have a rear view: experience in the aftermath of historic cataclysmic events- e.g. the recessions of the early 1990s and 2007-2009; 911; and SARS, for example- will all provide guidance in establishing the penalties on the value of ICI real estate.

Property taxes can be an enigma under conventional circumstances. COVID-19 has created a property tax quagmire. My colleagues and I would be happy to provide advice on a property-specific basis.



[1] The exception are Nova Scotia’s roofed accommodations, restaurants, and campgrounds.  Under a pre-existing provision in the Assessment Act, any property closed, or anticipating being closed, for four months of the municipal taxation year may apply for a Seasonal Tourist Business Designation.  Eligible properties will see their tax rate reduced by 25%.  Applications must be filed by September 1st.

Giselle Kakamousias is the Vice-President of Turner Drake’s Property Tax Division.  Her experience negotiating and appealing property assessments is extensive: it is a wise property owner who follows her advice.  If you’d like more of it, she can be reached at (902) 429-1811 ext. 333 or gkakamousias@turnerdrake.com.

Thursday, August 27, 2020 9:43:17 AM (Atlantic Daylight Time, UTC-03:00)  #    -
Atlantic Canada | New Brunswick | Newfoundland & Labrador | Nova Scotia | Prince Edward Island | Property Tax | Turner Drake
# Monday, July 20, 2020

Have you ever gazed over a decrepit old building, or vacant parcel of land, thinking to yourself “This would be the perfect place for…”


Taking this vision and transforming it into reality is the premise behind an as-if-complete valuation. This form of valuation provides a current or prospective (future) value opinion of a development prior to it being constructed. In addition to undeveloped properties, real estate owners and developers can also utilise this form of valuation to determine the contributory value of renovations to an existing property.  



Owners and developers typically require this form of valuation as an input for mortgage financing and proceed in one of two ways: The property can be valued as though it were complete as of the effective date of the report or alternatively; it can be valued as at an assumed date of completion. Regardless the path, the values presented rely heavily on the standard described in the report, and the proposed timeframe of the development.


Working together with architects, engineers, lenders, designers and planners is an integral part of orchestrating the materials required for this form of valuation. Building plans and renderings paint the backdrop while finish schedules, cost estimates and operating projections provide focus to the finer economic details required for these projects. 


Financing details are based on the lender’s relationship with the developer together with their experience completing similar developments, financial position, cost of the project and overall loan-to-value ratio. Once the as-if-complete value of the property is determined the bank will typically schedule formal draws for the various milestones of the development. For example; the first milestone may cover the cost of excavation and site work, foundations, framing and roofing. This is where experience, organisation and timing are key to the financial and fiscal success of the project.


Often developers run into issues during initial milestones, where projected budgets are exceeded and the initial draw does not cover the costs allocated to such milestones. This can occur as a result of unforeseen circumstances, an unexperienced contractor or builder, fluctuating material costs etc.  If the developer does not have access to an outside source of funds to complete this work and proceed to the next milestone, lenders will sometimes issue a “swing-line” or short-term, interest-only line of credit to see them through to the completion of the milestone at hand. Progressing through the first and second milestones of a project are often the most difficult as they can be the most capital intensive. Paying close attention to cash flows and budget are paramount to ensuring the financing terms are met and the project is completed as scheduled.


While construction pushes forward and developers achieve various milestones, it is typically the responsibility of the valuation consultant to confirm the work completed falls in-line with the details described in the report. Various meetings and site visits are completed throughout the project, and progress reports filed to the lender as per the scheduled incremental milestones leading up to, and including, the completion of the project.


New developments and renovations are susceptible to a number of different variables that could easily alter a project cost or timeline. Such variables can heighten the risk of a project; therefore, including proper contingencies and mapping out the development in fine detail will aid in minimising risk and provide additional comfort to lenders considering your project. 


The ongoing pandemic has had a tremendous effect on the world and although primarily negative in nature, many clients have taken this additional time to dream big and “put the wheels in motion.” Formerly neglected ideas are re-surfacing and with the help of this form of valuation we are playing a key role in bringing these ideas to fruition. 



Patrick Mitchell is a consultant in our Valuation Division and has extensive experience in the valuation of projects that are in early stages of development, or have yet to break ground. Patrick’s passion for design and architecture has strengthened his relationships with local architects, builders and developers. For more information about our range of Valuation® services, or more details concerning as-if-complete valuations, feel free to contact Patrick at (902) 429-1811 or pmitchell@turnerdrake.com

Monday, July 20, 2020 10:13:25 AM (Atlantic Daylight Time, UTC-03:00)  #    -
Atlantic Canada | New Brunswick | Newfoundland & Labrador | Nova Scotia | Prince Edward Island | Turner Drake  | Valuation