The prolonged downward pressure on oil prices has unsurprisingly percolated throughout the commercial real estate market. We reported last week on 4 downtown Edmonton office towers that were sold for dramatically lower prices than what they were purchased for.
It’s important to note that we do not believe those sales to be representative of the entire commercial real estate market in Edmonton. However, there is another REIT that appears to have a pessimistic view of the market, particularly on larger properties. PIRET, a pure-play industrial real estate REIT, recently sold a 3/4 interest in a 6 building portfolio to the BMO Life Assurance Company. The properties were in Calgary, Crossfield, Mississauga and three in Edmonton.
Here are some highlights of the 3 properties in Edmonton:
15250 – 121 a Avenue: 99,268 square feet. Sale price of $16,690,000, previously sold for $16,833,579 in 2012. 6.18% cap rate;
15703 – 114 Avenue: 111,500 square feet. Sale price of $7,530,000, previously sold for $9,350,000 in 2013. 6.18% cap rate;
11414 – 168 Street: 138,964 square feet. Sale price of $7,130,000, previously sold for $9,400,000 in 2013. 5.62% cap rate.
While the property on 121 a Avenue stayed roughly the same, the other two properties saw a 19% and 24% decline, respectively.
These recent sales are coming off a report from CIBC that warns REIT’s may have “material growth constraints” ahead. We are not endorsing CIBC’s comments, nor is it deterring us from individually owning stocks in numerous REITS.
Aside from these recent sales, we have not seen non-institutional owners sell at these steep discounts. Anecdotally, we are still seeing a healthy demand from willing, ready and able buyers. Perhaps this will change if oil prices stumble, but we are still optimistic we’ll see a steady market in 2017.
Properties were analyzed on the basis of the portfolio capitalization rate.
Information was contained from sources deemed reliable but is not warranted to be so. Information contained herein is not intended to be construed as real estate or investment advice. We highly recommend and encourage anyone reading to obtain independent advice.