Altyn Equities Summer 2023 Update – ‘Unprecedented Times for Real Estate Investors’

July 28th, 2023

Greetings investors. If you are an investor in Canadian real estate, you have probably been watching the past 16 months with great interest. The Bank of Canada has now hiked its key rate 10 times to the highest since 2001 and this will have a profound impact on real estate that may not be fully felt for years. Many investors are facing resilience in their portfolios for the first time.

The lending universe for multifamily investing has been flipped upside down in recent months, with a flock to CMHC, especially the MLI select program. Loans have been scaled back dramatically for new purchases, and debt is much more expensive with longer amortizations up to 50 years. This essentially eliminates any mortgage paydown, increasing risk to investors.

Expenses have been increasing relentlessly for multifamily owners, as well as red tape and bureaucracy, in particular from CMHC, however rents have been increasing at a dramatic pace as well.  What is the path forward for multifamily investors in the face of so much uncertainly?

Rents in Canada are now $2000 for a 1-bedroom in most locations in Canada.  In fact, even the most expensive rental markets in Canada, Vancouver, Toronto, Burnaby, Ottawa, Hallifax, have all seen double digit rental increases in the past year, and this trend is expected to continue with no foreseeable end in sight.

Equally notable, is that rents have also risen by double digits in the least expensive markets:

July 2023 Zumper Rental Report for 1-bedroom rents:

Year over year rents for the 2 MOST expensive rental cities in Canada:

Vancouver      $2770 Year/Year 20.4% Increase

Toronto            $2420 Year/Year 15.2% Increase

Year over year rents for the 2 LEAST expensive rental cities in Canada:

Edmonton       $1100 Year/Year 14.6% Increase

Saskatoon       $1140 Year/Year 15.2% Increase

Rents on the prairies have been too low for years, and in fact rents today are still lower than they were in 2014. Vacancy rates began to come down in 2022 and now Saskatoon has 1% vacancy, and Edmonton and area is trending down quickly as well. This means rental incentives are vanishing, and rent increases are being given, for the first time in 8 years.

In the past 12 months we have handed out major rent increases to all buildings in our portfolio, up to 20% in some buildings as we ‘catch up’.  I believe we still have $400 in rental upside PER SUITE in the next 18 to 24 months as this trend continues.

2023 Mid Year in Review – Project Update and 2024 predictions

Altyn Equities has had an impressive 6 months with our assets in Saskatoon and Edmonton with rents rising at the fastest pace on record. We successfully added another 18 units to our portfolio in May 2023, and have another 12 suiter we will close on in September.   I am working on a limited partnership and much larger deals heading into 2024.

The expected in migration to the prairies is accelerating in 2023/2024 as people and new Canadians (500,000+ expected/year) will move to areas with a low cost of living and high paying jobs.  I fully expect a 40% rental upside in Edmonton to $1400 for a 1 bedroom in the next 24 months, with a tremendous 5-year upside in these markets.

I am extremely excited to launch our newest multifamily acquisition, a premium 12 suiter in Stony Plain, Alberta.  The project is in fantastic condition, an amazing suite mix, and a price of only $1,250,000 ($104,167/unit).

Key Highlights July 2023

  • Very solid buy and hold project in growing Stony Plain, Alberta.
  • Building owned by long term owner, who over renovated and under rented.
  • Fantastic suite mix of 10, large, two-bedroom units!
  • Premium location – Downtown revitalized Stony Plain.
  • The plan is to place a CMHC MLI select program, purchasing with 5% down, buy and hold for 5 years and re-evaluate.
  • Roof, boiler, windows, and all major deferred maintenance items replaced.
  • VERY high projected ROI due to premium location an current rental market.

Key Highlights July 2023

  • Premium project in booming Fort Saskatchewan, Alberta. Very low vacancy and rent increase of 21% from last year to $1450 for a 1br. (Zumper).
  • Targeted rent of $1295 for a 2 bedroom which is extremely conservative, creating a planned value lift of around $550,000. Expected 2024 rents of $1375.
  • The plan is to place a CMHC and repatriate equity in 2024. Long term hold.
  • Only minor cosmetic upgrades required to go from B+ to A++.
  • Fort Saskatchewan home to Canada’s largest hydrocarbon processing center and distributes products all over north America. Billions in upcoming projects.
  • Massive in migration to the province for high incomes, and low cost of living.

Key Highlights July 2023

  • Storage room to bachelor suite conversion nearly complete at a cost of $79,000.
  • Very strong rental market – 2 bedrooms renting for $1250. 2024 Target of $1325 for a 2 bedroom and $1150 for a 1 bedroom (conservative).
  • December forecast RR increased by $1840 = $400,000 lift in 2023 alone.
  • Renovated 2 more units on turnover – still have about 7 units to renovate over time.
  • Leduc the #1 investor destination in northern Alberta at present.

Key Highlights July 2023

  • Estimated Value January 2023 based on comparable sales = $1,900,000. (136k/door).
  • Saskatoon rental market VERY tight with vacancy around 1% resulting in strong rent increases every 6 months. 2 bedrooms now renting for $1200, 1br $1000.
  • December forecast RR increased by $925 = $200,000 lift in 2023 alone.
  • Mostly likely will sell for HIGH ROI in October of 2024. 7 -year hold.

Key Highlights July 2023

  • Estimated Value January 2023 based on rents $3,240,000.
  • December forecast RR increased by $2175 = $475,000 lift in 2023 alone.
  • Building operating very well and is the nicest on the block. Very little turnover and a strong rental market in Saskatoon. Great upside in the next 3 years.
  • Plan to sell the project in 2026 with a very high ROI due to premium location, and massively improved condition and low expenses for a building of this size.
  • Very good mortgage of only 1.85% until 2026 makes selling earlier a possibility if the market turns speculative, as what is happening in New Brunswick.

Key Highlights July 2023

  • Earlier in the year targeted rents at $1325 and handed our increases. Turned over 2 units and re-rented for $1375. Next turnover target rent $1425. Will likely only have to upgrade 5-6 units to achieve this.
  • December forecast RR increased by $2112 = $460,000 lift in 2023 alone.
  • Significant lift in 2024 with target rent of $1425. Commercial rents will be increased upon renewal as well.
  • Planned exit in 2025 with over 100% estimated investor ROI.

Final Thoughts

2023 is turning out to be a mixed bag for investors, however those who already own rentals and have decent mortgages at moderate leverage in place are doing quite well. With the rapid increase in rates, it remains to be seen how this will play out in CAP rates and ultimately property valuations.  The trend right now seems to be downward pressure on multifamily building pricing however there is a lot of substandard product on the market so I don’t believe this to a completely accurate assessment of the current market.  Good quality assets are hard to come by but will outperform others over time if chosen carefully in growing markets.

My approach has not changed in over 20 years in this business.  Invest in stable or value add projects for a long-term hold, maintain a healthy reserve fund, and not to take on too much debt.  This approach has served me well over the past 2 decades and will continue to outperform most other investments this decade as well.

I firmly believe we are just entering a massive rent increase and boom phase on the prairie multifamily markets with millions to be made in the next decade. I am forecasting a $400 rent increase from January 2024 until December 2025.  This is why I am so bullish on buying right now despite the increases in expenses and interest rates.

Happy Investing!

Cory Sperle