Altyn Equities 2023 January Update

Altyn Equities 2023 Multifamily Report – ‘The year of the ‘Experienced Operator’

January 8th, 2023

Happy new year Canadian real estate enthusiasts! The big news is that the Canadian real estate boom that never ends has done just that.  That’s right, the 26-year bull market has finally ended, and ended spectacularly in some parts of the country. As a 23-year real estate investment veteran, I have however never been more excited than I am right now about the incredible opportunities coming up.

The motto this for real estate investors now will be ‘Capital wants ‘Competence’ and those who are attracting joint venture capital this year, or coaching others will have to show competence and a lengthy track record of experience in the new landscape. In short, 2023 will be the Year of the Experienced Operator. Those of us with skills, long term goals, and most importantly experience will do very well this year.  It’s going to be tough for short term strategies like flips, and BRRRR’s, and even tougher for operators lacking a proven track record, trying to raise capital on Facebook, and for real estate influencers.

2022 Year in Review – And an Amazing year it was for Multifamily Investing!

Altyn Equities had a stellar year with our assets in Saskatoon and Edmonton.  Rents in Saskatoon increased by 4.4%, creating value of $363,000.  Rents in the Alberta portfolio also rose 4.3%, creating an additional $444,600 in value.  The outlook for 2023 is even better, with an additional $1.3M in value to be added from planned rent increases.  PLUS ….

I am extremely excited to launch my newest multifamily acquisition, a premium 18 suiter in Fort Saskatchewan, Alberta in Alberta’s industrial heartland.  The project is mint with massive rental upside and low vacancy.   I will be hosting a webinar on January 19th on how you can participate in this amazing deal.  Please Fill in the Investor Form HERE to get the invitation to the webinar.

Key Highlights of the Deal

  • Very solid buy and hold project in booming Fort Saskatchewan, Alberta. Very low vacancy and rent increase of 32% from last year to $1250 for a 1br. (Zumper).
  • Building owned by long term owner, who over renovated and under rented.
  • Fantastic suite mix of 17, large, two-bedroom units!
  • Targeted rent of $1295 for a 2 bedroom which is conservative, creating a planned value lift of around $550,000.
  • The plan is to place a CMHC and repatriate equity in 2024. Long term hold.
  • Excellent location beside a church and sports field.
  • Complete renovations to the common areas as well. Shows very nice.
  • 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 January 2023

  • Successfully refinanced the project for $2,160,000 and placed an 85% LTV, CMHC mortgage @3.51%, 5-year term.
  • Successfully repatriated $490,000 (90% of our invested cash).
  • Very strong rental market – 2 bedrooms renting for $1175. 2024 Target of $1295 for a 2 bedroom and $1050 for a 1 bedroom (conservative). $250,000 value lift since Feb 2022.
  • 2024 rent roll to be $19,850 ($2195×200) = $439,000 in value lift.
  • Will appeal the city of Leduc and hopefully add the bachelor unit for 18 suites.
  • Building is now nearly completely renovated – the odd suite renovation on turnover.

Key Highlights since February 2022

  • Moderate Rent increases in 2022 of $525 creating value of $115,000. Plan to raise rents to market in 2023 to $15,100 creating another $100,000 in value.
  • Estimated Value January 2023 based on comparable sales = $1,900,000. (136k/door).
  • Evicted a problem tenant who did about $11,000 in damages to his suite. Also had to replace a nearly new boiler system for $42,000.  Cash flow challenges remain due to high electricity cost of the mechanical system – resolution to be found soon.
  • Mostly likely will sell for HIGH ROI in October of 2024. 7 -year hold.

Key Highlights since Fall 2019

  • Moderate Rent increases in 2022 of 4.8% creating value of $250,000. Plan to raise rents to market in 2023 to $26,100 creating another $280,000 in value.
  • Estimated Value January 2023 based on rents $3,240,000.
  • 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 since February 2022

  • Refinance December 2022 for a new loan of $1,800,000 and repatriated $282,003.
  • Raised rents on 6 units to $1325 (23% increase). Lift of $194,000 in February 2023, and $461,000 by the end of 2023. 2023 Rent Roll to be: $33,807.
  • Target rent of $1695 by 2026 – Sale of the building likely at that point for very high investor ROI far exceeding 100%.
  • COVID-19 Over. Commercial demand picking up steam, and leases increasing year after year, and likely much higher on renewal.
  • Earmarked about $150,000 to upgrade suites on turnover to a premium-brand new condition building to sell at a maximum price into a strong market.

Top Upside Markets in 2023 – Where should I invest?

There has been a massive jump in rents across the country in 2022, especially in BC and Ontario where rents are now $2000 for a 1-bedroom unit, with rents up 25% or more in one year in some markets. I predict continued upward pressure on rents in those markets, but the big 2023 winner will be the prairies.  As of this writing, rents in Saskatoon and Edmonton are still less than they were 9 years ago (2014) at $1000 for a 1br. The notable exception is Calgary, which has seen a massive in migration and rents jump 27% to $1500/month.

The expected in migration to the prairies will accelerate in 2023 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 in the next 24 months, with a tremendous 5-year upside in these markets.

In 2015 vacancy rates started to skyrocket to 10% or higher, this created 7,000 to 10,000 units vacant across Edmonton’s 7200 rental unit universe, causing landlords to drop rents $200, plus free months of rent to incent tenants to their buildings.  Prior to the pandemic, Edmonton experienced similar swings in 1981-1987, and again in 1995. Covid 19 wreaked havoc on the economy, delaying the Alberta recovery. There is good news, Marcus and Millichap and CBRE market outlooks indicate an opening vacancy rate between 5% and 6% in Edmonton so I expect the market to tighten and rent increases to accelerate by the end of 2023.

Final Thoughts

2022 was a sharp correction year for residential housing.  Prices from November 2021 to November 2022 are down by as much as 25% or more in certain parts of the country and down in almost every market.  The multifamily market has proven to be much more resilient, partially because there was not a large run up in prices as there was in the residential space.

A word of caution is needed, however. The good news for my investors is that there is a perfect storm to acquire some dynamite assets from motived vendors, many of whom are unable to renew their mortgages at higher rates. We should always be aware of the amount of debt we are taking on, and not focus solely on ROI .. A popular strategy is to refinance a building at 95% loan to value under the new CMHC Select program, returning most of investor capital, hence magnifying the ROI of investors cash left in the building.   This strategy can work, but it leaves the building extremely vulnerable to cash calls and negative equity when the mortgage is due.

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. Happy Investing!

Cory Sperle