No Vacancy

DOUG By Guest Blogger Doug Rowat

Toronto’s now the new Manhattan.

The CBRE reported this week that the downtown Toronto office vacancy rate had hit a record low of 4% as strong demand from tech companies, amongst other industries, continues to make finding good office space in our fine city very difficult. Toronto’s office vacancy rate, in fact, is the lowest of any major market in North America.

On the national stage, the office market is looking more favourable as well. Alberta, naturally, still suffers from near-record-high vacancy rates, but nationally the vacancy rate actually dropped in the first quarter for the first time since the second quarter of 2014 and the vacancy uptrend that we’d seen for many years has clearly been halted.

And this is because our economy is much improved. As I mentioned a few weeks ago on this blog, our national GDP growth rate over the past 12 months has been eclipsing that of almost all other developed nations. So, commercial real estate has benefitted. Vacancy rates are improving and the value of fixed assets is rising. Therefore having real estate investment trusts (REITs) as part of your portfolio is a good idea at the moment. In fact, it’s almost always a good idea: Canadian REITs have returned 11.0% annually (including distributions) over the past 15 years versus the Canadian equity market with only 7.9% annual returns.

But the spectre of rising interest rates looms. And higher interest rates are always bad for REITs, correct? Historically, not true. The Bank of Canada is only raising interest rates, as it did this week, because our economy is robust: a strong economy implies more tenant demand, support for higher lease rates and an increase in the value of underlying real estate assets. For instance, from 2004 to 2007 the Bank of Canada raised interest rates 10 times (!) and REITs still returned 18% annually.

Higher Interest Rates don’t Always Mean REITs will Suffer

Source: Bloomberg

Also remember that, unlike most bonds, REITs raise distributions over time, which allows them to further offset the risk of higher rates. In fact, payout ratios, a measure of how sufficiently REIT distributions are covered by the equivalent of operational cash flow, are actually more favourable now than they’ve been over the past five years. In other words, REITs have plenty of flexibility to raise distributions. Over the past five years, REITs have boosted distributions by only about 2% annually, not spectacular certainly, but at least keeping pace with inflation. But the average REIT payout ratio is currently only 76% versus the five-year average of 79%, so distribution growth could accelerate in the future.

It’s also not just the office market that’s looking better. Our weak dollar is benefitting hotel properties, retail sales are robust (https://www.theglobeandmail.com/report-on-business/economy/growth/best-start-to-year-for-canadian-retailers-signals-robust-growth/article35418443/) aiding shopping malls, demographics (we’re old!) support senior living facilities and Canada’s overall economic strength is positive for the more cyclical industrial assets. In fact, industrial availability has been ticking lower in most major Canadian cities for many quarters now.

But the best thing about REITs is their diversification. Purely from a concentration perspective, why would you want to realize your entire real estate exposure the way most Canadians do: one asset, one location, one type of real estate (residential)? When you own a REIT ETF, for instance, you don’t just own a 600-square-foot condo in downtown Toronto with a soon-to-be obstructed lake view—instead you get broad geographic exposure and diversification across all of the below subcategories of real estate. Potentially strong returns with better risk control: this is the REIT advantage.

Canadian REITs: Breakdown by Category

Source: iShares

Not unlike Ryan with his Porsche 911 and trophy wife, I’m also an investment-advisor cliché sitting here in my corner office at King and Bay. Until recently, there was a lot of empty space in our building. Now the elevators are fuller, they stop at more floors and we suddenly have new neighbours.

Times are changing. Good thing we own REITs.

Doug Rowat, FCSI® is Portfolio Manager with Turner Investments and Senior Vice President, Private Client Group, Raymond James Ltd.

99 comments ↓

#1 Ace Goodheart on 07.15.17 at 3:35 pm

Back last year I was posting on here that office REITs were a screaming buy, selling for under boom value with up to 12% dividends paid monthly.

Was told by a number of people that I was going to lose my shirt.

So didn”t really happen. My 200k REIT portfolio has gotten bigger (I love the DRIP).

Dream is one of my favorites. They own a lot of the medical towers in downtown TO. One thing doctors are really good at is paying their rent.

This year I’m all about apartment REITs. For all those power of saled home owners to live in.

And bonds. Cheap beautiful bonds. Being given away right now. The bonds are a ten year plan. When we hit the next recession and rates start going down again then I will cash out.

#2 J on 07.15.17 at 3:39 pm

How is the demise of Sears and Sears Canada going to affect the vacancy rate? I am assuming they would count for something more than 1 tenant as the square footage would have been significant.

#3 Doghouse Dweller on 07.15.17 at 3:42 pm

Blog Dog Saturday Afternoon Feature Film
“““““““““““““““““““““`
Princes of the Yen

Princes of the Yen: Central Bank Truth Documentary
https://www.youtube.com/watch?v=p5Ac7ap_MAY

#4 Mr Know it all in training on 07.15.17 at 3:59 pm

And are REITS part of the equity or the fixed income portion of a portfolio?

#5 Johnny D on 07.15.17 at 4:03 pm

Clearly this is a Doug blog. It doesn’t say but you guys could make it a game for us to guess based on writing styles.

#6 WUL on 07.15.17 at 4:05 pm

I spoke with the BIL two days ago. A downtown Calgary type that spent 35 years as an oil and gas reservoir engineer. I mentioned the reported 27% vacancy rate in the core. He says closer to 50% because the ghost vacancies which are not included in the reported figures, namely, entire empty floors for which the big companies are still paying the triple net for years to come.

Anyone?

#7 BS on 07.15.17 at 4:06 pm

J on 07.15.17 at 3:39 pm

How is the demise of Sears and Sears Canada going to affect the vacancy rate? I am assuming they would count for something more than 1 tenant as the square footage would have been significant.

In most cases Sears will have a low lease rate. That was always the business model for a mall. The anchor tenant gets a low rate because they are the draw for the mall and the mall makes their money off the smaller stores. Now stores like Sears don’t draw at malls so the mall (REIT) will probably make more revenue by re-purposing that space either to an anchor tenant people want to shop at or with other uses. Malls are now adding more services and restaurants to draw in customers.

#8 For those about to flop... on 07.15.17 at 4:06 pm

Who wrote this modern day masterpiece?

Was it Robax, InFleweza or Thor Turner?

I don’t really mind as it was a good piece, I just want to know who I have to try and hit up for 50 cents for the photo royalties…

M43BC

Doug Rowat, whose byline somehow vanished. Now restored. — Garth

#9 Wall Street, banks gambled and the world has to pay. on 07.15.17 at 4:13 pm

https://www.youtube.com/watch?v=Eo0rYhl0swU

This year, millions of homes in the US will be repossessed. Wall Street was aware of the risks involved with sub-prime lending but chose to ignore them. No ethics, just money- here is a story of greed and recklessness

In California, the sub prime crisis has hit homeowners full on. Repossessions have become routine and the foreclosure rate is still accelerating. Neat façades and tidy gardens can’’t prevent houses being sold for almost half of what they cost a year ago. Pressed for time and money, owners are torn out of their homes: ‘”It’’s like leaving your children”’ says Rob. He is hoping the bank will accept a quick sale and forgive the loss, but this is unlikely. Most are made to wait until they default on repayment, which wrecks their credit record. Former bankers reveal how low interest rates were meant to boost the economy. Banks looked for ways to make profit despite low rates and chased high-risk mortgages that would pay 8 or 9%, ignoring the consequences for borrowers if prices fell and interest rates rose again: ‘”There’s no perception of the guy in some tiny little house in Detroit or in Philadelphia or in Stockton who basically might be losing their home.’” Now that the system has failed, banks are less ready to lend money and this impacts on the entire economy. Families lose their homes, businesses fail; …Wall Street gambled and the world has to pay.

#10 Freedumb on 07.15.17 at 4:30 pm

DELETED

#11 bubu on 07.15.17 at 4:44 pm

I would say avoid REITs in future… more businesses are going online, employees are working from home….

#12 Doug Rowat on 07.15.17 at 4:49 pm

#2 J on 07.15.17 at 3:39 pm

How is the demise of Sears and Sears Canada going to affect the vacancy rate?

At the Peter Myers residence? For REITs overall it’s a drop in the bucket.

–Doug

#13 Stan Broock on 07.15.17 at 4:52 pm

DELETED

#14 Stan Broock on 07.15.17 at 5:00 pm

Sorry, I meant:

1. all consumption based spending, (not savings)
and
2. another sorry: Doug no Ryan.

Doug, I estimate your chances of being able to stand a direct discussion/confrontation with positive outcome for you with my humble person on Canadian related investment topics as negative.

We are at peak debt and peak credit. Period.

There is no uphill for REITs or anything in our economy short of a sudden commodities boom from here.
Just go to any major mall and you will see empty for rent signs everywhere. For Christ’s sake, Sears Canada just filed for bankruptcy right after Target left Canada.

#15 Stan Broock on 07.15.17 at 5:06 pm

Doug, just listen to David Rosenberg from Gluskin Sheff, /whom I happen to personally know.

There can be no positive news from the end of of a credit super-expansion. Period.

I understand that you need to sell your services but please, show some respect to the people’s intelligence. Please.

#16 Question Doug on 07.15.17 at 5:09 pm

very informative, thank you

where should REIT’s be placed for tax efficiency? taxed like bonds?

have an opinion on RIT?

any reit available etf that is more global?

have a nice weekend

#17 paracho on 07.15.17 at 5:10 pm

Great article ! Always preferred REITs over physical properties . Held and acquired over the last decade, especially in my RRSP, TFSA and nephews and nieces RESP. Live the monthly distributions most of them give and the increases with inflation!
Largest holding is REI, the INO, RIU, HR.UN , Mortguard, CAR.UN . Thinking of people cling up Dream DIR.UN after this mention . I hold O in the US.
What is a good REIT ETF I could pick up ?

#18 dontcallmeshirley on 07.15.17 at 5:16 pm

The retail, retail supply chain, and retail back office exposure in REITs is their achilles heel.

REITs are a good holding, but not at current price points. Hold a financial ETF until a lower REIT entry point opens up. Be patient folks, it will be here before next spring.

#19 Fed-up on 07.15.17 at 5:23 pm

I’m just curious. How did Canada’s economy go from anemic to robust in such a short time? What is it that Canada has going for it that would give it such a dynamic economy after sucking eggs up until very recently? All I see is people with part-time or contract jobs and almost everyone else employed by the fire economy. Commodities suck, we’re still woefully inefficient, have comparatively non-existent manufacturing and Tech sectors compared to countries that have real economies and it looks like the whole housing Ponzi scheme is heading toward a much overdue and sharp correction. And the TSX has gained nothing in 10 years regardless of how you spin it.

But then again what the hell do I know?

#20 Kool Aid on 07.15.17 at 5:30 pm

Captain Trumpster decides to re-org trade, no made in Canada sector will provided safe harbour. RETAIL/COMM is morphing.

#21 Doug Rowat on 07.15.17 at 5:30 pm

#10 Stan Broock on 07.15.17 at 5:06 pm

Doug, just listen to David Rosenberg from Gluskin Sheff, /whom I happen to personally know.

I understand that you need to sell your services but please, show some respect to the people’s intelligence. Please.

Don’t name drop. Please.

–Doug

#22 paracho on 07.15.17 at 5:33 pm

@dontcallmeshirley….
Thank bling of the future, o e to three years down the line for residential REITS…. for now accumulating PFF with my US dividends .
Hoping to pick up more PFF with a stronger Canadian dollar as rates rise . But in the meanwhile will not hurt to accept the distributions from the REITS I currently hold .

#23 Stan brooks on 07.15.17 at 5:35 pm

Pardon me.
#13;STAN BROOKS deleted.
As i said, you have no credibility whasover.

It is easier to delete a post han to reply to it intelligently,
Garth please, some coaching of thr junior stuff us needed,

You deserved that one, done by my hand. — Garth

#24 Fish on 07.15.17 at 5:35 pm

Always look forward, I like the Easter bunny

#25 Leo Trollstoy on 07.15.17 at 5:45 pm

…the downtown Toronto office vacancy rate had hit a record low of 4% as strong demand from tech companies…

Tech is BOOMING!

Want amazing pay and job security? Yes pls!!

#26 For those about to flop... on 07.15.17 at 6:14 pm

#8 For those about to flop… on 07.15.17 at 4:06 pm
Who wrote this modern day masterpiece?

Was it Robax, InFlewenza or Thor Turner?

I don’t really mind as it was a good piece, I just want to know who I have to try and hit up for 50 cents for the photo royalties…

M43BC

Doug Rowat, whose byline somehow vanished. Now restored. — Garth

/////////////////////////////

O.k ,good to know,here is my current business model.

Price for use of each photo

Garth “Thor”Turner…Free.

Doug “Robax” Rowat …50 cents, no tax.

Ryan ” InfLewenza” Lewenza… $117.50 plus tax.

So far Ryan has used 4 or 5 of my photos ,but I know he’s good for it…

M43BC

#27 Livin Large on 07.15.17 at 6:34 pm

Dripping REITS has made me a ton of coin over the years but that “Dream” ran like Icarus for too long and then cut distribution in half…wasn’t too into them but still cutting that distribution was an eye opener.

#28 InvestorsFriend on 07.15.17 at 6:43 pm

Credit Super Cycle?

#15 Stan Broock on 07.15.17 at 5:06 pm said:

There can be no positive news from the end of of a credit super-expansion. Period.
***************************************

There is a name for anyone investing mostly based on predicting cycles of any kind. We call them “broke”.

As far as credit. It would interesting to see a chart of credit as a percent of GDP going back several hundred years.

I suspect that credit as a percent of GDP has been increasing (with occasional minor pullbacks) for hundreds of years.

It’s the financialization of the economy.

More and more tasks have entered into the world of paid compensation as opposed to do it yourself. Money itself (but not wealth which is different) is created in our economy mostly when loans are made.

Do you see that ending?

I suspect we may get a credit contraction but the long term trend will continue.

I doubt there ever been a ten year period in the U.S or Canada where credit did not expand. (But maybe 1929 to 1938…)

Credit is like the economy, always expanding in the long term

#29 InvestorsFriend on 07.15.17 at 6:52 pm

Debt to GDP ratio

Did not take long to find a short term chart to 1970

Shows debt rising a a percent of GDP as fully expected. Shows some dips in perfect of GDP but even in those dips total credit/debt likely increased since GDP was rising fast (debt credit was merely rising slower)

http://www.macrotrends.net/1381/debt-to-gdp-ratio-historical-chart

For canada same

https://tradingeconomics.com/canada/households-debt-to-gdp

It’s one thing to see the chart. It’s another thing to understand the reasons why debt’s NEVER going back to 1970 levels as a percent of GDP

#30 conan on 07.15.17 at 7:09 pm

#7 BS on 07.15.17 at 4:06 pm

Would not surprise me if the next anchor tenant is Amazon. Sears will likely keep their amazing retail locations that still have long term leases. Amazon will pick up the odd Sears location based on surrounding population, and drone delivery radius.

Once Amazon has stores everywhere, like Sears did, then they will do their own delivery. So, UPS and the like, will lose out eventually.

What happens to the Sears locations that Amazon does not want? My guess is they will eventually fold. Unless, someone invents a virtual experience that can profitably utilize the immense square footage involved.

That could happen, a Star Wars virtual experience, that involves physical activity, could be a huge money maker. So, look for a company that does that well, and buy it.

#31 Josh on 07.15.17 at 7:18 pm

If one were to hold a REIT ETF, which one would it be? BMOs ZRE is an equal weighting ETF with no holding making up more than 6% of the ETF. Then there is the grandaddy, XRE which is cap weighted but has a high MER compared to Vanguard’s cap weighted VRE. And with the advice given on this blog to have about 5% of your portfolio in a REIT would that actually move the needle of small portfolios?

I’m thinking until your portfolio reaches six figures it’s best to keep it simple. Maybe three ETFs. Then as your portfolio grows begin to add asset classes as required and optimize it for tax efficiency.

#32 Timmy on 07.15.17 at 7:23 pm

Retail is being decimated in the states and probably soon to follow in the US. Thanks to Amazon, we are seeing the decline of brick and mortar, which should not bode well for REITs. Sears is the latest example.

#33 Ace Goodheart on 07.15.17 at 7:23 pm

Sometimes I figure I’ve reached beatific. Dharma. Chillax zone beatific.

I use a handle that makes me sound like a 90 year old fogey been there done that “Ace Goodheart”. Actually Ace is part of the fantastic five, G-force a child hood cartoon I used to watch.

I identify with his principles.

I am 44, debt free. Married. We both still work full time though I am cutting back.

My way is loan money to others through contrarian investing. Everything that doesn’t feed you is a play. Buy low, sell high.

Argue with anyone who wants to take your money.

And always remember, don’t encroach on equity. Spend dividends and distributions not equity.

Cheers!!!!!!

#34 Tony on 07.15.17 at 7:24 pm

Re: #9 Wall Street, banks gambled and the world has to pay. on 07.15.17 at 4:13 pm

A very succinct and to the point video on youtube.

#35 Ace Goodheart on 07.15.17 at 7:32 pm

Oh and I got #1.

Yay!

#36 Tor Inves on 07.15.17 at 7:35 pm

Good piece, thx. I would like to increase my exposure to western businesses that have been allowed a presence in China, and believe their office premise us in the West will decline, shifting to China. Is there a REIT investment vehicle for this? Thx!

#37 Joseph R. on 07.15.17 at 7:40 pm

#6 WUL on 07.15.17 at 4:05 pm
I spoke with the BIL two days ago. A downtown Calgary type that spent 35 years as an oil and gas reservoir engineer. I mentioned the reported 27% vacancy rate in the core. He says closer to 50% because the ghost vacancies which are not included in the reported figures, namely, entire empty floors for which the big companies are still paying the triple net for years to come.

Anyone?

———————————————————-

Ghost Vacancies? You mean sublease market? Yeah, 50% vacancy rate would not surprise me.

Add in the Brookfield Tower (1.4M sq.ft) and Telus Sky (0.6M sq.ft) that is set to open, for the former later this year and the latter in 2018.

Cenovus is supposed the lease 80% of the New Brookfield tower but the move is now on hold, as of April of this year:

https://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/cenovus-move-to-brookfield-place-delayed-amid-oil-downturn/article34554843/

#38 Where's The Money Guido? on 07.15.17 at 7:40 pm

Re: #19 Fed-up on 07.15.17 at 5:23 pm
I’m just curious. How did Canada’s economy go from anemic to robust in such a short time? What is it that Canada has going for it that would give it such a dynamic economy after sucking eggs up until very recently? All I see is people with part-time or contract jobs and almost everyone else employed by the fire economy. Commodities suck, we’re still woefully inefficient, have comparatively non-existent manufacturing and Tech sectors compared to countries that have real economies and it looks like the whole housing Ponzi scheme is heading toward a much overdue and sharp correction. And the TSX has gained nothing in 10 years regardless of how you spin it.

But then again what the hell do I know?

It’s all a setup to fleece the fools, one and all. Everything’s going to the moon!!!! We’re all gonna be Millionaires (said in the Tom Vu vernacular).
Only the ones at the top and who created these fleecers will get rich, you can pound sand with your Winner’s running shoes.
The writing’s on the wall, as per your observations and the media are all in to grab that last sucker buck, which will never be repaid, unless they lose it, then we all pay. It’s rigged….plain and simple….

#39 InvestorsFriend on 07.15.17 at 7:45 pm

Financialization and Digitisation of the Econmy

Not only are more tasks in the world of paid work (what percent of toddlers were in a licensed day care in 1970? In 1960?) but money now stays in banks as a digital thing.

What percent of a paycheque came out as paper cash in 1970 versus today? Most in 1970, almost none in 2017.

Digital deposits lead to digital credits / debts (and the other way around as well).

P.S. it is all good! You cannot stop progress.

#40 Parksville Prankster on 07.15.17 at 7:59 pm

Dream Office REIT (D.UN) has been more of a nightmare than a dream for shareholders; three distribution cuts in the last couple of years, as well as dropping from a trading range of around $30 to as low as $15 and settling lately at around $19. XRE or ZRE have worked out better it would seem. Never again will I buy Nightmare Office.

#41 A Reply to #1 Ace Goodheart on 07.15.17 at 8:04 pm

“And bonds. Cheap beautiful bonds. Being given away right now.”

Bond yields are the lowest in history, and are now rising. Doesn’t that mean that bonds are dear, and that their prices are falling? Are you using the New Math? What am I missing?

#42 Doug Rowat on 07.15.17 at 8:29 pm

#40 Parksville Prankster on 07.15.17 at 7:59 pm

Dream Office REIT (D.UN) has been more of a nightmare than a dream for shareholders; three distribution cuts in the last couple of years, as well as dropping from a trading range of around $30 to as low as $15 and settling lately at around $19. XRE or ZRE have worked out better it would seem. Never again will I buy Nightmare Office.

Precisely. The REIT diversification advantage I mention in the blog doesn’t apply if you own just one.

–Doug

#43 Fish on 07.15.17 at 8:37 pm

RE#33 Ace Goodheart

Thankyou for sharing your thoughts, is appreciated and good for you!!!

#44 Mark on 07.15.17 at 8:41 pm

“How did Canada’s economy go from anemic to robust in such a short time? “

It didn’t. The GDP measure was only a bit on the higher side because they were comparing against a really bad month a year ago. As they start to compare against more robust months, things won’t look so good. Most other measures, such as unemployment, inflation (rather deflation), etc., look horrifically bad.

Credit is like the economy, always expanding in the long term

Credit as a percentage of GDP is cyclical over the long term. The inflation/deflation cycle tends to take a whole human lifetime. The people alive during the last major episode of deflation, ie: in the Great Depression, are only to be found in the very elderly section of the nursing homes these days. Its no wonder that there’s so many people these days screaming that deflation is impossible, deflation is absurd, that the long-term business cycle has been repealed.

Financialization over the long term is cyclical and expansion at a rate faster than GDP growth is unsustainable. We can’t all be bankers and investment managers!

Tech is BOOMING!
Want amazing pay and job security? Yes pls!!

No its not. Stop lying. Or better yet, go to these two job boards which should be, if tech was booming, loaded with jobs. And find almost none:

http://cipsresources.ca/jobs/ (6 positions, 3 of which are in Regina, Saskatchewan)

https://www.apeg.bc.ca/Careers/Career-Listings

(1 job in the Computer/Software Development area)

Two of the job boards from the professional societies of Canadian software engineers and IT professionals report almost no postings. Doesn’t fit your thesis of IT jobs being abundant at all.

But then again what the hell do I know?

You seem to have hit the nail on the head. Actually Canadian corporate earnings are doing reasonably well in these anemic, deflationary times. Businesses are able to acquire and utilize labour basically for peanuts as there are no wage pressures. Wages are actually deflating in some of the traditional highest paid sectors such as the Scientific, Professional and Technical sector.

#45 For those about to flop... on 07.15.17 at 8:42 pm

I wasn’t going to put this one up ,but it seems pretty quite on the blog and so maybe someone will get some benefit from reading this one…

M43BC

True cost of living in the
United States

“There are many cost of living rankings out there, but most of them give cost of living averages for the “average American household.” Here’s the issue – the “average American household” doesn’t exist. Income and expenses vary widely between a single millennial to a household of two parents and three kids. Our cost tool explores the costs and expenses of living in a place based on your own, specific needs.”

https://howmuch.net/articles/true-cost-living

#46 I thinks I know something on 07.15.17 at 8:47 pm

The Bank of Canada is only raising interest rates, as it did this week, because our economy is robust: a strong economy implies more tenant demand, support for higher lease rates and an increase in the value of underlying real estate assets.” – Doug

————————————————–

I don’t know. I believe that games are being played somehow. Maybe the Trumpster asked the boy-band Trudeau to raise rates or risk a trumping in the renegotiating of NAFTA. I just can’t believe that it was because the Canadian economy is doing so well. It’s just very strange that Poloz would risk upsetting the house of RE cards that is the Canadian economy. The Ponzi scheme depends on low rates.

#47 Doug Rowat on 07.15.17 at 8:48 pm

#32 Timmy on 07.15.17 at 7:23 pm

Retail is being decimated in the states and probably soon to follow in the US. Thanks to Amazon, we are seeing the decline of brick and mortar, which should not bode well for REITs. Sears is the latest example.

When we eventually have a Minority Report future world then maybe bricks-and-mortar retail is over. But I don’t yet see drones circling my house and I still go to Shoppers to buy a toothbrush, Canadian Tire to buy a hammer and Loblaws to get a loaf of bread (and now beer–Hallelujah!). Don’t state a risk if it’s 20 years or more away. Blockbuster’s closing didn’t instantly signal the end of bricks and mortar and Amazon won’t either. And REITs aren’t made up of just retail.

–Doug

#48 For those about to flop... on 07.15.17 at 9:21 pm

#33 Ace Goodheart on 07.15.17 at 7:23 pm
Sometimes I figure I’ve reached beatific. Dharma. Chillax zone beatific.

I use a handle that makes me sound like a 90 year old fogey been there done that “Ace Goodheart”. Actually Ace is part of the fantastic five, G-force a child hood cartoon I used to watch.

I identify with his principles.

I am 44, debt free. Married. We both still work full time though I am cutting back.

/////////////////////////////

Hey Ace, I did Google Ace Goodheart a while back to see what the deal was and if I was missing an inside joke.

But you can have whatever handle you want, but all you had to say was M44ON. and then we will all know your not and old fogey.

It’s short and it works..

M43BC

#49 Captain Obvious on 07.15.17 at 9:32 pm

I just figured out that this blog comment section is filled with sad, old, bitter, vaguely smug, white (possibly gay) men who are scared of women and the commitment of owning a house. You all found each other! Gotta love the bias.

#50 Nick on 07.15.17 at 9:40 pm

Hi Doug, nice post.

I really like industrial REITs given there is such little supply out there, so vacancies are really low and rents are high. I don’t see that changing any time soon. I really like SMU.UN.

I like healthcare REITs too. Long waiting lists, super expensive. CAR.UN is probably my favourite residential one.

Would a mix of these be a bad idea versus a REIT ETF? I know diversification is good but I don’t like so much retail/commercial long term.

#51 Ace Goodheart on 07.15.17 at 9:46 pm

#41 I buy bond ETFs not bonds directly. Bonds are not usually paid out by the companies who issue them. Usually they refinance. You can get in cheap with bond ETFs at the moment.

#48 thanks for the response. Likely I will stay Ace Goodheart. G-force!

#52 Setting the record Straight on 07.15.17 at 9:56 pm

One can select individual reits which have significant non Canadian assets and revenue streams. So even though they are Canadian domicile they can contribute to your nonCanadian portfolio diversification.

#53 Setting the record Straight on 07.15.17 at 9:58 pm

What is your view on US tower reits and data centre reits?

#54 paulo on 07.15.17 at 10:34 pm

Hi Doug Great Post.
the info on commercial office space was particularly interesting.
On the residential reit side i have been researching one large southern Ontario player. my research seems to indicate they are at or approaching maximum fair market rent they can charge for there units ,and that in the face of a accelerating market correction taking place in southern Ontario,they could be in trouble moving forward. i have been a property owner and been through 3 previous real estate corrections and can clearly remember that market rents for rental properties are immediately impacted by major negative value corrections always to the down side.
when general home prices drop, it puts pressure on residential landlords to maintain rent levels and attract quality tenants. so i think anybody looking at investing in a residential rental property reit in Ontario or BC should be proceeding with extreme caution and researching any company they plan to invest in.
On the retail space; this area in in transition there are a few sharp players that have done well, smart centers,and rio can come to mind.
personally i decided to pass on the residential reit’s
have nibbled on the retail players. whom would you recommend that the dogs have a look at on the commercial office space market?

#55 Internal auditor on 07.15.17 at 10:46 pm

A great REIT ETF is BMO’s ZRE. I’ve owned it for over 2yrs now and it’s weathered the massive downturn in 2015 and continues to pay out over 5%. Decent daily
Volume and likely one of the more confident positions I’ve ever held.

#56 Keith in Calgary on 07.16.17 at 12:23 am

It seems like every single commercial property in Calgary has a for lease sign somewhere on the premises.

Thing is, having been a business owner here, and a business tenant for 6 years, all I can tell you about commercial landlords is that they are assholes, in every descriptive manner in which you can deploy the sense of this word.

I hope they bleed until they can no longer sit down.

#57 Deplorable Dude on 07.16.17 at 12:44 am

I have to wonder how long our malls are gonna last….the likes of Amazon are taking a big chunk of their business.

Here in Nanaimo we have a slowly dying mall with 2 anchor stores….Sears and London Drugs.

If this Sears shuts I reckon that will be the end of the mall, which is already half empty.

Even our main mall is pretty quiet most of the time…and seems to have a few more empty stores then usual….

#58 Ron on 07.16.17 at 1:10 am

#44 Mark

http://cipsresources.ca/jobs/ (6 positions, 3 of which are in Regina, Saskatchewan)

https://www.apeg.bc.ca/Careers/Career-Listings

(1 job in the Computer/Software Development area)

Two of the job boards from the professional societies of Canadian software engineers and IT professionals report almost no postings. Doesn’t fit your thesis of IT jobs being abundant at all.

—————————————

Are you for real with these rinky-dink job boards? lol

It’s 2017. Tech jobs are posted on Indeed, Dice, JobServe and, of course, LinkedIn.

Even then, most jobs are filled through staffing agencies big and small, who actively seek out and recruit talent who post their resumes and portfolios on these sites, so most of the time you don’t even have to apply for a job.

Seriously. Anyone who can’t find a job in tech is not making an effort worthy of being taken seriously.

Here are 6,850 developer jobs in Toronto alone:

https://ca.indeed.com/jobs?q=developer&l=Toronto%2C+ON

#59 Tony on 07.16.17 at 3:25 am

Re: #49 Captain Obvious on 07.15.17 at 9:32 pm

I’m just on this blog to see what the average person would do and not do what they do.

#60 A Reply to #51 Ace Goodheart on 07.16.17 at 6:15 am

“I buy bond ETFs not bonds directly … You can get in cheap with bond ETFs at the moment.”

Take this simple, basic, easy-to-pass bond quiz, and let us all know how you did.

http://realdealretirement.com/are-you-up-to-speed-on-bonds-try-this-quiz/

Tell me that you don’t have any long-term bonds in your bond ETFs! Have you checked the duration of your bond ETFs? Do you even know duration is?

https://en.m.wikipedia.org/wiki/Bond_duration

#61 unbalanced on 07.16.17 at 6:50 am

Hey, Ace at # 33. You are so full of yourself as Smoking Man. Don’t break your arm patting yourself on your back.

#62 waiting on the westcoast on 07.16.17 at 7:57 am

Yesterdays post by InvestorsFriend on “greed”…

It’s fair market value when I do it and greedy when you do it… ;-)

#63 waiting on the westcoast on 07.16.17 at 8:02 am

Doug – enjoyed the post. Do you think it is better to go with a “fund or funds” rent ETF that handle all the various segment in the RE market or buying specific ETFs and balancing segments ourselves, etc?

#64 dakkie on 07.16.17 at 9:16 am

MASSIVE Bank Closures In Saskatchewan! – Could This Be The Result Of A Cashless Canada?

http://investmentwatchblog.com/massive-bank-closures-in-saskatchewan-could-this-be-the-result-of-a-cashless-canada/

#65 Scott Free on 07.16.17 at 9:20 am

I would definitely think of investing in old folkeys homes but not offices. Toronto’s density and dedication to more density through more condos has eliminated a lot of office space so I would say the number of spaces is less than whatever one could determine as ‘average’ in a ‘normal’ north American city. Skewy numbers.

#66 Nick on 07.16.17 at 9:35 am

“Tell me that you don’t have any long-term bonds in your bond ETFs! Have you checked the duration of your bond ETFs? Do you even know duration is?”

________________________________________

What would you consider a decent (short enough) weighted average duration in a bond ETF? Under 10 years?

#67 Presidential Rankings on 07.16.17 at 9:47 am

How’d you rate the following U.S. presidents from best to worst: Warren Harding, James Buchanan, and Donald Trump?

https://en.m.wikipedia.org/wiki/Historical_rankings_of_presidents_of_the_United_States

#68 Teagan on 07.16.17 at 10:09 am

“Tech companies” in Canada means subsidized, welfare hobby firms living off loans and generating zero revenue for years. Also known as “start-ups”.

Look at Waterloo, Ontario – full of those and it’s a little bankrupt town that is trying to convince itself otherwise. They thought those little wart firms could replace a heavy hitter like RIM. LOL.

#69 Teagan on 07.16.17 at 10:14 am

We all know tech and scientific professions in Canada are barely existent. Why work on complicated software and get a $50k degree and spend 4 years in university when you can just be a bus driver and make $100k?

Any tech or scientific talent in Canada flees to Calif or Seattle.

Our governments have done a great job discouraging the creation or any good jobs in this country. They want public sector crap and retail and real estate.

#70 NoName on 07.16.17 at 10:20 am

2 yrs old but interesting, no mention of canada…
(Jonathan Gray: Global Real Estate Markets and Investing)

https://youtu.be/z9xcPAsK87Y

#71 Willy2 on 07.16.17 at 10:24 am

– The 1st chart ends with the index at 155 (at the end of 2007) and the 2nd chart begins with 120 (october 2009). What happened to the index in 2008 and 2009 ? Did it perhaps go down to say 50 or 25 ?
– The COR was in late 2007 at 4.5% and in october 2009 the COR was at 0.25%. In other words it went down from 4.5% to 0.25% or perhaps 0% in late 2008/early 2009.
– In other words: when the COR goes down again then the canadian economy is in deep do-do (again).
– But real estate companies don’t borrow money and pay the COR. They borrow money and pay long term rates and I expect that these rates will rise in the next few years.

#72 Doug Rowat on 07.16.17 at 10:47 am

#66 Nick on 07.16.17 at 9:35 am
“Tell me that you don’t have any long-term bonds in your bond ETFs! Have you checked the duration of your bond ETFs? Do you even know duration is?”

________________________________________

What would you consider a decent (short enough) weighted average duration in a bond ETF? Under 10 years?

Much shorter duration, under 5 years. We’re far from an inflection point where long duration is advantageous. It’s only one rate increase, be patient.

–Doug

#73 A Reply to #66 Nick on 07.16.17 at 10:51 am

“Tell me that you don’t have any long-term bonds in your bond ETFs! Have you checked the duration of your bond ETFs? Do you even know what duration is?”

________________________________________

“What would you consider a decent (short enough) weighted average duration in a bond ETF? Under 10 years?”

You decide. Consider the Vanguard Canadian Aggregate Bond Index Fund ETF. According to its Fact Sheet (as of May 31, 2017), its average duration is 7.7 years.
https://www.vanguardcanada.ca/advisors/mvc/loadImage?country=can&docId=247

What this means is that the bond ETF will decrease in value by 7.7 percent if interest rates rise by one percent. Similarly, the bond ETF will increase in value by 7.7 percent if interest rates fall by one percent.
http://www.finra.org/investors/alerts/duration-what-interest-rate-hike-could-do-your-bond-portfolio

Besides bond duration, you should also consider bond convexity; however, I am not aware if such figures are published for bonds or bond ETFs.
https://en.m.wikipedia.org/wiki/Bond_convexity

#74 broader mind on 07.16.17 at 10:52 am

#49 Captain Obvious —- Your statement attests to your own insecurities and prejudices. It’s not so accurate about the dogs here.

#75 Wrong Hole! on 07.16.17 at 11:02 am

#4 mr know it all…

Thing about reits is that it gives you diversification when times are good. When times are bad, the are very correlated with the stock market. From a portfolio point of view, it is best to treat these as equity.

#76 Dissident on 07.16.17 at 11:27 am

RE — #209 Happy Housing Crash Everyone! on 07.13.17 at 2:15 pm
Dissident on 07.13.17 at 1:35 pm
Just overheard in Millennial workplace – “Yeah, I would rather have a mortgage on a cottage than on anything down here (Toronto central)”.

Its the new normal.

you just over heard nothing. you are spewing realtor fake news. I over heard realtors screaming in horrible financial pain.
Its the new normal.
Happy Housing Crash Everyone! :-)
HappyHousing Crash realtor shills! :-)

__________________________________

Lie to yourself all you want. That’s exactly what I heard, and I’m no realtor. I actually work for a living (imagine that). And I also know a 30-something year-old who is living exactly that lifestyle – brand new cottage and rents $900/month on the east side of Toronto.

Why are you so scared of facts that conflict with your internal bearish bias? Hm? Jealous?

#77 Al on 07.16.17 at 11:28 am

Isn’t it a shame that Dream REIT sold their best office properties just before this news of low office vacancies broke out.

#78 Tim Walkins on 07.16.17 at 11:29 am

The next stock market crashes are coming and it will wipe out teh world economy. Worst then the great depression, DOW down 90%. The sooner the better.

#79 For those about to flop... on 07.16.17 at 11:40 am

Ah crap!

I will probably get taken to the abattoir and slaughtered for this one but I will put it up in case it helps some greenhorn who is not sure what to do about Reits.

I told my wife to put some reits in her tfsa and this is what she felt safe with doing.

It’s been going 20 years and averages 7%

It has a mixture of the different market segments and although the mer is a little lower now than this PDF it is still outrageously excessive,but she seems happy with the set it and forget approach and has low standards when it comes to most things.

After all, she married an idiot from Tasmania…

M43BC

http://dox3erp.distributech.ca/ModulesERP/Uploads/48/PDF/cib_506_en.pdf

#80 jas on 07.16.17 at 11:57 am

#68 Teagan
“Tech companies” in Canada means subsidized, welfare hobby firms living off loans and generating zero revenue for years…..

————————————————

I agree with you. Among others, I worked for couple of small Tech companies in Vancouver. Each year they would cook up some so called ‘R & D Project’ to claim govt. grant/subsidy. And there was never a bit of software to be shown for that money.

It is sickening to see our $$ going to waste. But then again, who gives a hoot?
Folks, we have given too much power to the govt at every level. We make noise when news of misappropriation of public funds comes out and then we go our own ways….Those in power know it and hence they don’t care and keep doling out the $$$. It is obvious at every level. (For example, look at perfectly normal roads being dug up. For what? Just so that public funds can be transferred to the pockets of their own)

Corruption is not only in the developing worlds, its prevalent here too. Just that it is not out in the open.

We, the people of Canada, are to be blamed, not the govt.

#81 jas on 07.16.17 at 12:07 pm

#47 Doug Rowat
…Don’t state a risk if it’s 20 years or more away. …

—————————————

And Garth has been stating RE crash for 8+ years !!
What do we call that? A prediction? Or is there a better word for that?

To be truthful (you should try it) I’ve consistently preached having a balanced approach to life and not courting risk by over-leveraging or having excessive exposure to one asset class (residential real estate). Lots of people in the GTA just learned why. — Garth

#82 Leo Trollstoy on 07.16.17 at 12:18 pm

Supposedly competent in tech?

Can’t find a job?

You’re not that competent.

Just sayin

Truth hurts

#83 Mike Cameron on 07.16.17 at 12:22 pm

Toronto is just like New York but without all the stuff.

#84 For those about to flop... on 07.16.17 at 12:45 pm

on 07.16.17 at 12:18 pm
Supposedly competent in tech?

Can’t find a job?

You’re not that competent.

Just sayin

Truth hurts

///////////////////////////

Hey Toiletspray, I have some new material for you to watch this afternoon.

[x] The Mummy Rekturns

[x] Rektquim for a Dream

[x] Pride and Prektudice…

M43BC

#85 Smoking Man on 07.16.17 at 1:21 pm

I don’t know, Jun prices looking good.

https://housepriceindex.ca/#maps=c11

#86 Smoking Man on 07.16.17 at 1:28 pm

Sorry LaughingCon

http://www.cbc.ca/beta/news/business/home-price-gains-cooling-but-still-hit-record-1.1215735

#87 Doug Rowat on 07.16.17 at 1:33 pm

#74 Wrong Hole! on 07.16.17 at 11:02 am
#4 mr know it all…

Thing about reits is that it gives you diversification when times are good. When times are bad, the are very correlated with the stock market. From a portfolio point of view, it is best to treat these as equity.

Correct. REITs are not low-risk investments.

–Doug

#88 CJBob on 07.16.17 at 1:39 pm

#44 Mark on 07.15.17 at 8:41 pm
No its not. Stop lying. Or better yet, go to these two job boards which should be, if tech was booming, loaded with jobs. And find almost none:

http://cipsresources.ca/jobs/ (6 positions, 3 of which are in Regina, Saskatchewan)

https://www.apeg.bc.ca/Careers/Career-Listings

(1 job in the Computer/Software Development area)

Two of the job boards from the professional societies of Canadian software engineers and IT professionals report almost no postings. Doesn’t fit your thesis of IT jobs being abundant at all.

But then again what the hell do I know?
__________________
You’ve proven what you know over and over again. Better to remain silent and be thought a fool than post and remove any doubt.

Job boards? Seriously? Do you understand how most jobs are filled?

I’m a professional accountant who got a PMP designation from PMI once I made the shift to IT 20 years ago. In addition to this I specialize in a major ERP software SAP and I could find 10 jobs tomorrow. Granted many of them would be consulting and involve travel which I’m not interested in, but still they are almost begging for experienced IT professionals.

Where are all these jobs you can’t find? Linkedin. I keep up to date with those I have worked with in the past and not a week goes by I don’t hear from a headhunter looking to place me somewhere.

#89 Howard on 07.16.17 at 1:50 pm

#69 Teagan on 07.16.17 at 10:14 am
We all know tech and scientific professions in Canada are barely existent. Why work on complicated software and get a $50k degree and spend 4 years in university when you can just be a bus driver and make $100k?

Any tech or scientific talent in Canada flees to Calif or Seattle.

Our governments have done a great job discouraging the creation or any good jobs in this country. They want public sector crap and retail and real estate.

———————————-

Bingo.

What does Canada really offer talented people? Salaries are the dark ages relative to the US (except for public sector parasites), and it’s not like in Europe where lower salaries are at least offset with generous holiday allowance, free or low-cost university education, and pension guarantees.

The US is moving inexorably towards universal healthcare whether the Trumpists like it or not. Canada’s final advantage over the States will be dashed and with it any hope of keeping talent at home.

#90 For those about to flop... on 07.16.17 at 1:53 pm

Pink Lemonade stand in Vancouver.

You know,sometimes when I’m doing these posts I have to rub my eyes just to check that I’m not seeing things right,this seems like one of them cases.

They ponied up 1.95 in April 2016 for a 68 build ,when at the time it was assessed for the best part of a million less.

The assessment that followed later in the year came up a fair whack but still a massive half a million short at 1.48

Not real sure what they hoped to achieve with this kamikaze style of investment but it is hard to see this one having a happy ending.

Maybe they believed that person from Cibc that said all detached houses in Greater Vancouver would be worth 4 million before we blink…

M43BC

3208 Euclid Avenue, Vancouver

Jun 16:$1,977,675
Jul 12: $1,798,000
Change: – 179675.00 -9%

https://www.zolo.ca/index.php?sarea=3208%20Euclid%20Avenue,%20Vancouver&filter=1

https://evaluebc.bcassessment.ca/Property.aspx?_oa=QTAwMDAwMzZQNg==

#91 Stan Broock on 07.16.17 at 2:11 pm

You deserved that one, done by my hand. — Garth

Sure.

What I said was that:
1. There is no high tech boom in GTA/Toronto, as only 1 canadian company (from Montreal) made it to the top 100 startup list.
2. The economy ‘improvement’ is due to 100 billion loans extra credit expansion, courtesy of CHMC ‘insurance’ which should never have been made annually in first place + 30 billion deficit spending.
3. That retail is dead due to peak debt and record low interest rates, over-leveraged consumers will cut on spending to service debt so REITs are toast. Sears is filing for bankruptcy protection.

That part? No problem. — Garth

#92 Stan Broock on 07.16.17 at 2:21 pm

Don’t name drop. Please.

–Doug

—————————
Sure,

But it as fact, I have met with David R. (not that he shares his opinions or views with me or that I am a close acquaintance), just my opinion is that he is trustworthy and genuine, like Garth, that’s all.

His views are public, the guy is critical of the BOC move and not convinced of the rosy road ahead.

But a little respect to the intelligence of the readers is I guess expected.

This article reads like one written by a party secretary describing the successes of a communist controlled economy and the 5 year plan while praising the wisdom of the party elite (Kim John Jun, Bregznev, you name it)

What we need is honesty and open minded assessment of the situation we are finding our self in.

If we don not acknowledge the problem we ill never fix it.

#93 crossbordershopper on 07.16.17 at 2:38 pm

DELETED

#94 Leo Trollstoy on 07.16.17 at 2:39 pm

The next stock market crashes are coming and it will wipe out teh world economy. Worst then the great depression, DOW down 90%. The sooner the better.

90% off Berkshire Hathaway? Yes pls!!

#95 For those about to flop... on 07.16.17 at 2:46 pm

Pink Lemonade stand in Burnaby.

Here’s another one where you have to wonder what they were hoping to squeeze out of it.

They raided the piggy bank in June 2016 to sign up for 2.1 million for a 54 build and just like the last dudes the current assessment at the time was close to a million less.

The 2016 assessment had a skyrocket attached to it coming up a massive amount but still way short at 1.83.

Also of note for the Burnaby Boys on the blog,they are not all Pink Lemonade ,but I am seeing a lot of activity and reductions in the Carson,McKee and Portland streets of your city.

I’m not worried about the Shepherd,but I am thinking what the flock…

M43BC

4735 Shepherd Street, Burnaby

May 2:$2,388,000
Jul 10: $2,188,000
Change: – 200000.00 -8%

https://www.zolo.ca/index.php?sarea=4735%20Shepherd%20Street,%20Burnaby&filter=1

https://evaluebc.bcassessment.ca/Property.aspx?_oa=QTAwMDAzVzczUA==

#96 For those about to flop... on 07.16.17 at 3:06 pm

Pink Lemonade stand in Surrey.

These guys have a little bit more wiggle room ,but I will put it up as it is a more attainable target for the frustrated people in this neck of the woods.

They paid 995k this time last year and after aiming high they have reduced it the the assessment number,which comes in at 1.09

My Motivated Sellers Index for this session was 20 out 62 were recently purchased.
Once again around the 30% mark with 3 new builds.

I don’t see the attraction to this place, it looks like something you would store your ride on lawnmower in.

I think someone just got sick of being Reno-victed and said this one is not perfect but it’s a Habgood enough…

M43BC

867 Habgood Street, Surrey

Mar 2:$1,199,000
Jul 12: $1,099,000
Change: – 100000.00 -8%

https://www.zolo.ca/index.php?sarea=867%20Habgood%20Street,%20White%20Rock&filter=1

https://evaluebc.bcassessment.ca/Property.aspx?_oa=QTAwMDA3NU0zNQ==

#97 RANGAN on 07.16.17 at 3:25 pm

Me being a realtor and active REIT , I totally agree with respect to Toronto. RIOCAN is the latest addition to my REIt portfolio

#98 crowdedelevatorfartz on 07.16.17 at 4:11 pm

@#49 Capt Oblivious
“this blog comment section is filled with sad, old, bitter, vaguely smug, white (possibly gay) men who are scared of women and the commitment of owning a house. You all found each other! Gotta love the bias.”
******

Let me guess.
You’re a barely scraping by Realtor with “just came out of the closet” daddy issues surrounded by thousands of potential male clients who just wont commit…… to that sale……
The Freudian frustration you’re displaying is palpable.
Time to move in with one of your elderly, sugar daddy, male clients and change your name to Empress Obvious?

#99 SW on 07.16.17 at 4:42 pm

#78 For those about to flop… on 07.16.17 at 11:40 am
“…but she… has low standards when it comes to most things. After all, she married an idiot from Tasmania…”

Humility is a most attractive feature in any human. Let’s add that to wit, flexibility/resilience and stoicism :-)

Thanks for all your effort on your posts, btw. Very interesting; I always read them.