‘CANADA IS CHEAP’
LOONIE LURES CROSS-BORDER SHOPPERS TO CANADIAN REAL ESTATE.
German multi- billionaire Klaus- Michael Kuehne is close to a deal to buy one of Vancouver’s largest office towers, which houses Royal Bank of Canada’s British Columbia head office, the Financial Post has learned.
Kuehne, who Forbes estimates is worth about US$ 10.6 billion, is said to have paid about $ 725 per square foot for Royal Centre at 1055 West George Street, a building owned by Brookfield Office Properties Inc. Brookfield lists the office component of the 36- storey building at 493,000 square feet.
The purchaser is said to be represented by Forge-stone Capital Management LP, which bills itself as a private equity firm that invests in real estate development, income-producing properties and debt placement within major markets across Canada. A spokesman for Forge-stone would not comment.
The deal, reportedly worth $ 425 million but which has yet to close, is another sign of weakness in the Canadian loonie, making real estate acquisitions an attractive opportunity for foreign buyers.
“It’s a big number for that building,” said a source, indicating there was heavy bidding on the tower from buyers, including interest from China.
The capitalization rate, the ratio of net income to property value, is reported to be 3.7 per cent — a number that probably would have been driven lower except RBC has extremely favourable lease terms driving the income. The lower the cap rate, the more a property is worth.
Ross Moore, an independent real estate consultant, described the building as “centre ice” and the No. 1 intersection in Vancouver. “Without question the dollar is having some impact on the market,” he said. “The United States is expensive and Canada is a good alternative and people will always pay up for Vancouver.”
Paul Finkbeiner, chief executive of GWL Advisors, which manages $ 10.5 billion in real estate assets, said there is still demand from domestic players for real estate here, but they are now competing with foreign capital. “That foreign capital is now trying to take advantage of the currencies,” Finkbeiner said. “Why do foreign investors like Canada? Because it’s a safe haven. It’s better than the stock market and it’s a currency play. Canada is cheap.”
He said Canadian institutions and buyers have some concern about growth in the domestic market despite the currency disadvantage.
Finkbeiner said the problem with making a bet on the United States for a Canadian buyer is it is fraught with currency risk.
“If it goes the wrong way and the Canadian dollar comes back you lose any growth, you haven’t made any money,” said Finkbeiner.
When the loonie was stronger investing abroad, including the U. S., was more compelling because of the opportunity for gains on currency.
A month ago, Canada’s largest real estate investment trust, RioCan, announced it was exiting the U. S. with the sale of 49 of its properties for US$ 1.9 billion. It made $ 1 billion on its purchase price, half of it coming from the gains on the loonie.