Which is the best Alberta community to locate your business?

Alberta Venture's Best Communities Online

Alberta Venture has put together an accessible database of Alberta communities slanted for the business folks considering, “location, location, location.”

A great resource for real estate investors performing their due-diligence, the info is laid out well, and in a glance you can wrap your head around the key information.

The #1 recommended community to locate your business is the Edmonton International Region – being the area around the airport (Leduc & Nisku are the hubs). The rest of the top ten includes Edmonton, Strathcona County, Camrose, Airdrie, Calgary, Lethbridge, Lloydminster, Red Deer and Strathmore.

One item to note, is that the pricing for serviced industrial land is consistently on the low side. For example, serviced industrial land in Strathcona County for $300,000 per acre? $500,000 would be a safer “average”.

Real estate investors take note: this type of information shows trends for yesterday & today, but does not forecast tomorrow. A decision by city council, or the unexpected fall of a commodity price can quickly change the tides for a community. If you are not an informed citizen of the community you are investing in, there is no substitute for an unbiased, on-the-ground local expert to give you an inside scoop, and assist in taking a calculated risk to capture the biggest upside tomorrow.

Well done, Alberta Venture, a useful tool which I think many will utilize.

http://www.albertaventure.com/?p=3293

For a link to the 12 questions you need to ask about where your investment property is located, also see this post.

Edmonton gains 30,000 Producers and Consumers in 2008.

According to the recent census, most of Edmonton’s 30,000 new residents are between 25 and 34 years old. Although times may be rougher around the world, this is further evidence that quality of life is “less” rough here in Edmonton, Alberta. 30,000 more folks buying, groceries, gas, and iphones; paying rent, mortgages and reducing an already low vacancy rate. More importantly, gauging by the age bracket, these are producers and supply our workforce with additional human resources.  This is also an age group that does not use as many city services as others, putting less strain on City infrastructure.

 

Edmonton’s population grows by 30000 Calgary Herald

Population jump surprises city Edmonton Journal

Folks continue to flock here Edmonton Sun

We need more layoffs, please.

Counter-Spin, breaking news:

Due to continued layoffs in the area, Shell may be able to shift away from their foreign worker program and use all local workers.  Don’t get too excited though, they anticipate there will still be times they need to rely on out-of-province workers.

With the recession loosening the labour market considerably, Harradence said Shell believes it can staff the entire project with local workers.  “We’re moving definitely away from our foreign worker program,” she added, noting the company is also moving away from its out-of-province workers program but are watching closely because there will be times when they need those workers . . . She said the loosening of the labour market will represent “huge savings” for the company.

Seems we need just a few more layoffs for the 5,000 worker Scotford Upgrader project to be able to rely on local labour.  Read the entire article here. 

Disclaimer – please forgive the provocative tongue-in-cheek tone, it is an unfortunate situation for those who have experience an unwanted layoff, and I sincerely hope the trend does not continue.  This is not meant to convey any anti-foreign-worker sentiment, either.

On the way up, Risk increases every day

and on the way down it decreases every day.

These are the words of wisdom from Ozzie Jurock, a long-time real estate investor as he shares his take on how to make a move in the current down cycle.  This concept is especially hard to wrap your head around when you are watching price drops happen around you, you are reaching for your wallet to commit, and your neighbor is shaking his head at why you are “overpaying” for a property.

Real estate always has, always will, be cyclical in nature, and smart investors make their decision based on fundamentals, not the emotion of the neighbors, their city, or the media.  Here are a couple more bits from Ozzie, then I suggest you read the full article entitled, “Shop Wisely and Make Offers” here. 

Buy “use” to you or your family — buy your own business space … and don’t worry. The best deals come in down markets.

For 40 years, prices soared because we lived through the most unreported inflation of all times, because we printed more money than ever.  Today, this is even more the case. All that extra cash created out of thin air will continue to compete with the money you and I make and drive hard asset prices eventually higher again, after we clear out the messes and the excesses, just like we did in 1992 (or 2001, 1998, 1987, 1981, 1974).

From an investor’s perspective, we like cash-flowing properties anywhere — where there is a good employment base, low vacancies, capital investment and a good price-to-rent ratio.  We see that developing in Edmonton and many small towns throughout Alberta.

Another piece of Ozzie’s advice is to “overcome your fears and write offers.”  I can’t stress how important this is in the current market conditions.  So many vendor’s I have spoken with know they are priced high, but stress verbally they are negotiable.  They aren’t negotiable with a tire-kicker making a verbal offer – they need so see a signature and a deposit.  With more available product now is the time to shop hard by writing offers on multiple properties – leverage your opportunities against each other.  One thing you need to understand about most vendors is that they don’t have a store full of product to move off the shelves – often they only have one product.  Can you blame them for pricing in such a way “just in case” they can pull it off?  

Many vendors are on the verge of dropping their price, and all of a sudden your low-ball offer isn’t so low, its right in line with their new price.  Do you want to have the first crack at a lower price?  Or wait until the new more attractive price is advertised in the newspaper for all your competitors to see and jump on?  An offer with a signature, deposit, a well-written cover letter featuring a price backed with new comparables will take you places you never expected.

I have to throw in one more Ozzie quote – forgive me for the blatant self-promotion but sometimes its just too easy:

The key is that you shop wisely, get a professional realtor, research, overcome your fear and make offers.

Brand Alberta – Prepare to be TiVo’d.

 

The New Alberta Brand Logo

The new Alberta Brand video has joined in with the hundreds of other advertising voices shouting for your attention.  It’s these hundreds of voices that have in part made products like TiVo so successful – the ability to turn them off and get back to the content that really matters to you.

 

The Alberta Brand is about to experience the same fate due to its fluffy, generic, barrage of unsupported messages.  It comes across like a Wal-Mart PR campaign about ethical sourcing and competitive pay, or McDonald’s advertising itself as a “healthy lifestyles” destination (I’m aware both of these companies have made strides to improve all of the above mentioned issues, but the point is its hard to change a reputation).  The proof is in the pudding, so to speak, and your reputation precedes you. 

The unfortunate part is that Alberta truly does have an “open door”.  The province, and municipalities within have made Alberta a very friendly place to do business, and there are companies all over the world moving in to take advantage of that.  These actions that the province has taken, and the ways that real businesses have benefitted, are what should be the substance of a marketing message to investors.  Investors are looking for concrete substance, and Alberta has it.  Unfortunately it never made it into the message.

Perhaps its not too late, as I’ve read we’ve only spent $4M so far of our $25M PR campaign!

Check out the vid, and the site here: http://AlbertaBrand.com, and let me know what you think.

Mid 2009 Real Estate Rebound?

 

Can you expect a mid 2009 revival?

I certainly enjoy hearing more optimism around town, but my hunch is that this is a little premature. Spring fever typically spurs some activity, but I’m not convinced its the start of the next upswing we’ve all been watching for.

 

I’m hearing some excitement from residential realtors enjoying a seller’s market last week.

I’m hearing some excitement from commercial realtors in this article in the Edmonton Journal by Bill Mah.  A few highlights:

• The deals will slow down, vacancy rates will rise and sublease space spike, but Canada’s commercial real estate will stabilize by mid-year and recover in 2010.
• Canadian markets such as Edmonton benefit from strong fundamentals and a relatively constrained supply.
• In Edmonton’s industrial real estate market, new construction and lower absorption levels bumped up the vacancy rate to a “still sparse” 1.5 per cent in December — the lowest industrial vacancy among Canadian major markets.
• The fundamentals of the Edmonton industrial real estate market remained strong throughout 2008 and Edmonton continues to be the service hub for the megaprojects of northern Alberta.  After years of rising land values, prices began to plateau last year and will correct in 2009 . . . Except for new developments, industrial rental rates will hold steady . . . A wait-and-see attitude will extend into the first half of this year . . . Those developers who are still building on a speculative basis will be rewarded, as the forecast for Edmonton remains positive.

I concur that softening will continue to occur through till at least mid-2009, and stabilization through the end of 2009 is possible.  I believe the situation will continue to deteriorate for our neighbors to the south as they reap the fruits of a hyper-active printing press, and the sooner our businesses can decouple from that situation the sooner we’ll see recovery.  A decoupling from the US economy and increasing oil prices are going to be the key determinants in our next run.  

Unfortunately if you are trying to time the market, these two factors are difficult to predict in the current chaos and you’re not going to have your “Aha!” moment until after its begun.  With Alberta’s incredibly strong fundamentals, a long-term buy and hold strategy (5+ years) is still your most profitable and risk-averse option, with some good deals and motivated vendors almost a sure thing over the next 3-6 months.  Be greedy when others are fearful . . . be investors, not gamblers.

Where are Edmonton’s Industrial Real Estate Prices Going? Let’s Review 2004-2008.

Curious about where Edmonton industrial real estate prices are headed?  

There are strong fundamentals that point to great long-term positioning – but what the next 6-12 months hold, I couldn’t tell you (I wouldn’t commit to it on paper, anyway.)  Even Warren Buffet doesn’t make short term calls . . . 

However, I can provide you with some insightful numbers of the past 5 years, 2004-2008.   A birds-eye view of where we’ve been and we are now. 

The Network has released their 2008 Commercial Real Estate Overview for Edmonton, and it focuses on three key metrics:

1. Per Unit Price (Square Foot or Acre)
2. Number of Transactions
3. Dollar Value of Transactions

Between 2004 and 2008, Edmonton’s industrial market generally experienced:

• Increasing per unit prices (No drop in 2008 folks, as many have assumed).
• Increasing number of transactions from ‘03-’07, a sharp spike upward in ‘07, and a sharp drop in ‘08.
• Increasing dollar volume of transactions from ‘03-’07, a sharp spike upward in ‘07, and a return to near normal values in ‘08, in spite of the dramatic drop in the number of transactions.

This chart quickly shows the unit price metric over the 5 years, I recommend viewing the full data, including CAP rates, for all the industrial property types in the report (link provided below).

Shows Unit Price & # of Sales

 

Myself, I was curious as to the role of investors and speculators over the five years, so I formatted the numbers into these pie charts below.  Generally speaking, the blue portion will represent activity by user / owners, and the other colors combined make up what is typically investment properties.  Of no big surprise, the red hot year of 2007 witnessed the highest involvement of investors, and 2004 saw strong investor activity as well.  Typically, I see investor activity being a main driver behind the short term ups and downs.  Most industrial owner / users are operating within a longer term business plan, with various obligations making their property less liquid.  In Edmonton, I see the industrial values being more stable than many other market segments due to a pretty consistent 75% – ish involvement from user/owners.  I don’t have the data to support it at my fingertips, but I have seen reports suggesting that the Edmonton residential inventory glut experienced in 07-08 was over 50% investment properties. 

 

The full report from The Network which goes into greater depth, and includes analysis of other segments of Edmonton’s commercial market including CAP rates can be downloaded here.

Northern Alberta Best Place to Weather the Economic Storm

Can’t help but pass on a positive spin.  Really, the only question that remains is, how long before the price of oil accurately reflects supply & demand?  There are slow signs of decoupling from the US economy in other major economies (seen the latest figures for China’s auto sales?), hopefully Canada is quicker than most.

Canwest News Service  Published: Tuesday, March 10, 2009

 

EDMONTON — Northern Alberta is the best place in North America to weather an economic storm that’s becoming worse than originally forecast, said Michael Percy, dean of business at University of Alberta.

“When I look down the road, it’s going to be grimmer than I thought it would be for the next year, year-and-a-half. This is going to be an intense downturn,” he told city council Tuesday.

However, Mr. Percy said “there’s no better jurisdiction to be located in than Alberta,” particularly north of Red Deer, because he still expects companies to pump money into oil sands projects as prices improve.

“At the end of the day, so many fundamentals are positive in the case of Alberta, the best strategy is to treat this as short-term.”

Mr. Percy was one of five local experts brought in to give councillors their thoughts on where the economy is heading and what the city should do about it.

The speakers also included ATB Financial senior economist Todd Hirsch, National Bank Financial investment adviser Angus Watt, Melcor Developments Ltd. president Ralph Young and Clark Builders founder Andy Clark.

They suggested falling costs make this a good time for the city to move ahead with infrastructure construction needed as Edmonton continues to grow, especially with interest rates low.

Mr. Clark said his company has 30 projects going on right now, but by the end of the year they only have 10 scheduled.

“I think you’re going to see some pretty hungry builders out there in six months, 12 months more.”

How to Get Your Development Approved by Council

There are two commonly missed requirements to having Council approve your development, and it has nothing to do with $$ (which is why they are often overlooked).  These two missing elements were highlighted beautifully at a recent public hearing regarding a proposed business/industrial park in Strathcona County, which did NOT get a green light . . . yet.

As a real estate developer, you know the metrics of your project inside out.  You know the potential costs, the potential upside, you have the zoning regulations are memorized, and your engineers have all the minute details worked out to perfection.  However, when pitching to Council, the project is not about YOU, you need to first address what’s in it for Council.  You need to sell it, and its not all about analytics, its largely emotional.  Real Estate is not just dollars and sense anymore, and here are two items to make sure you have checked off your list prior to approaching council.  You will need a team member with a high Emotional Intelligence Quotient to manage these aspects of your deal.

1. Love Your Neighbor as Yourself

In the recent public hearing regarding Centennial Business Park in Strathcona County, a certain 78 year old, who has been homesteading the adjacent parcel to the proposed development for over 44 years, was scheduled to take the mic.  You cannot underestimate the power this frail old man yields.  In this case, the power was his very articulate, very vocal, and very frustrated son.  The father & son had raised their concerns with the developer previously, and while the concerns were not able to be met by the developer (the issues were largely out of their hands), the concerned neighbor did not feel heard.  This was a communication problem, not an engineering or financial problem.  Council did not have a choice but to return this project to Administration, largely due to this issue.  They had a live wire on their hands – if they gave a green light to the development, this very vocal father and son team, and their classic victim story would carry through the local papers faster than a Britney Spears tabloid.  This does NOT help a council member become re-elected.

Action steps:

• Make a list of everyone who will be affected by your development, the neighbors are an obvious choice.  How does this project affect them?  What are their concerns?  You may be tempted to only address valid concerns – this would be a mistake.  Every concern is a valid one, and has the potential to sway the hearts of council against you, even if it is entirely emotional and/or fictional.  Do everything possible to address their concerns, but firstly, ensure each one feels listened to.  Be open to adjusting your project to address concerns – some of the ideas presented have the potential to make your project better, which may equate to better profits.
• Do your best to have all affected parties on-side prior to a public hearing.  Their concerns will not just disappear if they do not feel they have been addressed, these skeletons will show up again at the hearing.  It is not always possible to appease everyone, but be prepared to have a good defense drawn up to counter the unresolved concerns which will be presented to Council.

In this local case, Council knew that the developer did not have the power to meet the elderly neighbor’s demands – but they delayed the project anyway, asking that the developer consult with the neighbor again, to ensure he felt heard, and that his contributions were valuable.  The right person with a high EI will do this smooth as butter, and would have just saved you thousands of dollars in lost time.

2. Have a Story to Tell

Consumer purchasing behavior is quickly changing.  The lowest price is no longer the law (sorry Zellers), and consumers want to know that their product was produced ethically.  They want eggs laid by happy chickens, and they want to feel good about their purchase.  Any marketer who is surviving this new purchasing trend is doing so by selling a story, not the product.  You’ll find labels attached to products to communicate the story: “This soap was hand-made by Afghani women supporting their families with their entrepreneurial drive . . .”

In your case, Council is your customer, and you need a story to tell.  Fortunately, its easy to know what kind of story they want/need to hear – they are accountable to their voters to make their city a better place to live.  Going back to the Centennial Business Park hearing, Council members begged for a story – here’s what it looked like:

“This is the last area in the County to develop an Area Structure Plan, will your development highlight the significance of this?”

“There is an old house on the property, will it just be demolished?”

Unfortunately this developer had an irresponsible answer to these requests for a story.  His answer was irresponsible because his development was irresponsible – this is not “smart growth.”  The primary purpose of his development was NOT aimed at making Strathcona County a better place, it was to maximize profit.  He stated it this way (loosely quoted):

“The property will be developed according to the zoning, and the type of development it becomes will be dictated by market demand.”

This type of answer may be enough to get approval from Strathcona County, but it would not fly in communities with smarter principles for new development, like Okotoks, Canmore, and Banff.  Read the case study featuring the political will demonstrated in Okotoks’ sustainable development plan.

Free Tip: the day is coming when these more stringent development policies will become the norm all over Canada.  

Action steps: Answer the following questions.

• How does it improve quality of life for those in the area? 
• How does the development impact the environment, how can it improve the environment?  (Look into eco-industrial parks, and LEED certification.)
• What can I improve from an aesthetic standpoint to make this project unique, and improve the visual landscape?

If you haven’t figured it out yet, your development needs to be an improvement in all aspects.  If your product doesn’t make things better, don’t bother taking it to market.  It’s an ethics issue.  You might be surprised to discover that these development principles don’t take away from your bottom line, done correctly they will add to it.  The answers to these questions are what will form the story that Council, and ultimately the purchaser, buy into; and every day, more and more consumers are demanding a story before they open their wallets.

These two missing points, Love Your Neighbor, and Telling A Story, are increasingly necessary to having your development flow through Council, and ultimately succeed with end users.  The earlier in the planning stages they are incorporated, the sooner your project will take flight.

Will your Edmonton industrial property weather the economic storm?

 … it’s vital to remember that property markets are not national; they are regional and local, and even vary widely from neighbourhood to neighbourhood in the same city. Looking at national numbers and coming up with an average is like putting your head in an oven and your feet in a freezer, and saying on average that the temperature is fine. There will always be some hot real estate markets and others that will be cold, but national and provincial figures are much too generalized to be used . . .

I would like to point you towards a must-read article by Don R. Campbell, the best-selling author of Real Estate Investing in Canada and President of Canada’s Real Estate Investment Network™.  In the article you will find twelve questions to peer into the future of your property’s value, such as #3:

• Is the area creating jobs faster than the provincial average?

Or #10:

• Is there a major transportation improvement occurring nearby?

Answer the questions honestly with relevant data, and if you don’t know the answer, do the research until you do.  Perhaps you know a realtor who can help you gather the data?

For further insight into the future of Edmonton’s industrial property values, see my previous posts on Edmonton industrial vacancy rates by area, and the 2009 real estate forecast.