How Canadian Shopping Plaza Investments Work

Canadian shopping plaza investments are increasingly standing out as prime choices for private investors. So how do they work?

Canada’s commercial property market continues to perform well in the retail sector, with Calgary and Edmonton emerging as top options. While investing in local shopping plazas is one of the more straightforward options when it comes to investing today, it is still a new concept for many individuals. How do private investors get in and out of these opportunities, how do they earn returns and what is important to look for in well performing properties?

Getting Into Your First Shopping Plaza Investment

Whether you are new to commercial real estate investing or are an experienced investor looking to hedge your risk, the smartest way to get involved with shopping plaza investments is likely via a syndication or partnership. These structures provide you with the ability to invest less capital and benefit from the financial strength of multiple accredited investors as partners. Once you become comfortable with this asset class, it is relatively easy to scale up and acquire additional interests in other shopping plazas and retail properties. This method of investing ensures additional safety and consistency in your investment performance, along with greater diversification.

Getting Out of Your Shopping Plaza Investment

While investors who are the sole owners of a property can opt to sell their properties on a whim, pooled investments are generally managed based on a predetermined timeline. These may be set deadlines for putting a property on the market, deciding to hold an asset indefinitely with the option to sell and cash out your personal stake at any time. As ab example, owners may decide to re-evaluate the investment after 5 years and vote on whether to continue to hold or liquidate a property, depending on the market and future performance projections from that vantage point.

Yield, Income, and Cash Flow

One of the chief reasons sophisticated Canadian investors choose retail real estate investments is for the consistent yields. Cash flow is generated from renting units to business tenants, and sometimes via additional revenue streams. Well-written retail leases can provide landlords with incredible upside potential over a modest period of time. Net operating income (NOI) has been improving thanks to technology and increased efficiency in property management. Cash distributions really depend on the investment model, but for many investors, the passive income from these properties is more than enough reason to invest in retail properties.

Capital Gains

In addition to income and tax benefits, Canadian shopping plazas also offer investors the potential for substantial capital gains from appreciation. While values will fluctuate over time, they have so far proven to always bounce back higher and are currently on an upward trajectory. For smaller retail centers there is always the possibility of increasing equity at any time via value add improvements and higher rental rates.

Canadian shopping plazas have a lot to offer private investors and are relatively easy to navigate. However, real performance will all come down to the individual investment and most importantly, who is managing the property on a daily basis.

Most Profitable Type of Property for Investors

Decoding the Best Type of Property

To hone in on the best type of property for investors today requires looking at which elements are most important to those investing. So what are they? Security is often the biggest one. Sophisticated Canadian property investors want to invest in bricks and mortar that will preserve their capital. Second to safety is which properties are most likely to perform consistently.

To determine this, investors will want to hone in on which types of properties are most critical and needed in the current market. For example, new sports arenas and museums might be valuable, and they may certainly help anchor a locale and increase interest, but most would reasonably argue they are not necessities.

Industrial Property

Some may pose that industrial real estate is the most important, especially in provinces such as Alberta. After all agriculture, manufacturing and energy are all crucial backbones of sustainable economies and provide real wealth building and job creation. However, industrial property can be a virtual minefield for most Canadian investors. This type of property can be tricky to develop, manage and sell for those not intimately familiar with the market. On top of this, industrial properties can have a much smaller user and buyer base than other types of properties. With energy production, regulations and technology constantly changing, it can be difficult to determine where performance for this property type is headed.

Office Buildings

After industrial, office property may be assumed to be a significant indicator of local economic strength, job creation potential and financial stability. Strong office markets used to suggest strong broader real estate markets but this is no longer the case. With 60% of the population on the way to working remotely, there has been a drastic change in the demand for working space, resulting in serious uncertainties regarding the future of the office property sector.

Residential Property

Most individuals would instinctively point to residential properties, as the most “needed” type of property. Whether it’s single family homes, multi-family apartment buildings or hospitality venues such as hotels, everyone needs somewhere to live and stay.

In destinations such as Edmonton, there are clear shortages in housing, which suggests that future growth is on the horizon. From purely an investment standpoint, multi-tenant properties have significant advantages in value, cash flow performance, efficiency in management and reliability. However, even when things are at their worst, homeowners and renters will skip their housing payments before they stop shopping for essential products and services, such as food and household items.

Retail Investment Property

It is hard to refute the fact that retail, specifically local shopping plazas, are the most important property type for the current market. As a result, they are likely to perform consistently and hold their value over time, while producing consistent cash flow in the interim. Retail can also pose far less liability when compared to residential landlord-tenant lawsuits.

6 Reasons High Net Worth Investors Choose Commercial Real Estate

The world’s wealthiest individuals continue to consider commercial real estate as one of the most desired assets in their portfolios. So what is it that makes this asset class so popular for the affluent and sophisticated investor?

1. Income

Call it yield, cash flow or passive income, but the point is that commercial property delivers it. For savvy investors, income is even more important than asset value. Everyone needs income, and particularly passive investment income.

2. Wealth Preservation

For wealthy individuals, preservation of capital is even more important than investment gains. These investors are risk adverse, and understand that promises of investment returns do not justify risking their capital. Commercial property is amongst the best investments when it comes to capital preservation, as it is a tangible asset that can provide wealth protection for families over the long run.

3. Taxes

One of the main reasons many affluent Canadians choose real estate investment is for the tax benefits. Direct real estate investment offers many potential tax breaks and deductions. This can be taken even further by using tax preferred vehicles for investing in real estate in order to reduce tax liability and even generate tax free returns.

4. Capital Gains

Capital gains are the icing on the cake when it comes to commercial property investments. They are not normally the primary reason to invest, but can provide substantial passive wealth gains in both the short and long term. Property value cycles are in general quite predictable. Timed well, investors can use this to speed up their portfolio growth, as well as providing lump sum cash needs for larger expenditures later in life.

5. Building the Local Economy and Community

Aside from the direct financial benefits of investing in commercial real estate for personal gain, these assets are also responsible for improving communities as they create jobs and inject cash into the economy.

6. Teaching Kids Essential Investment Principles

Even when there are no immediate financial needs for increased income, wealth or tax breaks, making new investments in commercial property can provide great teaching moments for future generations and can equip them to provide for themselves in the years to come.

In summary, there are many reasons to invest in commercial real estate in Canada for both young and mature investors. Regardless of your priorities, it’s worth taking a look at this investment sector and the broad array of benefits it incorporates.

Alberta Continues to Top Real Estate Ranking in Canada

According to a new report, Alberta continues to top the rankings in real estate markets across Canada.

A new study, ‘Emerging Trends in Real Estate 2015’, from the Urban Land Institute and PwC pegs Edmonton and Calgary as the top two cities in Canada for real estate.

Strong job creation, continued urbanization, downtown development and population growth are among the reasons why Calgary and Edmonton took the top spots.

Data also shows 27 per cent of the Canadian population as Millennials and 27 per cent as Baby Boomers. This suggests the real estate market will be heavily active in the near future.

Boomers’ housing needs are changing, and not only are Generation Y migrating and buying homes, Generation Z is also on the verge of becoming a massive home buying and real estate investment force as well. According to a recent Wakefield Research study, Generation Z is incredibly bullish on real estate ownership, with over 80 per cent saying it is critical to them.

These factors, as well as the side effects of more global economic and real estate trends are colliding to provide for more fuel to the growth of Alberta’s top cities. When compounded, many may find their investment property performances in Alberta exceptional.

Construction Boosts Canadian Property Returns

The latest data and commentary from the Canada Mortgage and Housing Corp. (CMHC) reveals an optimistic forecast for construction growth through 2015 and beyond. Canada’s housing agency anticipates 189,000 new housing starts in 2015.

Obviously much of this investment and construction will go to Alberta’s leading cities Calgary and Edmonton. The Urban Land Institute states these two destinations hold the best growth for real estate in Canada through 2015.

While Calgary and Edmonton continue fighting to be the most attractive and top performing real estate market in Canada, Edmonton seems to be coming out ahead. With the city’s current value proposition and velocity of growth, it looks to be leaving Calgary behind.

Edmonton has been attracting residents and businesses alike. Where the residential properties and small businesses go, demand for retail space follows. So does better performance of retail properties.

However, recent reports of Calgary’s steaming real estate market, in both new developments and resale tells us, this fight for Canada’s leading real estate market is far from over.

Global Investments in Canada

Global investment in real estate is rising rapidly and with continued growth in the construction sector, property investors can expect increased returns.

Global real estate investment has risen by almost 20 per cent. Analysts not only expect new money to be invested, but they also believe large portfolios will be shifting as well.

According to The Globe and Mail, Alberta’s new leadership is pressing the federal government for new clarity and rule reform to aid the province in attracting more international investments.

In particular, those pushing for the changes want to open the doors wider for wealthy Chinese investors and firms. By doing so, Canada would draw attention from the likes of the largest sovereign fund in the world.

Until then, the Alberta market is open for smaller private and individual investors to capitalize on value opportunities in prime property.

Strategies of Billionaire Investors

The world’s wealthiest investment gurus and billionaires are becoming increasingly transparent about their investment strategies. Wealthy global billionaires such as Warren Buffett, Carl Icahn and Tony Robbins are increasingly opening up about their investment secrets in new books, blogs and podcasts as they seek to share their success and help others achieve similar results in their portfolios.

Here are some areas they focus on:

Wealth Preservation

There’s a saying “big risk, big reward”, however, these risks should always be calculated. Wealth preservation and the return of investment capital is a priority, above return on investment.

This can explain why strongholds like London, Hong Kong, New York City and San Francisco continue to draw global investments even though yields have been poor lately.

Taxes

Paying close attention to taxes is important, especially minimizing tax liabilities. For example Amazon founder, Jeff Bezos has a map prohibiting staff from entering certain regions to prevent triggering new tax liabilities.

While Mr. Bezos and Amazon’s route might be a bit extreme for the average private investor, for most it can still mean 25 to 50 per cent difference in net returns, income and wealth. The difference becomes more significant overtime, as gains or losses are compounded.

Passive Income

Time is limited. No one wants to be tied to their investments, while their friends and family are having fun. Hence choosing investments with passive income can be beneficial.

Diversification

Diversification brings together the best of the above. It helps protect wealth further and ensures the consistency of investment returns and ongoing income.