Wednesday, December 8, 2010

Tuesday, December 7, 2010

Shopping Mall Observations

I was in the Rideau Center this past weekend and was astounded by how different the world has become in the past 5 years.  Walking around the mall, the amount of speciality stores I saw shocked me - LaCoste, Banana Republic, Lululemon, or Michael Kors.  I remember when the biggest and most popular store in the mall was GAP and the only "designer" stores were Harry Rosen, Guess and Le Chateau. 

I noticed in the La Senza store, every Christmas they put out flannel pyjamas at the front of the store and usually have these big discounts on the pyjames. This year, there were very few pairs of flannel pjs and were replaced by fancy undergarments. This was another weird citing at the mall.  FYI - I wasn't comfortable buying my mom's gift at La Senza anymore, as flannel pjs are fine, that other stuff is just weird for your mom!

I started to ponder this, when my wife was busy Christmas shopping.  It then dawned on me, the biggest clothes buying age group is 15 to 30, meaning Generation Y (Echo Boomers) are enmass entering this age group.  They are individualistic and are defined as the "now" generation, not enjoying the benefits of delayed gratitude (does anyone really enjoy delayed gratitude?). 

Baby boomers who dominated the clothing market previously are not as individualistic and are looking for quality at a good price.  Unlike their children, boomers will sacrifice style for substance and cost.  The difference in the stores and prices was shocking to me.  Gone are the days of the large retailers with many sizes of the same shirt, here are the days of designers, less selection and higher prices.

One last antedoct from my day of shopping, I went into a "new retailer" in the mall and looked at a pair of shoes for my wife.  They were pretty cool and the sales girl happened to be wearing them.  I asked her the normal questions about comfort, style, etc.  It was quite normal, until the sales professional said to me, "These are great as they only come in one size run, they are so exclusive!".

I thought about that as I left (without the shoes, sorry honey, I promise I will get you something cool for Christmas), I can remember working in retail clothing stores to pay for my education and one of the most important things, heading into Christmas was overstocking the warehouse with extra sizes, so you could accomodate the hordes of Christmas buyers.

Strange stuff happening in the shopping mall and it is all due to the changing demographics.  Keep watch, it will continue happening!

Law of LARGE numbers and investing

In probability theory, the Law of Large Numbers (LLN) - Gerolamo Cardano (1501–1576) - is a theorem that describes the result of performing the same experiment a large number of times. According to the law, the average of the results obtained from a large number of trials should be close to the expected value, and will tend to become closer as more trials are performed. Conversely, a small number of trials might be skewed.

Think of flipping a coin. With a coin, there are two sides, so you have a 50% chance of flipping heads as you do tails. Where the law of LARGE numbers takes hold is, if you flip the coin 4 times, there is a greater likely hood of having a disproportion number of heads than if you flipped the same coin 400 times.

Another great example is rolling a die. If you roll a dice 6 times, logically, you should get each different number once 1, 2, 3, 4, 5, then 6. This is what logic tells you, but it is highly unlikely you will actually roll these numbers. You have a 16% chance of getting that number on each roll. Now, if you roll the same die 6000 times, you are more likely to get that more even distribution.

So, you ask, how does this apply to real estate? Simply, it applies to vacancy. When buying cash flow real estate, one of the biggest problems a client can face is vacancy. Vacancy is when your unit is empty. Empty units produce no rental income.

If you have one unit, and it is vacant you are out 100% of the income. If you have 10 units and one is vacant, you are only out 10% of the income. Extrapolate that to 100 units, you would need 10 vacant units to equal the % loss of having one unit empty in 10.

Professional investors, who retire on portfolios of real estate, tend to view more units as better than less units. The other factors they look at are more mortgage reduction and more value increase across 100 than 10 or 1.

The Law of Large Numbers is a valid consideration when looking at investments, as it proves that more units are better than less units when looking at cash flow. Just imagine, there are people who take this to the extreme levels, for instance a fellow in Smiths Falls owns over 200 units and a fellow in Cornwall owns over 700 units. These people have definitely taken the Law of Large Numbers very seriously!

Saturday, December 4, 2010

Home price increases inside the Greenbelt outstripped their suburban and rural counterparts

I am not usually that big on posting articles, but I thought this one was very timely and important. 

Just a comment on this, from 1989 to 2001 Ottawa houses went up $22,056.00 or about 12.5% total.  So, cumulatively, over the past 20 years, houses in Ottawa are increasing at a normal pace.  From 1989 to 2009, houses increased in value by $183,812 or 2.8% per year.  With the implementation of the GST and a focus on paying down the deficit in the 1990s, some of the run up in the 2000s has been reflective of the stagnation of the 1990s.

Golden neighbourhoods
By Robert Bostelaar, Ottawa Citizen December 4, 2010 •Story•Photos ( 4 )

Ottawa Citizen, Ottawa CitizenHomes within the Greenbelt -- and especially in some key Ottawa neighbourhoods -- gained far more value in the past decade than their suburban and rural cousins, a City of Ottawa analysis reveals.  And the appreciation gap could widen further as city intensification policies and downsizing boomers bring more people into central Ottawa.

The downtown price surge, which Ottawa shares with many other North American cities, won't be a surprise to anyone who watches real estate ads. But the City of Ottawa data, presented to a Canada Mortgage and Housing Corporation conference last month, reveals both the extent of gains and which areas are hottest.

Across Ottawa, the value of the average home rose 92 per cent between 2000 and 2009, city planning official Court Curry told the conference. That increase pushed the average price to $321,267 from $167,246 -- well above the decade's cumulative inflation rate, which is pegged by the Bank of Canada at 21.6 per cent.

Some neighbourhoods far surpassed the average rise.
Westboro, the trendy Richmond Road district that is home to bike shops and bakeries, old houses and new condos, was the biggest winner, pushing up average prices by 164 per cent. The average price in Westboro jumped to $457,253 last year, from $173,414 in 2000.

Courtland Park-Rideau View, a neighbourhood south of Baseline Road and east of Fisher Avenue, was second with a 159-per-cent rise in values, taking the average price to $336,626 from $130,208.

Next was Chinatown-Little Italy-Mechanicsville (157 per cent) and two Westboro neighbours: Wellington Village (155 per cent) and Highland Park (129 per cent).

Even Vanier, a mixed commercial and residential district east of downtown that has earned its share of negative press, appreciated more than the Ottawa average, at 129 per cent.

So if these areas appreciated more than the average, which neighbourhoods came in below the 92-per-cent figure? Neither the city nor the Ottawa Real Estate Board, the source of the data, would say.

Given the close-to-the-bull's-eye positions of the big gainers, however, it's probably safe to assume that the slower areas are in the outer rings of the amalgamated city.

Curry was willing to predict which areas could show the biggest increases, residential and commercial, in the coming decade. These neighbourhoods line Ottawa's planned light rail transit (LRT) route, of which the first phase, from Tunney's Pasture through downtown to Blair Road, is expected to begin operating by 2019. The line will tunnel under central Ottawa and have 13 stations.

A projected annual ridership of 76 million, almost double the ridership on the current bus transitway, should spur "significant positive effect on the value of lands around stations," he told the conference.

Even before LRT construction starts in 2013, a boom in condominium projects, spurred by the city's housing intensification strategy, is encouraging young professionals, baby boomers who have consolidated their households, and others to live downtown.

Within two blocks of Rideau and Cumberland streets, for example, 1,200 housing units are under construction or completed and another 670 are planned, boosting the area population by 3,100.  "That's the equivalent of the town of Almonte," Curry said.  Some 2,100 units are under way or complete in the downtown-Centretown district, with another 2,000 units planned. In Westboro, 505 units have been added and another 1,110 are proposed.  Still another hot area is Little Italy by the Carling station for the O-Train, forerunner to Ottawa's LRT service. There, 725 new dwellings will accommodate as many as 1,200 incoming residents, while new office and retail space will provide up to 1,650 jobs.

"We really think that Little Italy and the whole Somerset (Street) area is a sleeper," Curry said.

The general rise in property values is good news for homeowners, less good for buyers -- especially first-timers facing increasingly high initial and monthly payments to get on the property ladder.  Ottawa broker Pierre de Varennes, however, suggests that wage hikes in the past decade have helped buyers keep pace with the price increases.  As well, with a six-decade record of steady but moderate increases in resale values, Ottawa remains the second least-expensive large Canadian city in which to buy a home, he noted in an interview. Montreal is the cheapest.  "From that perspective, Ottawa tends to be a relatively safe place to invest in home ownership, relative to some other Canadian cities," said de Varennes, who just completed a term as president of the Ottawa Real Estate Board.   "We're not vulnerable to the large swings as may be seen in, for example, Calgary, Edmonton, Toronto, Vancouver."

As in other cities, he says, the downtown should continue to be desirable to older buyers who want to be in walking distance of shops -- especially if they have health problems that could limit their ability to drive in coming years. Others are simply tired of daily traffic jams.  "They're willing to pay a little more for convenience -- the time-savings. Certainly there are people who have moved in from the periphery, and that may allow them to go from two cars down to one, or three cars down to two."

For first-time buyers seeking a "starter" home, rising downtown prices could steer them to neighbourhoods outside the Greenbelt, where larger townhouses or even single-family homes are attainable.  More affluent first-timers, "especially if they're being helped by mom and dad," tend to gravitate to the downtown.

"They tend to be young professional people. They're not necessarily, in their first property, interested in mowing the lawn, that sort of thing, because they're focused on their career.   "They're looking to be closer to the nightlife, the activities, and be in a condo," said de Varennes.

© Copyright (c) The Ottawa Citizen
Read more:

Is real estate a good retirement strategy?

In the recent poll on this site, 97% of respondants said that real estate is an effective piece to include in a retirement puzzle.

This gets me to thinking, how many people actually have a strong retirement plan.  Have you taken the time to sit down and actually plan, see how much money you should have, what type of lifestyle and how you are going to make things happen when you retire?

I have been analysing my plan and have been constantly updating my retirement plan.  I am using real estate as the major source of my retirement planning.  Going forward in 2011, I think the question we all have to ask ourselves is "How am I going to retire?"

With almost 9 million babyboomer (approximately 1/3 of the Canadian population) heading into retirement in the coming 15 years, this will have a major effect on the availability of funding for younger Canadian's retirement.

UPDATE: Train Yards to build federal office

It has now been officially announced that the Public Works building located at the Trainyards is a go.  This will bring 1000s of jobs to the North Alta Vista area, meaning demand for properties in the area.  PublicWorks is attempting to move employees out of the downtown core and into other areas within the green belt, specifically areas that are withing 600 meters of major transit areas.

Published on December 3rd, 2010
Peter Kovessy
Ottawa Business Journal

A poorly kept secret in Ottawa’s commercial real estate community concerning the location of the federal government’s next office building has been confirmed by Public Works.  The Ottawa Train Yards – a sprawling retail power centre with more than a half-million square feet of retail space over 92 acres – has won a contract that could be worth up to $89 million over two decades to build a new office building.

Train Yards officials were not immediately available to provide details about the contract, which was in response to a request for 25,000 square metres, or approximately 269,100 square feet.  The original solicitation called for space within 600 metres of any Transitway station between St. Laurent station in the north and east and Heron Road station in the south and west.

The Train Yards meets this requirement, but the nearest Transitway stop is the Via Rail station, which is separated from the commercial plaza by train tracks. Currently, Transitway passengers appear to have to exit the train station and walk along Tremblay and Belfast roads to reach the Train Yards – which is served by a local bus route – by foot.

Public Works will pay $199.95 a square metre – roughly $18.58 per square foot – in net rent, which excludes operating costs.  Bruce Wolfgram, a vice-president at Primecorp Commercial Realty, said that right seems a bit high, noting Bentall is marketing space at Blair Place for $17 a square foot.

Additionally, the average asking net rent for existing class-A space in the general vicinity of the Train Yards varied between $13.58 and $18 a square foot at the end of the third quarter, according to a recent report by Colliers International.  Mr. Wolfgram said he suspects the federal government is receiving a certain amount of office space build-out.  “That number must include some incentives. They must be receiving more than just a base building,” he said.

The lease runs for 15 years, with an option for an additional five-year term. The Train Yards will retain ownership of the building during and after the lease term.  The federal government has made it clear for more than a year that it wants to move more bureaucrats out of the downtown core.

In October, Public Works’s top property official told the city’s commercial real estate community in a speech that he wants to vacate 10 per cent, or roughly one million square feet, of the government’s current leased and owned space downtown.

“We want to have access to cheaper space,” said Claude Seguin, who is the director general of portfolio management in Public Works’s real property branch.  In the coming years, the federal government will need to vacate several aged office buildings that no longer meet government standards and are in need of extensive renovations.

Public Works has actively been procuring new space, namely purchasing the former Nortel Campus and constructing three new office buildings in Gatineau.  The recent solicitation won by the Train Yards started two years ago, when Public Works published a massive request for information on the availability of 3.875 million square across the National Capital Region, including a specific inquiry about east-end space.

Nine proposals were submitted, six of which met the requirements set out in the RFI.

Only four of those six proponents responded to the government’s subsequent request for qualifications. Three firms were qualified to submit a bit, all of whom responded by the July 9, 2010 deadline.  The federal government refused to comment on this project this fall, even though rumours that The Ottawa Train Yards had won the contract began circulating over the summer.  In response to an inquiry from OBJ, Public Works confirmed in November that a contract was in place, but refused to identify the location or vendor until this week.