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Foreign investors stopped canadas border

Foreign investors stopped at Canada’s border

Global capital stymied in effort to break into the nation’s lucrative real estate market.

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Foreign investors are knocking at Canada’s door, but few are getting in.

On average, only 10 percent of all commercial real estate transactions in Canada have come by way of investors outside the country’s borders. In 2012, that number sank to an astonishing 1 percent, leaving foreign investors puzzled—and frustrated.

“It is hard to place capital into good projects in Canada, and the approval process together takes longer to get together than it does in other environments,” says Vince Tan, who works for development company Ayala Land out of the Philippines. He’s struggling to find residential for sale projects to invest his firm’s capital in Vancouver. NA gateway to Asian Tan has been successful before, but he is a member of a small club of foreign investors able to invest in the great white north.

And while foreign investment rebounded to 9 percent last year, nagging questions persist: Why isn’t Canada welcoming global capital, and is that reluctance bad for the country?

“There’s no doubt the global investment community has been stymied when it comes to finding that crack in Canada’s armor”

Lucy Fletcher, Vice President of JLL’s International Capital Group in Canada

Part of the answer is that Canada’s real estate market is dominated by domestic pensions and insurance funds, REITs and local-based property companies.

“There’s no doubt the global investment community has been stymied when it comes to finding that crack in Canada’s armor,” said Lucy Fletcher, Vice President of JLL’s International Capital Group in Canada. “Foreign investors are an excellent source of new concepts, tenants and global best practices, and frankly, we need them to diversify the investment landscape.”

And Canada has a lot to offer. The nation’s largest cities—the so-called “Canadian Quartet” of Toronto, Montreal, Calgary and Vancouver—are particularly attractive to real estate investors. The cities are environmentally friendly, open to business development and innovation, and experiencing enviable economic growth.

 

“There are so many business advantages on a tax perspective to invest (in Vancouver). We have the lowest corporate tax rates in North America, which is a huge advantage, not known to a lot of people. There is also enormous diversity, every language is spoken here. People come here because they want to live here, and then they find a place to work,” says Ian McKay, CEO of Vancouver Economic Commission.

Investors are taking notice of the broad appeal, and the safe haven Canada could be to place capital.  No longer “America’s attic,” the Canadian real estate market yields one of the world’s highest rates of return, ranking second to only Saudi Arabia last year.

Edmond Luke, a partner Asia Pacific Group of law fime Fasken Martineau says potential investors, foreign or domestic, face a competition problem: There is more capital chasing Canadian real estate than there is real estate to buy.

“Is a small market, with limited opportunities. If investors can’t find the right product here, they’ll only wait so long,” said Luke.

He says cities like Vancouver are already losing investment opportunities to other West Coast cities like Seattle and San Francisco.

While Canadians may be laissez faire about losing fresh capital into their country; they certainly have no fear of investing their own capital in commercial real estate beyond their borders. From shopping centers in Germany, to industrial warehouses in Mexico and multifamily properties in the United States, Canadian offshore investment accounted for a massive one-fifth of all global cross-border investment activity in 2013, totaling nearly $10 billion.

Canada’s pension system, overhauled a decade ago, has revolutionized and accelerated the amount of capital available for real estate investment.  The top 10 Canadian pension funds now control over C$800 billion ($713 billion US), with a higher than average allocation to direct real estate.  Canadian REITs are some of the most active investors around the globe.

In markets outside their country, Canadian investors do a good job of matching their abundant capital with local partners, says David Green-Morgan, JLL’s research director of Global Capital Markets. In New York City, for example, Toronto-based Oxford Properties recently broke ground with Related Companies, on the $15 billion Hudson Yards redevelopment.

 

Green-Morgan says to keep its momentum as a gateway city to Asian capital, Canada will need to match foreign investors to opportunities on their home turf through equity partnerships and new development ventures keep foreign interest alive. He says the tide may be shifting as domestic owners are becoming more open to cross-border partnerships. He expects the property ownership structure of Canada to swing in the favor of more foreign ownership in the next five years.

Touché, Canada.


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