Politics, Promises, and Pipelines

On the first few months of Prime Minister’s Trudeau’s leadership, the themes that resonate. Let’s help those in need, let’s build a better world by inclusion, not exclusion, let’s address climate change and let’s foster green, clean technology as the future of Canada. All admirable ambitions that won the votes of many Canadians with the promise of rebuilding the middle class.

While I’m not a futurist I’m a realist.  With realism comes practicalities. Although I didn’t vote for the Liberals, I’m optimistic that the Prime Minister Trudeau sensibilities will recognize the industries that have supported our country and given Canadians one of the highest standards of living in the world.  And that he will continue to foster their growth and development with policies aligned to meet realistic objectives that have Canadian’s best interests at heart.

In my opinion the recent comments by Chad Holliday, President CEO of Shell, make the most practical sense.

“Whether you’re a supporter or a detractor, hydrocarbons will remain the primary source of energy for some time. And that isn’t just our self-fulfilling prophecy. Groups ranging from the National Energy Board to the International Energy Agency forecast that energy demand will rise due to a growing global population and higher living standards. It’s important to remember that today, some 3 billion people still lack access to the modern energy many of us take for granted.

So as emerging economies climb out of poverty and up the energy ladder, the world will need to meet this demand. But how will that happen?

Often we’re presented with a false choice between renewables OR hydrocarbons. But both will be vital to meeting demand in the coming decades.

We need to put a practical plan in place to realize it.

In order to meet the projected energy demand by 2050 while controlling climate change, we will need to DOUBLE the world’s energy supply from 2000 levels while at the same time dramatically reducing the world’s CO2 emissions. This is an incredible challenge. But I believe if given the right frameworks, human ingenuity will prevail.

Investing in lower carbon energy, especially in areas where we have the skills such as natural gas production and technologies that increase energy efficiency and reduce emissions.”


The Future of British Columbia LNG

Yesterday much of the Chinese capital shut down after Beijing’s city government issued its first red alert for pollution. China, which meets 66% of its energy through coal, has committed to reducing that to 62% by 2020. [source] Despite that commitment, it continues to build new coal fired power plants at an alarming rate.

Coal is the dirtiest of all fossil fuels, it creates more pollution than oil, natural gas and gasoline when burned.

Liquid natural gas (LNG) is the cleanest fossil fuel, and Canada has an abundance of natural gas.

“That’s another significant piece that people miss on this whole LNG story in B.C – that we’re actually helping large economics that are continuing to grow to create new transition fuels to get out of older fuels into cleaner-burning fuels,” said Greg D’Avignon, CEO of the Business Council of BC.

Northeastern BC is home to the Montney Formation and Horn River Basin, the third largest hydrocarbon fields in North America.

Between the drilling, piping, and exporting of the natural gas in British Columbia, there is over $100 billion of proposed capital investment. Each project has one key component, all of the natural gas comes from Northeast BC.

A few of these massive capital projects proposed:

  • LNG Canada led by Royal Dutch Shell – $40,000,000,000 [source]
  • Pacific NorthWest LNG led by Petronas – $36,000,000,000 [source]
  • West Coast Canada LNG led by Exxon Mobil – $25,000,000,000 [source]

Opportunities For Real Estate Investment In Phoenix, Arizona

This week’s post is one that features Janet LePage and her work around investments in Phoenix, Arizona. Janet LePage has been actively investing in Phoenix since 2008 and is the founder of Western Wealth Capital Ltd. (WWC) which provides investment properties in high-growth markets.

 

Shark Tank: Pitching for $2.4 million in equity

The Urban Land institute’s Arizona District Council is bringing together real deals and expert money in an event tailored after popular investment reality show “Shark Tank.” Entrepreneurs present real estate development proposals to a panel of “sharks” and an audience of real estate professionals with hope of being awarded investment capital.  No easy task for even the most seasoned of entrepreneurs.

LePage pitched for equity in the amount $2.4 million in a 37-townhome development. She purchased Dolce Villagio via short sale because the property was going to go into foreclosure. Her business plan: to put in management, normalize rents that were below market value at the time, improve curb appeal and to draw in the right tenant base.

LePage says she believes what the “sharks” liked about her proposal was that she knew the microeconomics of the deal, had a tactical business plan and clearly walked them through how they were going to make money. LePage ended up receiving an on the spot deal from a member of the audience.

“From that point forward, I had a lot more publicity in my name and so it added to just the overall credibility of what I have been doing,” LePage says.

Eight months after making a deal, Dolce Villagio has been painted, received new landscaping, rents have increased to market as units turn over and everything is going exactly to plan, LePage says. When LePage purchased the property it was making $550,000 a year, now it makes $720,000 a year.

 

The Return

Investors have since seen a return on their equity of 120 percent and LePage has done three additional deals beyond Dolce Villagio with the partner she received from the tank.

“It is a really fun event that puts like-minded people in a room, and great things happen when you put like minded-people in a room,” LePage says.

 

Raising For Arizona

Janet Trpin (LePage) and the Western Wealth Capital management team are currently raising capital to acquire their 16th multi-family building in the Phoenix market. WWC acquires mis-managed buildings where they can increase the net operating income 25% – 30% over a 3 to 5 year period, using their proven value adding strategies.

The newest building, Solstice at Arcadia is similar to the 15 buildings before, however this particular deal is a bank-owned building, which is extremely rare in today’s market.

Currently owned and managed by the bank, Solstice at Arcadia is the perfect example of a poorly managed building that WWC seeks to acquire.

To view the Executive Summary for Solstice at Arcadia click here.

 


Site preparations underway at LNG Canada site in Kitimat

LNGCanadaKitimatIt’s not a final investment decision but LNG Canada is embarking on early site preparation at their proposed liquefaction plant site which will pave the way towards a smoother construction phase.

As of right now there are currently 120 people working on site.

If a positive FID is made in 2016 the company would then shift to construction of permanent facilities on the property. [source]

Another item leading up to their FID, is the decision to lease a parking lot at Northwest Regional Airport in Terrace.

“LNG Canada has made provisions for parking at the Northwest Regional Airport in Terrace to function as a “park-and-ride” facility for LNG Canada staff and contractors who live in Terrace and the surrounding areas,” [source]

 


Recent Facts About LNG In B.C.

On December 7th, 2015 much of the Chinese capital shut down after Beijing’s city government issued its first red alert for pollution. Less than 2 weeks later, China issued a second red alert December 18th, 2015.

China, which meets 66% of its energy through coal, has committed to reducing that to 62% by 2020. Despite that commitment, it continues to build new coal-fired power plants at an alarming rate. Coal is the dirtiest of all fossil fuels, it creates more pollution than oil, natural gas and gasoline when burned.

Liquid natural gas (LNG) is the cleanest fossil fuel, and Canada has an abundance of natural gas. “That’s another significant piece that people miss on this whole LNG story in B.C – that we’re actually helping large economies that are continuing to grow to create new transition fuels to get out of older fuels into cleaner-burning fuels,” said Greg D’Avignon, CEO of the Business Council of BC.

Northeastern BC is home to the Montney Formation and Horn River Basin, the third largest hydrocarbon fields in North America. Between the drilling, piping, and exporting of the natural gas in British Columbia, there is over $100 billion of proposed capital investment. Each project has one key component: all of the natural gas comes from Northeast BC.

A few of these massive capital projects proposed are as follows:

Given the speculation regarding the future of BC LNG, we wanted to share some recent facts.

$715 Million Natural Gas Processing Plant Project Is Greenlit

Construction of the processing plant, which would be south of Fort St. John, has received the go-ahead from the Cutbank Ridge partnership formed by Encana and Mitsubishi. The complex includes a processing plant as well as storage and other facilities. The decision to build the complex follows the announcement of a $860 million natural gas plant near Dawson Creek, by Cutbank Ridge.

Both processing plants are expected to start operating in 2017, and would handle natural gas from the Montney Formation.

Site preparations underway at LNG Canada site in Kitimat

It’s not a final investment decision but LNG Canada is embarking on early site preparation at their proposed liquefaction plant site which will pave the way towards a smoother construction phase.

There are currently 120 people working on site.

If a positive FID is made in 2016 the company would then shift to construction of permanent facilities on the property.

Another item leading up to their FID, is the decision to lease a parking lot at Northwest Regional Airport in Terrace.

“LNG Canada has made provisions for parking at the Northwest Regional Airport in Terrace to function as a “park-and-ride” facility for LNG Canada staff and contractors who live in Terrace and the surrounding areas,”.

 

Petronas LNG terminal ‘not likely’ to harm Flora Bank

Pacific NorthWest LNG, led by Malaysia’s state-owned Petronas, wants to build an $11.4 billion export terminal on Lelu Island, which is located next to Flora Bank.

“The technical work completed to date indicates that the project is not likely to cause significant adverse environmental effects on fish and fish habitat,” according to the consortium’s 36-page summary of its findings.

Recent news about an global glut of LNG under production has cast a shadow over BC’s prospects to develop the industry, but as late as mid November Petronas CEO Datuk Wan Zulkiflee Wan Airffin said, “the company will proceed, pending federal approval.”

Between the $8.9 billion BC Hydro Site C Dam, and the over $100 billion of proposed capital for BC LNG, the population in Northeastern BC is expected to double by 2020.

These massive capital projects create high paying jobs, and people move to the region to fill these jobs. The average age in Fort St. John is 29 years old with an average income of $108,000.

 


IN THE NEWS - SITE C DAM

BC Hydro has finalized and awarded its civil works contract with Peace River Hydro Partners for the Site C dam.SiteCContract

The eight-year contract, announced Monday, now has a confirmed value of $1.75 billion.

The main civil works includes the construction of an earthfill dam, two diversion tunnels and a roller-compacted concrete foundation for the generating station and spillways.

At the peak of construction, roughly 1,500 people will be working on main civil works, Hydro says.

[read full article here] 


The Impact Of Federally Increased Interest Rates

What is the impact of the US Federal Reserve’s decision to increase interest rates? As you are likely aware, on Wednesday December 16th 2015, the US Federal Reserve announced their decision on monetary policy for the coming months including an increase in interest rates of 25 basis points (0.25%).  While this increase is yet another signal of a healthy US economy (a great sign for the value and demand for our rental properties), this also marks the first interest rate increase since the Fed dropped the rate to near zero in 2008.

Many are likely wondering about its impact on their investments in the United States, specifically in the Phoenix market. The following is intended to help provide you with our insights on the subject.

By The Numbers

For every 0.25% increase in the variable interest rate and $1,000,000 in loan amount, the interest payment will increase $2,500 per year or $208.33 per month.  To put this in perspective, our average asset in Phoenix has an $8 million loan and consists of 200 units.  For this example, the mortgage payment would increase $20,000 per year or $1,667 per month.

This equates to an increase of approximately $8.33 per unit, per month in mortgage payments. In the past year we have increased monthly rents an average of $87.00 per unit (not including washer/dryer revenues) and we continue to see the strong indicators for future growth.

In November we returned to investors cash flows averaging 8.8% of invested capital.  The 0.25% interest rate increase, without any mitigation, would have reduced the returns to approximately 8.3%.

Why The Increase?

Here’s the good news: the Fed is increasing interest rates because the economy is growing in the United States, especially in Phoenix which is forecasted to be the second strongest job growth market in the United States in 2016.  With the national unemployment rate down around 5%, considered full employment, the Fed is expecting wage growth which should increase inflation. Wage growth and inflation are very positive for real estate investments.

We have chosen the path of variable rate mortgages because of the deep discount in interest rate (1.5% – 2.0% discount) and as we believe that although we have seen a single rate increase we will not continue to see significant increases in the near-term that would warrant the additional costs of fixed-rate mortgages.

In conclusion, when we see rates go up, there can be some media bias that will lead some to believe that this is a bad thing, but ultimately the move is a vote of confidence. There is job growth in the region, which leads to inflation and that means rents are rising and property values are increasing.  As long as the rent increases exceed the increase in the cost of financing, this is good news for all investors.

 


14 Factors To Help You Predict The Price Of Real Estate

Following my past post on the 7 things you need to know about investing in real estate, I’m going to expand on investing in the fundamentals. Why? Because this is by far the most work and, depending on how much work you put into this step, it will take your investment portfolio to a whole new level. This is the work that will allow you to predict, within a fair margin, the price of the real estate within the region in which you are investing.

What are the factors to look for when you want to predict real estate prices? There are many to consider. I’ve collected a bullet-list of the what I believe are the most important ones below. Each is important in its own right and by doing your homework on each and everyone one, you can enjoy the security afforded by such detailed knowledge.

The Factors

Economic, job, and population growth. Demand for real estate is driven by population growth. Population growth is fueled by job growth. Job growth is fueled by economic change within a region (ie employment trends, net migration, industry diversification, etc.). Let’s look at these factors one by one.

Employment trends are one of the most important economic factors related to the current and future health of a market. People who have jobs have the income to afford to pay their rent. Those that don’t will not be able to afford to pay their bills, and may be forced to move to find new employment which often involves moving to another city.

Net migration is another key factor. Are more people moving into the market or moving out? This has a major impact on the market as demand for housing increases and decreases based on the total population in a given market. This increased population growth creates demand for more local housing which helps push property values and rental rates up, in addition to an ongoing need for good residential housing stock. Be sure to put yourself on the right side of the trend.

Past population growth is can be extremely persistent. The best way to predict a counties’ population growth is to look at how much it grew in the past decade. The forces that shape an area’s attractiveness have persistent impacts. If a county grew significantly in population last year, it is more likely than not to also grow this year

Local amenities include things like shopping experiences, proximity to attractive activities, good schools, good social life, conducive to both work and play. The capacity to generate and retain amenities adds considerably to the appeal of a city. The attraction to a city on the basis of its physical and social environment represents a major paradigm shift; whereas people formally followed jobs, jobs now are also starting to follow workers.

Immigration trends tend to concentrate wherever previous immigrants have settled. Kinship ties, shared language, in the existence of common amenities in public goods make; immigrant enclaves; attractive to subsequent immigrants. This might explain the growth of San Francisco’s Chinese population, which already has one of the largest Chinatowns outside of China.

Age Distribution. Countries with very young and very old populations tend to grow more slowly. Specifically, we find the population growth is negatively related to both the share of people younger than 25 and the share of people older than 65. Populations grow faster if the share of people between 25 and 60 is significant.

Industry Diversification. A market with a diversified range of industries offers less market volatility in harder economic times or recessions. A market driven largely by one or two industries tends to be affected harder than more diversified markets, and takes longer to recover afterwards. Although many investors do well in “one trick pony” markets, it’s best to mitigate your market risk by focusing on markets with a broader employment base.

Supply and demand trends. Real estate supply is restricted by availability of land, geographic boundaries (such as water and mountains), political boundaries (permit fees, restricted density policies, etc.) and economic boundaries (availability of development capital and the ability to build and sell new properties at a profit).

Market Conditions. Are you in a buyer’s market or a seller’s market? A buyer’s market is what you get when there’s more supply than demand. There are more people looking to sell houses than there are people looking to buy houses. In a buyer’s market, sellers may have to accept a lower price than they want to sell their property and may have to resort to providing incentives. This is the ideal situation for buyers because they can get a better deal. A seller’s market is just the opposite. The demand is larger than the supply. People have more money to spend on real estate, so sellers will often see several buyers competing to buy their property, which drives up the price. The buyers will have to spend more to get what they want. This is the ideal situation for sellers because they often get a better price on their properties.

Median price (the midpoint between high and low) is often a very good proxy for indicating real-time market activity. As the median price changes, this can indicate key market movements. A rise in median price means that sellers are responding to more sales in their local area which means that the local market might be “strengthening” or getting “hotter” – favoring sellers, so they will ask more for their home. A fall in the median price might indicate the opposite – few homes selling at the current price levels which causes homes on the market to drop their price and for new homes on the market to price more aggressively. A rise in median price could also mean that homes at the lower part of the market are selling and leaving the market. This means that the remaining homes on the market are at a higher price point, which causes the aggregated median price to rise.

Market Inventory Trends. Inventory is simply real estate lingo for “the number of homes for sale.” This stat shows you how much supply is available in the market you are researching. Inventory levels can ebb and flow frequently due to seasonal effects. There’s usually more inventory on the market in the spring-time as the natural rate of real estate activity picks up during this time of year. Alternately, there’s generally less inventory in the fall or winter as real estate activity slows.

Average Days on Market (DOM). Simply put, the Days-on-Market tells you how long the active properties currently for sale, in aggregate, have been on the market.

Capacity to Pay. The lower percentage of your income you use to pay for housing, the greater your capacity to pay. Lenders know this and it is a useful tool towards predicting the price as real estate.

Again, I cannot emphasize enough how important it is that this is the work that will allow you to predict, within a fair margin, the price of the real estate within the region in which you are investing. You will be glad you put in the effort.