U.S. ‘Snowbirding’

By Dan Vittone, SIOR, Principal, Capital Markets Group, Avison Young: Canada continues to be one of the most active foreign investors in U.S. commercial real estate assets. Pension funds north of the border have dispensed about $9 billion into U.S. commercial real estate over the past three years, a total investment that exceeds its nearest competitor country by 300 percent.

Dan Vittone

Canada continues to be one of the most active foreign investors in U.S. commercial real estate assets. Pension funds north of the border have dispensed about $9 billion into U.S. commercial real estate over the past three years, a total investment that exceeds its nearest competitor country by 300 percent.

Canada did not suffer as badly as the U.S. during the financial downturn. Canada has not experienced a dramatic increase in mortgage defaults, nor has any Canadian bank required a government bailout. In short, Canadian banking regulations were less relaxed and were not as exposed to the series of defaults in the subprime market as we felt in the U.S. Prior to 2006, delinquencies were comparable in both countries (and were slightly higher in Canada). While delinquencies increased more than four-fold in the U.S. after 2007, as of mid-2009 there had only been little sign of an increase in mortgage delinquencies in Canada. As such, Canadian pension funds were less timid about investing capital in riskier projects.

Additionally, valuations of Canadian commercial property were not as severely affected as in the U.S. The national office vacancy in Canada hovers at roughly 7 percent, while markets in the U.S. average nearly double. As Canadian property values and investment volume are steadily approaching peak levels seen in 2007, many Canadian fund managers attest that they are more comfortable investing in riskier assets, or even development projects, abroad. Some of these managers speculate that Canada is due for another correction and that U.S. property investments can serve as a hedge against this local risk.

Currency exchange arbitrage is another source fueling Canadian investment in the U.S.  Historically, the Canadian dollar has traded at roughly 80 cents to the U.S. dollar. But as the Canadian dollar has surged in strength (more than one U.S. dollar), this creates a unique buying opportunity created by the current relative strength of the Canadian dollar as compared to its historical average.

On the private side of Canadian investment in the U.S., most of the activity has strong ties to the snowbird community, that group of predominately retired Canadians who routinely migrate south to escape the cold Canadian winters. Some of these snowbird investors are solely focused on residential acquisitions, as a second home for example, but many have shifted focus to commercial assets as well.

Founded in 1978, Avison Young is Canada’s largest independently-owned commercial real estate services company. Headquartered in Toronto, Ontario, Avison Young is also the largest Canadian-owned, principal-managed commercial real estate brokerage firm in North America. Comprising more than 1,100 real estate professionals in 43 offices across Canada and the U.S., the full-service commercial real estate company provides value-added, client-centric investment sales, leasing, advisory, management, financing and mortgage placement services to owners and occupiers of office, retail, industrial and multi-residential properties.