PricewaterhouseCoopers (PwC) issued a somewhat alarming report on Canadian commercial real estate yesterday.
Among the key points, PwC said:
“We’re very pessimistic, and we think there are going to be big issues in the Canadian real estate market.” (Canada.com)
“Credit markets remain tight in commercial real estate, with many companies facing the high cost of capital and others struggling to simply access funds.”
There is very little appetite for commercial mortgage-backed securities (CMBS). Yet, PwC says: “In each of the next three years, approximately $1 billion in Canadian CMBS alone will be maturing, with no clear directive on how funding gaps will be met.”
“We think there are going to be foreclosures and default situations…”
Alberta is especially vulnerable with resource money drying up
“Owners need to immediately implement monthly or quarterly cash flow reviews to understand exactly what their short-, medium- and long-term capital needs are and, perhaps even more importantly, immediately identify what options are available to overcome inevitable refinancing hurdles.”
Properties that PwC thinks are especially risky include:
Commercial real estate in rural or industrial areas
Small-to-medium-size strip malls
Hotel and leisure properties
Suburban office and industrial space
Properties with economically challenged flagship tenants
PricewaterhouseCoopers (PwC) is one of the world’s largest professional services firms. It focuses on auditing and consulting services and has over 5,200 partners in Canada.
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