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Kimco Realty Corp. said Wednesday it has signed a $370-million joint venture with CPPIB that will see the pension giant acquire a 45% interest in the shopping malls. The move came after Kimco’s major co-investor stepped away from the deal.

Kimco, based in New Hyde Park, N.Y., will retain 55% of the investment and will continue to act as the operating manager. Three of the malls in the deal are in California, one in Florida and one in Vermont.

Until now, CPPIB has been unable to secure any major interests in shopping malls in the U.S. according to Graeme Eadie, senior vice-president of real estate investments for CPPIB. The pension giant is hoping this deal will lead to opportunities in the space. “It’s the first step in a much larger play,” says Mr. Eadie.

Retail shopping centres are coveted by long-term investors because they offer more stable income streams and are less volatile. By contrast, office space tends to be more cyclical, according to Mr. Eadie.

Mr. Eadie said the deal with Kimco differs from the retail mall opportunity that Toronto-based Brookfield Asset Management is trying to make with Growth Properties Inc. Whereas Brookfield has targeted regional shopping centres with a fashion focus, Kimco has focused on large open-air centres that have grocery stores such as Costco and Wal-Mart at their core, according to Mr. Eadie.

Kimco owns and operates the largest portfolio of neighbourhood and community shopping centres with 1,478 properties in North and South America.

“We are very excited about forming a long term partnership with one of the largest and most well regarded pension funds in Canada,” says David Henry, president and chief executive of Kimco.

Here’s a quick rundown of the key points…

QUALIFICATION RATE

The biggest rule change affects borrowers who put down less than 20% and want a variable or 1- to 4-year fixed term.

Yesterday, you might have qualified for a high-ratio $250,000 variable-rate mortgage with a 3.84% qualifying rate (give or take).

Today, lenders will demand you qualify with a 5.85% rate (soon to be 6.10% on Wednesday).

That means your income needs to be roughly 25% higher today than it did yesterday to be approved for the same variable or 1- to 4-year fixed mortgage!

We’ve started posting the industry-wide qualifying rate in the left column of the site for convenience.  It will generally be updated every Monday, but consult the official source when you need to be sure.

From what we can tell, most of the big banks are applying the new posted qualifying rate to all variable and 1- to 4-year fixed terms, regardless of loan-to-value (LTV)!  Many smaller lenders are only using it on high-ratio mortgages. That’s a distinct advantage for them, as we mentioned Friday.

By the way, if you’re interested in a 5- to 10-year mortgage, nothing changes. The qualification rate will still be based on the rate you’re quoted.

REFINANCES

Starting today, insured refinances will be limited to 90% loan-to-value.

2ND HOMES

Second homes now qualify for high-ratio insured financing if, and only if, they have no more than one unit.

RENTAL FINANCING

People buying rental properties now have to put down 20% (instead of 5% last week) to get insured financing. 

You can put down less than 20%, but you’ll generally need to use an uninsured lender, which means higher interest rates.

In terms of qualifying, CMHC has released a clarification on how they’ll treat rental income. It comes as welcome news to property investors because of the exclusions of redundant expenses in the debt service calculations.

In short:

• When a subject property or owner-occupied property generates rent:
  • 50% of gross rent is added to the borrower’s income
  • Property taxes and heat are excluded from Total Debt Service (TDS) calculations.
• For non-owner occupied rental properties:
  • 100% of net rental income is added to the borrower’s gross income
  • The mortgage payment, property taxes, and heat are excluded from TDS calculations.

Net rental income:

•  
  • A 2-year average of rents is required to establish net rental income (we’re checking on what exceptions may be permitted)
  • Net rental income is proven via the borrower’s T776 Statement of Real Estate Rentals OR lenders can use their own guidelines to validate rental income.
  • Net rental income can be grossed up 15% if the borrower takes deductions for depreciation or amortization, or rental-related self-employed income.

Consult a mortgage professional to confirm how these guidelines apply in your situation.

_____________________________________________________

* Assumes a 3.84% three-year qualifying rate as of April 18, 5% down, a 35-year amortization, 1% of property value for property taxes, $85 a month for heat, insurance premiums included, no condo fees, no other monthly debt obligations, and a 680 credit score.

“It has become clear to us through this process that the only viable alternative to bankruptcy would be to transfer control and operation of the property, in an orderly manner, to the lenders and their representatives. We make this decision as we feel a battle over the property or a contested bankruptcy process is not in the long-term interest of the property, its residents, our partnership or the city.”

And thus ended what was at its consummation, the largest commercial real estate deal in the U.S., Tishman Speyer’s $5.4BN purchase of Peter Cooper Village and Stuyvesant Town. Tishman Speyer and BlackRock Inc. (BLK) also defaulted on $4.4BN of debt in the process from a veritable who’s who of institutional investors.

The commercial real estate market is thought to be high on the list of contenders as the next shoe to drop in an economy reeling from the deleveraging process as the effects of the credit bubble continue to be felt. The strategy of “extend and pretend” might be working for some but the combination of top of the market prices, a legal challenge to a rise in rents and a weak underlying economy proved too much for the PCV/ST deal.

With that said some other prominent people in the real estate business gave their thoughts on the commercial real estate environment recently and provide a range of alternative outlooks to the reality suffered by Tishman Speyer and BlackRock Inc.

David Greenbaum, president of Vornado Office said, “In prior cycles it took five years to get from peak to trough; this time it took five months. But now Wall Street is hiring again. Smaller financial firms are taking up the slack, and I see New York leading the recovery; not lagging as in previous cycles. Tenants are taking this opportunity to trade up to Class-A space.”

A slightly more sober view was expressed by Darcy Stacom, vice chairman of CB Richard Ellis when he said: “We’ll see slow sales for quite some time. Banks are sitting on properties they’ve taken back, waiting for the market to meet them, instead of selling to someone who’ll create jobs by improving the property. Meanwhile, borrowers that are highly leveraged with term on their LIBOR-based loans are fine. Those that are leveraged and don’t have term left on their loans are in trouble.”

If these two represent separate ends of the optimism/pessimism spectrum Bruce Mosler, co-chairman of Cushman & Wakefield sounds like he’s taking a middle of the road approach as he thinks, “So much capital is on the sidelines now, lacking product. A lot of real estate is owned by the banks or in CMBS, and as banks’ balance sheets improve they’ll put the product back on the market. Sometime in the latter half of 2010, we’ll see the investment sales market adjust. Owners who can leave a lot of equity in the property – REITS, foreign buyers, institutions – will dominate the new ownership landscape.”

The CEC Strategy went into last week long 20 out of 21 of the REITs in its universe. With correlation once again moving towards 1.0 across all sectors of the market as a result of China’s credit restriction, Obama bashing the banks and then Congress bashing Bernanke it was not a kind week to any long position, anywhere. Having said that the Strategy’s REIT positions are not really in any worse shape than all the other long positions and with the new high of last Tuesday followed by a perfect storm of news, as well as the fact that risk limits have not been reached the CEC Strategy has not reduced its long REIT exposure.

The technicians are saying the current index levels should provide support and that the 5.2% three day drop has left things oversold. Not being a technician I am only passing on what I’ve heard. For the CEC Strategy is it all about risk management and as painful as it might be in the short term, staying true to the tenets of the Strategy remains most important.

Enjoy the week.

The surprise move includes the Whistler ski resort – which will be home to the Olympic downhill races next month.

Vancouver-based Intrawest says it will be “business as usual.” And Olympic organizers say they’re confident “things will proceed as planned.”

Interesting timing. New York lenders are giving notice that the foreclosure process is beginning just as the majority owner of Whistler Blackcomb is preparing to host Olympic skiers next month. Some have noted that the free advertising for sellers couldn’t be better.

1976

Mid-1980s

Company combined its real estate and mountain operations expertise to form a “village-centred” offering.

October, 2006

Fortress Investment Group LLC buys Intrawest in a transaction valued roughly $2.8-billion – just before the economic downturn hit and sales of lift passes and resort condominiums slowed. Intrawest becomes a portfolio company controlled primarily by private equity funds managed by affiliates of Fortress.

October 2008

Oct. 23, 2009

Dec. 24, 2009

Jan. 8, 2010

Jan. 19, 2010

Feb. 19, 2010

commercial real estate

There were 990 transactions completed in the year in the Greater Toronto Area, with $5.4-billion worth of investments made in properties such as office towers, shopping malls and warehouses. At the market’s peak in 2007, about $12.5-billion of investments were made.

The vast majority of this year’s transactions took place in the fourth quarter, according to industry-tracker RealNet Canada, when the number of transactions of more than $10-million increased 76 per cent over the third quarter. The value of those deals totalled $1.35-billion, compared to $581-million in the third quarter.

“Investment confidence began to return in Q3 and grew in Q4, driving market activity and creating an almost perfectly symmetrical recovery in the last half of the year,” said RealNet president George Carras.

The Toronto market, the largest in Canada, saw almost two years of declining activity going into the middle of 2009 as the credit crunch made it difficult to finance acquisitions and buyers with cash waited for properties to decline in value.

That changed in the third quarter, as investments finally started posting gains as credit and equity financing became more readily available and well-financed buyers began wading back into the market.

A healthy real-estate sector is considered important because commercial and residential property underpins a significant proportion of the assets of banks, pension funds and other institutions. Troubles in the sector contributed to the demise of some large trust companies in the early 1990s.

The office sector led the fourth quarter’s surge, with investments increasing 384 per cent over the third quarter. Half of the boost came from Allied Real Estate Investment Trust (AP.UN-T19.730.040.20%), which paid $180-million for 151 Front Street. Morguard REIT(MRT.UN-T12.940.010.08%) also contributed, buying two Bloor Street towers for $164-million.

Residential lots propelled gains in the land sector, with activity increasing 275 per cent in the quarter as new home builders ramped up their building plans for the coming year. The largest deal was the $100-million acquisition of Beckett Farms in Markham by TACC Construction, RealNet said.

The industrial sector, meanwhile, saw its best quarter since the beginning of 2008, with 100 transactions passing the half-billion dollar mark.

Distress sales accounted for 3 per cent of the dollar volume in the year, in line with other more typical years. There was speculation that number would be higher, as companies were forced to shed assets to pay down debt and restructure their balance sheets. But as the economy showed signs of strengths, most companies have been able to find affordable financing and prevent fire sales.

 TORONTO, Jan. 14 /CNW/ – New research using data collected by the Canadian Association of Accredited Mortgage Professionals (CAAMP) from its corporate members strongly suggests that Canadian mortgage lenders and borrowers, including first time home buyers, are being extremely prudent with their borrowing and lending.

Last month, CAAMP surveyed members who issued more than 40,000 mortgage loans totalling $10 billion, which were funded during 2009 (the data is for home purchases only and excludes renewals or refinances of existing mortgages). The dataset represents about one-sixth of total mortgage activity for home purchases in Canada. The research is published in a report titled Revisiting the Mortgage Market – risk is small and contained.

Key findings include:

    -   86 per cent of these home buyers chose fixed rate mortgages. This
        share fell late in the year as variable rates became more attractive
        (at 2.25 percent compared to 4 percent for fixed rates)
    -   Among borrowers who chose fixed rates, a significant number opted for
        longer terms - less than 5 per cent chose terms of two years or less.
        20 percent took three year terms, 5 per cent four years, leaving 70
        percent with a fixed rate for five years or more
    -   The vast majority of people who took out their first mortgage last
        year borrowed less than they could afford to, as their Gross Debt
        Service ("GDS") ratios are far below allowed maximums, even at the
        higher interest rates that are used to qualifying them for their
        mortgage
    -   The high share of fixed rate mortgages and low GDS ratios for home
        buyers are contrary to perceptions that consumers and financial
        institutions are taking on more risk

“This new research shows that Canadians are assessing their abilities and vulnerabilities,” said Jim Murphy, AMP, President and CEO of CAAMP. “They are being prudent and the vast majority of Canadian mortgage borrowers are not taking on undue risks. They have factored rising interest rates in to their mortgage decisions.”

Will Dunning, CAAMP Chief Economist and author of this new report said that a small minority of homebuyers are cutting it close when it comes to affordability. He stressed that “this dataset is primarily focused on first-time homebuyers who are considered to be most at risk. Each year, about 2.5 to 3 per cent of Canadian households make a first-time home purchase. Our data shows that only a small percentage of them are pushing-the-envelope – about 4,000 households which amounts to a tiny fraction of the 13.25 million homeowners in Canada. For those who borrowed in prior years, risks are even lower.”

Speaking to the stress tests conducted by CAAMP, Dunning said that “the bottom line from the simulations is that even though mortgage payments will probably rise for most borrowers, the increase in their incomes will more than offset the higher payments. All in all, the degree of risk from rising mortgage rates appears to be small and manageable.”

For a copy of the report Revisiting the Mortgage Market – risk is small and contained, please visit: www.caamp.org.

About CAAMP

Established in 1994, the Canadian Association of Accredited Mortgage Professionals (CAAMP) is Canada’s national mortgage industry association. CAAMP has assumed a leadership role in the industry it serves and has set the standard for best practices for Canada’s mortgage practitioners. In 2004, CAAMP created the Accredited Mortgage Professional (AMP) designation as part of an ongoing commitment to increasing the level of professionalism in Canada’s mortgage industry.

As a membership-based organization, CAAMP strives to develop its network of professionals and to represent the interests of these individuals to government, media and consumers. CAAMP has attracted over 12,000 members and 1,600 companies from across Canada – representing over 90% of Canada’s mortgage activity. CAAMP members make up the largest and most respected network of mortgage professionals in the country. CAAMP’s membership base consists of mortgage lenders, brokers, insurers and other industry participants.

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