Hello everyone!
Welcome back to ‘Keeping it Real, Edmonton’, where we have on Real Guests to talk all about Real Estate.
In today’s post, we have a conversation with Doah Ozum, a commercial mortgage broker with over 10 years of experience, as he shares his insights on the commercial and multi-family residential markets, and what we can expect in Edmonton’s real estate scene for the rest of 2024.
Q. How long have you been specializing in the commercial and multi-family residential market?
[Doah Ozum]: “About 10 years. So, I've owned and invested in Commercial Real Estate specifically Multi Residential for about 25 years. But, financing it, about, 10 years.”
Q. What types of properties does a commercial mortgage broker fund? What is the most common type that you fund? Size of multi unit (i.e., 5-10 doors, 20 doors) Commercial? Mixed commercial? Multi-unit residential?
[Doah Ozum]: “Basically, it's anything that isn't a house. So, you'll see us do strip malls, industrial, a lot of apartments these days, commercial, office, owner user, yeah, basically anything outside of a single residential house.”
Q. Alberta has a real estate cycle some refer to as ‘Boom or Bust’. Can you tell me about what the impacts of this cycle are with regard to vacancy rates and how they’ve changed over the last few years?
[Doah Ozum]: “So, interestingly, we've been on, I wouldn't say bust cycles, but various stages of boom. So, it's been the population growth in Alberta has kept moving..up. And, I think more than a boom and bust cycle, I think you'd have to look at asset category. So last year we had 60, 70,000 people move just to Edmonton. So, that's why you're seeing all this demand for multi-res. People need housing, so there's all sorts of res construction going on.
Single, detached, duplex, fourplex, apartment buildings. All that kind of stuff. And next, you're going to see it flow into other things like retail and…kind of the multi-res is the tip of the spear. People need a place to live first and then there they need furniture, they need other things, they want restaurants, so kind of,... it just rotates sectors.
I think more importantly to your question, I would say generally speaking, the rental stock in Edmonton is older. And I think you're going to see a lot of Upside in the next like 10 years, patching up and accommodating all these new visitors, and new people moving here. So not only do we have to accommodate the 60, 70,000 people that are arriving, we also have to replace the existing stock, and a lot of it was built in the 70s and 80s.
So there's a lot of old stuff. Like, I'm in downtown Edmonton right now, and I look around and I can point out all the new buildings that have popped up in the last 15 years. And there's a lot of buildings that need to be replaced over time as well, so.
Q. Given that Edmonton and Calgary are two of the biggest and most well-known cities in Alberta, what would you say are some of the key differences between the two with regard to real estate?
[Doah Ozum]: “I would say, the key differences are the topography of both of the cities. If you take a look at Edmonton, we have the Anthony Henday Ring Road, which runs, all around, I mean, it takes closer to an hour to drive around it. Edmonton tends to be more of a blue-collar city, very stable, little more government jobs. But we don't have as big of a central downtown. So you take a look at a Calgary… I mean, you can see it driving in.. all the towers in downtown Calgary, it's a bit of a hub and spoke where people commute in and out of downtown to work every day, whereas in Edmonton, we're more spread out.
So you see a little more effectiveness in public transit in Calgary. Edmonton is kind of harder to pinpoint the to and from locations. So I would say, Edmonton has things more leveled out. Whereas Calgary, you have the business center in the core and everyone lives in the suburbs or Cochrane or Okotoks, and they kind of commute in and out of the downtown core.”
Q. What do you predict for the future with regard to changes in commercial/Multi-unit residential mortgages?
[Doah Ozum]: “You know, I think you're gonna see more technology in buildings. Not just from an electronics perspective, but, I hope to see more things like Cogen high-performing building envelopes, passive solar… there are certain things that, we need to do to keep these buildings going. I think you're going to see a lot more integrated technology and things like that.
The Transit-oriented development is another one that everyone's been talking about in Edmonton. But the fact remains, as long as we keep spreading out with the urban sprawl, the only reason people are gonna have to build up is gonna be driving time. So, I mean, Edmonton has a relatively flat and expanding core, and I think there's some public policy decisions that are going to really determine which way things go. If we keep expanding neighborhoods and transit out into the suburbs, it’ll just keep growing. And it's very unsustainable and very expensive. so, you almost need to start tightening up the development and maybe make it harder to develop out in the suburbs. You get more interesting neighborhoods with density, and that's what I'd like to see.
Q. Over the last few years, many have made the decision to move to Edmonton. Why do you feel that is?
[Doah Ozum]: “You know what? I'm an Albertan. I was born elsewhere, but I've been in Edmonton since I was in grade one. This is home. I've seen a change from 400,000 people to a much larger size. It's an incredible place to live because of the people. Relatively affordable in relative terms to Toronto or Vancouver, and people enjoy living here. I've met a lot of people who've moved here from other parts of the country who are shocked at how much they enjoy it. They came here for a job or something and they didn't expect to enjoy it as much as they did and now they've set up roots. It's an interesting place to live. And I think, this is just me talking, I think part of it is… we are so far away from the U.S border that, I mean, 80% of Canada is within 20 30 minutes of the U.S. border, but in Edmonton, there's real independence to the city in that we have to generate our own economy, we have to have our own entertainment, you have to have your own philanthropists, you have to have risk takers, entrepreneurs, and medical specialists.
It's just, it's a very complete city, and it feels smaller than it is. And a lot of people know each other and there's just, it's very subdued. There's a reason why there's a lot of Lamborghinis and Ferraris in Calgary, and not as many in Edmonton. It's just, it's very down-to-earth and likable. I enjoy living here.
So another thing I would say is, Edmonton is a very entrepreneurial city, and, I've done a lot of deals from, for people who would not be able to get into real estate in other places. Like some of my clients wouldn't be able to get into an apartment building in Toronto, per se. So, it's, there's an opportunity here to get ahead if you choose to.”
Q. Over the last few months, the Bank of Canada has had a continuous trend of rate decreases. Many experts believe that these rates will continue to decrease. Do you believe this is the case? How do you see this impacting the Edmonton Commercial/Multi-family market?
[Doah Ozum]: “I do. I think, how do I see it? I think the Bank of Canada's inflation measures don't reflect the basket of goods that my family and I purchase. And, I've been following the Bank of Canada rates for 30 years, and I would say they're always 6 to 12 months behind. They wait too long to raise them, and they wait too long to drop them. So they're always late to the party. And, it's like driving a car, they're yanking the steering wheel back left to right instead of making smoother corrections. So, do I feel like it's going to go down? Absolutely. I think the GDP per capita is the main problem. Because of our federal and provincial and municipal taxes, being kind of anti-business, there's less business investment, there's less improvements in productivity. It just means that we're getting poorer as a country. I mean, if you take a look at it, if Canada was a state, we'd be like fifth or sixth from the bottom of the states, which is really surprising for a lot of people. But, there's so much more potential in the country that we're just not seeing. So, do I think the rates are going to go down? Yes, but I think for the wrong reason and that the economy is going to suffer more, people are gonna suffer more than they should have.”
Q. So you think the impact to the Edmonton Commercial and Multifamily market would be decreasing as well?
[Doah Ozum]: “Well, the rates are going to go down and there's going to be more activity here. And I think the prices are going to go up here. Anytime you throw cheaper money at a sector, the prices go up. The rents go up.”
Q. What characteristics (tenants/buildings etc) make it easier to qualify buildings for a mortgage? What characteristics make it more difficult?
[Doah Ozum]: “It really comes down to cost and ability to service debt. And I think you're going to find that over time, there's a lot of interest in these smaller infill apartments and things. Those are going to get harder and harder to do because the costs keep going up, and the rents are gonna go up, and I think you're gonna see a trend towards larger buildings to accommodate for the increased costs so you can spread them out more.”
Q. Lately, there’s been buzz about CMHC MLI select mortgages – can you explain a little bit about this type of mortgage (to someone who hasn’t heard of it before)?
[Doah Ozum]: “So, it's a points-based program where you get points based on affordability, accessibility, and how well you do against the energy code. It's a very well-intentioned program. It's drawn a ton of attention. But I think it also underscores that it's become very expensive in Canada to put up a building or even hang a sheet of drywall. I mean, I've got a client who was a drywall and building supply business, and the property taxes in the city of Edmonton are amongst his single largest line items. So I think the MLI Select program was necessary to just keep housing going in Canada from a multi-res perspective.
I don't think you could have the developments that we're developing across the country without offering insured financing and higher amortization like 50 years. So I think it's a niche thing the banks can't really offer 50-year amortization. That only comes through CMHC. I think it would be interesting to see what would happen in the market if the banks were allowed to offer, uninsured 40-year amortization. So, let's say RBC can offer construction and then a 40-year takeout, but they do their own underwriting and there's no CMHC insurance. I'd be interested in seeing what that would look like as well, just to offer more avenues to get properties built. I think the biggest thing is we're under-housed in Canada, we're bringing a lot of immigrants which is great, but unfortunately, when people pack up their suitcases and come to this country, they don't bring roads, housing, or schools with them. So, I think it's going to take a lot to catch up on housing across the country. And I think we have to look at more avenues and how to make it easier to build, and there are a lot of barriers to construction in Canada. I've been in this business for a long time, and there are a lot of hoops to jump through that are regulatory to just put up a house. So, it's not the easiest environment to develop in.”
Q. What are some predictions you personally have for the remainder of this year?
[Doah Ozum]: “I think you'll see more rate cuts, you'll see the CMV cost of funds continue to drop and, I think you're going to start to see more interest in Western Canada. I think that people in like Vancouver and Toronto are paying such high rents that, I'm just talking to my lenders, they're finding that there isn't enough rent in the buildings that they're building to do the takeout financing on the construction. So, I think you're going to start to see that tap out and you're going to start to see Markets move. I think people are gonna have to move to other places where they can afford housing and raise a family.”
Q. What is the profile of the players in commercial/multi-family real estate? Do you find that there are big corporations/REITES or individuals with corporations? Do you see this changing?
[Doah Ozum]: “I would say there's a missing middle. There's a lot of interest in the entry-level programs where you can put up smaller rental buildings through CMHC. There's a lot of interest and it's working out well. But after people do one, two, three of these, they're like, they want to get more sophisticated, they want to do bigger buildings. So I think, the smaller multi-res ends up being kind of a lower-risk stepping stone to get into investments. Some of my clients are, very, very high net worth professional investors who, it's a very different discussion doing that deal than some of the smaller ones, but I can tell you all of our smaller clients grow. So there's room in the market for everyone and not everyone wants to live in a big tower, right? So there's room in this market for everyone. At the end of the day, I would say we need more housing. So we should take whatever we can get and build it all. If you want lower rents, you need to build more products. We are under-housed. As long as there's a shortage of supply, we need to keep building.”
Q. What advice would you give someone wanting to buy their first commercial/multi-family residential building?
[Doah Ozum]: “I would say as early as you can. I bought my first building when I was 25. And it's a great business. It's rewarding. You're providing a very valuable service to the community. And providing housing. What advice would I give? Get a good team together - accountant, lawyer, mortgage broker, contractor. Get a team together and use people's expertise. Don't try to do it all yourself. Hire experts.”
Q. Where can our readers find you?
[Doah Ozum]: “www.nationalcmc.com is our website. There's a bunch of information on there, but most of the time people just call us. We sit down for coffee. And I just find that every client is unique. Every situation is unique. And because of the type of shop we are, we like to make it very personal. 90% of our business is repeat or referral, maybe even higher. So, once we start working with people, it tends to be a very long-term relationship.
- [Doah Ozum - LinkedIn, About, https://www.linkedin.com/in/highstreetfinancial/?originalSubdomain=ca.]
-Doah is the co-founder of National Commercial Mortgage Corp., where he specializes in Commercial Real Estate. You can find Doah and National Commercial Mortgage Corp. at their website: https://www.nationalcmc.com/. Doah can also be contacted via his email directly: dozum@nationalcmc.com or phone: (780) 264-1445
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