Kelowna sees a real estate gold rush

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Commercial property broker Marshall McAnerney had been working as an executive in the U.S. when he decided to relocate to Kelowna to be near family.

He figured he’d get into real estate there. He’d seen the urban revitalization of the industrial Pearl District in Portland, and there was no reason Kelowna wouldn’t follow. And he’d be getting ahead of the boomers who were certain to arrive.

“I thought this was ripe for the picking. This has got to go.”

But it was 2008, and his timing was way off. The market had stalled, and retired boomers weren’t flocking to the golf course communities as expected. Condominium projects were flopping and getting shelved, and bankruptcies were common.

Mr. McAnerney remembers a 27-storey tower that got mothballed because they’d tried to launch it at average prices of $500 per square foot.

“And there was just no market,” he said. “It was terrible timing. The problem was you could buy a townhouse for under $300,000 or a nice house for $450,000 close to town. People were like, ‘Who would spend $400,000 on a little condo when I could have a house a block away?’”

How times have changed. The Kelowna market has been growing for the past several years, but the pandemic buying phenomenon is setting new records for the city. Bigger money is arriving by way of institutional investors who are looking for options that are safe bets. Long-time locals will be feeling the impact. Despite new apartment inventory, the vacancy rate remains low and rents are going up from $1.60 a square foot to around $2.40 a square foot, he estimates.

Mr. McAnerney, principal and co-founder of HM Commercial Group, says he’s involved in the majority of land and development deals in Kelowna. They have 15 current high-rise deals under way, including a four-acre downtown site listed for $20-million. He recently sold the BC Tree Fruits quarter-acre property at 1473 Water St. in downtown Kelowna. Zoned for up to 19 storeys, the property was listed at $5.2-million and sold to an undisclosed Vancouver developer, for $7,514,141.

“When we get a development piece of land, we get six to 10 offers on it within a week, because there isn’t any more land to develop,” Mr. McAnerney says. “All the big REITs out of Ontario are buying it up.”

The turnaround became official more than five years ago. He sold a partly built site that became a 14-storey condo project with townhouses at Pandosy Village, which is Kelowna’s version of Kitsilano, he says.

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“I sold it out of foreclosure and the [Aquilini Group] bought it, and then it was launched by [Vancouver condo marketer] Bob Rennie, and we didn’t know if we had a market. I got there in the morning of the opening and there were 100 people lined up to buy and it sold out in a weekend. That was about $425 a square foot [in sale price] and that was 2015 – and that’s when it started.”

Then One Water Street tower started construction in 2018, and at 36 storeys, it is now Kelowna’s tallest tower. When it was launched in 2017, developer Leonard Kerkhoff, who partnered with Toronto’s North American Development Group, said at the time he’d sold 80 per cent of the project, or more than $100-million of product in just over two months. For years prior, the site had been a familiar downtown pile of dirt, an abandoned hotel project that symbolized the times.

“And then Mission Group launched on the block, and they sold out – and it’s just been a flood to the market, and now it’s really happening,” Mr. McAnerney says.

As a consequence of a low interest rate, pent-up demand and increased growth from Toronto, Vancouver and Alberta, he said there’s a “dog fight” for premium land.

“We have a lot of interest from very wealthy, millionaire type people that have just not been in our market before, and they see that huge opportunity,” Mr. McAnerney says.

Vancouver-based real estate investment company Nicola Wealth, which also has a development arm, is a recent entrant to the Kelowna market, where they have partnered with Mission Group on the final stages of the master-planned community the Bernard Block. Alex Messina, director of Acquisitions for Nicola Wealth Real Estate, says Kelowna is the most exciting market within British Columbia outside of Vancouver. The company owns properties across the country.

“I would say Kelowna has become a very prominent secondary market in B.C. and is on the trajectory of becoming a major market in Canada,” Mr. Messina said.

Kelowna offers investment potential because it’s drawing people there for jobs, it still offers relatively affordable housing, and there is established infrastructure, including the University of B.C. campus, a major hospital and an airport, he said.

Okanagan realtor Richard Deacon said the current boom is different from the ones that saw Albertans buying secondary homes and retirees from the Lower Mainland who were looking to kick back. Mr. Deacon, who specializes in luxury and boutique properties, says business people and people who’ve sold off their businesses are driving the market this time.

“It’s not just a trend but a lot of entrepreneurs and business owner executives, entrepreneurial families and couples and singles from all across the country and a few from the U.S., all have a common thread,” Mr. Deacon said, “that they essentially can work anywhere, and they will choose a jurisdiction that has the outdoor lifestyle to it.”

He cites February year over year sales that were up 136 per cent, and prices up about 20 per cent.

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To put the past year in perspective, Nicola Wealth owns $5-billion in property assets in Canada and the United States and they’re on track to add another $1-billion in properties.

“In terms of acquisition of new properties, it is shaping up to be a banner year,” Mr. Messina said.

“There is so much capital looking to get into real estate right now, the market continues to be very strong. I expect there will be really good sales velocity through the rest of the year, across most of the asset classes.

“Historically, the Kelowna market was held by a lot of private local owners, which made it challenging for institutional investors to penetrate and get scale,” he says. “By virtue of the lack of options for those investors in major markets in Canada, they are turning their attention to secondary markets like Kelowna and Victoria.”

Mr. Messina says Nicola Wealth has plans to invest further in the Kelowna market. The downtown Bernard Block includes residential and an office tower, which Nicola and Mission Group will hold for the long term.

“For Mission Group, this is our best year ever,” says Jonathan Friesen, chief executive officer. “We didn’t know what to expect. We were hopeful, but we didn’t expect it to be this strong. I’m sure anybody who’s in real estate anywhere in Canada would say that.”

He said their condo tower at the Bernard Block, the Bertram, is 85 per cent sold out without any marketing.

“We are way past our presale requirements and three years to go before delivery. We don’t feel a lot of urgency. We know if they sell later, they will sell for a great price.”

The company has another three-tower complex under way, a luxury 6.5-acre waterfront site called the Aqua. The mixed-use project includes boat storage and marine valet service so residents don’t need a trailer to launch their boats. There is also a boat share program, like car share.

They purchased the property a decade ago, and now the project launches in June. Mr. Friesen says that the statistics don’t yet reveal what they perceive as a significant spike in in-migration in the past two to three months. They’ve seen it in both rental and condo properties.

“It all started selling in January, which is not when you expect real estate to sell in the Okanagan. We see real estate activity start dropping off when we near Christmas and it starts picking up in March or April. Our best month ever for 2020 was December.

“I’m sure that’s never happened. I can’t see it being true of any other year except last year. It’s building momentum, and it’s not dropping off yet.”

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