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What "Players" to Ice This Late in Cycle

Sentry Executive Chairman Uses Hockey Analogy to Describe Market, Tells Conference Get Your "Floaters" Off
March 1, 2018
Pictured from left to right: Moderator Justin Bosa, managing director, head of real estate investment banking at ScotiaBank; Sandy McIntyre, executive vice-chairman at Sentry Investments; Moray Tawse, EVP at First National; Francois Bourdon, CIO at Fiera Capital; Benjamin Tal, deputy chief economist at CIBC World Markets and Cecilia Williams, CFP at Allied Properties REIT.

Sandy McIntyre, executive vice-chairman of Sentry Investments, pulled out a hockey analogy this week at a Toronto real estate conference to describe the state of the commercial property market.

McIntyre, whose Sentry is a wholly-owned subsidiary of CI Financial Corp., a wealth management firm with assets under management of $185.9 billion, said he's watching the yield curve very closely to figure out what type of "players" to put out in a real estate market many believe has peaked in Canada.

"I’m taking my floaters off the ice. The guys who are at the red line trying to score goals," said McIntyre - the real estate equivalent of a longshot investment with a low chance of success. "I've got my two-way players on the ice (who can play offence and defence). I haven't gotten to the point of going into the bunker team, which means I am getting rid of companies that have capital needs, companies that have balance sheet issues, and companies where the sustainability of the operations is problematic."

The vice-chairman was speaking at an industry panel addressing capital allocation in 2018 at the Real Capital conference in Toronto.

McIntyre said the indicator he's always considered the most important is the slope of the yield curve. He says when it goes inverted or flat, you are generally in mid-cycle slowdown or recession.

"I will point out you don’t get Bitcoin, marijuana, FANGs early cycle," he said to laughs, referring to the price growth of publicly-traded companies Facebook, Amazon, Netflix and Google.

Moray Tawse, co-founder and executive vice-president of mortgage investments with First National Finance LP, and another panelist said lenders get to see deals from players both big and small.

"I'm really seeing the cycle of fear and greed right now," said Tawse. "Everybody is having a hard time trying to find real estate that makes sense, but they have this huge wall of money. Everybody has money. They have money coming in and have to put money out. They say, 'they're building apartment buildings over there', and everybody rushes over to see what they are building."

His concern isn't that the market "is crashing" but he thinks it's just too hard to make money on deals in 2018. Tawse says there are expectations of rental increases that don’t make sense.

"When we start to underwrite new construction of apartment buildings a year ago people thought they would get $2.40 a square foot in rent. Land costs went up, and they think they'll get $3.50 a square foot or $3.75. They are reverse engineering (transactions)," he said. "I'm not sure it makes economic sense."

Françoise Bourdon, global chief investment officer for Fiera Capital, channeled some Hollywood to describe where he sees the market going.

"I don’t believe in the story that the economy will just exhaust itself like Forrest Gump where he started running and just decided to stop," he said. "I think the credit system will be choked and U.S. new tax dynamic will create inflation. A recession will come, but there is still time to
have fun."

Benjamin Tal, deputy chief economist with CIBC World Markets, thinks the risk in Canada for real estate will be rising rates. "You see the central bank overshooting with rate hikes," he said. "The central bank said it has learned from previous experience about raising rates too quickly. Maybe, there will be a soft landing, but it’s wishful thinking."

Garry Marr, Toronto Market Reporter  CoStar Group   
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