Oil surge fires up Calgary's property market

PUBLISHED : Sunday, 13 February, 2005, 12:00am
UPDATED : Sunday, 13 February, 2005, 12:00am

If growth potential is important when buying commercial real estate it is hard to beat the pitch of one Canadian city landlocked in the middle of the prairie: Calgary is the commercial capital of a province that has more known oil reserves than Saudi Arabia.

In tune with the trend of rising oil prices, dollars are flooding into the city of 1 million residents, giving a solid foundation to its commercial property outlook, says Darwin Forer, a former Alberta resident now based in Hong Kong as a sales representative for Redev Properties - an Alberta land development company.

He is marketing shared ownership interests in a commercial shopping centre on a highway in the city's fashionable southwestern district.

The Newport Village Plaza, built in 1989, offers a net rental yield of 6 per cent, plus an additional capital gain in five to 10 years when the development is expected to be sold.

A stake in the fully leased complex can be had for C$25,000 ($156,000), which buys a half per cent interest. Investors will have their names added to the title deed.

'You are not buying a share in a company, you are buying a piece of real estate,' Mr Forer says.

Alberta is believed to be getting a lot of attention from the United States as it seeks to secure alternative oil supplies to the politically volatile Middle East. On Thursday TransCanada Corp, Canada's largest pipeline operator, announced it will build a US$1.7 billion pipeline 3,000 kilometres to Illinois that will capitalise on Alberta's growing heavy crude output and rising US demand.

Mainland oil giant Sinopec is also believed to be vying for a stake in Alberta's massive oil sands project via a possible takeover of Hutchison's 35 per cent stake in Husky Oil.

Much of Alberta's oil is mixed with sand, making it uneconomical to process at low crude-oil prices.

The Newport Village Plaza is valued at C$12.3 million, financed by a C$7.6 million mortgage and C$4.7 million in financing from investors.

Under this structure, investors who put up C$25,000 will carry a C$61,000 stake in the project.

Mr Forer says investors should receive a net rental income of 6 per cent paid out quarterly. He says this is the projected income after mortgage payments and maintenance fees are deducted from the rental revenue stream. Tenants in the project include fast-food restaurant A&W, 7/Eleven, HSBC subsidiary Household Financial and others.

Among the downsides, investors who choose to bail out before a majority consensus is reached among existing owners will likely not receive any compensation for capital gains. .

'We can't forecast how much things are going to go up,' Mr Forer says, 'but if we take a 2.5 per cent annual gain over five years, you would average a 17 per cent gain [assuming income and capital gains]'.

About half the available interests have sold in the three weeks since listing.