Wednesday, February 23, 2011

GOLD FOR GROWTH IN 2012



Calgary economy to lead the country in 2012
3.7% growth this year
By Mario Toneguzzi
Calgary Herald February 22, 2011

CALGARY - Calgary's economy will regain its place as one of the fastest growing census metropolitan areas in Canada over the next two years, says the Conference Board of Canada.

In its Metropolitan Outlook Winter 2011 edition, the board says "the continued recovery in the energy sector will boost economic growth by 3.7 per cent in 2011 and above four per cent the following year, placing Calgary at the top of the growth leaderboard in 2012."

But the board says Canada's slowing economy will weigh on growth in most of the 27 census metropolitan areas across the country. Only Windsor, Calgary, Oshawa, Regina, Saskatoon, London, Sherbrooke, Winnipeg, and Thunder Bay can expect higher real gross domestic product (GDP) growth this year than in 2010.

"Most Canadian cities rebounded well from the recession. This year, however, a weaker domestic economy, winding down of federal and provincial government stimulus measures, and uncertain economic conditions in the United States will result in stable or lower growth in a majority of cities," said Mario Lefebvre, Director, Centre for Municipal Studies, at the conference board.

Windsor is forecast to post the fastest growing metropolitan economy in 2011. Real GDP is forecast to rise 3.9 per cent this year.

The board says Regina's economy will benefit from the provincial resource boom and enjoy growth of 3.5 per cent in 2011. "This growth will support employment increases and, in turn, maintain in-migration and demand for housing."

It says Saskatoon is poised to regain its position as one of Canada's fastest-growing CMAs in 2011, with GDP forecast to rise 3.4 per cent. "Saskatoon's construction sector is expected to grow robustly through the medium term, and residential construction will continue to fuel activity in the finance, insurance, and real estate sector."

And the board says higher oil prices helped boost Edmonton's economy by 3.7 per cent in 2010. While GDP growth will moderate to 2.6 per cent in 2011, the CMA's economy is expected to grow by four per cent in 2012.

Photo By: Daniel MacDonald

Monday, February 7, 2011

REBOUND REAL ESTATE


Get ready for rebound
Realtors say market in 2010 under-performed
By Marty Hope, Calgary Herald
February 5, 2011

"Under-performed" was the phrase used by both the outgoing and incoming presidents of the Calgary Real Estate Board to describe last year's resale market.

But both current president Sano Stante and his 2010 counterpart, Diane Scott, are calling for a revival in sales activity this year based on stronger job and migration growth.

Single-family housing underwent some interesting trends last year, says CREB:

- Annual sales in Calgary's four quadrants totalled 12,094, down from 14,438 in 2009. "Undoubtedly, housing markets in Alberta and Calgary under-performed in 2010 as sales did not materialize as forecast," Scott said in her final news release last year.

- The board's Zone A, which roughly corresponds to northwest Calgary, was the busiest of the four zones in 2010 at 4,300 sales, down from 5,270 the previous year.

- The two most active communities in the city -- for the second year in a row -- were Tuscany and Coventry Hills in the northwest.

In 2010, Tuscany had 359 sales, with Coventry Hills 278. A year earlier, Coventry Hills had 426 sales, while Tuscany had 422.

- The most affordable community in Calgary last year was Falconridge in the northeast, where the average price for homes was $238,586. A year earlier, West Dover, in the southeast held that honour with an average of $221,125.

- At the other end of the price scale, BelAire had the highest average price at $1.79 million last year -- replacing Roxboro, which topped the list in 2009 at $1.8 million.

- In 2010, there were 13 communities across the city in which the average price was more than $1 million. In 2009, there were nine.

Calgary resale homes
2010 2009

Sales P rice Sales Price

- Zone A (N. W.) 4,300 $468,969 5,270 $449,057

- ZoneB(N. E.) 1,912 $296,231 2,184 $297,428

- Zone C (S. W.) 3,480 $570,649 4,163 $530,305

- ZoneD(S. E.) 2,402 $419,819 2,821 $412,072

WHERE TO PARK? WHERE TO PARK?


Inside the world's first billion-dollar home
Matt Woolsey, Forbes 
Thursday, Feb. 3, 2011

While visiting New York in 2005, Nita Ambani was in the spa at the Mandarin Oriental New York, overlooking Central Park. The contemporary Asian interiors struck her just so, and prompted her to inquire about the designer.

Nita Ambani was no ordinary tourist. She is married to Mukesh Ambani, head of Mumbai, India-based petrochemical giant Reliance Industries, and the fifth richest man in the world. (Lakshmi Mittal, ranked fourth, is an Indian citizen, but a resident of the U.K.)

Forbes estimated Ambani's net worth at $43-billion in March. Reliance Industries was founded by Mukesh's father, Dhirubhai Ambani, in 1966, and is India's most valuable firm by market capitalization. The couple, who have three children, currently live in a 22-story Mumbai tower that the family has spent years remodeling to meet its needs.

Like many families with the means to do so, the Ambanis wanted to build a custom home. They consulted with architecture firms Perkins + Will and Hirsch Bedner Associates, the designers behind the Mandarin Oriental, based in Dallas and Los Angeles, respectively. Plans were then drawn up for what will be the world's largest and most expensive home: a 27-story skyscraper in downtown Mumbai with a cost nearing $2 billion, says Thomas Johnson, director of marketing at Hirsch Bedner Associates. The architects and designers are creating as they go, altering floor plans, design elements and concepts as the building is constructed.

The only remotely comparable high-rise property currently on the market is the $70 million triplex penthouse at the Pierre Hotel in New York, designed to resemble a French chateau, and climbing 525 feet in the air. When the Ambani residence is finished in January, completing a four-year process, it will be 550 feet high with 400,000 square feet of interior space.

The home will cost more than a hotel or high-rise of similar size because of its custom measurements and fittings: A hotel or condominium has a common layout, replicated on every floor, and uses the same materials throughout the building (such as door handles, floors, lamps and window treatments).

The Ambani home, called Antilla, differs in that no two floors are alike in either plans or materials used. At the request of Nita Ambani, say the designers, if a metal, wood or crystal is part of the ninth-floor design, it shouldn't be used on the eleventh floor, for example. The idea is to blend styles and architectural elements so spaces give the feel of consistency, but without repetition.

Antilla's shape is based on Vaastu, an Indian tradition much like Feng Shui that is said to move energy beneficially through the building by strategically placing materials, rooms and objects.

Atop six stories of parking lots, Antilla's living quarters begin at a lobby with nine elevators, as well as several storage rooms and lounges. Down dual stairways with silver-covered railings is a large ballroom with 80% of its ceiling covered in crystal chandeliers. It features a retractable showcase for pieces of art, a mount of LCD monitors and embedded speakers, as well as stages for entertainment. The hall opens to an indoor/outdoor bar, green rooms, powder rooms and allows access to a nearby "entourage room" for security guards and assistants to relax.

Ambani plans to occasionally use the residence for corporate entertainment, and the family wants the look and feel of the home's interior to be distinctly Indian; 85% of the materials and labor will come from outside the U.S., most of it from India.

Where possible, the designers say, whether it's for the silver railings, crystal chandeliers, woven area rugs or steel support beams, the Ambanis are using Indian companies, contractors, craftsmen and materials firms. Elements of Indian culture juxtapose newer designs. For example, the sinks in a lounge extending off the entertainment level, which features a movie theater and wine room, are shaped like ginkgo leaves (native to India) with the stem extending to the faucet to guide the water into the basin.

On the health level, local plants decorate the outdoor patio near the swimming pool and yoga studio. The floor also features an ice room where residents and guests can escape the Mumbai heat to a small, cooled chamber dusted by man-made snow flurries.

For more temperate days, the family will enjoy a four-story open garden. In profile, the rebar-enforced beams form a "W" shape that supports the upper two-thirds of the building while creating an open-air atrium of gardens, flowers and lawns. Gardens, whether hanging hydroponic plants, or fixed trees, are a critical part of the building's exterior adornment but also serve a purpose: The plants act as an energy-saving device by absorbing sunlight, thus deflecting it from the living spaces and making it easier to keep the interior cool in summer and warm in winter. An internal core space on the garden level contains entertaining rooms and balconies that clear the tree line and offer views of downtown Mumbai.

The top floors of entertaining space, where Ambani plans to host business guests (or just relax) offer panoramic views of the Arabian Sea.

Wednesday, February 2, 2011

THE FUTURE OF MAINSTREET


Stampede mainstreet retail development moving forward
Leasing activity for the project picking up
By MARIO TONEGUZZI
Calgary Herald February 2, 2011

CALGARY - A turnaround in the local economy has the Calgary Stampede's mainstreet retail and entertainment development back on track as leasing for the project has picked up in recent months, the Herald has learned.

Alberta Development Partners Inc., based in Denver, is working on the mainstreet project along the current Olympic Way that leads into Stampede Park and will include Jimmy Buffett's Margaritaville restaurant. Prior to this year's Stampede an announcement is expected on a construction start date for the project, which had been delayed due to the recent recession.

"We've had a couple of years here dealing with the downturn that slowed things down," Bryan McFarland, principal-development of Alberta Development Partners Inc., told the Herald.

"Things are now swinging back the other direction in a much more positive way. We're seeing some significant (activity) in the lease-up velocity for the retail space. We're encouraged to have this project moving forward this year to be able to announce some concrete financing and delivery milestones."

McFarland said the development permit was submitted with the city a long time ago but the company has stayed in touch with the city on a regular basis about the project.

On its website, Alberta Development Partners describes the project as a mixed-use development that will provide daily shopping, dining, socializing, learning, entertaining and hospitality experiences. Stampede Trail will preserve and advance the Calgary Stampede's western heritage and values, it says.

"Grand amenities will create a procession of activity all along Stampede Trail and will include a fire pit, architectural monuments, chiming carillon bells, a dramatic sculpture fountain, a plaza for gathering and majestic entry gateways," says the website.

Eventual plans for the 6.5 hectares include 150,000 square feet of retail space, 100,000 square feet of office space and a 300-room hotel, says the company on its website.

"Probably a new deal comes across our desk every couple of weeks which really has picked up over the last six months," added McFarland. "It's been strong. We've got 150,000 square feet of retail space. Of that I'd say we've got about half of that under binding offer right now.

"I would expect ... that we'll have some announcements here to make prior to Stampede about the final schedule, the actual construction start date and opening dates."

Warren Connell vice-president of park development and operations for the Calgary Stampede, said mainstreet is a critical piece of the organization's master plan.

He said that in the world of tourism a common mistake is that places gear developments towards tourists when in reality tourists go to the places where the locals want to hang out.

"And the whole idea of mainstreet is that it is a place where Calgarians will bring their guests and visitors as well as themselves," he said.

Michael Kehoe, an Alberta-based retail specialist with Fairfield Commercial Real Estate Inc., said the proposed Stampede Trail retail and restaurant project will be an important part of the overall Stampede Park redevelopment.

"The shoppertainment/eatertainment formula on this scale is unproven in Western Canada. However I feel that the critical mass of year-round entertainment and sports events generating foot traffic at the Scotiabank Saddledome and the adjacent BMO Conference Centre will ensure that the project will be viable over the long term."

Monday, January 31, 2011

REAL ESTATE ASSETS


Distressed Debt Investors Prefer Real Estate In 2011
Forbes
January 27, 2011

With risk-taking coming back to most markets, investors in the riskiest asset classes are being forced to channel their funds into different sectors and instruments in their attempts to get the most bang for their buck.

The North American Distressed Debt Market Outlook 2011, a survey of 100 experienced distressed debt investors released by Debtwire, Macquarie Capital and Bingham McCutchen, found that these investors will move their cash from energy to real estate assets and from first and second-lien loans to common equity and convertible bonds. Distressed debt investors will have to adapt to a surging equity market and a bubble in high-yield loan markets, finding themselves pushed down the capital structure in search for yield.

Distressed debt markets will provide opportunities for investors in 2011, as “lingering concerns about unemployment, housing, and the European sovereign debt crisis will cause investors to remain cautious and focus on the ability of companies to withstand additional economic shock,” according to David Miller of Macquarie Capital. Investors will therefore “continue to stress the downside when evaluating investment opportunities.”

This will force a change in strategy for those brave enough to invest in distressed assets. Real estate will be the sweet spot for investors in 2011, with 48% of those surveyed choosing it as their favorite sector, a 22% rise from a year ago.

Specifically, the sector will be commercial real estate, where 51% of respondents expect default rates will not peak before the second half of 2011. “[These findings] don’t necessarily bode well for the prospect of the housing and commercial real estate markets avoiding a double dip,” reads the report.

This represents a marked change from a year ago, when energy and automotive sectors were amongst the top picks, with 37% and 29% respectively. But, with energy prices back on the rise and “the automotive sector dodging a huge bullet,” opportunities will lay elsewhere, in the real estate and financial markets. For example, General Motors and Fords carry a Fitch corporate rating of BB-, which is below investment grade.

The change is not only in sector, but in preferred instrument too. Whereas first and second-lien loans topped the list of “most attractive opportunities” in 2010, common shares, convertible bonds, and preferred/mezzanine loans have taken the top three spots. “There is no longer a need to be at the top of the capital structure,” said Ronald Silverman of Bingham McCutchen, another of the firms that cooperated in the report. “Unlike last year where first- and second-lien loans were the place to be, fund managers are prepared to move away from secured debt and are ready to enter on the ground floor.

A bubble in the high-yield and leveraged loan markets, as well as the staggering rebound in the equity markets, is the catalyst behind change. “Many investors experienced significant gains as they exploited inefficiencies in the high-yield and leveraged loan markets in 2010. As investors continue to deploy capital to these markets, returns will diminish, causing investors to move even further down the capital structure in search of outsized yields,” wrote Raoul Nowitz of Macquarie. Thus, 55% of respondents see those markets in a bubble, with most expecting a burst in the second half of 2011 or the early 2012.

Allocation of assets to distressed debt will remain essentially unchanged from 2010, with distressed allocations exceeding 40% of assets under management for 27% of those surveyed. Expected returns are “largely in line with those of 2010,” with 27% of managers expecting returns under 5%, and 16% of them expecting returns greater than 20%.

“Given the run-up in asset prices in 2010, distressed debt investors will be forced to take more aggressive risk positions to chase higher yields, creating an environment in which achieving extraordinary returns will be increasingly challenging,” said Ford Phillips of Macquarie Capital.

TANKING CMHC RULES?


Think Tank: Time to leash the CMHC
John Greenwood 
FPPOSTED, January 31, 2011

The federal government should limit tax payer exposure to potential problems in the housing market by winding back the role of the Canada Mortgage and Housing Corp. in the provision of mortgage insurance, according to a new report by the CD Howe Institute.

The CMHC has a pervasive presence in the domestic mortgage market, potentially resulting in “unmanageably large risks in financial markets” that are ultimately borne by the Canadian public, says the report.

Under current rules, people who borrow more than 80% of the value of the home they want to buy must also take out insurance, and the CMHC is by far the most dominant player in that market.

According to the report by Finn Poschmann, vice president of research at the CD Howe Institute, the CMHC now backstops mortgages equivalent to more than 30% of Canada’s gross domestic product.

As a result, Canadians are exposed to “large, ill-defined risks,” says the report, which argues that Ottawa should crank back the CMHCs presence in mortgage insurance and allow more room for private sector insurers.

Originally conceived as a mechanism for executing public policy, the CHMC has expanded dramatically, especially in the wake of the financial crisis as the government encouraged banks to boost lending by allowing them to securitize more home loans.

But critics worry that the unintended consequence was that mortgages became too easy to get, pushing up real estate prices across much of the country to unsustainable levels.

The CD Howe report comes on the heels repeated warnings from the Bank of Canada that Canadians have become over leveraged and need to start paying down debt.

One of the main concerns about the CMHC is the lack of disclosure about the quality of its mortgages and details of the types of loans it insures. For instance, when the government announced earlier this month that home equity lines of credit, or HELOCs, would no longer qualify for CMHC insurance, many analysts expressed surprised that such loans were ever allowed to be part of the CMHC program in the first place.

Monday, January 24, 2011

A GROWTH SUPER-CYCLE


Forget Great Recession, growth super-cycle ahead
Simon Kennedy, Bloomberg
Monday, Jan. 24, 2011

For only the third time since the Industrial Revolution, the world may be entering a long-term growth cycle that will lift all economies simultaneously, driving bond yields and commodity prices higher, according to leading economists attending the World Economic Forum in Davos, Switzerland.

The depth and scope of the expansion will be a focus for discussion at this week’s annual meeting of the WEF. Evidence of a broadening global recovery will enable U.S. Treasury Secretary Timothy F. Geithner, investor George Soros and 2,500 political, business and academic leaders to shift their emphasis away from crisis- fighting. Yet doubts remain over how much rich nations will be able to benefit from growth which is increasingly driven by the emerging world.

With the economic and investment outlooks “much better” than in recent years, “people are talking about how to get back to business as normal and what comes next,” said Jitesh Gadhia, a delegate to the conference and the London-based senior managing director at Blackstone Group LP, which runs the world’s largest buyout fund.

Goldman Sachs Group Inc., PricewaterhouseCoopers LLP and London’s Standard Chartered Bank are among the financial companies sending executives to the meeting. Their economists predict a growth spurt in coming decades led by emerging nations that will be strong enough to boost developed countries.

Global gross domestic product will swell to US$143-trillion by 2030, allowing for inflation and market-exchange rates, from US$62-trillion in 2010, with China and other emerging markets accounting for about two thirds of the rise, estimates Gerard Lyons, chief economist and group head of global research in London for Standard Chartered, which generates most of its earnings from Asia.

Lyons and his colleagues predict a “super-cycle” of historically high growth that will last at least a generation and will be led by booming trade, investment and urbanization, according to a report published in November. He reckons such a cycle has occurred only twice since the end of the 18th century: the four decades before the First World War and the three following the Second World War. He’s betting the new phase will contribute to a reversal in the three-decade decline for U.S. bond yields after 10-year Treasury notes lost an average 40 basis points a year since the early 1980s.

Richard Dobbs, a director of the research division at New York-based McKinsey & Co., will use the Davos meeting to highlight a study by the international consulting firm that sees an imminent end to cheap capital. The causes are a building bonanza in developing economies and aging populations who are draining their savings, according to the report, which was released Dec. 9.

“It’s a topic capturing the attention of people who want to think beyond the crisis,” said Seoul-based Dobbs.

While Goldman Sachs Asset Management Chairman Jim O’Neill has found fame for promoting the “BRIC” economies of Brazil, Russia, India and China, he says their rise has positive impact beyond their borders, with Chinese imports totaling about US$400-billion, almost the equivalent of South Africa’s economy last year. That should attract investors to rich-nation companies with links to these markets, and the resurgence in the U.S. economy has prompted O’Neill to predict higher U.S. bond yields in 2011.

“World-trend economic growth is being lifted,” said London-based O’Neill, who helps manage US$840-billion. “The notion that BRICs benefit at the expense of others is increasingly out of date.”

Investors should buy copper, coal and oil to take advantage of the growth of cities in emerging markets, according to Standard Chartered, which says the Chinese yuan, Indian rupee and Korean won will appreciate on strengthening domestic growth.

Developed nations also will benefit as their emerging- market counterparts invest more abroad, hire more of their workers and rely on their expertise in areas such as financial services, said Mr. Lyons, who will be at Davos. He predicts both the U.S. and European Union will enjoy an average trend growth of 2.5% through 2030, compared with the 1.9% and 1.7% he forecasts for this year.

“It’s a win-win situation,” said Mr. Lyons, who concedes growth won’t always be strong and continuous during the entire period.

The increasing integration of China and other developing economies will boost commerce and investment worldwide, agrees Edward Prescott, a senior monetary adviser to the Federal Reserve Bank of Minneapolis who shared the 2004 Nobel Prize for analysis of business cycles and economic policy.

Prescott points to South Carolina, which has benefited from new factories opened by Chinese companies such as appliance maker Haier Group. The International Monetary Fund projects this year will be the first in which Chinese foreign investment outpaces inward flows.

“The whole world’s going to be rich by the end of this century,” Mr. Prescott said.

Such euphoria may not be the only view in Davos, given the European sovereign-debt crisis, fears of a real-estate bubble in China and mounting public-debt burdens, said Nariman Behravesh, chief economist at consultants IHS in Lexington, Massachusetts, who is attending the meeting.

“There’s going to be more optimism but still some worries,” he said.

Talk of a super-cycle gets little support from Joseph Stiglitz, a Davos veteran and 2001 Nobel laureate. He contends that globalization and free trade may be stymied by unemployment in rich nations and the risk that more of these countries’ jobs will be lost abroad. The U.S. jobless rate has remained above 9% since May 2009.

“Standard Chartered works mostly in developing markets, and that shapes its world view,” said Mr. Stiglitz, an economics professor at Columbia University in New York. “If you work in emerging markets, you feel the energy. If you are in the U.S. or Europe, you see the numbers and it’s hard not to feel depressed.”

The difference reflects a “shift in the center of gravity in the world economy, in which the West is struggling to keep up with turbo-charged,” emerging markets, says Stephen King, chief global economist in London at HSBC Holdings Plc and a former U.K. Treasury official. He will outline in Davos what he calls the next phase of globalization: increased trade among emerging countries.

His team calculated this month that by 2050, global output will have trebled and average annual growth will accelerate toward 3% from 2% in the last decade, with emerging markets contributing twice as much to the expansion as the developed world.

Ian Bremmer, president and founder of the Eurasia Group, a political-risk consulting company in New York, is more downbeat as he heads to the Swiss ski resort. He predicts what he calls a “G-Zero” era in which no country has the political or economic leverage to dominate the international agenda and all nations focus on their own priorities. That will reduce economic efficiency and prompt trade conflicts, he said.

The subsequent volatility and uncertainty mean U.S. assets will prove the “comparative safest bet” and the price of gold will stay high, Bremmer said, after touching a record US$1,432.50 an ounce on Dec. 7. Fixed-income securities still may suffer as nations impose capital controls, which Brazil and South Korea have done lately, while companies will continue saving rather than spending, he predicted.

John Hawksworth, the London-based head of macroeconomics at PricewaterhouseCoopers, is confident a so-called zero-sum world isn’t in the cards. His own attempt to see into the future this month generated a projection that a bloc of seven leading emerging markets, including India and China, will be 64% larger than the current Group of Seven by 2050 at market- exchange rates, compared with 36% smaller today.

Even so, average income levels in the G7 countries will rise in absolute terms as new market opportunities open up for their businesses, and consumers will benefit from lower-cost imports, predicts Mr. Hawksworth, who has served as a consultant to the World Bank and whose company will release its annual survey of executives in Davos tomorrow.

“There is a shift in economic power from West to East, but the West can still do well,” Mr. Lyons said.