The ongoing debate on Vancouver Island right now is Victoria or Nanaimo? In this episode we ask this question from a commercial real estate perspective to one of our experts, Robin Kelley, of the Groupe Denux; one of Vancouver Islands long-standing families of real estate.
Robin is on the show this week to provide his insight on both markets and how each market has fared over the years and unpacks what asset classes he thinks will continue to grow post COVID. He also touches on some Alberta projects the family has in the works. This is another great episode you don’t want to miss out on, so sit back and enjoy.
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Who is Robin Kelley?
I’m a partner in Groupe Denux. We’re a family business that was started by my father-in-law. I was born on Vancouver Island but left for a few years because there weren’t any jobs at the time. But that’s changed now.
Groupe Denux started by buying one apartment building when no one was buying on Vancouver Island. They renovated, managed and continued to grow. We invest where it makes sense and each of the sibling companies, all individuals in the company, share information so we can grow together.
Tell us about the Denux Group commercial real estate portfolio. What locations and what asset classes are you working in?
Denux Group has our main office in Victoria where three of the partners live and another office in Montreal, where two partners operate. In 2009, a couple of us branched out and started buying in Alberta. We also have an office in France and do work there, as well as a property on the mainland of BC. We’ve been working in Nanaimo since the early 90’s.
It’s always been multi-family residential for us. Traditionally, multi-family was easier for mom and pops to acquire. We like multi-family because there’s a diversified tenant base.
In France, we started working in the office asset class too. It’s harder to grow there. In 2013 we did our first construction project. We’ve done an occasional strip mall or commercial centre. We also stepped into industrial real estate in 2011 and currently have three industrial projects.
How has Groupe Denux handled supply chain issues?
We’ve had to put projects on hold. Knowing the right contractors is key. You want to make sure you have long lead times and not do anything too crazy. First it was covid shutdowns, then labour shortages and now supply chain issues.
We did a build out in Calgary recently and I told them it needed to be ready by February 1st. But we actually didn’t need it until May 1st. There was a delay and we didn’t get it until the last week of April. So I’m glad we had the extra lead time.
What has contributed to the success of Denux Group?
Everyone in the family is very curious. And the fact that we’re diversified really helps. Because we manage our buildings, we’re able to get information on the ground. We learn a lot that way to help us stay ahead of the trends.
We’ve heard how retail on Vancouver Island has been very resilient through covid. How has the retail side of Groupe Denux fared through covid?
My wife and I work more on the industrial and multi-family side, but Groupe Denux does work in retail. Having the government support programs was key for a lot of our retail tenants. We would proactively pay attention to which tenants needed help.
The Island has seen a lot of population growth since 2014 without enough retail being added to keep up. So that helped us heading into covid because we weren’t over-retailed.
For us, there was some churn on the retail side. We did lose a restaurant tenant, but they were going down before. But overall, we were pretty fortunate.
In Calgary, we did lose a Tim Hortons and a 7/11. But they were backfilled by local tenants that are doing very well. Some larger tenants had a lot of problems and some even used the situation as an excuse. We really appreciated the mom and pop shops that tried to work with us.
There’s been a lot of talk about industrial real estate in Alberta. What are you seeing there?
We purchased a number of industrial properties in Calgary last year and weren’t sure if we had made the right choice. Things had been slow and sideways for a long time. We were looking in Montreal at first but we were too late. The cap rates didn’t make sense.
There is a Western Canada effect going on out there. Not only can companies not find space in Vancouver but their employees can’t find housing they can afford. So big companies are thinking of pulling out of Vancouver because of the price and lack of availability. That makes it a good situation for Alberta, as big companies move there instead.
Where are the commercial real estate opportunities?
Nowhere! Six months ago I would have said Alberta, but things are ramping up there. On the Island, we’re not looking for more land mid-Island right now. If you’re familiar with certain markets, there’s upside for the long term. But house prices are jumping up and everyone is waiting to see what happens with interest rates.
The expectations for return in Alberta are more reasonable. You can still find buildings and small bay projects that make sense. For markets where rates haven’t run up yet, like in Alberta, it can make more sense to buy an older building and renovate, rather than pay today’s prices for new land and construction.
Would you rather buy real estate in Nanaimo or Victoria?
Five years ago I would’ve said Nanaimo without a doubt because of the cap rates. Now, I think it’s more equal, so it’s hard to choose.
I would still prefer mid-Island but with massive caveats. There’s a major lifestyle factor for people moving to the mid-Island area. You can get to Vancouver quickly, go skiing, go hiking, etc. Victoria is cool and there’s a lot of room for growth, but prices are getting high.
If there were equal cap rates in Nanaimo and Victoria, I’d say Victoria all day long. But the cap rates aren’t equal.
How has the success of Nanaimo affected surrounding real estate markets?
Vancouver Island is an ecosystem – it plays well together. In the mid-Island, there’s a lot changing with the demographics.
We had 8% vacancy in Nanaimo in 2013. That’s not a fun market. So what’s changed? The Canadian population has aged and many empty nesters are moving to the Island. We’re also seeing lots of younger people move here – remote workers who have a greater choice of where they will live. Cost of living is a real problem for young people and driving the demand.
There is a Nanaimo effect in some ways. For example, Nanaimo’s expanded healthcare allows people to live in that area who need the services.
How do you get to know a real estate market?
To get to know a real estate market, start with the data sources and then just drive around. When I’m in Montreal or Calgary for work, I’ll just drive to an area I don’t know. Sometimes not having a local bias helps, but you do have to dig into why those local biases exist.
You have to talk to people and look at the market from a neutral state. You also want to look at community plans and see where the community is going.
What’s one piece of advice you’d give to someone growing a commercial real estate portfolio?
You need to figure out your cash flow when you’re 100% leveraged. So many people with cash buy real estate, but can’t recover the cash unless they get a loan and refinance. How will you grow and still have the cash you need?
Find out more: https://groupedenux.com/