The Best Commercial Investment Opportunities in 2023

Listen On: Apple Podcasts | Spotify | Google Podcasts | YouTube

As the interest and activity ramp up in late February, everyone is asking where are the best opportunities found? No worries, we have some of the answers as this week Cory and Adam welcome Thomas Wieckowski of Campbell & Pound to discuss what’s in store for 2023 and a lookback at the past 24 months.

Thomas walks us through what the appraisal industry has seen over the past two plus years and gives his thoughts on what makes a good opportunity. Thomas takes the high road and doesn’t divulge the exact location(s) or asset classes but don’t worry, Cory sums it up for him and the listeners. More great insight to the year ahead and another must listen for all commercial real estate investors.

What are the 2023 market trends? Where should we invest and in what asset class? And where does the market go from here? Don’t miss our chat with Campbell & Pound commercial appraiser Thomas Wieckowski to discover the best commercial investment opportunities in 2023! 

Who is Thomas Wieckowski? 

I graduated from UBC with a degree in economics and then entered the appraisal business with Campbell & Pound. I started on the residential side and then transferred over to commercial. We work exclusively in the Lower Mainland.

I don’t consider myself a specialist in any asset class. It’s a nice variety that way and gives me experience across the market. The only things I don’t touch are hotels and gas stations.

What does a commercial real estate appraiser do?

A commercial appraisalis part of the due diligence phase that occurs in advance of the deal or as part of the financing. It’s a third party check for the lenders to ensure the deal is what they think it is.

Appraisers are also used in litigation and other situations where people need to have an expert opinion on the value of their assets. We’ll write due diligence reports that are used by different professionals.

As inflation and interest rates have risen, how has the market changed? 

It’s tough to describe the type of appreciation we saw coming out of covid. It was literally going straight up! For the first month or two of lockdown, phones completely stopped ringing. But by the summer of 2020, things started to pick up. And they didn’t stop all through 2021! The gains we saw were indescribable.

For example, I worked on a property in Surrey that was placed under contract in January 2021 for $4.9 million. That contract was assigned in Feburary 2022 for just under $9 million. Trying to wrap your head around that kind of gain as an appraiser is very difficult. Information quickly becomes outdated, so it’s hard to determine value. That made the appraisal process trickier.

Moving into 2022, everything changed again with the supersized rate hikes. Volume started falling off, speculators disappeared and there was a slump.

The people doing deals in today’s market are more conservative and have a longer track record in the market. They’re at a lower level of leverage and have weathered storms before.

As an appraiser, what approach do you take when you don’t have comps or when they’re out of date?

That’s the challenge of our business. There are some standard databases we subscribe to that provide transaction information.

But it’s harder to track lease transactions, especially as brokers have become more hesitant to release those details. Strictly speaking, you’re not supposed to release those details if someone just calls you up.

It’s important for appraisers to have that network of relationships and history of work. Getting the right information is a mix of primary research, phone calls, looking at databases and looking at your own internal files.

Is there an asset class that is outperforming the others right now?

It’s hard to say what asset class is outperforming right now. Over the last couple of years, it has definitely been industrial. Industrial rents essentially doubled from 2017 to 2022. That changed a lot of metrics. But if you’re looking for a higher yield right now, you’d have to take on more risk.

Is there a geographic area that is performing better or worse than others? 

The suburban markets that performed very well during covid, like multi-family developments in the Fraser Valley, are looking a little overextended. They’re commercial projects but the buyer is an end-user or mom and pop investor. As thatresidential demand falls, the return on these projects diminishes.

Land costs haven’t come off, construction costs are as high as they’ve ever been and the absorption is not there. Suddenly, these projects don’t look as compelling. I expect to see some of these projects paused.

Where are the opportunities in the market right now? 

That’s hard to answer. You can find opportunity anywhere as long as the numbers make sense.

For me, I think purpose-built rental is an interesting asset class to look at. For older purpose-built rental projects that are tenanted, it’s almost impossible to raise the rent in a meaningful way. You have stable and predictable income but may have a hard time offsetting rising carrying costs.

Another interesting asset class to watch is retail in markets close to rapid transit. Some of these tenancies are still suffering the effects of covid. As the tenancies turn over, that might create some opportunities.

Someone could step in and bring in new tenants, increase the rent, and wait for the upside of rapid transit, such as increased density. You can wait for appreciation and exit at a future date.

Have you seen an uptick in buyers in markets outside the Lower Mainland? 

Over the course of 2021 and early 2022, I was working heavily in the Fraser Valley. As things become more expensive in the centre, demand ripples out and people go to the next most affordable place. They float from Vancouver to Burnaby to Surrey to Langley to Abbotsford and so on.

As an appraiser, are you on the frontline of recognizing market trends? 

Market trends are established by institutional buyers and developers. To the extent that I’m observing what they are doing, I might be second in line. But I’m probably one of the first observers of what the trend might become.

Has 2023 felt different so far?

I don’t know that 2023 is much different from Q4 of 2022 so far. Anecdotally there’s some positivity based on an assumption that interest rate hikes might be over. 

I don’t know if that initial positivity will carry us through the next couple of months or not, but it does feel more positive than the end of 2022.

In 2023, what asset class would you invest in? 

Look for a property that allows you to be more defensive than you could be in 2021 and a property where you can add value or differentiate yourself from everyone else.

If you just set it and forget it, you’re at the mercy of the market. But if you can change and improve the property, you can outperform on the upside and provide a hedge on the downside. So I’d be looking for a property that needs a little work and has a rent roll that is under market.

Where would you invest in 2023?

The entire Greater Vancouver area is very strong. I don’t know that there’s a market here that nobody has noticed. When you have such incredible appreciation, all the stones get turned over. The relative bargains get found very quickly.

For me, it’s more important to be open minded than stuck to one specific area. The more deals you look at, the more likely it is you’ll find the right fit for you.

A lot of people who have done nothing over the last few years are sitting on tremendous gains. But I don’t think that’s the scenario going forward. I think we’ll return to a more traditional environment where smart deal makers do well.

What happens in the commercial real estate market in 2023 and in the next few years?

It’s interesting to see what will happen with inflation. Personally, I think it will be stickier than what people expect. I don’t think the US Fed is done raising rates, which makes me wonder if the Bank of Canada is actually done. I wouldn’t expect any interest rate cuts in 2023. So to that extent, I think it will be a pretty balanced market.   

Until rates start to come off in Canada and the US, I think it will be a more disciplined market. We have to wait and see what will happen in 2024.

Trying to control inflation through monetary policy is complicated, especially when the central banks are behind the curve. It’s not easy and we are in uncharted waters. “Normal” has lost its meaning. That’s why being disciplined with your strategy is more important than ever.

The 6 Pack: Getting to Know Campbell & Pound appraiser, Thomas Wieckowski

What would your last meal be on death row?

There’s no question – it’s a giant, bone-in rib eye with a butter poached lobster and magnum bottle of wine. I’m going out in style!

Favourite vacation spot?

I always like to be in a vacation spot where other people aren’t; I’m not a touristy person. I’d rather be outdoors fishing or in the bush with no cell phone coverage. It’s a nice change of pace from sitting at a desk looking at a screen all day.

Favourite band or musician? 

I don’t like new age or modern music. That’s probably a sign I’m getting old! I turned on a playlist on Spotify called “Dad Rock” and every song was a banger for me. I’m open to any genre that isn’t new age, contemporary, people-twerking stuff. 

What’s your go-to karaoke song? 

If you’ve ever drank with me, you know that asking me to sing on a mic is a huge mistake. So I’d probably pick a song everyone knows so they could start singing along. Lean on Me would be a good one.

Favourite bar or restaurant in Vancouver?

That’s a tough one! I haven’t been to Miku in a while but I’d love to go back.

Advice for listeners looking to make a commercial investment in 2023?

Be confident in your own strategy. You will have more time to find the right deal in 2023. Stick to your strategy and don’t be afraid to pass on deals that aren’t the right fit.

• Campbell & Pound