- What The market may see more distressed properties this year
- Why There’s a confluence of factors, including interest rates, a lack of presales and growing debt
- What next Government measures may alleviate some of the issues
One of Canada’s busiest commercial real estate teams specializing in distressed assets expects to see receiverships and power of sale transactions rise this year.
Mike Czestochowski and Lauren White head up CBRE’s 11-person land services group, which transacted 12 distressed properties last year and has 16 active distressed properties on the market.
The market pros think distress is going to get worse before it gets better, but there could be light at the end of the tunnel as government measures are felt in the industry.
“We’re going to continue to see a lot more distressed sales in 2025,” said White, an executive vice president. “I think it’s going to be substantially more than what we saw last year. I don’t think we’ve hit the bottom of that yet. Interest rates went up and now, even with them dropping, there’s other economic, political and market factors as to why it’s not slowing down the receiverships.”
Czestochowski, a vice chair, said he’s seeing the value of distressed properties increase, along with the number of loans on each property, suggesting too many assets are overleveraged.
He said the sudden jump in interest rates starting in 2022 is only part of the picture.
“People who have issues and are in distress with their properties, it’s not only an interest rate situation. It’s an overall economic situation, including delays through planning policy, lack of sales, their debts coming due, the valuation of the property has changed significantly, costs continue to escalate on construction and servicing development,” he said.
The type of asset falling into financial trouble is also changing. More distressed assets are now “income-producing, larger development sites,” Czestochowski said.
“We’re starting to recognize the names of the vendors,” he said. “Until six months ago, they were small vendors with names we didn’t recognize as much, so we’re starting to see larger properties come across our table — not only land but apartment buildings, retail, industrial, where there’s nothing wrong with the property, just too much debt.”
Government measures rolled out in 2024, however, are expected to help the development industry.
“There have been numerous policy changes by the [Ontario] provincial government in the past 18 months and it feels like, hopefully, now that the dust has settled, we may begin to see an impact this year,” said Emelie Rowe, senior sales associate and a member of the land services group.
Some of these changes include removing regional approval authority when it comes to development applications and approving municipal official plans, in addition to the repeal of Ontario’s Growth Plan and the implementation of the Provincial Planning Statement 2024.
Some municipalities, such as Vaughan and Burlington, have even decreased development charges as a means to lower prohibitively high building costs.
“Will cutting some of that red tape actually help the approvals process in terms of timing? Will other municipalities follow suit? It will be interesting to see how 2025 looks because of those policy changes,” Rowe said.
