05/03/2013 | by
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The Canadian commercial real estate market didn’t go through the same downturn witnessed in the United States during the global financial crisis. How our neighbors to the north managed to pull that off is a subject of interest to William Ferguson, co-chairman and co-CEO of Ferguson Partners, an executive search firm specializing in real estate. 

Ferguson published a book on the Canadian real estate market in 2012 and put out a report last month on the Canadian real estate outlook. The report offered insight into the market though interviews with CEOs of Canadian real estate companies.

In 2012 the Canadian real estate market “did enviably well because of the country’s fiscal conservatism and close-knit professional real estate community,” according to Ferguson.

In an interview with REIT.com, Ferguson discussed some of common themes that emerged in the report, including the benefits of institutional players growing presence in the Canadian market. Additionally, Ferguson said banks are looking for assurance from commercial real estate company executives as lending standards tighten.

REIT.com: What led you to write your book “Market Discipline”
 and produce this report on the Canadian real estate market specifically?

William Ferguson: I was interested in trying to understand why Canada didn’t really run off the cliff in 2008. There are a number of reasons but the main reason is, even though it is a big country, it’s a very small community—at least as far as the leaders who run these respective businesses. A lot of the cultural elements relative to everything, as silly as it sounds, from “your word as your bond” to “once you commit, you don’t back out,” are important to them.

Following the book, we wanted to take a little bit more forward-thinking position: “What’s going to go on in Canada over the near term?”

REIT.com: How do CEOs view the current real estate market in Canada?

Ferguson: I would generally say that there’s a lot of equity and debt capital available up there. So, if you are undercapitalized, meaning if you are neither an investment manager nor a REIT, it’s tough for a lot of the private developers to compete.

Because prices are being driven up, the people with capital are stepping up to the plate to do deals. If you really don’t have the balance sheet and the ability to borrow and you don’t have equity capital, it’s tough.

So, generally speaking, I think you’ve got some of the same issues in Canada that you‘ve got in the U.S. relative to a lot of demand being driven by a lot of capital.

REIT.com: What seems to be the forecast for the remainder of 2013?

Ferguson: This is a country that is rich in natural resources. Now, the good news is that they are rich in natural resources, but the bad news is that if a number of their trading partners have economic difficulties—whether it’s the U.S., Europe or whatever—that is going to have an impact on their economy. That is going to be a bit of a wild card out there.

If interest rates go up, that will also slow things down as well. But, generally speaking, I think the forecast for the balance of the year is good.  

REIT.com: What are some of the challenges facing the real estate market in Canada?

Ferguson: Well, clearly an economic slowdown will obviously have repercussions in the office market. I think the residential market may sustain itself better than some. The retail side inevitably will have some potential slow down if the economy slows down as well. The industrial business tends to be a little bit stronger up there, just because of the fact that their economy is so natural resource focused. 

If there are asset classes that could slow down if the economy is at risk, they would be office and retail.