George Guo is showing off one of his son’s Windsor rental properties, a two-bedroom house with a view of the river. The house is up for sale.
It’s small for a Windsor house, but positively roomy compared to much of what’s available on the Toronto rental market. It could definitely use some updating, but it has a large fenced yard, parking and two bathrooms. The floors are a little, well, slanted. But the roof is in good condition.
When Guo hears the exact same detached house in Toronto could sell for over a million dollars, he laughs and laughs and laughs. Guo’s son bought the house three years ago for $21,000 and is listing it for $49,900, standing to more than double his money, on top of the $650 in monthly rental income he’s been earning.
In other words, things have worked out exactly according to plan. In the depths of the recession, Guo encouraged his son to take the money he had saved working as an information technology contractor in Toronto and use it to buy six properties in Windsor, instead of just one in the big city. Guo, a 67-year-old retiree who used to own a car wash, acts as the property manager.
“Windsor, at that time, was a good time to buy a house,” Guo says. “I think the worst times are over.”
Calgary’s Boardwalk Real Estate Investment Trust just pulled off its own lucrative Windsor play on a much larger scale. Last week, the REIT announced an agreement to sell its entire portfolio of 1,685 units in the city, representing 12 per cent of Windsor’s apartment stock, to Skyline Apartment REIT for $136 million. Some of those apartments are in the city’s distressed west end, sitting across from boarded-up houses; others are in wealthy areas like Riverside Drive East, where mansions with stone gates and long driveways look out on the Detroit River. Boardwalk told the Financial Post that the capitalization-rate value Skyline put on the apartments (a ratio that measures rental income relative to the property’s worth) ended up being better than the rate that investors had been using to value Boardwalk’s entire portfolio on the stock market. In other words, Skyline believed Boardwalk’s Windsor apartment portfolio has better growth potential than apartments in other Canadian markets.
It’s true that across the country apartments — and the stable, reliable income they provide — are in high demand, particularly with returns being so weak from fixed-income securities. But as prices in Canada’s major markets rise higher and higher, the yields investors can expect from rents get squeezed tighter and tighter.
But still… Windsor?
Ask most Canadians what comes to mind when they think of the city of Windsor and they might picture a rust belt relic, blighted by boarded-up houses (although there are a few of those), abandoned factories (okay, there are some of those too) and employment insurance checks (unfortunately, still lots of those). American comedian Stephen Colbert once called Windsor “the earth’s rectum.” Plus, there’s the casino.
What they might not think of is Windsor’s beautiful waterfront and mild winters. And its red-hot housing market.
But investors who took a chance on Windsor during the painful 2008 recession, when the city’s 15 per cent vacancy rate was the worst in the country, are seeing their bets pay off handsomely as the economy recovers.
Today, the vacancy rate has dropped to about four per cent — still slightly higher than Halifax’s but already tighter than Gatineau, Que., just across the river from Ottawa. Home sales in the first half of 2015 are up 22 per cent compared to the previous year. And while Windsor no longer has the cheapest housing prices in the country, relinquishing that dubious honour to Saint John, N.B., it’s still possible to buy both low-end fixer-uppers and high-end waterfront mansions for a fraction of the price they would go for in any other Canadian city.
And there are plenty of signs that things are about to get even better. In a report last fall, the Canadian Mortgage and Housing Corporation predicted Windsor’s unemployment rate will fall below eight per cent by 2016 — buoyed by the American economy’s recovery and construction of the new Gordie Howe International Bridge across the Detroit River. And while the Windsor region was one of only two Canadian urban areas to experience population decline when the 2011 census was taken, that trend appears to be quickly reversing as people return to the city. The city’s first new purpose-built rental apartment building in decades is opening its doors.
Aik Aliferis, chief executive and founder of Primecorp Group of Companies, brokered the sale of Boardwalk’s Windsor portfolio to Skyline. He says interest is building in the city’s real estate market, which was considered toxic not so long ago.
“It’s definitely a unique market, a market that’s not sought after by all investors,” Aliferis says. “But some are finding it appealing and are feeling pretty confident with Windsor’s future.”
Darcy White, whose B.C.-based Rho-Orion Investments Inc. just won an investing award, buys distressed Windsor apartment buildings with high vacancy rates and turns them around. It’s generated him annual returns of 30 per cent over the last three years.
“People in Windsor thought we were crazy. They were saying, ‘This town sucks and we’re going out west to Alberta,’” White says. “They’re all going the opposite direction now.”
Canada likes to brag about weathering the financial crisis in relatively good shape. That was not the case in Windsor.
The hulking, vacant General Motors Co. transmission plant that still straddles one of Windsor’s major streets, shuttered in 2010, is a reminder of this. Even before the recession pushed GM and Chrysler into bankruptcy, Windsor’s economy was struggling.
The city, whose metropolitan area has a population of about 320,000, has lost 14,600 manufacturing jobs since 2005. Windsor has posted the worst employment numbers in the country on and off since 2001. The June unemployment rate of 8.9 per cent was an improvement from May’s rate of 11 per cent, but the city was nevertheless crowned the unemployment capital of Canada once again.
But the economy is slowing getting back on its feet and demand for housing, particularly rentals, is improving at an even faster clip. In recent reports, the Canadian Mortgage and Housing Corporation has noted there are many forces driving up the demand for apartments in the city.
Although much of the fine detail about demographic effects on Windsor’s real estate won’t be clear until next year’s census release, the CMHC report notes that about 1,400 immigrants have moved to the city over the last two years — the sort of resident that tends to rent when they first arrive.
The University of Windsor is adding a new downtown campus, along with expectations for increased enrolment. The one-third of Windsorites aged 25 to 29 who lived with their parents when the 2011 census was taken are finally starting to find work and move out. And, just as White points out, others who headed to once-booming Alberta for work are finding their way back.
The city has begun actively marketing itself to out-of-town retirees, trying to convince them to trade in their expensive houses in Vancouver and Toronto for a significantly more affordable lifestyle and better weather in Canada’s southernmost city. In March, one representative of the local “100 Mile Peninsula Initiative” said the pitch has worked on 1,100 people since 2009, generating $286 million in real estate sales.
Sold yet? Well, before you leap on the Windsor bandwagon, keep in mind there are some important things to consider before investing in real estate in a city that’s suffered more than a decade of economic decline. Like Detroit, which sits just across the river, housing prices and median incomes drop the closer you get to the city centre. And like Detroit, Windsor still has a lot of houses that are vacant or in poor repair.
The area just east of downtown near the Caesars Windsor casino, where Guo’s son’s slanted-floor house sits, is one of the most impoverished in the city. It’s not dangerous – violent crime rates are very low throughout Windsor, especially considering Detroit typically has a murder per day – but it’s not very nice to look at, either. Shingles are crumbling off roofs, cars are parked on lawns and the window dressing trend here is blankets, not drapes. The streets are lined with vacant lot after vacant lot, where weeds grow as tall as the “For Sale” signs.
And the biggest risk to investors is still Windsor’s continued reliance on a single industry, and one that can be fickle depending on the economy, politics and the unpredictable decisions of executives in Detroit. When Fiat Chrysler Automobiles chief executive Sergio Marchionne (a University of Windsor graduate) announced he wouldn’t be accepting a subsidy from the province of Ontario because it had become a “political football” during last spring’s election, fears rippled through city that he might pull the Chrysler plant out of Windsor altogether, which would deliver a devastating economic blow in one fell swoop.
But being a real estate professional from Western Canada, Rho-Orion’s White says he’s more comfortable with the vagaries of boom-and-bust towns than many Ontario investors. He’s confident that a major urban centre with more than 300,000 people isn’t going to disappear, no matter what the Big Three auto companies do.
“Automobiles, whether they have gas engines or electric engines, the parts are going to be made close to where they’re designed,” White says. “Windsor doesn’t scare us.”
Noreen Parici is glad she wore running shoes as she walks through the dust and construction debris to see her new apartment for the first time. The retired nurse and her husband hope to move into the 1,050-square-foot, two-bedroom unit in the Windsor suburb of LaSalle in mid-August, paying $1,450 per month in rent.
“I’m very pleased. Very pleased,” she says, remarking on the neutral colour palette, the modern kitchen fixtures and the patio door leading directly out to a soon-to-be-landscaped lawn. Parici and her husband sold their condo in the neighbouring town of Amherstburg to take advantage of the hot real estate market, and plan to age comfortably in their new unit, a five-minute walk from the golf course where they spend most of their time.
Deeply suburban and car-dependent LaSalle, with its big houses on bigger lots, seems like an unlikely place for a new high-density apartment building. Out-of-towners are interested in cashing in on their houses in Vancouver and Toronto. Meanwhile the city’s downtown — and the direct flights to Florida out of the Detroit International Airport — are both short drives away.
The unemployment rate may remain high in the Windsor region, but people from other parts of the country whose working days are behind them are heading here and bringing along the hefty cheques they got for their bigger-city homes. They’re a major force behind the region’s warming real estate market. And they’re telling their friends about the great deals they’re finding, rehabilitating Windsor’s reputation a little bit more each day.