On October 1, LNG Canada, a joint venture between Shell, Petronas, PetroChina, Mistubishi and KOGAS, announced that it would be moving ahead with plans to build a colossal new liquid natural gas facility in Kitimat, British Columbia. With a $40 billion price tag and an estimated construction time of five to seven years, it will be the largest infrastructure project in Canadian history.
Kitimat is a small, isolated community of just over 8,000 people. Because of its distance from Vancouver (a 15-hour drive on a good day) and subdued local economy, it has largely been ignored. But $40 billion projects have a way of garnering attention. LNG Canada projects that construction of the Kitimat facility will employ up to 10,000 workers and will result in approximately 950 full-time positions once the project is completed.
While many of the employees involved in building the facility will be housed in temporary camps, the managers and other highly skilled specialists will expect comfortable, quality accommodations for themselves and their families, something Kitimat is woefully short on. The single-family market is tapped – 77 of the available 87 residential properties in the city were under contract by October 3 – and hotel occupancy is already over 80%. These workers will have no choice but to turn to newly built properties – and they’ll be paying a premium for them.
First in
Riverbrook Estates will be the first housing development to break ground in Kitimat. With an eventual buildout of up to 300 attached and detached properties, Riverbrook will provide the stylish, modern units that LNG Canada’s temporary and long-term workers won’t find in Kitimat’s limited, aging housing stock.
By getting a jump on the competition, the team behind Riverbrook, Kerkhoff Construction and JVDEV Real Estate Group, are offering investors the opportunity to get in not only ahead of the boom, but also ahead of the inevitably inflated construction costs as well.
“If you’re looking for an electrician, you can’t just go and find someone who’s charging out at $70 to $80 an hour anymore,” says Kerkhoff Construction’s Steve Ziehr. “They’ll be difficult, if not impossible, to pull away from the LNG build, as the rates they are making there are expected to be substantially higher.” Ziehr says Kerkhoff has already locked in the project’s suppliers at pre-boom construction costs. “I can say definitively no one else has that luxury right now.”
Being first in also allows Riverbrook to set a standard of quality that players late to the game simply won’t be able to afford.
“We will be the nicest product in town, irrespective of any other considerations,” says Jason Pender of JVDEV. “But adding to that will be the fairly unavoidable fact that everyone else who comes in behind us is going to start trimming because their costs are going to be so high.”
Riverbrook’s affordability – current townhouse offerings range from $399,000 for 1,000-square-foot two-bedroom units to $599,000 for 1,400-square-foot three-bedroom units – means investors getting in on the ground floor can prepare themselves for some truly astonishing cash flow.
“If you’re first in the gates, you’re going to be able to capture some of those four- to six-year leases,” Pender says, referring to major petroleum companies’ propensity to provide housing for their workers rather than pay exorbitantly inflated hotel prices. Pender estimates that by 2020, when activity ramps up and vacancy has evaporated, Riverbrook’s 1,000-square-foot units should rent for a cool $3,500 a month, while larger units could command as much as $4,500 a month.
“These companies are smart to get in now and lock something in because they know if they don’t lock it in now for $3,500 a month, it’s going to potentially be $5,000-plus to more than $7,000 a month in two or three years,” Pender adds.
The past as present
Those skeptical of such eye-popping figures should know that Pender has already worked similar magic for some investors in Kitimat. During the four-year retrofit of the Rio Tinto Aluminum Smelter, which kicked off in 2012, Kerkhoff Construction delivered the Baxter Landing project, which Pender helped to market. Even then, when the LNG project was still being conceptualized, LNG Canada leased 10 1,000-square-foot units for $3,500 each for five years.
“That was a $4 billion project,” Pender says, adding that Kitimat’s sub-zero vacancy rate at the time forced 700 workers to live in a retrofitted ferry for months on end. “This is $40 billion, and it’s going to take seven years.” Pender estimates that rents could be as high as $4 or $4.25 per square foot by 2022 or 2023, “because there’s going to be nothing there.”
Another of Canada’s boom towns, Fort McMurray, provides a lesson in what investors can possibly expect in Kitimat. Ziehr started his construction career in the oil-rich Alberta outpost just as it was taking off.
“At the time, Fort McMurray was about 12,000 to 15,000 people,” he says. “Prior to the unfortunate collapse, it was at about 80,000 people. When I go up to Kitimat, I get the same kind of hum and sense that the town could get to that size. It’s almost unfathomable, the size and scope of [the LNG] project.”
Construction on Riverbrook’s first phase of 47 townhomes is set to begin in March; completion is scheduled to coincide with the arrival of the first wave of 1,100 workers in early 2020.
“A lot of these people are not going to want to live in the 50- to 70-year-old product that’s around town,” Pender says. “They’ll want something that’s built well, that’s new, that they can have their family in. And for the foreseeable future, Riverbrook Estates will be the only product available to them.”
