Energy hub offers attractive ROI

There's electricity in the air in Saint John, New Brunswick that has investors flocking to the city. Local Realtor Marcus Power of Re/Max Professionals works with investors from Ontario to B.C., and even some from overseas. In fact, 60 per cent of his business comes from investment properties.

The buzz stems largely from its growing oil business-it's been deemed the energy hub of the Atlantic. Indeed, the sector is growing with the completion this year of the Brunswick Pipeline, which delivers natural gas to Canadian and northeastern markets in the U.S., and also the Canaport LNG terminal, which began its first phase of operations this past June.

Another massive project, a BP and Irving Oil initiative to build a secondary oil refinery in Saint John, was put on hold this summer due to global economic conditions. However, word on the street is the $8-billion project will still go forward once conditions improve. The refinery is projected to create thousands of construction jobs, as well as about 1,100 permanent positions.

Despite the attention the city's energy sector receives, it's no one-trick pony. Other major employers in the city include the Moosehead Brewery, the New Brunswick Power Corporation, the Point Lepreau Nuclear Generation Station, Aliant Telecom, and numerous information technology companies.

But Saint John's booming energy sector has definitely raised the economic fortunes of its residents, and has also been attracting migrants from across the country. Luckily for investors, many of these labourers rent. In fact, the city's vacancy rate has been consistently dropping and hit four per cent this past April. This downward trend has also been aided by a limited construction of new rental units.

Though the port city's housing market cooled off during the economic downturn, it's weathered the recently economic storm better than its oil-rich western counterparts. The August unemployment rate in Saint John was just 5.2 per cent, much lower than Alberta's rate of 7.4 per cent. Housing starts during the second quarter, too, fell only modestly at 5.8 per cent.

Certainly, Saint John's economic prospects have caught the eyes of many investors, including Elizabeth Kelly, who owns several properties in the city. "We like that there's a lot of government contract jobs, which creates a stable base," she says, adding that such workers typically rent rather than buy. "Also, rents are low, but purchase prices are much, much lower than in other cities." Indeed, with many quality properties selling for between $100,000 and $150,000, it's hard to go wrong.

The clear consensus among investors is that uptown, Saint John's city centre, is the place to be. "It has such an incredible wealth of old buildings, many of which are 100 years old, that are still in fantastic shape," says Jesse Bowness of Top Gun Real Estate Investments in Vancouver. "I love the heritage aspect of uptown."  Indeed, though the city centre has undergone a lot of gentrification along with a few new townhouse developments, it has still maintained a historic heritage-type feel. The neighbourhood is also within walking distance for many residents.

The older buildings also come at enticing prices. Bowness and his partners bought a 15-unit mixed residential and commercial space for $550,000, and building that grosses over $100,000 a year. His current tenant profile is mainly lower-income residents, but he hopes to upgrade the building over the next two years to command better rent.

Kelly has invested around the uptown area as well. The Newmarket, Ont. resident has applied a diversified strategy in the market. The investor and her partner bought a six-plex, five-plex, four-plex and a duplex. Her properties range from $110,000 for the duplex to $130,000 for the six-plex. Two properties she's particularly fond of are on the main road heading into the downtown core due to the ease of taking transit into the city centre.

Another area that's undergone redevelopment for tourist and residential use is the Waterfront and Inner Harbour, where the St. John River meets the Bay of Fundy. Some exciting private sector projects include the construction of condominiums and townhomes, hotels as well as commercial and retail space. Some of the more high profile residential developments include: the Fort Howe Townhouses, 22 units that overland the waterfront; the Robertson's Wharf Condos, a four-storey building with 13 units; and the Harbourfront Residences at Three Sisters, a 125-unit waterfront condominium community with occupancy expected in 2010.

Many of the older homes in the city come with some quirks that outsiders find bizarre. For example, floors often have a 15-degree slope from one side to the other. While this issue is normal to residents, there are other issues with many of the houses that investors must be cautious of. Indeed, Saint John is Canada's oldest city, and though many of the buildings have held up surprisingly well, others come with potentially costly problems. The more common issues include foundation cracks, plumbing and rodent issues. "There's a lot of garbage on the market so be careful with what you're buying to protect your ROI," says Power. Some even suggest hiring two inspectors before making a purchase.

Since Power is an investor himself, the Realtor is extra cautious on his clients' behalf. He takes pictures inside and outside of the building, and from across the street. Thus, before the inspector ever looks at a property he's already informed his clients of what to point out. "Between Marcus and the inspector, we're very confident with our purchases," says Kelly, who's incorporated Power into her team.

From the December 2009 issue of CRE

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