No fire yet, but Investors Group Real Property Fund may be in trouble. The Property Fund was assigned a “Mechanics Lien Notice” for improvements done at 5201 Ladner Trunk Road, Delta, BC. This is the site of what used to be a Boston Pizza before they pulled out. The building has plastered windows at this point, but you can see in the photo attached the Lien taped to the interior window.
As many people are aware, the commercial real estate market has been in a difficult situation over the past year. Vacancies have been on the rise and there has been a general lack of liquidity due to the credit crunch. These vacancies must be taking a toll on major commercial real estate holders since high vacancies translate into a lack of cash flow to service debt payments.
It has been a difficult year for many commercial real estate holders. Generally, the larger office towers in the downtown cores throughout Canada have been able to withstand some of the lack of cash flow due to investors with very deep pockets, aka. Pension Funds, but this won’t last forever.
There has been a real lack of sales within the Large Office Sector. Anything over the $15 million mark has not generated a lot of demand from potential purchasers. However, if your properties are worth less than this magic mark there have been sales, but these sales have generally been initiated by cash flow problems.
Think of it like this, if you have a property with 100 tenants and 10 go belly up and stop paying rent are you worse off than if you own a property with 3 tenants and 1 goes belly up? Obviously, holding a property with 1 tenant is riskier from a cash flow stance than a property with 100 tenants, but these really are very different markets. How many people can afford a $200 million property versus a $10 million property?
Each of these markets has different players, and Investors Group Real Property Fund is playing in the $1-20 million property market. They have likely been plagued by high vacancies and declining rents as tenants get the upper hand in a tight market.
Is Investors group about to burn from the inside out? Is there a cash flow problem at Investors Group Real Property Fund? Is there a bankruptcy looming?
These are all questions that will be answered soon. One might infer from the Mechanical Lien that there are issues affecting IG’s portfolio of Commercial Real Estate, but there may be other reasons.
Maybe Murray J. Mitchell, the fund manager since July 2003, will provide some answers.
Funds Symbols
Investors Real Property A (MUTF_CA:IGI286) & Investors Real Property C (MUTF_CA:IGI011)
The principal objective of the Fund is long-term capital growth combined with a continuing income stream. To achieve this objective, the Fund has assembled, and intends to continue to assemble, a diversified portfolio of income-producing real estate with a better than average potential. Provides potential long-term capital growth and steady income through a portfolio of high-quality Canadian real estate. Offers a hedge against inflation. Suitable for investors seeking long-term growth, as well as some current income, and who can accept some variability in returns. Priced Bi-monthly.
