Maroc - STOREYS.COM - A La Une - 22/Jul 16:14

"Let's Just Get The Deal Done": Inside The CRE Rush To Beat The Capital Gains Deadline

In April, when the Government of Canada first announced that it would be increasing the capital gains tax inclusion rate, concerns and criticism were widespread. The Government of Canada saw June 25 as the beginning of a new era — one with "tax fairness for every generation." The commercial real estate industry saw June 25 as the end of the current era, and after the initial shock, many in the industry sprung into action with purpose and a new goal: let's get our deals done before June 25.Comphensive transaction data is not yet widely available, but Colliers tells STOREYS that they closed 156 transactions across Canada in the month of June, which represents a 26% increase compared to June 2023 and the highest total recorded for June in a decade."I think it pulled forward some transactions and it got people racing to beat that deadline," says Colliers' National Head of Research Adam Jacobs. "I think it was a surprise how quickly it crystallized as an idea, and I think part of that is that it gets into peoples' heads that 'Okay, if the capital gains tax came out of the blue, who's to say there won't be something else coming out of the blue? Maybe I should just sell now.' There was the calculation of lower price with lower taxes now versus maybe higher price with higher taxes in the future."Although the 156 total may not seem like an astronomical number, it's important to recognize that June is typically a slow month when it comes to deal-making, says Jacobs, as people head into the summer. The total also stands out in the context of 2024, which has been a slow year as many continue to wait for economic conditions to improve." Upon inquiry by STOREYS, both Avison Young and CBRE said they were not able to provide national or local transaction data for June 2024 at this time, while Altus Group has not responded to an inquiry.However, Mark Goodman, Principal of Vancouver-based Goodman Commercial, tells STOREYS that they closed five deals just in the week leading up to June 25, which made up nearly half of the 11 deals they've done in 2024."The motivation was to mitigate their tax liability," Goodman explains. "In some cases, we had already listed their properties and they just said 'Okay, we want a closing now,' so I said 'Well, you've got to drop the price,' and they did, and we closed it. It was a win-win. It's a win for the buyer because they received a property at a price that made sense for them. For the seller, although they were perhaps a little discouraged that they had to reduce the price, they did much better when you consider the net gain, because if they missed that date, they'd be out a lot [of money] — or, alternatively, they'd have to wait until to market improves substantially."A spike in transactions was also seen in reviews conducted by STOREYS throughout June. In the seven-day period of June 4 to June 10, STOREYS saw three deals reported by commercial real estate brokers — from various brokerages across British Columbia — on LinkedIn. That number increased to seven for the period of June 11 to June 17, and then 14 for the period of June 18 to June 24, before decreasing slightly to 10 deals between June 25 and July 2. (Some deals were from Alberta and all of the above deals were aggregated and published in STOREYS' Western Canada newsletter.) Since then, the weekly totals have all been in the single digits.Of course, it's likely that not all of the deals that closed before June 25 were directly because of the capital gains deadline, but numerous brokers cited the deadline in their posts reporting closed deals, and many deals that were in early stages were also expedited, according to numerous brokers."It was important to the Vendor to have this transaction close prior to the capital gains increase," said Colliers Senior Associate John Fayad in a post reporting the off-market sale of 4254 Commerce Circle in Saanich, British Columbia. "Our team sourced a buyer that was able to execute the transaction within 30 days of placing the property under contract."In another example, Brett Aura of TRG Commercial said he was happy to have represented his client in a deal pertaining to 629 Twelfth Avenue in New Westminster, "which was expedited ahead of the June 25 capital gains tax increase." Announcing a deal regarding 3603-3611 Commercial Street in Vancouver, NAI Commercial's Taylor Durham congratulated the vendor and purchaser for "finalizing this days before the capital gain inclusion rate increase."Many of the deals that were announced between June 25 and July 2 were also for deals that closed before June 25.In an announcement of a deal for 5020 Capilano Road in North Vancouver, Colliers' Casey Weeks said the deal was "completed in just over one month and prior to the capital gains inclusion rate deadline." In another, Marcus & Millichap's Joe Ginest said his client for 1401 Lucille Starr Drive in Coquitlam was "motivated to secure the property before it hit the market and work with the seller on an accelerated closing to occur before June 24th.""That moment in time, to capture lower capital gains tax, definitely sped up deals," said Cory Wosnack, Managing Director of Avison Young's Edmonton office, in an interview with STOREYS. "It sped up the conditional period of deals significantly. It didn't exactly make properties more saleable, but it made them more closable. That was interesting. You saw less hesitation to deal with surprises during due diligence and 'let's just get the deal done' was the mindset."