Buyers of apartment buildings are wise to undertake a disciplined review of the financial risks and opportunities in heating plants, as part of the due diligence process.

 

2006 proved to be another active year for multi-residential investors, according to a report published by CB Richard Ellis Ltd.  It states that over $800 million of apartment properties traded in the Greater Toronto Area, compared to just over $600 million in 2005...an increase of over 30%.  Demand for multi-family properties remained strong, with solid activity in the GTA, southwestern Ontario, and Ottawa.

 

Cap rates ranged from lows below 5% to highs above 8% with per suite pricing ranging from lows of $45,000 to highs of $180,000.  2006 also saw a number of properties trade to investors new to the multi-residential property market.  There continues to be abundant cash earmarked for investment in real estate, with a growing proportion allocated to multi-residential properties.  The report anticipated this trend continuing into 2007.

 

Efficiency Engineering can help buyers with their due diligence process.  Considering that the average Ontario apartment buildings is over 30 years old, careful review of each building asset is critical for buyers in this tough market.  This is especially true of central heating plants, where investment in energy efficiency can be made at a much higher cap rate than the rest of the building, increasing the total asset value.

 

For a quick estimate of the cost to replace a heating plant, and typical energy savings, go to our Apartment/Condo Heating Plant Pricing Tool under the Resources section on this web site.  No personal information is requested.