KPMG Weekly Newsletter – For the Week Ending March 4th 2007!

March 5, 2007

The following information was obtained from newspaper articles appearing
in the Globe and Mail and the National Post for the week ending March 4, 2007
The Canada Pension Plan Investment Board has committed US$300-million to a joint venture with New York-based Teachers Insurance and Annuity Association – College Retirement Equities Fund (TIAA-CREF) that will target underperforming office properties in improving markets. TIAA-CREF will invest US$312-million and own 51% of the venture. The CPP Investment Board has also committed US$200-million to a fund that owns 13 prime office, retail and industrial properties across the U.S., also in partnership with TIAA-CREF.
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Legacy Hotels REIT’s board of trustees has formed a special committee to review strategic alternatives that could include the sale of the REIT.
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The OMERS real estate portfolio had an investment return of 26.2% in 2006. Operating income from its property portfolio dropped to $350-million from $392-million, but total investment income from real estate increased to $1.02-billion from $790-million. Excluding debt, OMERS valued its real estate assets at $4.9-billion at year-end.
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Toronto-based Asian Coast Development Ltd., U.S. developer Fontainebleau Resorts and Las Vegas-based casino architect Paul Steelman are proposing to build a US$4-billion resort and casino in Vietnam. The Ho Tram project would be developed on a remote stretch of beach and forest in Xuyen Moc, Ba Ria Vung Tau province, two hours east of Ho Chi Minh City. The project awaits approval by the Vietnamese government.
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According to the new Canadian Property Index report, total returns for commercial real estate investments reached an average of 18.6% in 2006. Nationally, returns were 21.4% for office properties, 18.2% for industrial real estate, 16.5% for retail and 14.9% for multiresidential buildings. Total returns for all classes of real estate hit 35.2% in Edmonton, led by a 56.4% return for office properties. Returns for all classes of real estate rose to 30.4% in Calgary, led by a 34.7% return for office properties.
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According to Colliers International Hotels, a record $3-billion in hotel properties was sold in Canada, up 73% from 2005.
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According to the Canadian Real Estate Association, housing sales increased 4.2% to 43,179 units in January from December, on a seasonally adjusted basis. Sales were up 7.8% from a year earlier. The average price of a home rose 10.1% to $282,844 from a year earlier. Prices in Toronto were up 6% from a year earlier, while gains were higher in Alberta and Vancouver.
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According to Statistics Canada, residential construction is expected to grow by 1.4% in 2007 to $81-billion, compared with 8.5% growth in 2006.
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According to CMHC, low-rise housing starts in Toronto rose about 30% to nearly 2,100 units in January from 2006. Condo starts fell by nearly 47% to under 400 units from more than 700 a year ago. In 2006, condominium apartment starts in Peel Region soared more than 150% to about 2,600 units from a year earlier. Low-rise starts were down 27% to 5,800 units from nearly 8,000 units in 2005.
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According to the Ontario Home Builders’ Association, there were 73,417 housing starts in the province in 2006, down from 2003 and 2004, but above the 10-year average. The value of new housing, residential renovations and other related expenditures totalled $33.3-billion in 2006. The new housing and renovation sector accounted for 313,000 jobs in Ontario.
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Station Casinos Inc. has reportedly accepted a revised, management-led buyout offer worth about US$5.5-billion from a group led by the company’s founding family and Colony Capital LLC. The company’s board reportedly voted to enter into a definitive agreement with Fertitta Colony Partners LLC, which will pay $90 a share to acquire Station Casinos and take it private.
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Hilton Hotels Corp. will sell its Scandic hotel chain to the Swedish buyout firm EQT Partners AB for €833-million ($1.29-billion).
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Host Hotels & Resorts Inc. has sold three Marriott hotels for $214-million.
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Hovnanian Enterprises Inc. reported that home contracts fell 23% and its cancellation rate was 36% in its fiscal first quarter.
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Three office buildings are scheduled to open at the World Trade Center site in Manhattan at about the same time as the 90-storey Freedom Tower. The US$2.88-billion, 2.6-million square- foot office tower is scheduled to open in 2012. The Freedom Tower has tenant commitments from federal and state government agencies for about 40% of the building at US$59 a square foot. The total amount of new Manhattan office space coming on the market from 2008 to 2013 will be at least 15.8 million square feet.
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According to the U.S. Commerce Department, sales of new single family homes in the U.S. dropped 16.6% to 937,000 units in January from 1.123 million in December. The supply of new homes increased to 6.8 months in January from 5.7 months in December. The number of homes for sale at the end of January fell to 536,000 from 537,000 in December. The median home price fell 2.1% to US$239,800 in January from US$244,900 in 2006. Residential construction was down at an annual 19.1% rate in the fourth quarter.
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According to the S&P/Case-Shiller index, U.S. home prices dropped 0.7% in the fourth quarter of 2006 from the previous quarter, but were up 0.4% in the past year. Prices in the top 10 metro areas dropped 0.8% in December and were unchanged for the year. Prices in the top 20 metro areas were down 0.7% in December and were up 0.5% in the past year.
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According to Goldman Sachs, U.S. home prices are expected to fall by about 3% in 2007.
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According to the U.S. National Association of Realtors, sales of existing homes were up 3% in January from December, but fell 4.3% from a year earlier.
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According to Moody’s Economy.com, exotic mortgages represent one-third of the US$1.6-trillion in home mortgages lent in 2006. Exotic mortgages include subprimes, and prime borrowers taking negative amortization loans and “alternative A” loans.
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According to Inside Mortgage Finance, new subprime loans granted in 2006 totalled about US$605-billion, or more than 20% of the total mortgage market, compared with US$120- billion, or about 5% in 2001.
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According to the Center for Responsible Lending, an estimated 2.2 million subprime loans, or about 15%, originated between 1998 and the third quarter of 2006 will end in foreclosure. That figure includes about 488,000 foreclosures already recorded.
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According to the University of Pennsylvania’s Wharton School of Business, nearly two thirds of all home loans in the U.S. since 2003 have been aggressive. Nearly 13% of subprime loans are now in default, compared with 1.4% for all mortgages.
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According to the National Development and Reform Commission, housing prices in 70 major Chinese cities rose 5.6% in January from a year earlier and 0.6% from December. Prices increased 10.2% in Shenzhen and 9.9% in Beijing. New housing prices climbed 6.1% in January from a year earlier and 0.2% from December, while existing home prices were up 5.3% from a year ago and 1.1% from December. Prices for non-residential commercial property were 4.5% higher than a year ago and increased 0.1% from December.
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