JOSH BUCHANAN

October 7, 2017

Back in 2014, a Property Management company under the operating name of “Block1” apparently thought it would be a good idea to break into Saskatoon’s rental market by acquiring a large portfolio of properties just as rental rates and the price to buy rental units peaked and vacancy rates were bottoming out.

After buying in at the top of the market, they then decided to renovate many of their rental units which required finding ways to get rid of existing tenants so that they could renovate the vacant suites. This, of course, meant that revenues declined while expenses rose.

They renovated many of their suites to make them more attractive to a higher-end rental market in Saskatoon which, doesn’t really exist considering the majority of Saskatonians who can afford to buy, do buy.

As the market started to shift, vacancy rates skyrocketed, rental rates fell, return on investment for rental properties dropped, Block1 had cut its revenues both intentionally and unintentionally, started spending money left, right, and center on marketing, renovating, construction of new rental buildings and created a product with a very limited target market in the midst of a collapsing rental market.

It didn’t take long, of course, before Block1 had to file for creditor protection and they had to liquidate their properties to whoever was willing to take on their debt. All the while, leaving many unhappy contractors without payment for work done on their buildings and leaving a nearly 200-unit apartment building partially completed in Stonebridge.

I don’t consider myself to have any kind of superpowers for saying this company was headed for bankruptcy back in early 2015. This is a very good recipe for failure and it’s easy to see in hindsight why Block1 failed so badly, so quickly.

As I’ve stated in other posts, a shifting market like the one we’re witnessing is going to force Landlords to make good decisions and focus a lot of attention on developing a good reputation throughout the city if they plan to survive the downturn in the market.

An article recently caught my attention discussing a recent transaction in Saskatoon by a company known as Mainstreet Equity Corp. The Property Management company has recently acquired a large apartment building in Saskatoon which now means they hold roughly 11% of the city’s primary rental market units according to the article.

Based on my personal experience, word of mouth, and the survey I did back in February, Mainstreet Equity Corp. has not developed a good reputation as a Landlord in Saskatoon over recent years.

We now have a company with one of the worst, if not the worst reputation in Saskatoon as a Landlord acquiring a poorly maintained asset that performed poorly even under the management of one of the best companies in the city. The asset was also acquired at a price point that is still too high considering current market conditions where real estate prices have not yet fallen appropriately considering the market decline and the reduction in return on investment. On top of this, almost everything about our local economy and real estate market is continuing to trend in a negative direction. It is my personal opinion that this is a poorly timed and inappropriately priced transaction made by a company that is already headed down a bad path in a bad market.

What they are doing is spending a lot of money to increase the size of their portfolio with a property that requires a lot of spending to improve it in a city with very poor market conditions when rental prices and real estate prices have not yet bottomed out. Spending more and earning less with a bad reputation in a bad market that’s only getting worse.

I’m not necessarily saying don’t rent from this company, don’t contract with this company or that this company is completely headed down the same path as Block1. However, I do encourage people to proceed with caution as it would be a shame to see more renters or especially contractors fall victim to another situation similar to the one with Block1.

The views represented are solely those of Josh Buchanan and are independent from any professional organization.