Bank of Canada Cuts Rates to Protect Its Hot Housing Market

Canada’s soaring real estate market survived the 2008 financial crisis with barely a scratch. With a surprise rate cut, Bank of Canada Governor Stephen Poloz is trying to make sure it survives an oil price crash.

The central bank cut its benchmark interest rate a quarter of a percentage point to 0.75 percent on Wednesday, an unexpected move it said would buffer the Group of Seven’s largest oil exporter from a 55 percent drop in crude oil since June.

In addition to weighing on inflation, business and government spending, the central bank said the “unambiguously negative” drop in oil prices will be a hit to jobs and income that may rattle consumption and housing.

“The big point here is that this decline in oil prices has been a shock to Canadian incomes, which from a debt-to-disposable income point of view is not good news,” Carolyn Wilkins, senior deputy governor at the bank, said Wednesday in Ottawa. “Certainly the interest rate movement we made today is designed to offset part of that.”

Canada’s housing market has been on a decade-long tear, with the average price of a house in Vancouver rising 67 percent since January 2005 to C$638,500 ($517,200) in December. Toronto prices jumped 71 percent in the same period to C$521,300, according to the Canadian Real Estate Association.

Photographer: Ian Waldie/Bloomberg

Stephen Poloz, governor of the Bank of Canada, speaks during an interview in Sydney,... Read More

The mortgages Canadians have shouldered to buy those houses helped send the ratio of household debt to a record 162.6 percent of disposable income in the third quarter.

The bank said the slump in oil will affect housing activity in energy-intensive regions, noting there has been a decrease in housing starts and a “sharp” drop in resales and sales-to-listings ratios in Alberta in December.

Calgary Market

Existing home sales slid 25 percent in December from November in Calgary, the country’s oil capital, while listings rose 36 percent, according to industry data.

“Near term housing activity elsewhere is expected to remain high, supported by very low mortgage rates, although the extent to which the downturn already evident in Alberta will spill over into other regions remains to be seen,” the bank said in its monetary policy report released with the rate decision from Ottawa.

The bank calculates that housing’s contribution to output would drop by 0.6 percent if oil prices stay at $60 a barrel through 2016, relative to $110, according to the policy report.

The bank is concerned “with declining oil prices and the fact that that’s going to detract from the overall economic growth and housing market in the country,” Jim Murphy, chief executive officer of the Canadian Association of Accredited Mortgage Professionals, said by phone. “They take these measures to ensure the Canadian economy is stimulated.”

Job Cuts

While the drop in oil prices should give consumers a break, the bank said the windfall may be used to pay debt rather than spending and stoking the economy, especially with energy companies such as Suncor Energy Inc. cutting 1,000 jobs.

“With increased risks of layoffs, those households whose incomes rely on the oil sector will have greater incentives to build precautionary savings or pay down debt,” the bank said in its report.

There’s a risk the surprise rate cut may encourage Canadians to increase their debt burden, Peter Routledge, an analyst at National Bank Financial, said.

“The risk is that household borrowing takes off again because you’ve cut rates,” he said. “They’re balancing that off against the risk of letting a period of disinflation that entrenches itself and creates longer-term problems for the economy and the housing sector.”

Canada’s largest lenders, including Toronto-Dominion Bank, have kept their prime rates unchanged so far following today’s move. That rate, which serves as a benchmark for variable mortgages to credit lines have been at 3 percent since September 2010.

“Our decision regarding our prime rate is impacted by factors beyond just the Bank of Canada’s overnight rate,” spokesman Mohammed Nakhooda said today in an e-mailed statement. “Not only do we operate in a competitive environment, but our prime rate is influenced by the broader economic environment, and its impact on credit.”

Drake Warms Up With University Of Kentucky Basketball, Shoots Airball

Drake appeared at the Wildcats' Big Blue Madness event last night.

Earlier this year, Drake celebrated the University of Kentucky’s Final Four win over Wisconsin with a visit to the team’s locker room. Claiming that he’d “always” been a fan of the team after the win in April, Drake went on to appear at the Wildcats’ Big Blue Madness event last night, an open-to-the-public practice, and warmed up alongside the squad.

Dressed in an official warm-up uniform, Drake shot around with the team and when an ESPN camera zoomed in for a close-up the Toronto emcee conspicuously shot an airball. Drake seemed to brush the miss off with a second attempt that at least hit the rim immediately after. 

Ahead of the season-opening practice, Drake also introduced the Wildcats’ head coach John Calipari to the crowd and had his own name announced in the introductions as well. Parodying himself during his introduction, Drake also pulled out a lint roller and brushed himself off, a reference to his being filmed sitting sideline at the NBA playoffs earlier this year using a lint roller.

Before the warm-up or introductions, Drake also made sure to introduce himself to every player on the team as they entered the Rupp Arena.

Brookfield declared winner in Revel auction, intends to re-open casino

Staff reports

The possible new Revel Casino-Hotel owner intends to continue to use the property as a casino, said Brookfield spokesman Andrew Willis.

Brookfield US Holdings LLC won the Revel Casino Hotel bankruptcy auction Wednesday morning with a $110 million offer, said Revel spokeswoman Lisa Johnson.

But even as a winner was declared, nothing was resolved as the sun rose on the shuttered glass tower.

A sale to the firm must be approved by a federal judge at an Oct. 7 hearing, Johnson said.

But stalking horse bidder Glenn Straub, who made an initial bid of $90 million, has complained about a lack of transparency in the process and promised to take the matter to court.

"We're taking it to the courts," said Straub from New York's LaGuardia airport Wednesday morning, where he waited for an early flight back home to Florida. "We're not doing anything else."

The two sides traded bids Tuesday night and Brookfield US Holdings of Delaware eventually pushed their off to $98 million.

Straub's group wanted to counter the offer but they could not reach their accountant at around 8:15 p.m. Tuesday, Straub's attorney Stuart Moskovitz said.

Brookfield then offered $110 million but told Revel the offer was only good until 6 a.m., Moskovitz said.

Without access to their accountants, Moskovitz criticized that as an "extortionate bid," and pledged to fight it out in the courts. He said, "There's no question that's where this will all end up."

US Securities and Exchange Commission filings indicate the current top bidder, Delaware-based Brookfield US Holdings, is an affiliate of Brookfield Asset Management, a far-flung entity with a labyrinthine corporate structure based in Toronto, Canada. It describes itself as a “global alternative asset manager with approximately $175 billion in assets under management.”

Contact information listed a Wall Street address and a Toronto area code. The number, when called, was not in service.

One wholly owned subsidiary is responsible for refurbishing the Star City Casino in Sydney, Australia.

Another affiliate invested $200 million in the acquisition and expansion of Las Vegas’s Hard Rock Hotel and Casino. When the casino faltered, Brookfield Real Estate Finance Fund II used the loan to assume control of the property in 2011.

A third affiliate took over the sprawling Atlantis resort on Paradise Island, Bahamas in 2012 in exchange for forgiving $175 million in debt to the founders Kerzner International. That property also has a casino on-site.

It is not clear what its plans are for the Revel building.

Straub, a South Florida real estate developer, made an opening offer of $90 million cash for the property at the end of the resort’s Boardwalk casino strip.

The wealthy polo enthusiast has talked about placing a university of geniuses on site to deal with world problems, erecting a second tower, as well as demolishing the structure – the second tallest in the state – if plans go awry.

Brookfield US Holdings and Straub’s firm Polo North Country Club, Inc. were the only firms to offer bids for the showcase property on Tuesday.

The bidding came as Straub’s attorneys also asked a federal judge on Tuesday to order Revel’s attorneys to produce the current bids and postpone the auction until 9 a.m. Thursday. Straub’s attorneys also claimed that Revel never produced the other bids as previously agreed upon.

"We've never had anything like this before," Straub said.

Straub has complained about the meetings leading up to the auction. If the bid deadline was Sept. 23, he asked “how the hell can you have six hours of meetings” several days later?

Bidders initially met for the auction last week, although the day was consumed with meetings and further negotiations. No bidding took place, and the auction was scheduled to resume at 10 a.m. Tuesday.

Revel opened in 2012 at a cost of $2.4 billion, with the promise of $264 million in state tax abatements. But it never turned a profit, never tapped into the abatements, went bankrupt twice and finally closed its doors on Sept. 2, throwing more than 2,600 people out of work.

Atlantic City Mayor Don Guardian said he expected the auction to conclude Tuesday as he extolled the qualities of the glass Revel tower at an event for entertainment and leisure writers in Philadelphia Monday night.

“That is the most architecturally significant building that has been built in Atlantic City, for that matter New Jersey, in the last 35 years,” Guardian said. “It has a great history. We just have to find the right management company to come down there and truly be able to use the building at that location on the beach.”

Revel was one of four resort casinos that have closed in 2014 in the face of regional competition. A fifth, Trump Taj Mahal Casino Resort, has threatened to shut down in mid-November.