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Realty Check

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CBRE Foreword Throughout one of the most dynamic periods in capital markets, Canadian multifamily sector has outperformed and upheld its status as a coveted asset class among investors. The market accelerated in 2018 with investment volume concluding the year at a total of $8.321 Billion – a 32% increase over what was also a landmark year in 2017. Cyclical indicators and secular trends are driving investors towards multifamily in order to fulfill defensive strategies at the end of a cycle and position portfolios into the next. On average, the national vacancy rate compressed to 2.4% in 2018, marking the second consecutive year of tightening and the lowest national vacancy rate since 2008. The trend was consistent across most provinces: exceptions included Ontario and British Columbia coming off respective lows in historical vacancy. Concomitant growth in rents averaged 3.4% across the country fueled by demand from several sources. The federal government’s multi-year Immigration Levels plan is on schedule with over 300,000 new permanent residents for the second year in a row and the first of three consecutive years of escalating growth in Canada’s immigration strategy. Accompanied by gains in employment, a stable economy,

and high costs of home ownership, demand for rental housing maintained its forward progress and continues to exceed supply. Announced in 2018, the federal government’s National Housing Strategy (NHS) is slated to provide some relief to the supply-demand imbalance in urban centres across Canada via accommodative, subsidized loans and auctions of surplus public lands. Results of the NHS are anticipated in primary markets where fundamentals are tightest. While the availability of financing is a welcome change, the ability for developers to deploy new capital remains to be seen within the context of planning constraints, elevated construction costs, and numerous barriers to supply. The next 12 months are expected to reaffirm the broad strength of Canadian multifamily fundamentals, while resiliency in pricing and rental growth will be tested across Canada as the economic cycle matures and investors pursue opportunities inside a high-momentum market.

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Realty Check

Atlantic-Halifax in the urban core, pushing the average two bedroom rent up 4.2% to $1,156. Fueling this demand is population growth (attributed to in migration and immigration), downsizers, and strong economic fundamentals being experienced in Halifax, including the shipyard, the Port expansion, and continued private construction activity.

In 2018, the Halifax market saw $163 million in multiresidential trades; while the Atlantic region achieved $279 million overall. The $163 million in trade volume consisted of 24 apartment transactions, representing 58% of the sales volume for the region. In comparison to the 2017 numbers, 2018 was considered an average year for Halifax, as the investment volume decreased 26%, largely attributed to the fact that there were no large portfolio transactions. However, there were some larger trades within other Atlantic markets, including Moncton, Fredericton/Oromocto and Charlottetown.

In 2018, 1,557 new units of purpose-built rental came online in Halifax. Purpose-built rental continues to be the dominant product type since there is only limited condo production. After decades of most of the new supply being constructed in the suburbs, there is a building boom taking place in the urban core. There is still suburban product being constructed but that has been overshadowed by the major new projects underway downtown.

Despite investment demand for the Halifax market (whether it be a growing/existing portfolio or a new to market buyer), existing owners and developers were reluctant to sell, given the record low vacancy experienced this year. Buyers within this market included pension funds, REITS and private capital. Pension funds have tended to focus on larger transactions in Halifax and were less active in 2018 comparative to other years. Notwithstanding the lower trade volume, the price per unit has increased from 2017, and was just shy of $200,000 a unit as of year-end 2018; this price increase is largely attributed to sales of new construction.

Trends to watch in 2019 include an increasing amount of new construction on the peninsula, higher rents for new product, and continued positive impact of Increased immigration and population growth. By Chris Carter & Bob Mussett

The strongest year on record for Halifax has proved to be 2018, which recorded 1.6% vacancy overall, and 1.1%

Market Data Total

Year over Year

Average

Low

High

827

Up

35

8

199

$162,994,300

Up

$7,100,000

$815,000

$50,700,000

Price per Unit

Up

$197,091

$61,300

$380,000

Reported Cap Rate

Down

5.5%

5.0%

6.6%

New Rental Supply

1,557

Up

Vacancy Rate

1.6%

Down

Building Size (Units) Sale Price

321,336 & 338 Amesbury Gate Purchaser: Pension Fund City: Halifax Date Closed: March 2018 Units: 199 Price/Unit: $254,774

Sold at

$50,700,000

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Realty Check

Atlantic-Halifax

The Killick (King’s Wharf) Purchaser: REIT City: Dartmouth Date Closed: February 2018 Units: 110 Price/Unit: $300,000

The Kensington, 80 Holtwood Court Purchaser: REIT City: Dartmouth Date Closed: April 2018 Units: 114 Price/Unit: $223,355

$25,462,500

Purchaser: REIT City: Bedford Date Closed: March 2018 Units: 201 Price/Unit: $236,207

Purchaser: Private City: Halifax Date Closed: August 2018 Units: 53 Price/Unit: $96,415

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$33,000,000

Sold at

Symphony Suites, 245 Innovation

Woburn Manor – 238 Bedford Highway

Sold at

Sold at

$5,110,000

Sold at

$13,700,000


Realty Check Quebéc Québec’s multi-family investment market reached new heights in 2018. As positive economic news continued to drive a wave of optimism, the market experienced record investment volume and pricing in the face of rising interest rates. Strong employment growth and the mounting cost of housing for owner-occupation were factors that contributed to the exceptional performance of the rental market last year, helping to sustain the demand by investors for both older vintage and newly-built multi-residential assets. In addition, Quebec’s healthy economy and housing fundamentals continued to propel the construction of new purposebuilt multi-residential assets. As demand outpaced supply, Montreal’s multifamily average vacancy rate fell to 1.9% in 2018 from 2.8% in 2017.

The enthusiasm for the Québec multi-residential investment market is expected to continue into next year as many investors, both domestic and foreign, perceive it as undervalued. CBRE anticipates much of the same in 2019 in terms investment volume and property values, while keeping a close eye on demand and pricing for older vintage assets as the number of newly-built multi-residential assets available for purchase increases. By Benoit Poulin & Marc Hetu

Market Data Building Size (Units) Sale Price

Total

Year over Year

Average

Low

High

10,009

Up

88

20

447

$1,500,484,068

Up

$13,763,167

$800,000

$112,000,000

Price per Unit

Up

$135,126

$26,042

$436,125

Reported Cap Rate

Down

4.50%

3.75%

5.25%

New Rental Supply

8,879

Down

Vacancy Rate

1.9%

Down

Peel Plaza Purchaser: Private (Foreign) City: Ville-Marie Date Closed: March 2018 Units: 264 Price/Unit: $301,705

Le Monfort

Price/Unit: $208,696

Purchaser: Private (Foreign) City: Shaughnessy Village Date Closed: May 2018 Units: 230

$48,800,000

Sold at

$79,650,000

Sold at

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Realty Check Quebéc Villas Cortina Purchaser: Institutional City: Quebec City Date Closed: August 2018 Units: 110 Price/Unit: $272,727

Anjou Portfolio Purchaser: Private City: Anjou Date Closed: October 2018 Units: 176 Price/Unit: $178,977

$31,500,000

Purchaser: Private (Foreign) City: Shaughnessy Village Date Closed: October 2018 Units: 299 Price/Unit: $374,582

Purchaser: Institutional City: Shaughnessy Village Date Closed: October 2018 Units: 294 Price/Unit: $354,408

$30,000,000

Sold at

The Regency

The Shaughn

Sold at

Sold at

$112,000,000

Sold at

$104,196,000

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Realty Check Ontario (GTA) In the Greater Toronto Area, 2018 was a breakthrough year for multifamily investment.

North America since 2012 and continues to represent one-fifth of Canada’s total GDP.

A significant increase in investment volume reflected a major momentum shift on the sell-side of the market with total investment volume* increasing 70% over 2017. Landmark transactions included the sale of the Wynn Family Portfolio, Blackstone’s entry into Canadian multifamily, and several dispositions of large institutionally-held assets.

Comparatively, a total of 41,100 housing starts in 2018 represents a near-maximum construction capacity that lags behind constant drivers of housing demand. The City’s supply shortfall is estimated to be approaching levels as high as 10,000 units annually. A critical lack of new supply further concentrates demand towards a comparatively cheaper rental market and is reinforced by preferences for centrally-located, high-density housing, including rentals. As a result, rental rates reached new heights in 2018, while vacancy and turnover maintained historical lows.

Vendors are increasingly motivated by cyclical indicators and aggressive valuations supported by unprecedented growth in rental rates and the City’s dramatic supply-demand imbalance. Stabilized cap rates trend below 4.0% while growing upside in rents has compressed yields below 3.0% for properties with substantial upside to income and location attributes. Premier buildings command prices close to $400,000 per door, while assets in periphery submarkets transact between $250,000 to $300,000 per door. GTA rental fundamentals continue to pivot upon a wide range of demand forces, pushed largely by 1.9% employment growth and a population increase of 129,000 people in 2018. The GTA region has added more high-income tech jobs than any other city in

Growth expectations are considerably strong as the GTA’s rental market aims to move upward on a steep trajectory accompanied by aggressive appetite from domestic and international capital. The extreme growth pattern of the last three years will be tested as spreads compress to the tightest point since 2013 and the demand side of the market searches for the top of the curve. * Excludes seniors housing, student housing, and non-profit housing.

By David Montressor

Market Data* Building Size (Units) Sale Price

Total

Year over Year

Average

Low

High

9,641

Up

52

4

759

$2,474,346,576

Up

$13,447,536

$1,000,000

$183,316,858

Price per Unit

Up

$256,648

$51,000

$972,000

Reported Cap Rate

Down

3.63%

2.48%

5.50%

New Rental Supply

1,616

Down

Vacancy Rate

1.10%

Flat

33 & 77 Falby Court Purchaser: Private City: Ajax, Ontario Date Closed: May 2018 Units: 422 Price/Unit: $255,924

25 Cougar Court Purchaser: Institutional City: Scarborough, Ontario Date Closed: December 2018 Units: 236 Price/Unit: $250,000

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Sold at

$59,000,000

Sold at

$108,000,000


Realty Check Ontario (GTA) 1340, 1350, 1360 Danforth Road Purchaser: Institutional City: Scarborough, Ontario Date Closed: December 2018 Units: 570 Price/Unit: $272,711

2737 & 2757 Kipling Avenue Purchaser: Institutional City: Etobicoke, Ontario Date Closed: September 2018 Units: 759 Price/Unit: $241,524

$183,316,858

Purchaser: Foreign/Institutional City: Toronto, Ontario Date Closed: June 2018 Units: 191 Price/Unit: $358,754

Purchaser: Institutional City: Toronto, Ontario Date Closed: August 2018 Units: 64 Price/Unit: $506,250

$155,445,000

Sold at

120 & 130 Raglan Ave

763 Woodbine Ave & 1953, 1955 Gerrard St E

Sold at

Sold at

$68,522,000

Sold at

$32,400,000

101 Cosburn Avenue Purchaser: Private City: East York, Ontario Date Closed: April 2018 Units: 73 Price/Unit: $280,822

Sold at

$20,500,000

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Realty Check Ontario (GGH) In 2018, investors showed demand for all types of multifamily assets in the Greater Golden Horseshoe. Sales volume held steady year-over-year however the focus shifted geographically. Trade activity was led by two portfolio sales in St Catharines and several major purchases of new rental buildings in KitchenerCambridge-Waterloo.

has attracted long-term capital to cities around the Greater Golden Horseshoe. Building off strong activity from the previous year, the 2018 provincial election brought a change at the helm and a boon to the growth outlook for Ontario’s rental market. The ability for owners of new rental units to set rents at market will push values for newer buildings and pull the ceiling higher for revenue growth across all rental product. In 2019, investors will measure demand for offerings of scale in secondary markets and there will be a continued concentration on forward sales with a focus on absorption of highend rental as new units come online across Ontario.

Newly constructed rental buildings represented a much larger portion of sales volume in 2018, as forward sales were a continued trend across Ontario. Investors have focused on new construction and highquality rental buildings, anticipating that this market segment is slated to outperform over the long-term. The coinciding of attractive land values in secondary markets and a secular shift towards high-end rental

By David Montressor

Market Data Building Size (Units) Sale Price

Total

Year over Year

Average

Low

High

5,010

Down

29

3

240

$901,152,654

Flat

$4,951,388

$515,000

$66,750,000

Price per Unit

Up

$150,849

$28,800

$356,250

Reported Cap Rate

Down

4.85%

3.50%

7.57%

New Rental Supply

Up (Varies)

Vacancy Rate

Flat (Varies)

Trio on Belmont Purchaser: Institutional City: Kitchener, Ontario Date Closed: May 2018 Units: 240 Price/Unit: $278,125

49 Queen Street Purchaser: Institutional City: Cambridge, Ontario Date Closed: February 2018 Units: 153 Price/Unit: $346,130

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Sold at

$52,957,954

Sold at

$66,750,000


Realty Check Ontario (GGH) 200 Shakespeare Drive Purchaser: Institutional City: Waterloo, Ontario Date Closed: December 2018 Units: 138 Price/Unit: $275,362

76 Roehampton Purchaser: Private Equity / Institutional City: St Catharines, Ontario Date Closed: September 2018 Units: 95 Price/Unit: $243,895

$23,170,000

Purchaser: Private City: Kitchener, Ontario Date Closed: July 2018 Total Units: 38 Price/Unit: $304,605

Purchaser: Private City: Kitchener, Ontario Date Closed: July 2018 Units: 40 Price/Unit: $157,269

$38,000,000

Sold at

100 Walter Street

48 Weber Street West

Sold at

Sold at

$11,575,000

Sold at

$6,290,769

10 Ben Lomond Place Purchaser: REIT City: June 2018 Date Closed: December 2017 Units: 62 Price/Unit: $168,548

Sold at

$10,450,000

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Realty Check Alberta-Edmonton Large purchasers resuscitated Edmonton’s multifamily market in 2018 following muted sales activity the previous year. Annual investment volume spiked by 80% year-over-year, not including major seniors housing acquisitions in Q2*. Institutional advisors were the principal source of purchase activity throughout the year, primarily motivated by higheryields relative to compressed returns seen in other major urban centres. High quality rental developments are maintaining investor focus. Construction is distributed across the City with activity in peripheral areas and concentrations in Downtown. Despite consistent new supply coming online, increasing rental demand is removing latent slack in the Edmonton market. Occupancy varies by location and building type, however the positive trend is showing in the numbers as average vacancy decreased for the second consecutive year, down 160 bps to 5.3% in 2018. Pricing in Edmonton continues to be segmented by asset quality and location. Neighbourhood and

building age are having an increasingly important impact on late cycle pricing with investor focus narrowing towards core assets. Preference for superior rental product in central areas has compressed cap rates for A-Class and value-add high-rise buildings to the low 4-percent range, where rents are expected to revert to long-term averages and investors have begun to taper off incentives as buildings stabilize. The premium for quality is reflected in cap rate spreads for B-Class and low-rise properties which trade between 5-percent and 6-percent. Notwithstanding improving occupancy and rents, the likelihood of continued flight to quality will create risks and opportunities over the short-term. Trade volume is expected to maintain its elevated levels through 2019 which will correspond with a period of price discovery for all multifamily assets while demand concentrates on best in-class rental properties. *Does not include Seniors Housing

By Paul Gemmel, Cody Nelson & Thomas Chibri

Market Data* Total

Year over Year

Average

Low

High

3,509

Up

39

6

260

$537,921,547

Up

$7,939,360

$332,000

$96,100,000

Up

$153,298

$80,000

$369,615

Reported Cap Rate

Down

5.34%

2.76%

8.84%

New Rental Supply

1,893

Down

Vacancy Rate

5.30%

Down

Building Size (Units) Sale Price Price per Unit

9733 111 Street – The Hendrix Purchaser: Institutional City: Edmonton, Alberta Date Closed: November 2018 Units: 260 Price/Unit: $369,615

10125 121 Street – Pinnacle Apartments Purchaser: Institutional City: Edmonton, Alberta Date Closed: November 2018 Units: 249 Price/Unit: $245,000 (Multifamily Allocation)

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Sold at

$67,250,000

Sold at

$96,100,000


Realty Check Alberta-Edmonton 10620 116 Street – Vibe Lofts Purchaser: REIT City: Edmonton, Alberta Date Closed: November 2018 Units: 176 Price/Unit: $267,045

9939 115 Street – Edgehill Apartments Purchaser: Institutional City: Edmonton, Alberta Date Closed: October 2018 Units: 113 Price/Unit: $224,478

$25,366,000

Purchaser: Private City: Edmonton, Alberta Date Closed: June 2018 Units: 24 Price/Unit: $136,500

Purchaser: Private City: Edmonton, Alberta Date Closed: June 2018 Units: 66 Price/Unit: $287,879

$47,000,000

Sold at

10308 117 Street

12847 50 Street

Sold at

Sold at

$3,276,000

Sold at

$19,000,000

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Realty Check Alberta-Calgary Calgary’s investment volume remained in line with elevated levels seen in 2017, showing a slight increase over the previous year, and continuing upward momentum from 2016. Canadian REITs and Private Investors accounted for two-thirds of total investment with transaction activity distributed across core and suburban locations. Higher sales momentum and expectations of tightening fundamentals are having an increasingly important impact on late cycle pricing. Average vacancy decreased significantly to 3.9% while rental demand is absorbing new supply and pushing rental rates in a positive direction to +1.3% year over year. Demand for multifamily investment is relatively strong and spreads between higher yields and those of core assets have normalized in recent years. Cap rates generally trend between 4 to 5-percent, with centrallylocated, concrete product transacting at the lower end of the range. Current pricing still represents a discount to historical levels and buyers are increasingly

motivated by the opportunity to acquire at a defensive cost-basis. The City’s extended development cycle is catching up with an historical absence of purpose-built rental construction and demand is keeping pace. Overall vacancy improved in 2018 and new supply is being absorbed as projects receive occupancy permits. Investors will continue to measure the progress of Calgary’s rental market through 2019, following up on a positive 2018 trend that counteracted part of the headwinds experienced in the previous two years. Investment volume is expected to increase through 2019 and 2020, while rental rates and occupancy continue to progress. Sales activity is anticipated from vendors looking to recapitalize before the end of the current cycle as well as from new construction coinciding with the delivery of new rental projects. *Does not include Seniors Housing

By Richie Bhamra

Market Data* Total

Year over Year

Average

Low

High

1,978

Down

25

4

197

$375,091,871

Up

$4,747,998

$575,000

$39,000,000

Price per Unit

Up

$189,632

$103,333

$850,000

Reported Cap Rate

Down

4.63%

4.10%

5.15%

Building Size (Units) Sale Price

New Rental Supply

1,195

Down

Vacancy Rate

3.90%

Down

1711 25th Avenue S.W. Purchaser: Private Equity City: Calgary, Alberta Date Closed: January 2018 Units: 44 Price/Unit: $227, 273

Falconridge Gardens & Grier Place Purchaser: Institutional/Private Equity City: Calgary, Alberta Date Closed: January 2018 Units: 200 Price/Unit: $185,000

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Sold at

$37,000,000

Sold at

$10,000,000


Realty Check Alberta-Calgary Neff Apartment, 816 4th SW Purchaser: Private Investor City: Calgary, Alberta Date Closed: January 2018 Units: 92 Price/Unit: $103,696

Boardwalk Portfolio Purchaser: REIT City: Calgary, Alberta Date Closed: December 2018 Units: 304 Price/Unit: $218,750

$66,500,000

Purchaser: Private Investor City: Calgary, Alberta Date Closed: January 2018 Units: 197 Price/Unit: $192,386

Purchaser: REIT City: Calgary, Alberta Date Closed: October 2018 Units: 158 Price/Unit: $246,835

$9,540,000

Sold at

3800 Rundlehorn Drive N.E.

420 & 440 Sherwood Boulevard N.W.

Sold at

Sold at

$37,900,000

Sold at

$39,000,000

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Realty Check British Columbia Though not quite the elevated pace experienced in 2017, the Greater Vancouver and Victoria multifamily investment markets saw a tremendous amount of activity in 2018. The number of sales transactions dipped slightly, but both markets combined to achieve an extremely impressive $1,437.8MM in total transaction volume*. On a blended basis, the resulting price per door in both markets averaged $391,758 which translated to a 10.65% year-over-year increase. Despite slight interest rate increases throughout the year, capitalization rates held steady at historical lows between 2.25% - 4.00%, with retrofitted & newly-constructed buildings trading closer to the upper end of the range. The BC population reached 5 million in 2018, the first time on record the province has surpassed that threshold. Population growth in 2018 for the province was approximately 24,635 (+0.49% YoY), 95% of which was a direct result of international immigration. Metro Vancouver’s population is estimated to increase by 30,000 residents annually through 2021, to a projected total population of 2,788,000. As a direct correlation, the residential rental vacancy rate in the Vancouver CMA remained at or below 1.0% for the fifth year in a row and average rents increased by 6.2% year over year.

As global companies such as Amazon and Facebook plan to increase their labour footprint in Vancouver, in conjunction with steadily increasing migration, the vacancy rate in Metro Vancouver will inevitably remain compressed. To address this critically low supply, developers have become increasingly more proactive in sourcing opportunities to construct new purpose-built rental apartments in both Vancouver core and suburban municipalities such as Langley, Port Moody, Surrey, Burnaby and various others. Looking ahead, there is potential that market cap rates may temporarily be affected by signs of policyinduced uncertainty in the market. However, we believe the overriding factors of positive economic growth, consistent migration/population growth, insatiable rental demand and historically low interest rates will ultimately bolster the attractiveness of the Greater Vancouver and Victoria multifamily investment market. *Excludes deals sold purely on land sale basis as well as seniors housing, strata wind-up, student housing and non-profit housing.

By Lance Coulson & Greg Ambrose

Market Data Total

Year over Year

Average

Low

High

3,670

Down

33

4

456

$1,437,751,625

Down

$12,837,068

$2,000,000

$247,919,038

Up

$391,758

$117,000

$709,091

Reported Cap Rate

Unchanged

3.13%

2.25%

4.0%

New Rental Supply

793

Up

Vacancy Rate

1.0%

Up

Building Size (Units) Sale Price Price per Unit

Ottmann Portfolio Purchaser: Institutional City: West End, Vancouver & North Vancouver Date Closed: April 2018 Units: 456 Price/Unit: $543,682

The Meridian Purchaser: Institutional City: Langley Date Closed: August 2018 Units: 90 Price/Unit: $366,667

44 – theANNUAL

Sold at

$33,000,000

Sold at

$247,919,038


Realty Check British Columbia Ma Portfolio

Sold at

Purchaser: Private / Institutional Partnership City: Vancouver – East Side Date Closed: May 2018 Units: 69 Price/Unit: $318,841

$22,000,000

Robert’s Manor & Adjacent Site

Sold at

Purchaser: Institutional City: Sidney Date Closed: September 2018 Units: 60 Price/Unit: $240,000

$17,400,000

Maple Manor Apartments Purchaser: Private Canadian City: New Westminster Date Closed: May 2018 Units: 17 Price/Unit: $347,059

Wesley Place Purchaser: Institutional City: Vancouver - Downtown Date Closed: October 2018 Units: 199 + Commercial Price/Unit: $585,000

Sold at

$5,900,000

Sold at

$13,000,000

Beech Apartments Purchaser: Private Canadian City: Vancouver - Kitsilano Date Closed: August 2018 Units: 12 Price/Unit: $541,667

Sold at

$6,500,000

theANNUAL – 45

Profile for Marc Cote

theANNUAL 2019 National Edition - Realty Check  

theANNUAL 2019 National Edition - Realty Check  

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