Canada builders shift from condos to rentals amid investor demand

Morguard

04/02/2016 21:37

By Andrea Hopkins 
    TORONTO, Feb 4 (Reuters) - Amid fears of a bubble in 
condominium prices in Canada's largest cities, developers say 
they are shifting from building condos to high-rise rental 
apartments, as institutional investors look for assets with 
steady cash flow. 
    Canadian developers have largely focused on condos for more 
than a decade, but builders say demand from pension funds and 
real estate investment trusts (REITs) for rental income to 
diversify their portfolios has them shifting gears. 
    The result is, not only more rental units on offer in cities 
like Vancouver and Toronto, but a slowdown in the supply of new  
condos.  
    "It's easier to make money in rental than it used to be," 
said Christopher Wein, president of Great Gulf Residential, a 
developer with projects in Canada and the United States. 
    "The fact that pension funds and institutional investors are 
looking for more long-term income producing assets like 
purpose-build residential rental towers gives us more 
opportunity to sell the buildings once they are completed." 
    All of the 12 projects Wein has in the design stage were 
planned as condominiums, but he now intends to make four of them 
rental projects. 
    Developers point to solid rental demand. Recent data from 
Canada's national housing agency showed the vacancy rates in 
Toronto and Vancouver were 1.5 percent and 0.8 percent 
respectively, well below the national average of 3.3 percent. 
    "There is an absolute rise in rental interest," said 
Jonathan Wener, chief executive of developer Canderel. "There 
are a lot of institutional investors who prefer the recurrent 
revenue stream from apartments." 
    Montreal-based Canderel, which built Canada's tallest condo 
tower in Toronto, has proposed a combination of rentals and 
condo units within a multi-billion dollar proposal for the 
LeBreton flats mixed-used site in Ottawa.  
    Rai Sahi, chief executive of real estate company Morguard 
Corp and Morguard REIT, said the shift by developers to rentals 
may be less about demand for them than their fears of a condo 
glut. 
    "It may well be some of the condo guys are realizing that 
they can't sell condos because the market has come to a point 
where there are too many condos already. So they may not have a 
choice," said Sahi. 
    But James Midwinter, executive vice president of development 
at GWL Realty Advisors, said it's the steady income that 
investors want. 
    "There has been a great increase in appetite to own 
multi-family residential by institutional investors," said 
Midwinter. "These buildings are always full .... so it might not 
provide as high a return as in commercial real estate, but it's 
a very stable investment." 
    Great Gulf's Wein acknowledged there is a limit to how big 
the rental market will ever get, in part because the high price 
of land. 
    "Purpose-built rental is not for the faint of heart, and you 
have to go in with your eyes wide open because you may end up 
owning it for 25 years ... not all condo developers can handle 
that - it takes a lot of equity to hold for 30 years." 
 
 (Additional reporting by Allison Lampert in Montreal) 
 ((Andrea.Hopkins@thomsonreuters.com; 416 941 8159; Reuters 
Messaging: andrea.hopkins.thomsonreuters.com@reuters.net)) 
 
Keywords: CANADA HOUSING/