Derek Lobo is the CEO of of SVN Rock Advisors Inc. (Courtesy SVN Rock Advisors)
B.C. and Alberta have proportionately more apartment transactions and more new apartment construction than Ontario and Quebec. The reason, SVN Rock Advisors Inc., Brokerage CEO Derek Lobo said, is 45 years of rent controls in the latter two provinces which have deterred development and contributed to affordable housing shortages.
“The industry collapsed because of rent controls and, now that it’s experiencing reinvigoration, it’s the bigger players with deeper pockets that are coming to the market,” Lobo said during the recent Affordable Housing and New Apartment Development conference in Toronto, which was billed as the first significant in-person commercial real estate event in Canada since the pandemic struck.
“But at the end of the day, I think there’s a significant opportunity to build small apartments. That’s historically what we’ve built and hopefully that will return.”
That regional disparity is evidenced in transaction activity, which might surprise those not closely involved with the sector.
Lobo said Edmonton has had 45 apartment transactions valued at $3 million or more from 2007 to 2021. Montreal is next with 25, followed by Vancouver with 23, Toronto with 16, Halifax with 15, Quebec City and Langford, B.C., with 14, Calgary and Ottawa with nine, and Granby, Que., Dieppe, N.B., London, Ont., and Spruce Grove, Alta., with seven.
During that same time frame across Canada, there have been 100 apartment transactions of less than $10 million, 83 of $10 million-$20 million, 60 of $20 million-$30 million, 46 of $30 million-$40 million, 30 of $40 million-$50 million, 14 of $50 million-$60 million, nine of $60 million-$70 million, five of $70 million-$80 million, and 11 of $100 million or more.
Small apartment buildings dominate market
The majority of apartment buildings in Canada are relatively small and Lobo said about 18,000 of the 25,000 in Ontario have fewer than 50 units.
London has had more apartment construction activity than any city in Canada, but just seven transactions as developers are holding on to their properties. The same is the case in Toronto, where large institutions are responsible for much of the recent apartment development.
Lobo estimates there are about 250 apartments being built and about 750 being planned across Canada. The average transaction price has been steadily increasing in this century and Lobo has noticed more interest in building apartments in secondary and tertiary markets since the pandemic started.
“The apartment sector is a strong sector,” said Lobo. “It’s recession-proof, it’s virus-proof, but it’s not government-proof.
“We really have to think about legislation that can happen in the future that can hurt our industry. One of the problems we have in our industry is that we don’t have a national association of apartment builders. Almost every large group has some representation in Ottawa, but there is no apartment-building group.”
Lobo also said he’d be interested in being part of a group to lobby for apartment developers federally, provincially and municipally.
What’s being built
SVN Rock Advisors, which organized the event, is a Burlington-based commercial real estate and consulting company with an exclusive focus on the apartment sector.
Before building an apartment, Lobo said developers should do a feasibility study to find out: if they should build; what they should build; how much rent they can charge; the depth of the market; how much money they can make if they build and sell; and how to minimize the tax paid on disposition.
Four-storey, wood-framed apartments with surface parking pencil out at the highest yield, according to Lobo.
He’s seeing more five- and six-storey apartments made with cold-rolled steel and hollow cores, which take about 15 months to build.
He said they work well as part of a campus, particularly in smaller markets, where you can build four 60-unit buildings in phases instead of one 240-unit building – because there’s less risk and you don’t have to build them all if they’re slow to lease up.
Many eight- to 15-storey pre-cast apartments are being built in Southwestern Ontario, said Lobo, who has seen fewer 20-plus-storey concrete apartments built in the past two years.
Infill and intensification opportunities
Lobo said many “tower-in-the-park” apartments were built in Canada in the 1950s and ‘60s, and they offer opportunities for infill and intensification. Adding a new apartment building with modern amenities to an existing site will also increase the value of the original apartment because they can share the new facilities.
“There may be opportunities for developers to work with longtime apartment owners, many of whom are now in the second and third generation and are wealthy families that don’t develop anymore and could work with a partner,” said Lobo.
Locations, unit design and size, amenities and a good property management platform drive rents, with amenities being more critical in downtown areas than in suburban areas, according to Lobo.
SVN Rock Advisors had no shopping centre clients 20 years ago. That group now comprises its largest percentage of clients, because owners are looking to redevelop sites since many of them have three quarters of their space dedicated to parking.
For retail owners looking to create a mixed-use community by adding apartment buildings, Lobo cautioned a good retail area isn’t necessarily a good apartment area, and vice versa.
“You may need to give up some of your prime retail space for a good rental entrance,” Lobo added. “In the rental business, the arrival experience is what your residents need to have to pay top rents.”
No concerns about apartment overbuilding
Lobo said there’s demand for new apartments and room to construct them, without concerns about overbuilding in most Canadian cities.
With some office buildings hit hard by COVID-19 and experiencing increased vacancy rates, Lobo said there’s a possibility of converting them to apartments.
“You need to price in the risk, but the reward can certainly be there . . . maybe office buildings are going to become cheaper in certain areas in certain cities.”
Now isn’t the time to be in the build-to-rent single-family rental business in Canada because the housing market is so hot, Lobo said.
However, there’s a definable, scalable and increasingly institutional business in the United States where developers build houses in subdivisions and then rent them. The model also provides the owner with the flexibility to sell individual houses.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
MONTREAL – The Quebec Professional Association of Real Estate Brokers says Montreal-area home sales rose 9.3 per cent in August compared with the same month last year, with levels slightly higher than the historical average for this time of year.
The association says home sales in the region totalled 2,991 for the month, up from 2,737 in August 2023.
The median price for all housing types was up year-over-year, led by a six per cent increase for the price of a plex at $763,000 last month.
The median price for a single-family home rose 5.2 per cent to $590,000 and the median price for a condominium rose 4.4 per cent to $407,100.
QPAREB market analysis director Charles Brant says the strength of the Montreal resale market contrasts with declines in many other Canadian cities struggling with higher levels of household debt, lower savings and diminishing purchasing power.
Active listings for August jumped 18 per cent compared with a year earlier to 17,200, while new listings rose 1.7 per cent to 4,840.
This report by The Canadian Press was first published Sept. 6, 2024.
