Dark Clouds for Multi-Rez?
The multi-residential sector in the GTA had a strong 2013, but obstacles to further growth remain, according to Ashlar Urban’s John Carter. (As reality TV has shown us, put a lot of people in one living area, and things are bound to go south.)
A new report by Ashlar Urban Multi-Res Services Group (John, right, is with Ashlar teammates Marc Halbach, far left, Jeff Chelin, and Paul Campbell) shows that sales volume in the GTA multi-residential sector was up in 2013 ($1.26B, in 50+ unit buildings, highest level since 2004), cap rates remained steady (5.2%), and average prices per unit rose 3.5% (to $142k per door). “On the transaction side, we don’t expect radical changes from what we saw in 2012 and 2013,” John says.
According to the report, a low average vacancy of 1.7% pushed owners to move ahead with purpose built multi-rez, rental projects, even conversions of what had originally been condo projects. Last year was the year of the large one-time seller; REITs and large institutional owners didn’t dominate the landscape. Lower profile groups like The England Group made headlines with its sale of the 501-unit Maple Leaf Quay development (image) for a tad over $150M (4.5% cap rate). Starlight was by far the year’s largest buyer—acquiring 19 buildings in the GTA, 2,651 units, for a total dollar volume of close to $347M.
The pace of construction of rental apartments isn't meeting demand in the GTA, according to John. The void is being filled by a “band-aid” solution—a secondary rental market of new condo construction, in areas that substantiate higher rent rates. Condo owners have different objectives and timelines with their property than a professional multifamily rental owner. (Who will be the first to write a West Side Story remake with condos vs. multi-fam.) Pictured: Starlight’s 100 Dundas St E property acquired in December.
Demand for multi-rez is growing, John says, but obstacles like prohibitively high land prices, sites taken up for condo development, rising development charges, and rising construction costs impede development. What’s needed is more consultation between the government and industry to address demand for more affordable housing that projects like these provide. An amortized payment program on development charges by the city is one way to go, rather than all up front, he says.
