Condos going rental – a resurgence of interest?
March 13, 2015
It's quite an amazing turn-around to see the resurgence of interest in purpose-built rental.
First the trend was everything condo. If land was available, a condo was built. If room could be found, additional phases were built. Investors were eager for new releases, lining up around the block for hours - and in some cases days - for the opportunity. Older apartment buildings were converting to condos, selling units to new residents as renters vacated. There was nothing sexy about rental and new apartment buildings were basically left out of the conversation.
Renting is necessary.
Beyond necessary, it's looking more and more attractive to investors. These are not the same investors who buy a unit, or even a few, at pre-construction pricing and sell upon registration or else rent and watch their investment improve. These are the big players, deep-pocketed investors who can afford to make a pretty lucrative offer for an entire building.
Many condo developers in Toronto have been open to deals that see what would have been another phase of a community instead become a purpose-built rental property. While the property is still titled as condominium, the owners and management will rent out units as opposed to selling them, though this title framework does allow them to be sold off in condo style at a future date if need be.
Pension funds, as a recent feature in the Financial Post focused on, are avidly interested in the rental potential as it makes an excellent investment for their model. They want a long game, investment that has longterm return. Condos don't offer that – but rental does.
Urbancorp recently sold a Liberty Village project to a single investor. Developer Cityzen also had a similar transaction recently. There are no commissions for the developers, less in legal and administrative costs with one buyer than with hundreds. The developer doesn't need to build and maintain sales offices, staff, spend money on marketing and manage deals, piecemeal, with individual buyers who make changes, involve various finishes and features and may back out on deals.Renting is in demand.
The resurgence of interest in rental is being caused by demand. While cities grow more unaffordable to live, the market becomes steeper for rental. With high market rents, it's become lucrative to landlord – enough so that it appeals to longterm investors. The lack of affordable options for living in city centres isn't sustainable for a healthy city. Toronto has just started to see momentum building for new projects, while Vancouver has started offering developers incentive to build purpose-built rental. Geoff Meggs, a Vancouver city councillor explained that the incentive to build rental is necessary, as it offers a home to those that can't afford to buy. Without somewhere for those people to live, the city would become very elitist with only the ability for the wealthiest able to live there, while all the people needed to work in the city would have to commute.
See alsoNew mixed-use rental community coming to Leslieville
It's new apartments - not condos - coming to Honest Ed's site
About Elisa Krovblit Keay
Elisa Krovblit Keay is a NextHome contributor.