With Canada’s population growing rapidly, nationwide demand for apartments continues to be strong. That has created significant development and redevelopment activity.
When five senior industry executives convened for a panel discussion about the apartment market at the Real Estate Forum Dec. 5 in Toronto, they offered insights into the strategies their companies are employing. They also updated some of their recent and current projects.
Part II of a two-part report. Part I Canada’s apartment market: We can’t build units fast enough.
What follows are capsules on the activities discussed by Killam Apartment REIT president and CEO Philip Fraser; RioCan REIT senior vice-president, asset management, John Ballantyne; Homestead Land Holdings Ltd., CEO Alf Hendry; CAPREIT president and CEO Mark Kenney; and CMLS Capital vice-president, real estate finance, Paula Gasparro.
Killam Apartment REIT
Halifax-based Killam (KMP-UN-T) has more than 16,000 apartment units in 12 markets and six provinces, as well as about 6,000 manufactured home sites, with a combined worth of $3.1 billion.
Fraser said 80 to 90 per cent of Killam’s growth has been through acquisitions and the REIT has seen steady increases in rents across its portfolio over the past 10 years.
Interest rates are expected to remain low, which Fraser said presents “huge opportunities to take market rents and move them up quite a bit.”
Fraser said one reason Killam has embraced development is new buildings are more efficient and green and help reduce its carbon footprint.
The REIT has been installing geothermal systems, which initially cost more but reduce heating and cooling costs in the long term.
Killam is also individually metering electricity and water in units in new buildings, so those expenses are charged to tenants. This has resulted in almost 25 per cent less use.
Fraser talked about four Killam apartment projects.
The Alexander is a downtown Halifax flagship building affiliated with its 155,000-square-foot Brewery Market office and retail complex. The 240-unit building, with 6,350 square feet of retail on Lower Water Street, is 100 per cent occupied.
Construction recently started on The Kay in Mississauga, after four-and-a-half years of planning and entitlement. The 128-unit building has a projected cost of $56 million and an expected yield of five per cent, and is scheduled for occupancy in 2021.
The Kay will include: geothermal heating and cooling; a ground-floor amenity room; a fitness room with studio; a large outdoor terrace with attached party room and more.
Shorefront, a 78-unit apartment in Stratford, P.E.I., is to be finished next June. It has a projected cost of $22 million and an expected yield of 5.6 per cent. It will include a rooftop solar array.
Killam purchased a 14.7-acre site with a 300,000-square-foot commercial property and residential expansion potential in Waterloo a year-and-a-half ago.
The proposed Westmount Centre redevelopment will provide new residential units and commercial space designed to complement existing uses. Fraser hopes to start the first new building late in 2020.
“With the $4 billion in proceeds we pulled out of the disposition program, we strengthened our balance sheet, paid down debt and, even more importantly, we’re reinvesting in our major market assets,” said Ballantyne.
RioCan is leveraging its urban transit-oriented locations to build mixed-use projects that include multifamily residential. Two such apartments are operating, seven towers with about 2,000 units are being built and another 2,000 units will be under construction by 2021.
“RioCan will always be a retail player, but we’ll have a ton of mixed-use coming out of the ground,” said Ballantyne. “As far as the multifamily res side goes, in 10 years it may be 10 per cent of our total revenues.”
RioCan has a development pipeline of about 27 million square feet of multiresidential.
Since RioCan is building out existing sites it already owns, it doesn’t have to pay for land and has carrying income from the existing retail components.
“We can match up the availability of trades in different markets,” said Ballantyne. “We don’t have to push on a GTA development if costs are getting unwieldy, or if we know it’s going to take four or five years to get done.”
RioCan Living is the REIT’s residential program. Its first completed project was Frontier, next to Ottawa’s RioCan Silver City Gloucester retail hub which RioCan developed and has owned for about 20 years.
“We had a six-acre piece of land with a 40,000-square-foot strip on it near the highway that never worked,” said Ballantyne. “There were no synergies with the existing retail, mainly because it was tenanted by fashion retailers.
“It was always a struggle with a bit of a revolving door, but the location was good and got a lot better when the City of Ottawa built the Confederation LRT line, which connects the Gloucester suburb to downtown Ottawa, and built the Blair station directly adjacent to our property. ”
Frontier, a 23-storey apartment with 228 suites, was completed a year ago. It’s 91 per cent leased and it’s anticipated that number will reach 100 per cent by the end of the year. The 20-storey, 200-unit second tower is now under construction.
RioCan and partner Killam will ultimately have five towers and about 900 units on the property.
eCentral is a premium rental tower that was substantially completed in late 2018 with 36 storeys and 466 units near Yonge Street and Eglinton Avenue in Toronto. It’s 82 per cent leased.
A 52-storey condominium called e8, and a 46-storey condo called e2, round out the development.
“You’ll see a lot more of these buildings springing up, not only through Toronto, but also in Calgary and Ottawa,” said Ballantyne.
Homestead Land Holdings Ltd.
Homestead has been building since the 1950s and has 26,300 apartment units. Almost all are in Ontario, with one building in Calgary. Hendry said it will add another 1,000 units to the portfolio before the end of the year when a new acquisition closes.
About 80 per cent of Homestead’s growth is through acquiring existing buildings and the remaining 20 per cent is through new construction, according to Hendry.
Homestead has an apartment under construction in Kingston that should have its first occupants next summer. It will start another apartment in Kingston in the spring. The Kingston buildings range in size from 150 to 180 units.
While Homestead has previously built in Toronto, Ottawa and Kingston, it’s now constructing the 21-storey, 178-unit The Shipman in St. Catharines.
“We’re just on the second floor in the first tower, and we already have between 30 and 40 per cent of the units committed,” said Hendry. “There seems to be considerable pent-up demand in the St. Catharines market.”
The plan is for the St. Catharines site to eventually include three apartments with about 550 units.
Homestead is in the final approval process to start building a 120-unit apartment in Ottawa early in 2020.
Hendry said the company has more than 7,000 units in Toronto and is working toward intensifying several sites.
CMLS is one of Canada’s largest independent mortgage service companies. It offers a range of mortgage services and products and lends on all types of income-producing asset classes across Canada. CMLS has a 45-year track record and eight offices.
“To date (in 2019) we’ve originated just over $5 billion and we have $23 billion in assets under administration,” said Gasparro, who discussed two high-end apartment projects CMLS was involved in financing.
The Selby is near Toronto’s Sherbourne and Bloor Streets with 500 units.
Amenities include: a concierge; overnight security; a 3,500-square-foot gym and yoga/spinning studio; an outdoor kitchen and lounge; an outdoor pool and deck terrace; a spa with a sauna, showers and meditation area; a games room; a club room; a private theatre and more.
La Voile Pointe Claire is in Pointe-Claire, Que., with 197 suites that targets the 55-plus age group.
It features: an indoor saltwater pool; a lounge/social room with fireplace, kitchen and dining room; a fitness and yoga facility; a business lounge with kitchenette; a billiards table; a virtual golf simulator; and an underground garage with electric vehicle charging stations.
CAPREIT (CAR-UN-T) was established in 1996 and has a portfolio of 64,028 managed units in Canada, Ireland and the Netherlands. The bulk of its Canadian portfolio is in Ontario and Kenney said it’s also the largest owner of apartments in Quebec.
Kenney spoke with RENX three days before the Real Estate Forum.
You can find out more about CAPREIT’s recent activities in CAPREIT raises $1B in equity in 2019, funds big growth.