Ottawa-based real estate company Minto Group is taking a unique and innovative approach to one of its properties in Calgary to meet a growing market demand.
Minto Apartments has converted the aging International Hotel in the heart of the city, into premium long- and short-term rental apartments now known as The International.
The newly renovated building is a 35-storey tower with 252 units featuring a rooftop terrace, lobby bar, full-service fitness centre, party room, media room and modernized indoor pool. The building has direct access to the city’s downtown Plus 15 indoor pedestrian walkway system.
George Van Noten, who has just been appointed chief operating officer for Minto, told RENX the firm has owned the property since 2015.
Minto sought Calgary property
“We were looking for assets that allowed us to add value and maybe go after a little bit more return in regards to taking on a bit more risk. We were hoping to get more exposure outside the Ontario area and we were looking at Alberta and specifically Calgary,” said Van Noten.
“Calgary’s the fourth-largest CMA (census metropolitan area) with roughly 1.4 million people. Historically, it’s had good population growth. So, there was a lot of things for us to like about Calgary.
“We wanted to get some exposure into that GDP and we wanted to find something downtown. So, that started the process. That started the search. We came across the hotel. It’s a 1970s build . . .
“What we liked about this was a couple of things: one is it was right downtown; it was the only property at the time connected to the Plus 15; it has all kinds of office towers around it; it was a couple of blocks from the (Bow River); it was a couple of blocks from Eau Claire (Market); it was really close to some really cool restaurants and vibe.”
Van Noten said Minto has both operated and converted former hotels so the concept is not new to the company.
“Specifically what we liked about it was a couple of things. One was obviously it drives your MOIC, your return on multiple investment capital, but it really helps you to manage your risk,” he explained.
“If the market wasn’t quite right or the timing was off a little bit in terms of your construction schedule, you could continue to operate as a hotel, continue to generate income on a nightly basis, until such time that you thought you could get your rent, or until such time that the schedule allowed you to lease up.
“That became a really helpful component. Figuring out the terminal value is largely predicated on the rental rate and if you get that wrong it can be quite painful.
“So, having the ability to wait a little bit if necessary to get the right rents at the right time really reduces the risk exposure on your IRR (internal rate of return).”
The International well-suited to conversion
The newly renovated suites range in rent from $1,499 to $2,279 per month for one-bedroom and two-bedroom units. Sixteen units in the building will be rented as furnished suits – oversized units complete with a full kitchen and home furnishing.
These are designed to be attractive for business travellers looking for an alternative to hotels.
Van Noten said the timing was right for the conversion as the rental market in Calgary is improving. Rents are climbing. New product has been leased up, achieving good rents on a per-square-foot basis.
“There’s still a need for good downtown product where you’ve got highly educated professionals coming into the city . . . who are looking for a downtown location that is connected to the Plus 15.
“The winters are harsh. We’re pretty bold that this is a long-term move and we think it’s a great location,” he said. “In my perspective, I think Calgary could use more downtown product, right downtown.”
Minto was established in 1955. The company has built more than 85,000 new homes and currently manages more than 8,000 rental suites and 2.5 million square feet of office and retail space.
Van Noten said The International is currently the only project of its type the company will be undertaking. Nothing else in its pipeline fits this profile.
“We are constantly looking for obviously opportunities depending on the investment thesis and the value add. We are exclusively working now on behalf of the REIT (MI-UN-T). So, we don’t have any hotels that we are looking to convert today but we would always entertain that,” he said.
Canada’s multifamily market booming
The conversion comes at a time when Canada’s multifamily residential market is the most robust in history.
A report by CBRE said hefty returns have enticed investors, with multifamily investment volumes reaching record levels for four consecutive years, including an all-time high of $8.3 billion in 2018.
The multifamily sector also has the lowest average national cap rate of any asset class in Canada, at 4.41 per cent.
It also said the national average multifamily vacancy rate ended 2018 at 2.4 per cent, below the 10-year average of 2.6 per cent.
“The multifamily segment’s ability to generate consistent cash flows with low levels of volatility has always made apartment buildings an enticing option for investors, but the combined strength of tenant demand, rental growth and investor interest is unprecedented,” said CBRE Canada vice-chairman Paul Morassutti, in a release accompanying the report.
“Demand drivers, including a growing population and high home ownership costs, coupled with a lack of meaningful rental supply, are fueling income growth at a pace that we have never seen in many Canadian markets.”
A separate report by Morguard Corporation (MRC-T) indicated that in the multisuite residential rental market, investors looked to increase their exposure to sectors which had outperformed during times of economic weakness.
The report said investment in the sector surpassed the $2 billion mark in the second quarter.