“The numbers are starting to work for new rental construction; they didn’t work for many years, they do work today because of high rents, low interest rates, and relatively stable construction costs,” said CAPREIT president and CEO Tom Schwartz.
Schwartz, speaking on the closing panel of the recent RealREIT conference in Toronto, said internal development may be the most exciting growth story at his REIT.
“We have high-rise buildings right across Canada; these buildings were all built in the ’60s, early ’70s when height was quite restrictive, planning departments fought height, neighbourhoods fought height. Today that is not the same. So we are looking actually at adding to the top of our buildings.”
That development push would make CAPREIT something of a pioneer, he added.
“There has been a little bit of it done in Canada, not much, they have better experience in Europe. That has incredible potential for us. If we can add three or four stories on top of every high-rise building that we own we would add many many thousands of suites at a much more effective cost than actually building them from scratch because a lot of the inventory is already in place.”
In a subsequent interview, Schwartz said the intention will be to add two to four storeys to candidate buildings: “. . . Now you look around, there are 50-storey buildings, 80-storey buildings, so the impact of adding a couple of stories to our high rises isn’t that significant to the neighourhoods.”
Beyond noise and disruption, the company needs to insure candidate buildings have adequate parking to support an expansion.
(Image has two randomly selected CAPREIT properties: Park Vista Apartments at 6 Park Vista Ave. in Toronto [upper]; and Chatsworth Apartments at 2829 Yonge St. in Toronto [lower])
Other growth for CAPREIT
Schwartz said the Toronto-based trust is also going over its land holdings with an eye to development.
“We are actually doing a land inventory today; we have a couple of rezonings in place, we will have more. I think when we make our announcement, we will have a significant development pipeline in-house.”
As well, CAPREIT has been busy partnering with real estate players who are seeking its multi-res experience.
“We are partnering in some mixed-use developments with commercial developers who want residential rental expertise which we bring (and) effective cost of capital which we bring. So those are good deals for them, good deals for us.”
As well, CAPREIT is well-positioned to grow the old-fashioned way: by acquisition.
Busy time for REIT
Earlier this month, the REIT announced the completion of its acquisition of 19 apartment properties in the Greater Vancouver Area totalling 919 residential suites for $170 million.
This latest deal caps off a year in which the REIT has added a total of 1,528 apartment suites, achieving its goal of purchasing between 1,500 and 2,000 suites on an annual basis.
And the REIT might not be done for the year just yet: “We look for further portfolio growth through the balance of the year and going forward,” Schwartz stated in announcing the deal.
That deal was followed this week by an ever bigger one in Quebec, a $490-million deal to acquire a 16-property portfolio comprising 3,661 suites approximately 194,000 square feet of ancillary commercial space in 51 buildings.
The Montreal portfolio is being acquired at an average price per suite of approximately $134,000 and a capitalization rate of approximately 4.5 per cent and the REIT expects margin improvements and rental increases down the road.
Schwartz described the Montreal addition as “a large, landmark multi-residential portfolio in the core of one of Canada’s strongest rental markets.”
As for his REIT’s busy two weeks: “Offerings of the quality and magnitude of the Montreal and Vancouver portfolios are rare and provide CAPREIT with the opportunity to leverage our existing scalable regional platforms and strengthen our position in these important markets.”