Gracorp may be new to the residential rental sector in Vancouver, but it has pulled off a near-impossible feat by acquiring a small condo building in the West End to redevelop into a purpose-built rental tower.
The company, which has been actively building rental in Calgary and Seattle, jumped on the opportunity when the city approved a policy a year ago to incentivize rental buildings in the West End. The proposed 15-storey building will be 100 per cent rental and 20 per cent of the project will be dedicated to moderate-income rental housing in keeping with the city’s criteria for rezoning proposals.
Last year, Gracorp partnered for the first time with Fiera Real Estate Core Fund LP to purchase and redevelop the four-storey wood-frame condo building, located in the highly desirable English Bay neighbourhood.
“The market had gone down a bit because of COVID, and the general market correction stuff, and we saw an opportunity and we were really fortunate to just get this thing to work financially, to turn a condo building into a rental,” said Jake McEwan, managing director, British Columbia at Gracorp.
Gracorp part of Graham Group
McEwan joined the company in July 2020 and prior to taking his current position, he’d worked as chief executive officer for Keltic Development. He’d also worked at Aquilini, Concord and Intracorp.
Gracorp is a subsidiary of the Graham Group. Graham Construction is a major construction firm with an ongoing presence throughout Vancouver.
McEwan said the purchase is remarkable because it’s so difficult to acquire such a centrally located property in the West End. The condo building, which has 38 units, is only three blocks from the beach.
Although it’s too early to confirm apartment sizes or counts, the plan is for a concrete high-rise with a portion of modern micro-suites (less than 400 square feet) designed for the tech workers expected to flood the downtown core.
The rezoning is a straightforward, more prescriptive process in the West End, and McEwan expects it will take 18 to 24 months to rezone and receive permit approvals. If that schedule is followed, he expects a completion date of 2025.
“Nobody else in the last four or five years has underwritten a rental project that I know of downtown or in the West End,” McEwan said.
Different business model for purpose-built rental
New rental projects are almost always properties that have been held for several years and brought to market. There are several such undeveloped properties being held in the West End.
“That’s a different business model,” McEwan said. “But to try to buy right now and make a rental project work, it’s unique.”
The 10-year-old company had put the word out among brokers that it was looking for rental projects in Vancouver. The West End was appealing because of the city’s new rental-friendly policy.
Avison Young brought Gracorp the deal with the condo owners at 1045 Burnaby St., where the owners were on board with the sale. They entered into the contract after the city approved the new policy in November 2020 and Gracorp officially purchased the building in August.
Some residents have moved out of the building, but many are staying on for at least a year, with Gracorp as the landlord as it goes through the rezoning and permitting process.
Condo acquisitions not always easy
McEwan was surprised the deal could be pulled off, considering that condo building purchases can be legally complex if some owners do not want to sell.
In B.C., strata law requires 80 per cent to be in agreement in order to terminate a strata ownership. If there is disagreement, it can wind up in court.
Gracorp avoided that complication and he said the firm paid slightly more for the units than the market rate.
“We didn’t grossly overpay, because you can’t for rental,” he noted. “We’re not doing high-end condos. But they got enough to make them happy and we were able to make it work as a rental building, so it’s a win-win.”
McEwan didn’t reveal the price of the property.
However, as Gracorp’s first venture into Vancouver’s rental sector, it has been pretty smooth sailing so far.
The firm has two other rental deals underway in the city: “We have other ones I can’t talk about yet, but we found a couple of amazing gems. This one is the crown jewel.”
A first for Fiera Real Estate
Once it’s developed, the rental project may be taken over by Fiera Real Estate, a major investment group, as a long-term asset, said McEwan. Fiera owns other rental buildings in Vancouver, but McEwan said this is its first rental development downtown.
Multiresidential rental currently makes up about 75 per cent of Gracorp’s portfolio, with some condos and commercial, and it often sells rental projects to larger investment groups. The company favours areas with student housing and employment hubs.
“As Gracorp, we own more malls, things like that. But, if you get a deal this good in terms of location and everything, we do love bringing in institutional partners.
“One thing about Gracorp that’s a little different is we’re part of the Graham Group, a $3-billion-a-year construction company, and we are a private equity manager ourselves, we have funds.
“A lot of the big developers in B.C. are family offices and they just have a family business kind of model. We are more aligned with institutional private equity groups because we already operate like them, so I think they like working with us.”