It is, after all, a good time to be in the multifamily rental market. There is a pressing need to revitalize, replace and expand existing inventories of rental stock in urban centres across Canada.
In May 2019, the REIT planted its flag in Montreal – five down, including Toronto, Calgary, Edmonton and Ottawa – one to go. Minto completed the set earlier this month when it announced a 50-50 joint venture with a subsidiary of North Vancouver-based real estate development company Darwin Properties Ltd.
The joint venture is Lonsdale Square, a large master-planned community on a pre-paid 99-year land lease with the City of North Vancouver.
“We have been looking at the Vancouver market for a number of years and as you can imagine it is a very expensive market to get into,” said Julie Morin, CFO for the REIT and for Minto Group.
“Doing it this way allows us to partner with someone who has been in the market for quite a while and has a very good reputation.”
Minto’s partnership strategy
This partnership approach is a risk-mitigation strategy the REIT has used before when entering a market where Minto Group didn’t already have an established presence.
Morin referenced last year’s move into the Montreal market, when the REIT acquired a 50 per cent interest in Rockhill, a multiresidential rental property of 1,004 suites. With that transaction, the REIT acquired the property from Ivanhoé Cambridge, together with 50 per cent co-owner I.G. Investment Management, Ltd.
“It is always good to have connections in the marketplace, especially from a development perspective,” Morin said. “Every geography is different with its rules and regulations and it is always valuable to have a partner who has worked in that geography before.”
By participating as a lender to Lonsdale Square, the REIT is also positioning itself to generate accretive earnings during the construction period without any exposure to construction risk. Minto will provide $11.9 million in mezzanine financing toward Phase 1 of Lonsdale.
It has an option to purchase the property at a five per cent discount to its appraised fair market value upon stabilization, which is expected in the spring of 2023.
“(Lonsdale) provides the REIT with the opportunity to enter the market with a newly developed property that would be immediately accretive to the REIT’s net asset value,” Michael Waters, CEO of the REIT, said in a statement.
“The deal structure is similar to our investment in the Fifth Avenue and Bank Street redevelopment project in Ottawa and underlines the continuing benefit of the REIT’s relationship with the Minto Group.”
Lonsdale a mixed-use site
Waters referred to the 99 Fifth Avenue project in Ottawa’s downtown Glebe neighbourhood – one of the city’s most desirable areas. In recent years the Glebe has had one of the lowest multiresidential vacancy rates in Ottawa, at one per cent or less.
99 Fifth Avenue is a six-storey redevelopment of a 1980s-era commercial building that will maintain heritage storefronts along Bank Street, while adding 163 new purpose-built rental units behind and above.
Lonsdale in North Vancouver is also a mixed-use site.
Phase 1 includes 113 rental suites over six stories, plus 7,800 square feet of ground-level retail. It will front on East 21st Street and a new public park connected to the Green Necklace – an urban greenway that forms a 7.5-kilometre scenic loop around North Vancouver’s city centre.
Lonsdale also lies in the midst of other amenities in development, including a new 2.4-acre park, a variety of retail properties, a daycare centre and the $200-million Harry Jerome Community Recreation Centre.
Minto is also looking at the long-term potential of the site. Under the agreement with Darwin, the REIT will have the chance to participate in future multiresidential phases, currently estimated at an additional 700 suites.