Given all the gleaming new, but rather plain condos sprouting up across Toronto, Timbercreek Asset Management’s renovation and relaunch of a graceful Depression-era building is a refreshing change.
Timbercreek purchased the five-storey apartment building at 2837 Yonge St., long known as the Glen Grove, last fall. The property was at the time run as a hotel and rental building for people looking for temporary accommodations such as out-of-town workers on training courses and families looking for short-term stays while renovations were being completed.
Timbercreek carried out a six-month, $3.5-million renovation program that saw it gut all the units and common areas. The result was a gorgeous building of 67 suites that combine old and new touches such as original hardwood strip flooring, crown moulding, porcelain tile in the kitchen and bathrooms, stainless steel appliances and custom kitchen cabinetry. It also boasts the original steel cage elevator, one of only three of its kind still operating in the city.
Timbercreek spent about $50,000 per suite renovating the building, which it originally paid approximately $6.8 million.
The Metropolitan has also been transformed from a short-term rental building to an upscale Yonge and Lawrence address with a mix of bachelor, one-bedroom and two-bedroom apartments.
Deco-chic lobby with polished granite floors and designer accessories
The Metropolitan purchase and facelift reflects Timbercreek’s strategy to identify and buy underperforming multi-residential properties, renovate them and operate them within a number of its investment portfolios.
“These are typically great locations, they have been mismanaged, we have an opportunity to renovate them and attract a different clientele,” explained Paul Popovici, director of asset management with Timbercreek.
The Metropolitan renovation was a bit different in that Timbercreek was able to carry out construction on a vacant property. In most cases, it has to carry out renovation piece meal. “Other properties, we redo the common areas, do everything we can do, and the suites we renovate on turnover,” he said.
Renovate, relaunch, repeat
The Metropolitan purchase and relaunch is just the latest in a tried-and-true investment formula for Timbercreek.
The company created its first opportunity fund in 2007 to acquire a portfolio of underperforming multi-residential real estate in Ottawa. The assets underwent an extensive repositioning program over a three-year period and were subsequently sold for a price which resulted in a three-year net return for investors of 20%.
It subsequently created a second opportunity fund in 2008 with the $70-million capital commitment fully deployed by December 2010, creating a portfolio of 15 buildings (1,700 units) located in Ontario and Quebec.
In 2011, Timbercreek raised $100 million for a third opportunity fund.
The investment strategy to buy mismanaged or distressed multi-family assets includes substantial building envelope enhancements, suite renovations, repositioning in the market place and sequential material increases in rental rates. Timbercreek’s value-add strategy is intended to produce a five-year internal rate of return of 18-20%.
Timbercreek “was one of the first in Canada to do this,” Popovici said of the strategy launched with the first opportunity fund in 2007. “It has been about six years since we started it, we have been very successful at it.”
Uptown living on Yonge Street at Metropolitan Apartments in Toronto
Paul Popovici is not finding a lack of multi-res candidates for Timbercreek’s TLC investment strategy. “We’re actively looking for them and there are quite a few, especially with the rental market being so hot, not just in Toronto but the rest of Canada. There is a lot of opportunity to take mismanaged assets and turn them into something that a modern client would look forward.”
Timbercreek’s multi-residential strategy works best in cities such as Calgary and Toronto where the condo market is also very strong and renters are looking for alternatives.
“When the opportunity presents itself to reposition a building to better compete with the condo alternative, Toronto and Calgary are markets” that are at the top of the company’s list, said Colleen Krempulec, Timbercreek’s executive director of marketing.
“While this is a 100% rental stock building, it has been refinished with the condo market in mind.”
In Calgary, the company is currently in the midst of transforming a six-storey office building into a new, multi-residential property. Turning office to apartment is somewhat more challenging than the gutting the Metropolitan underwent, “but the structure is there, the bones are there, it is just a matter of interior work,” said Popovici.
“It fit the profile, so we decided to go for it.”