Major landlord not deterred by rent control
GWL pushes ahead with Ontario project
Paul Finkbeiner is not endorsing expanded rent control rules in the country’s largest province but the chief executive of GWL Realty Advisors says it’s still possible to construct new apartments even with limits on lease increases.
GWL, the wholly owned subsidiary of The GreatWest Life Assurance Co., has about 11,000 apartments across the country constituting about 23 per cent of its assets. The company owns or manages about $17 billion in assets.
“We’ve really been waiting for the right time to build rental,” said Finkbeiner, about the 600- unit complex called the Livmore at 44 Gerrard St., just west of the busy Yonge Street corridor in downtown Toronto, to be unveiled Tuesday. “We have been waiting since 1997. We had a parking lot ( at the site) and we were earning income. Parking lots are great investments ( for sitting on land) and then you wait for the right time to build what you want to build.”
GWL looks for long- term investments that meet longt erm i ncome objectives — something many in the apartment industry have complained is under threat from expanded rent control rules brought in by Ontario in April.
Apartment buildings constructed before 1991 had long been subject to rent control rules which tie annual increases to inflation and are capped at 2.5 per cent. The guideline for 2017 has been set at 1.5 per cent. Post-1991 buildings had been exempt from any controls and landlords could charge whatever rent they wanted when a lease was up.
Rents in what is called the purpose-built rental market, which competes with one-off condominium rentals, have risen rapidly in an environment Toronto research firm Urbanation Inc., said is a near- zero vacancy rate for buildings constructed after 2005. In the second quarter of 2017, the average rental rate rose 11 per cent year over year to $ 2.67 a square foot. Vacancy rates fell from 0.5 per cent to 0.1 per cent in that segment of the market during that period.
The difficult part of constructing rental is the massive outlay of cash because landlords don’t pre- lease units like developers presell condo buildings. GWL’s new building broke ground in June, 2015, but won’t start taking occupancy until the spring of 2018, creating a risk that rental markets might not be as tight three years after the project started.
“We believe there is a strong demand for rental apartments and this property will lease up over time,” said Finkbeiner about his Livmore project that will include a first- of- its kind for Canada interactive hoarding display for passersby until it occupies. “Apartments provide good long-term returns and very low vacancy levels, it’s just one of the best asset classes from a stability point of view.”
That environment has helped boost rental construction. Urbanation Inc. said the number of purposebuilt rentals under construction was 5,821 units in the second quarter of 2017, up from 5,257 units a quarter earlier but down from 5,992 units a year ago.
The fear in some quarters is that province- wide rent control rules will reduce construction. Urbanation said proposed construction is slowing down with nine projects and 1,719 units added to the proposed inventory during the second quarter, compared to additions of 2,453 units in first quarter before the tighter controls were put in place.
GWL seems to think it can work within the new provincial rules. “As a developer, we are building something that will last for 25- 50 years that works for tenants,” said Finkbeiner. “We want longterm renters which is also consistent with our investors that are long-term in nature. These buildings go to pay pensions and people’s investments.”
He noted Ontario still allows rents to be raised to market level once a tenant leaves a unit and capital improvements to buildings can also be passed on to tenants.
“All we want is a fair rent for our apartments, we do not want above guidelines. We have been able to work within rent controls and still deliver a good product for our investors and tenants,” said Finkbeiner, who acknowledges his competition is Toronto’s booming condo market loaded with investors looking to rent out their oneoff investment. “I think that renter is going to get tired of that absentee landlord.”