Return of the renters
The market for tiny Airbnb-able condos may have softened, but the developers of larger, purpose-built rentals are moving forward full throttle
As far as Wes Myles is concerned, a pandemic-driven exodus out of Toronto and the corresponding plunge in rental rates he keeps reading about simply isn’t happening. “We’re not experiencing what the media is reporting,” says Myles, CEO of Clifton Blake, a private-equity firm specializing in midrise real-estate development.
Myles points to a three-storey property with 11 new rental suites that Clifton Blake completed last summer in Leslieville. “We rented up the building in the first month,” says Myles. “There’s plenty of demand for purpose-built rental properties in the market, particularly if they’re able to reach beyond a singles lifestyle with suites spacious enough to accommodate couples and families.”
What tenants won’t tolerate in this segment — rents for one- and two-bedroom suites at the Leslieville address run between $2,200 to $3,500 per month — is “inferior quality and design,” Myles adds.
The vacancy rate for newer purpose-built rental apartments in the City of Toronto increased to 5.7 per cent in the fourth quarter of 2020, up from 1.1 per cent in the same quarter a year earlier, according to a recent survey from analytics firm Urbanation Inc. Average rents in this category dipped 10 per cent over the same period to $2,337.
But with many first-time buyers getting priced out of the market as detached homes push $1 million, developers of mid- and upmarket rentals are showing no signs of slowing down.
Eighteen rental projects totalling 4,977 units are scheduled for completion in the GTA in 2021, the highest total since 1993, the same Urbanation survey found.
The Carvalo, a modernist mixeduse property Clifton Blake is developing at 899 College St., west of Ossington Avenue near Little Italy, is scheduled for completion in 2022. The seven-storey, Cubism-inspired midrise combines 89 purpose-built rental suites, ranging in size from one to three bedrooms, with 23 bilevel condos above and retail down below.
Myles describes the location as “downtown but not quite downtown,” steps from the 506 Carlton streetcar and in close proximity to parks, including Trinity Bellwoods, and eateries on the Ossington Strip.
“What I like about The Carvalo is the mix of people living at the same address,” says Justin Ditkofsky, a broker and managing partner at Toronto’s Roxborough Realty, referring to the fact that couples and families in luxury penthouses will be living alongside renters on lower floors. “Not a ton of people are doing this in Toronto, but there are positive synergies that come from building a community.” Two more mixed-use projects with purpose-built rental units are also on the drawing board at Clifton Blake, expected to come on stream in 2023.
The egalitarian concept of combining luxury condos with rental suites emerged in Chicago and New York about a decade ago, but it’s just now finding legs in Toronto, adds Ditkofsky.
All residents at The Carvalo will have access to the same marble-accented lobby and amenities that include a gym, yoga room, rooftop garden with entertainment facilities and dog run. The two-storey units, ranging in price from $800,000 for a one-bedroom to $1.5 million for a three-bedroom plus den, terrace and underground parking and 1,681 square feet of interior space, will have engineered hardwood, porcelain tile flooring and extras like lighting pendants over kitchen islands and built-in appliances. The rentals will have durable wood core doors and luxury vinyl tile with a wood grain instead of the more typical laminate.
Castlepoint Numa Inc., the company behind Toronto’s 58-storey L Tower on The Esplanade, is also embracing the rental trend. It’s developing a mid-rise with 100 purpose-built apartments (a portion of which will be priced below market) in the Junction Triangle on Perth Avenue at Bloor Street West. “Post-pandemic there may be even more demand for these offerings, with one important caveat,” says Alfredo Romano, president of Castlepoint Numa, echoing a sentiment shared by his peers. “They need to be large enough to accommodate families. We’ve been building far too much product for singles.”
Says Ditkofsky, “The market became insane to the point where anything that was built sold. As a result, developers began building small because they could charge more per square foot. COVID has flipped that thinking on its head.”
The glut of small condo apartments roughly 500 square feet in size, a large portion of which functioned as Airbnb ghost hotels, is weighing heavily on the Toronto market. A provincial crackdown on Airbnb forced as many as 18,000 such units to switch from short- to longterm rental in the first half of 2020. Many are still sitting empty and the situation is not likely to improve much post-pandemic with continued tighter controls over Airbnb.
A second mid-rise Clifton Blake is developing at 1886-1920 Eglinton Ave. W. near Dufferin Street will have about 200 rental suites, ranging in size from one to three-bedrooms — no condos. The sleek glass and ash-coloured structure with inset fenestrations, designed by Studio JCI, who also worked on The Carvalo, is situated near the future Fairbank station of the crosstown LRT. A third mid-rise, The Pacific at 2946 Dundas St. W. in The Junction, developed in partnership with Oldstonehenge Development Corp., will have 120 rental suites — no condos here either — when completed.
Michael Dobrijevic, founder of Oldstonehenge, is confident The Pacific will resonate in a post-pandemic market. That will be especially true if interest rates edge upwards from historic lows. The yield on five-year Canadian bonds, a benchmark for mortgage rates, jumped to 0.93 per cent in February. Some non-bank lenders nudged up rates and are advising clients to lock into fixed-rate mortgages in anticipation of higher borrowing costs.
For his part, Dobrijevic is doubling down on the purpose-built rental market by separately co-developing two other Toronto properties. One at 2116 Eglinton Ave. W. and Caledonia Road, and the other at 1705 Weston Rd. in Weston Village. “I don’t see people moving away from the city for an extended period of time,” says Dobrijevic. “This is where the jobs and growth are.”
To encourage urban living in new rental accommodations, government officials and approval authorities could help, says Myles, by distinguishing between condo developers using the classic build-and-sell model versus developers establishing a longer-term relationship through purpose-built rentals. “It would be nice to see reduced city charges and faster approval timelines for developers committed to a build-and-hold strategy,” he says.