REITs take long view of Vancouver?s rental market even as vacancies rise, rents drop
Joanne Lee-Young
The Vancouver Sun
The recent deal saw 614 units owned by Vancouver-based Hollyburn Properties in the West End, South Granville, West Point Grey, Kitsilano and Marpole areas sold to two Ontario-based real estate investment trusts
Vancouver’s West End was one of the neighbourhoods where properties were part of last month’s $292.5-million sale of apartment buildings to two Ontario-based real estate investment trusts. Photo by JENNIFER GAUTHIER /REUTERS files
The COVID pandemic has lowered demand for rental properties and thus what landlords are charging, but investors looking to buy apartment buildings to earn a financial return believe this is temporary, says a B.C. real estate executive.
Lance Coulson, an executive vice-president at commercial broker CBRE, sold 15 rental apartment buildings, nine of them of concrete construction and on the west side, for almost $300 million in late January.
The deal covered a total of 614 housing units in the West End, South Granville, West Point Grey, Kitsilano and Marpole that were owned by Vancouver-based Hollyburn Properties. They were sold to two Ontario-based real estate investment trusts, Ottawa’s InterRent and Toronto’s Crestpoint, for $292.5 million.
Because of its size, the deal is being cited in a motion to Vancouver city council, submitted by Coun. Jean Swanson and calling for “protecting tenants from real estate investment trusts.”
The motion, which is on Tuesday’s council agenda, proposes council write to Ottawa about the growing number of rental units owned by REITs and the “commodification of housing, housing security and affordability for Vancouver residents.”
It asks Ottawa to base tax rates for REITs “on the amount of affordable housing they provide or destroy” and for the federal and provincial governments to help facilitate the buying of rental stock by non-profits and co-operatives. Other proposals include tying financing for these deals with clear conditions to prevent rent increases upon tenant turnover.
More real estate investment trusts, which have deep pockets and make investments so they can pay shareholders, are interested in Vancouver and B.C. properties, but it’s hard to predict if other large deals like this are coming, said Coulson.
“Vancouver is not a big market compared to Eastern Canada. In Ontario and Quebec, they’ve got more land, more product and stock, and these portfolio sales are more common,” he said.
He said that apartment buildings, which offer a basic need of shelter, are a “defensive asset class” for institutional investors like REITs that want to offset some of the losses they face with their retail or office properties that have been hard hit by the pandemic. Interest rates are also very low with financing available on multi-family purchases as low as 1.7 per cent, he added.
Investors have confidence that “when students and migration return” after the pandemic, vacancy rates will once again be very tight and rents will increase.
The sale marks InterRent’s entry into Vancouver. The REIT ranks 15th on a list of the top 25 largest landlords by the number of suites owned in Canada. The list was compiled by a University of Waterloo planning professor, Martine August, for a report in 2018 looking at the shift to rental housing being increasingly owned by funds that consolidate thousands of suites.
August writes that InterRent REIT looks for markets that are “fragmented in terms of ownership and are not generally the focus of larger REITS” and that it identifies “greater opportunities for rent increases” in these markets.
That would be a dim outlook for tenants in those buildings with prime locations who, even with housing costs dampened by the pandemic, face significant affordability issues in an expensive market. Critics of rising REIT ownership of apartment buildings say rent controls would temper rising costs.
However, said Coulson, many of these existing rental apartment buildings need investment. “If your operating expenses are going up and you can’t grow your rents, you’re getting negative cash flow,” said Coulson. “That money is going to go somewhere else.”
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