Toronto Residential and Multi-family Summit

By Shawn P. Lubic, Senior Financial Analyst, Capital Markets, Cushman & Wakefield, Toronto

I attended Bisnow’s Toronto Residential and Multifamily Summit on April 26, 2018. The summit consisted of two panels. The Residential Development Roundtable which dealt primarily with condominium development. The panel included Shamez Virani (CentreCourt), Greg Rogers (Timbercreek), Geoffrey Matthews (Great Gulf) and Jordan Morassutti (North Drive).

The Toronto Market Outlook panel dealt primarily with multifamily development. Panel members included Adrian Rocca (Fitzrovia Real Estate), Jordan Robins (First Capital Realty), Trish Macpherson (CAPREIT), and Lizaine Wheeler (Northview Apartment REIT).

The following is a summary of points that I found interesting:

Residential Development – Condominiums

Condominium developers are less bullish on un-zoned land due to the uncertainty of what the approval process is going forward

Developers seeing a 20-30% premium for zoned land

Zoned residential land is cresting the $260 /sf buildable mark at premium locations

Construction costs are increasing at 5-7% per year. Developers are running into trouble and/or abandoning projects as they sold units in 1 cycle and now have to build in another due to the long process that exists

The 905 areas of Toronto are more developer friendly and will see an increase in projects

Developers are using wood frames for buildings up to 6 stores in order to get projects to market sooner

2018 expected to see minimal condo price increases 0-5%.

New high-rise development is not suited for families. Families will be pushed to the suburbs and the Toronto will get younger and younger.

50% of condo unit buyers are domestic investors. The foreign buyer story was exaggerated. Developers estimate 5% or less of the buyers are “foreign”.  The 15% surcharge has done nothing to lower prices.

Large Toronto developers looking to develop more in the U.S. due to easier and quicker process.

The Panel of developers were most concerned about: rising interest rates, increased development fees, rent controls, any government regulation to “fix” any issues, overall timing which leads the sale in one cycle and the construction in another, a change in government which could potential pull back on infrastructure spending.

Toronto Market Outlook – Multi-Res Development

New construction rents typically $3.50 – $3.80 /sf with some surpassing the $4.00 / sf mark

Developers are underwriting to a 5% cap on stabilized

At $3.50 rents, a developer can pay $180 per buildable square foot and achieve upper teen returns

100 basis point spread between purchasing existing multi-family and building it is insanity (but that’s what they are doing)

Government is getting more aggressive with affordable unit requirement. Developers are looking for trade-offs to make the deals work i.e. lower DC’s, lower percent affordable, quicker approvals.

There is no one central government agency that controls the ability to give these trade-offs, many arms of government involved which hampers the ability to compromise.

Retail owners and owners of older apartment sites with excess land are looking to build on their existing sites giving them a leg up as their land is “free” vs. the market