As the condo market continues to see record inventory, one investment firm aims to buy up thousands of unsold condos to convert them into rentals — a move that could have a ripple effect on the market.
Toronto-based High Art Capital is launching a $1.3-billion fund called the GTA Rental and Affordable Housing Initiative to acquire blocks of newly completed, unsold condo units across the GTA, with plans to deliver about 2,200 rental units in the near term including around 550 affordable rental units.
“Timing matters in this market. There is a rare opportunity right now to convert newly completed but unsold housing into long-term rental supply at scale,” said Ryan Roebuck, managing partner of High Art Capital, in a press release last week.
“This initiative is designed to create real housing availability in the near term, preserve a meaningful affordable component and help stabilize a critical segment of the GTA housing market.”
Part of their financing comes from the Building Ontario Fund, a board-governed Crown agency with a mission to invest in profit-making infrastructure in the province, as well as private capital.
The affordable units are intended for the GTA’s workers who may be priced out of market rentals but don’t qualify for rent-geared-to-income or other subsidized programs. A not-for-profit organization will be hired to allocate the affordable units to eligible applicants, the press release said.
Affordable rents will be 25 per cent below market rent or 30 per cent of the household’s income, the release said. Leading industry experts define affordable housing as 30 per cent of a household’s income going toward housing costs.
There will be an open submission process, where developers must submit blocks of at least 10 vacant units in registered residential or mixed-use condominium buildings, which have been completed on or after Jan. 1, 2023, and are located in Toronto, Durham, Halton, Peel or York.
The investment firm isn’t disclosing how many submissions it has so far received.
“The process is open and competitive, and we will evaluate proposals against clear criteria including location, quality, unit mix and price,” Roebuck told the Star in an email.
Roebuck added there’s a clear need for the fund as capital is tied up in unsold inventory, which weighs down current and future projects.
As for the converted rental stock, “High Art Capital, or a nominee of that entity, will be the landlord,” Roebuck said. “We will engage experienced third-party operators for leasing and tenancy management, including Del Condominium Rentals and Menkes Condominium Rentals,” to manage leasing and tenancies.
While High Art Capital may be the only investment firm to publicly announce their intention to bulk buy unsold condos, it’s part of a growing trend in the city, experts said.
“To my knowledge, this is one of the largest funds of its kind focused specifically on unsold GTA condos. They’re the only one to publicly announce like this but there are a few more quietly doing this with big money behind them as well,” said Daniel Foch, chief real estate officer of Valery.ca, an AI-powered real estate brokerage and technology platform.
For developers needing liquidity and to improve their balance sheets, it’s a smart move, he said.
Realtor Jonathan Zadegan, managing partner at the Zadegan Group, said the move is “good in terms of absorbing a lot of the inventory,” which will positively impact the market over the coming years. Lower inventory improves supply and demand conditions, and potentially allows for more sales, he added.
But there will also likely be steep discounts to unload these units, which could expedite downward price pressures on the condo market, Zadegan added.
When there are bulk sales of condo units they’re often sold at a discount.
If the condos are sold at a 20-per-cent discount, for example, it will drag down the total value of units in the building, which is detrimental to the existing condos owners.
“It depends if the transaction is done on- or off-market,” Zadegan said. Off-market means the transaction is not listed on the Multiple Listing Service (MLS).
“If it’s done off-market then it’s not going to lower the overall GTA pricing for condos, but if it’s done on-market then everyone who’s got an existing unit will see their values slashed.”
