Public-private partnership launches $1.3-billion fund to purchase unsold GTA condos

The condos will be converted into long-term, affordable rental housingYou can save this article by registering for free here. Or sign-in if you have an account.A private Canadian investment firm has teamed up with a provincial Crown agency to purchase and convert some of the growing inventory of unsold condominiums in the Greater Toronto Area (GTA). If all goes according to plan, the condos will be converted into long-term, affordable rental housing.Subscribe now to read the latest news in your city and across Canada.Subscribe now to read the latest news in your city and across Canada.Create an account or sign in to continue with your reading experience.Create an account or sign in to continue with your reading experience.In a press release, High Art Capital, a Toronto-based real estate investment firm, said it was launching the $1.3 billion fund in partnership with Building Ontario Fund (BOF).The pair will focus on purchasing blocks of newly completed condo units that have yet to find buyers and convert them into 2,200 rental homes, roughly 550 of which will be designated as affordable housing.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.The investment includes $294 million in mezzanine debt and $6 million in equity, according to BOF chief executive, Michael Fedchyshyn.Fedchyshyn believes that the provincial capital will help draw more private investment.“BOF’s anchor investment is providing the confidence necessary to attract private investment to the fund in the form of approximately $733 million in senior debt and $300 million in equity, bringing the total intended fund capitalization to approximately $1.3 billion,” he said.The majority of BOF’s return is expected to come from the interest on the mezzanine loan, which has a term of about five years. BOF’s equity position gives the fund a “nominal” ownership interest in the portfolio. The precise ownership share was not disclosed.The strategy comes at a difficult time for the condo market. According to real estate and consulting firm Urbanation, about 4,000 newly completed condominiums remain unsold in the GTA, with another 3,000 units in limbo after presale buyers failed to close.Urbanation president Shaun Hildebrand said the concept of institutional investors buying unsold condo units and converting them into rentals has been discussed for some time.“We’ve been calling for an initiative like this for the past two years,” he said. “The GTA housing market has two very identifiable problems, an oversupply of unsold condos and a lack of affordable housing.”Hildebrand thinks the program could absorb close to one-third of the completed unsold inventory.Similar conversations are happening in other markets.“We are currently in active discussions with numerous developers and investors who are interested in this type of opportunity,” said Mark Goodman, principal at Goodman Commercial Inc. in Vancouver.“There is a significant appetite for it … it represents a strong win-win,” he said. Developers can clear unsold inventory and redeploy that capital elsewhere, while investors can acquire high-quality units at attractive prices.”Hildebrand explained that due to weakened condo sales, investors who bought pre-construction and are now completing purchases are adding their properties to the rental market instead of selling them. “Investors are experiencing steep negative cash flow but are left without much of a choice.”Goodman said that developers left with blocks of unsold units are increasingly looking to bulk transactions instead of waiting for the market to recover.“In a normal market, standing inventory is virtually nonexistent and developers can offload any unsold units quickly,” he said. “Today, however, many projects are left with large blocks of unsold units and it will take months to absorb them through traditional sales channels. A bulk sale offers an attractive alternative.”Urbanation estimates that there are currently more than 50,000 condo units under construction in the region, including roughly 9,000 still unsold.Fedchyshyn’s stance is that the initiative is intended to address immediate housing needs while helping to stabilize the market.“Converting recently completed, unsold condos into rentals delivers fast, near-term supply without construction lead times,” he said.High Art Capital says the fund will hold the units for at least five years before selling them to qualified investors. In the meantime, affordable units will be rented at 25 per cent below local market rents or at 30 per cent of the GTA’s median household income, with protections aimed at maintaining affordability over the long term.Goodman said the strategy could become more common if governments support similar financing structures.“This approach is a clear win for any province or region seeking to expand its rental housing supply,” he said. “It offers governments a chance to help transition these homes into the hands of renters while enabling developers to move forward with new projects instead of remaining stalled.”• Email: shcampbell@postmedia.com Postmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. You will receive an email if there is a reply to your comment, an update to a thread you follow or if a user you follow comments. 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