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Toronto Under Construction Podcast: Panel on Rental Apartment Development in Ontario
In this episode of Toronto Under Construction, Ben is joined by KC Daya from Clifton Blake, Howie Paskowitz from Starlight Investments, and Oren Turk from Pinemount Developments to discuss rental apartment development in Ontario. Ben asks each guest to introduce themselves, starting with Howie at 1:59, KC at 2:40, and Oren at 3:35, as they share their backgrounds and the role their companies play in Ontario’s development landscape.
State of the Rental Market: Toronto Condo Sales Slump
Ben refers to a July 2024 article from Storeys, titled Toronto Condo Sales Slump 20% As Would-Be Buyers Turn To Renting. The article explains:
“The condo market is very sensitive to interest rates, given that this segment is a traditional entry point into homeownership,” said TRREB President Jennifer Pearce. “With monthly payments remaining high and average rents edging lower over the past year, many would-be buyers remain on the sidelines. However, over the next year, an improving affordability picture will see a growing number of first-time buyers enter the condo market.”
Additionally, the article highlights that there were 17,400 condo apartment rentals reported in Q2 2024, up 25.2% compared to Q2 2023, while condo rentals listed jumped 51.3%. This surplus in listings pushed average one-bedroom condo rents down by 3.1%, and two-bedroom rents dropped by 1.9%.
Ben asks Oren how he feels about the state of the rental market, particularly in light of the increasing supply of condos. Tune in at 6:17 to hear Oren discuss how Pinemount Developments is adapting to the pressures this oversupply brings. Then, Ben asks Howie how Starlight’s purpose-built rental projects compare to condo rentals, and if they can command a premium of 5% to 10%. Tune in at 8:41 for Howie’s response.
Challenges for Developers: Sharp Drop in Housing Starts
Next, Ben references a Toronto Star article titled Toronto saw a sharp drop in housing starts in June as high interest rates catch up to developers. The article reports:
“Housing starts in the Toronto area were down drastically last month, with the Canada Mortgage and Housing Corp. (CMHC) reporting a 60% decline in total housing starts in June over the same period last year led by a sharp drop in multi-unit construction. In total, the Toronto CMA saw 861 rental apartment and 1,338 condo starts in June.”
CMHC’s lead economist, Jordan Nanowski, explained that investors face higher interest rates and slower price growth, resulting in fewer housing starts.
Ben asks KC to explain how the math behind these decisions impacts developers in 2024, specifically with rental development in mind. KC breaks down the decision-making process for Cliffton Blake; tune in at 14:07 for his response. Oren follows by offering his perspective on the current affordability crisis and its effect on both condo and rental markets.
Financing and Construction Costs in Rental Projects
Ben brings up a scenario from an opinion piece by Jonathan Diamond in Well Grounded Real Estate that explores the high rents needed to make new developments viable. The piece outlines a project cost of $700 per square foot with a 30% operating expense ratio and a debt service coverage ratio of 1.2. Ben asks KC at 27:44 how these numbers compare to the projects Clifton Blake is working on and whether he anticipates changes in construction costs or interest rates over the next year.
Ben asks Howie about the Oakhill project, a 10-storey apartment building recently completed in Oakville. Howie discusses how Starlight managed construction costs, adjusted amenities, and navigated a changing lending environment to complete the project successfully. Tune in at 31:27.
Mid-Rise Development Strategies: Avoiding Rezonings
Ben references a RENX article titled Leader Lane’s mid-rise development strategy is simple: avoid rezonings, which outlines Leader Lane’s approach to mid-rise projects by avoiding lengthy rezoning processes. The article quotes:
“Our corporate strategy for pursuing development projects in our mid-rise program is to pursue development sites, and development proposals, that do not require rezoning,” said Don Manlapaz, founding partner of Leader Lane Developments. “We’re facilitating our approvals through a site-plan approval and a minor variance.”
Ben asks Oren whether Pinemount Developments took a similar approach with the Hawthorne rental project in 2021, and if they continue to prioritize avoiding zoning risk. Oren shares insights into their strategy at 39:28.
Mixed-Use and Car-Free Neighborhoods
Ben turns to KC, referencing a National Post article titled The Car-Free Neighbourhood, which describes how Clifton Blake specializes in mixed-use, urban infill projects that avoid high-rise towers. The article explains:
“After 10 years in the business, the Toronto real estate developer has yet to build a project exceeding eight storeys in height. Instead, Clifton Blake specializes in mixed-use urban infill that builds on a human scale and blends into the surrounding architecture.”
KC explains whether rising costs have led Clifton Blake to add more density or if they remain committed to smaller, community-focused developments. Tune in at 44:06.
Land Sale and Future Development Strategies
Ben asks Oren about the 2019 sale of a low-rise rental property he developed, and whether the plan was always to sell after completion. Listen to the discussion at 54:03. Howie shares his insights at 55:04, explaining Starlight’s approach to buying and selling rental properties, and the key factors they consider in these decisions.
Innovative Technology in Rental Communities
Ben mentions a Urban Toronto article titled Starlight Developments Using Innovative Technology to Build Better Rental Communities, which discusses Starlight’s integration of smart technologies in their rental buildings. The article states:
“We believe in including technology within our building design and construction that offer innovation that ultimately improves the resident experience and helps reduce our carbon footprint,” explains Josh Kaufman, VP of Construction and Development at Starlight.
Ben asks Howie how these technologies have impacted tenant satisfaction and what feedback they’ve received. Tune in at 57:56. Oren and KC share their thoughts on integrating technology at 59:44 and 1:01:00, respectively.
Current Challenges in the Rental Market
Ben wraps up the core discussion by asking the guests about the challenges they are currently facing. Howie discusses rising development charges at 1:03:41, while Oren talks about uncertainty in capital markets at 1:08:42. KC reflects on the complexities of rental development at 1:09:36.
Rapid Fire Questions
To close the episode, Ben engages the guests with a rapid-fire round, asking questions such as: What is easier to secure right now—land, debt, or construction financing?; Would you ever take on a 50-storey rental apartment in Toronto?; and What are your thoughts on vertical blinds—thumbs up or thumbs down?
This episode offers a detailed look into the current state of rental apartment development in Ontario. Tune in to hear insights from KC, Howie, and Oren as they discuss navigating challenges, opportunities, and the future of rental housing in the province.
Tune in now to episode 72 of the Toronto Under Construction podcast!
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