Real estate investment trusts, and other financial companies that make investments so they can pay shareholders, are increasingly looking at buying rental apartment buildings in Vancouver, according to commercial brokers.
It’s an accelerating trend away from mom-and-pop or larger, family-run-company landlords, they say.
In the first half of 2020, for the sale of multi-family buildings in B.C. worth over $5 million each, there were 30 transactions valued at $620 million, the third-highest volume on record, according to broker Avison Young.
Vancouver broker Mark Goodman has 27 listings for rental apartment buildings and is preparing another seven. In total, his available listings represent $486.6 million in property value. Last year, at the same time, he had 16 listings worth $114 million.
“Some landlords are tired, shaken to the core with increases in vacancy, the stress of higher costs, and want to pass the baton,” Goodman said. “Then, there are buyers who are looking for a long-term play, not for wealth creation, but wealth preservation.”
Swanson’s motion called for “protecting tenants from real estate investment trusts,” and asks city staff to contact Ottawa and address the negative impact of REITs buying apartment buildings on housing security and affordability.
“The purpose of the REITs is to make money for their unit (or share) holders,” said Swanson. “And if the purpose of housing is to make money, then there’s going to be people who can’t afford it.”
Housing advocates and non-profit housing providers agree that REITs focused on financial returns for their shareholders may not be as motivated to have happy, stable tenants when setting higher rent prices, for example. Swanson said more REIT ownership of rental buildings can lead to gentrification and homelessness for tenants.
On the flip side, “we’re seeing increased pressure on rental housing providers, both big and small,” argues David Hutniak of LandlordBC, citing from higher vacancy rates, increased insurance, cleaning and tax costs. “It’s just not a viable proposition for more and more landlords.”
Hutniak is wary of “unintended consequences” of measures like vacancy controls that would help keep rents lower for tenants, but might push away the big capital that REITs can bring, saying that investment is acutely needed.
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Goodman describes the market as being balanced between the supply of and demand for listings, even though he is seeing more rental buildings for sale than in the past.
“While private investors made up the majority of vendors and purchasers in the first half of 2020, real estate investment trusts, or REITs and institutions are likely to increasingly emerge as buyers, particularly on larger deals, in the back half of the year and into early 2021,” according to a fall 2020 report by Avison Young.
Rental apartment buildings are seen as a very attractive and reliable investment for REITs and other financial companies in these uncertain times, said John Bunting of PwC Canada’s B.C. region real estate practice.
“It’s called (investing in) ‘beds and sheds,’ or the first basic needs of safety, security, shelter and food,” he said.
Bidding opened Monday for a package of 10 apartment buildings, with over 400 rental suites across Vancouver.
A family-run, Vancouver-based company, Hollyburn Properties Ltd., is selling these properties, which it has owned for decades. They make up almost a third of the 33 multi-family, rental buildings it owns in the Vancouver area.
Lance Coulson of real estate broker CBRE, which has the listing, and Hollyburn spokesperson Olivia Brown did not respond to questions and there is no publicly listed asking price.
Coun. Jean Swanson had a motion on the agenda for Vancouver city council last week, which mentioned the Hollyburn listing, picking it as an example of “a portfolio that could be attractive to REITS” because of its large number of buildings and units and its likely higher dollar value, she said.