It has become increasingly difficult to attain and/or sustain success as a landlord in Ontario. Cap rates are decreasing, interest rates are increasing, rents are stable, costs are rising, vacancy is relatively high, properties are aging, and the government has tightened legislation once again. Nevertheless, buyers remain active and aggressive in a marketplace in which supply is scarce.

GTA MULTI-FAMILY SALES ACTIVITY - 2006

It was an active year in terms of multi-family asset sales in the GTA: 128 transactions (minimum 15 suites) were completed, an increase from only 84 transactions in 2005. In 2006, in excess of 10,500 units sold for more than $750 Million. However, while total unit sales in the GTA increased by 43% year-over-year, total sales volume increased only 17%. The cause of this disparity is a considerable drop in the average price per suite, to $72,512 (or 17%) in 2006, down from $87,031 in 2005.

How can this happen? Firstly, although vacancy in the GTA has decreased 0.5% overall since 2005, affordable, distressed and undermanaged properties in less desirable locations have suffered from particularly high vacancy. It is these properties that dominated the trading blocks in 2006.

Secondly, rents have remained stable over the past few years, having increased only 2.6% since 2003 (Figure 1). During the same period of time, utility costs increased by as much as 60%. The result has been a decline in the Net Operating Income of most apartment properties. A marginal (0.07%) dip in the market Capitalization Rate (Figure 2) is insufficient to compensate for the significant reductions in NOI.

Although the multi-family ownership landscape is still extremely fragmented, REITs and massive private equity investors continue to dominate bids and acquire properties at low cap rates unachievable by most return-driven private investors. In fact, 4 purchasers were responsible for more than 33% of all transactions in 2006. Transglobe continued to be the most aggressive investor, acquiring 29 GTA properties (1,786 units) for more than $130 Million.

To view the entire report, please click on the PDF file below.

Contact Michael Betsalel at 416-777-2200 for more information.

Apartment Market Trends - 2007-Feb.pdf

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