In efforts to spruce up its real estate portfolio, CAPREIT has said farewells to three Ottawa apartment sites in a $136 million deal
Canadian apartment REIT is continuing its efforts to remove aging ‘non-strategic’ assets from its real estate portfolio. Last week, it announced the sale of 50% non-managing interest in three condo properties in Ottawa, which consist of 1,150 units. For the apartments, CAPREIT would receive $136 million. According to the real estate company, the deal was set as the firm is shifting its focus and evaluating its existing portfolio.
Why is CAPREIT Upgrading Its Portfolio?
Curious to learn which sites were involved in the massive deal? According to news reports, the properties sold are the Wellington Towers at 1265 Wellington St, the Riverview Place Apartments at 180 Lees Ave, and the Alta Vista Towers at 1545 Alta Vista Dr. Reportedly, the properties built between 1969 and 1981 were requiring ongoing capital expenditure to improve their growth profiles. That is what prompted the company to sell them.
The company’s CEO, Mark Kenney, explains that the real estate firm is looking to turn its A-class portfolio into an A-plus. As per reports, the cap rate is in the mid-three per cent range. News sites have also noted that CAPREIT transferred $38.7 in existing mortgages to the new owner of the sites.
Who the buyer is, however, isn’t publicly disclosed. Experts in the industry have revealed that all three properties CAPREIT had shared with Ottawa-based Paramount Properties, which is the responsible property manager.
The recent deal, however, isn’t surprising. CAPREIT has been publicly open about the intention of modernizing and upgrading its portfolio for more than a year. With their new strategy, the company would concentrate its efforts on selling more affordable, value-add properties.
As the CEO noted, these types of sites usually get higher pricing compared to traditional core assets. In the current situation, the private market is more aggressive. This provides an opportunity for CAPREIT to buy back their shares with an impressive discount, invest in new construction rental, or even pay down debt.
How New-construction Assets Can Be Beneficial
So what does the future hold for CAPREIT? As Kenny notes, we shouldn’t expect their strategy to change any time soon. The company is expected to trim its portfolio even more. In the near future, CAPREIT plans to sell other non-core properties for the same reasons it sold the three Ottawa apartment sites. There are many risks involved with older properties, and, as the CEO explains, there’s also added pressure from government regulation.
Among the biggest current challenges are the rent controls in numerous Canadian provinces. Unfortunately, it makes keeping up with inflationary costs almost impossible. Building revenues aren’t enough to cover the expenses. By selling the more affordable value-add properties, CAPREIT is trying to de-risk the investment.
Of course, selling existing assets and buying back shares will allow CAPREIT to venture into new areas. With this strategy, the trust well can focus on new construction investments. The company’s CEO emphasizes that the new direction would allow CAPREIT to contribute to Canada’s housing crisis.
New properties are a good thing for owners – they provide an opportunity for them to continue charging market rents. Investing in these kinds of properties means there’s less control to worry about in provinces like Ontario.
CAPREIT’s upcoming plans
When it comes to future plans, CAPREIT’s CEO revealed that the company isn’t planning to concentrate its efforts on developing its own projects. Instead, the firm will be looking into other investment options. Currently, CAPREIT’s main intention is to sell entitled land opportunities, not build on them. The company hopes to provide Canada with new rental accommodations.
The reason why CAPREIT’s plans matter is the fact it’s Canada’s largest publicly traded apartment REIT. It is estimated that the company owns around 65 000 residential apartment suites, townhomes and housing communities all around the country. What’s more, the real estate firm also has sites in the Netherlands.
Capreit’s decision to sell a stake in its three Ottawa apartment sites is one of the most impressive deals we’ve seen recently. This is yet another example that showcases that even though we are in a shifting market, it doesn’t mean all hope should be lost.
Whenever the market is changing, new opportunities arise – you just have to be open to seeing them. We’re excited to follow CAPREIT’s journey. Hopefully, it will bring more life to the market and provide more rental accommodations, especially because real estate experts predict that multi-family rental properties will remain strong in 2023.
Although home prices have declined in most areas of the country, rent prices are only expected to grow. The biggest increase will be seen in Vancouver and Toronto – Canada’s most expensive markets.
Founder & President, ReDev Properties
Richard Crenian is the Founder and President of ReDev Properties. Ltd, a private real estate asset management company with its head office in Toronto. ReDev Properties is engaged in the development, acquisition, ownership and management of retail and mixed-use income properties predominantly located in Western Canada and Ontario. To learn more about Richard please visit www.richardcrenian.ca