Fuzion on Whyte, a 105-unit condominium complex located in the Old Strathcona district of Edmonton, was well into its final phase of construction when something unexpected occurred. The developer received an unprecedented offer from GWL Realty Advisors to purchase, in bulk, all units on behalf of a single private investor. On November 6, 2014, The Station on Whyte, Edmonton’s newest upscale rental development, was born.
It’s not the first time in real estate history a full building conversion has taken place; however typically it’s the inverse scenario that unfolds. An experienced developer purchases an apartment building, hires a consultant to put the entitlements in place, and then upgrades the building so that the sales team can sell the units as individual condominiums. Depending on the jurisdiction, this type of apartment-to-condo conversion can lead to significant reductions in property taxes.
So why convert a condominium into an apartment building? The simple answer is…there just aren’t enough new purpose-built apartment buildings to go around.
“There are limited opportunities to acquire quality purpose-built apartment buildings in Alberta and even fewer opportunities to acquire new-generation properties,” says Paul Finkbeiner, President, GWL Realty Advisors Inc.
In Edmonton, the current vacancy rate as reported by CMHC is just 1.1 per cent, suggesting there is ample room for growth in the rental sector. But even in Canada’s largest city, Toronto, where vacancy rates hover around two per cent, the opportunities to buy purpose-built apartment buildings are few and far between.
Amit Grover has been the Edmonton multifamily specialist with Colliers International since 2005, and is Vice President of the multifamily division. He describes condo-to-apartment conversions as “the single largest phenomenon that has occurred in 2014, that’s fueling the multifamily market.”
According to Grover, Colliers’ Edmonton office has sold several condo projects this year to pension-based clients that were originally built as new condos. “With sales trajectories moving too slowly for developers,” he explains, “selling the entire project as a rental has proven to be a great model, especially with the current demand for rentals in Edmonton.”
The “out” clause
In order to move ahead with the construction of a new project, condo developers are required to secure a certain number of pre-sales of their units. But as the construction gets underway sometimes selling additional units can be a challenge. Often the developer will include a clause in their contracts that allows them to cancel sales if the trajectory of sales is not satisfactory.
“When sales are moving slowly,” says Grover, “the developer has the option of continuing on and trying to sell more units individually—or they can use their “out” clause to cancel the current pre-sales that have already been signed up. In our case, more often than not, the developer was cancelling pre-sale units and then hiring us to sell all the units on a bulk sale basis. When we stepped in, we would advise the developers accordingly and educate them on how a potential sale could go through as a bulk deal—meaning units would end up being rented instead of individually sold.”
From Fuzion to Station…
The situation was similar when GWL Realty Advisors acquired Fuzion on Whyte from BCM Developments, an Alberta-based developer with multiple condominium properties under its belt. The Class A, four-storey development located in the heart of Edmonton’s iconic Strathcona neighbourhood, was still undergoing construction at the time the deal was struck and none of the units had yet been sold.
Today, the rental suites are described as “premium” with in-suite laundry, balconies and modern finishes, listed for between $1,450 for a one-bedroom and $1,675 for a two-bedroom. Vertica Resident Services, a subsidiary of GWL Realty Advisors, will provide property management services.
Unlike most apartment buildings, The Station on Whyte has received a Silver Designation from Built Green HD Canada, recognizing healthy indoor environments and the use of resource-efficient, environmentally friendly construction practices and products.
Accolades like this are just another advantage of acquiring properties brand new.
Erin Ruddy is the editor of Canadian Apartment Magazine.