David Adelberg, CEO, Investment Development Services Group
If you’re looking to redevelop your purpose-built rental building there several steps to consider, including financing, tenant relocation, zoning, and time investment. This guide provides answers to your most frequent questions.
FINANCING — CAN I, AN INDEPENDENT APARTMENT OWNER, ACTUALLY FINANCE SUCH A MASSIVE PROJECT?
The financing to develop a high-density asset is the same as when you, or previous family member had acquired the asset. It’s still the 25 per cent ratio of a down payment to financing needs; all projects are unique but the similar rule/ratio applies. In fact, the federal government recognizes the desperate NEED for rental purpose assets to be developed and have very favourable lending terms for apartment owners such as yourself to develop. If you have held the asset for many years and have substantial equity, this is recognized towards down payment security towards the financing.
ZONING AND THE CITY, WHAT DO I NEED TO DO TO GET APPROVALS?
Chances are that your multifamily asset is already a valued component of your city’s rental supply. There is also a very good chance that your municipality has already designated your area as higher density within their OCP (Official Community Plan). If not, nearby high density redevelopments can set the precedent allowing you to submit and get approval from your municipality to redevelop high density as well. Approval requires: architectural drawings, landscaping plans, engineering schematics, community amenity contributions. There is a lot of dialogue and back-and-forth with city planners. Remember, if there is a shortage of rental supply in your municipality, they want your project to succeed, they need it.
WHAT ABOUT THE CURRENT TENANTS; HOW CAN YOU HELP THEM?
Tenants are the lifeblood of our success and it can be difficult to make the decision to redevelop and ask your tenants to go through the certainly painful process of moving. Unfortunately to create a modern high-density solution for the overall benefit of the community, as well as your portfolio, you will need to end the tenancies of the existing tenants.
Ending tenancies is never a positive experience but when ending tenancy for redevelopment requires some additional consideration and sensitivity. Regardless of where the rental units are located there will be the need for compensation and some municipalities have tenant relocation programs in place that require the landlord to relocate and further compensate tenants for the significant impact that ending a tenancy can have. Additionally, your municipality may have terms that allow tenants to return to the new building at similar rates from the current tenancy agreement. Construction financing can also provide financial support to compensate for tenant relocation expenses. The new development can also be seen as a long-term benefit to the tenant in which they will have a modern building to return to and enjoy the amenities and quality of life for the long-term.
HOW LONG IS THIS GOING TO TAKE?
The timing wildcard in any development currently is the approvals and processes through your municipality’s city hall. This could take 6-18 months depending on: current zoning, OCP, capacity of the city planners to meet the demand for their time and approvals. Construction time, depending on the size and scale of the project could be 18-24 months. Preliminary financing approvals could take 6-12 weeks; in which triggering construction financing would be dependent on civic approvals for development. Five-years in total is the conservative outside time limit that we work backwards from depending on optimal timelines at each step.
Once the building is nearing completion and occupancy, marketing of the suites for rent should commence. Develop your database for viewings as soon as possible after occupancy. Rendered drawings of units and virtual reality (VR) presentations are great tools to showcase your new, modern suites offering lifestyle not just a roof over one’s head. Lease-up is key if the goal is to sell the final complete asset. Maximum sale price is achieved with full lease-up and stabilized revenue achieved.
The final, cherry-on-top benefit of your new development is the naming rights. This is an opportunity of the legacy of the family trust or flagship property of your portfolio. Recognize a loved-one, founding family member, champion of your community, or branding opportunity of your hard earned portfolio.
As daunting and intimidating the idea of developing a high rise, concrete, purpose-built rental building is, it’s the natural next step as a real estate investor.
IDS GROUP is a real estate development management company based out of Vancouver. Their are-as of expertise include project financing, architectural design; project, construction, property, and as-set management; sales and leasing; land assembly, and investment. For more information, visit www.IDSgroup.ca