A surge in bulk condo purchases is reshaping Canada’s largest real estate markets. Toronto and Montreal are seeing investment firms snap up unsold units, converting them into long-term rentals. This trend is particularly pronounced in the Greater Toronto Area (GTA), where firms like High Art Capital are leading the charge. High Art’s GTA Rental and Affordable Housing Initiative, launched in April, is a $1.3 billion fund aimed at acquiring unsold condominiums for conversion into rental housing. This initiative not only addresses the housing shortage but also provides below-market rental options for specific groups, such as the 650 union members of SEIU Healthcare who recently gained access to these units.
In April, High Art Capital launched a $1.3 billion fund to acquire blocks of new, unsold condos in the Greater Toronto Area (GTA). They recently partnered with SEIU Healthcare to offer 650 union members below-market rental housing. This partnership is part of a broader strategy to address the affordable housing crisis in the GTA, where the demand for rental units continues to outpace supply.
Bulk buying gains momentum
High Art isn’t alone in this strategy. Jesta Group, another major player, acquired a $30 million condo portfolio near Toronto Metropolitan University and has ambitious plans to invest $500 million in over 1,000 units within the next 12 months. This acquisition is part of a larger trend where investment firms are targeting unsold units, often at significant discounts. In Montreal, Ipso Facto’s purchase of 165 units at 1 Square Phillips for $65 million is another example of this growing trend.
Jesta Group’s strategy extends beyond Toronto, as evidenced by their acquisition of 94 units in Montreal’s Quinze Cent condo for nearly $34 million. This purchase, made through a holding company owned by Jesta’s CEO and CFO, highlights the firm’s diversified approach to bulk condo buying. Similarly, Ipso Facto’s acquisition in Montreal was part of a restructuring process involving the insolvency trustee firm Raymond Chabot, indicating that these bulk purchases are often part of larger financial strategies to manage distressed assets.
Developers face tough choices
Developers with stalled sales are confronted with difficult decisions. They can choose to terminate agreements and return deposits, or they can sell to investors who will complete the buildings as rentals. Some developers opt to complete the buildings and forward-sell to rental operators, a strategy that can mitigate immediate financial losses. However, these decisions come with long-term implications, particularly regarding the Tarion warranty coverage, which is lost when units are sold to bulk buyers. This loss can significantly impact the future marketability of these units.
Margulies notes that bulk buyers typically plan to rent units for about five years, anticipating a market recovery before selling. However, this strategy is not without risks. The success of these ventures depends on effective management of large-scale rental properties, which can be complex and costly. Additionally, the financial viability of these projects is often precarious, with high land and construction costs relative to rental income. Not all buildings are suitable for this model, and some may fail to generate a positive return on investment.
Meanwhile, Tarion and condo deposit insurers face financial risks from projects that fail to close. The increasing number of unsold units and the growing trend of bulk purchases are putting pressure on these organizations, which may need to adjust their risk management strategies to cope with the changing market forces. As the market continues to evolve, all participants—from developers to investors to insurers—must handle a complex market of opportunities and challenges.
