Apartment landlords across Canada are spending tens of millions of dollars improving buildings that are often as old as they are, but not as well maintained.
It's a self-defensive reaction to the rising number of tenants migrating to home ownership or to condominium units rented out by investor-owners.
Landlords on the fix-up bandwagon hope to make their buildings more appealing to prospective and current tenants. And none too soon. Nothing descends into shabbiness faster than poorly kept apartment buildings shared by hundreds of tenants and subject to freeze-thaw cycles, ultraviolet rays, wind-driven rain, snow, ice and salt, leaking windows, humidity and mould.
Some landlords improve their properties as a matter of course, not waiting for market forces to push them into it. Calgary-based Boardwalk Equities Inc. -- Canada's largest apartment landlord, with more than 31,000 units in Alberta, Saskatchewan, Ontario and Quebec -- has spent more than $300-million over the past six years fixing new properties and revisiting older ones, says Paul Moon, director of corporate communications.
Mr. Moon says Boardwalk started with about 2,000 units in 1994. In building its portfolio, it concentrated on properties that could be improved to attract tenants "tired of worn-out buildings."
GWL Realty Advisors Inc. of Toronto has 15,000 apartment units in Vancouver, Edmonton, Calgary, Toronto, Ottawa, Montreal and Halifax that are typically in 25- to 40-year-old buildings. Historically the company made routine improvements to roofs, elevators, boilers and other infrastructure, says Stephen Price, the company's vice-president of the multiresidential division.
Now GWL's repair and replacement program is accelerating. "As institutional owners [Winnipeg-based Great-West Lifeco Inc. is the parent company] we take a long-term view and are increasing our investment in building infrastructure, which is generally at or near the end of its useful life," he says.
Mr. Price says some tenants have moved out because they were able to buy houses or condos in a low-interest environment. "Now more than ever we're watching how we market and lease our units, making sure we're investing our money in areas that generate a return," he says. That includes total renovation of individual suites as tenants move out. He says the company invests tens of millions of dollars in these initiatives every year.
Toronto-based Canadian Apartment Properties Real Estate Investment Trust (CAP REIT), which has nearly 13,500 rental apartments and town homes in Nova Scotia, Quebec, Ontario, Saskatchewan and Alberta, spent $17-million in the first nine months of 2003 and $17.5-million in 2002 on capital improvements.
"The company has always spent significant money on such items as underground garages, elevators, boilers and concrete," says Thomas Schwartz, CAP REIT's president and chief executive officer.
More recently, he says, "we're focusing more on full and partial interior renovations. We're competing with condominiums in luxury markets so we're doing condominium-quality renovations."
CAP REIT is a long-term holder of real estate, Mr. Schwartz says, so capital repairs extend the useful life of the properties and protect shareholders' investments.
A prime example of worn-out buildings being rejuvenated for contemporary life is the 957-unit, five-building Brentwood Towers apartment complex on Lascelles Boulevard near Yonge Street in midtown Toronto.
Brothers Adam and Jonathan Krehm run O'Shanter Development Co. Ltd., which has spent $10-million upgrading the buildings since the Ontario government relaxed rent controls in 1998. They expect to spend another $2-million over the next two years.
When O'Shanter bought the property in 1984 (it was built in the late 1950s), it "was a shambles, an absolute disaster," says Jonathan Krehm. The buildings came with a sheaf of building inspectors' work orders that had to be attended to immediately.
In the renewal program now under way, all the windows and mechanical systems have been replaced, balconies and lobbies upgraded and the lighting improved in common areas and garages. An ornamental fountain and pools are expected to be restored and back in operation this summer. Most of the suites have been renovated, with the appliances replaced, new kitchen countertops added and the original plywood-veneer kitchen cabinets restored and reinstalled. The new hallway carpeting comes with a personal touch. Jonathan Krehm copied the pattern from one of his own Persian rugs.
Ontario is experiencing an apartment renovation boomlet that got started when rent controls were partly dismantled in 1987. Capital expenditures on apartment units in the province increased to an annual average of $1,178 per unit between 1995 and 2000 from a previous average of $368, according to a survey of the more than 800 apartment owners and property management firms belonging to the Fair Rental Policy Organization of Ontario. Toronto-based FRPO estimates those extra renovations created about 30,000 jobs in each of those six years.
Now Ontario apartment owners wonder what the future holds. A return to rent controls -- provided vacancy rates remain low -- was promised by the provincial Liberals before they were voted into power in October. So far no legislation in the area has been introduced.
British Columbia apartment owners, meanwhile, are optimistic about the new Residential Tenancy Act expected to be proclaimed this month. It will replace a rent review system, "which was a disincentive for landlords to do any renovation or even maintain their apartment buildings," says Lynda Pasacreta, chief executive officer of the British Columbia Apartment Owners and Managers Association in Vancouver, which represents the 1,200 owners and managers of about 92,000 suites.
Under the rent review system, landlords were able to raise rents by any amount, but tenants could dispute even small increases and often succeeded in quashing them, she says. "It was a complicated system and discouraged any investment in apartment properties." Under the new legislation, landlords will be able to increase rents within a specified framework without tenants being able to object, she adds.
No change in Quebec's rent control is expected soon, says Jean Côté, past president of the Corporation des propriétaires immobiliers du Québec, the province's apartment owners association.
"The rental board only allows a 1-per-cent increase in rents," he says, "which isn't any kind of incentive to invest in improving apartment properties. There is much more interest in investing in condos than in apartment buildings, so the rental stock has deteriorated badly, although not to the point where the health and safety of the occupants is jeopardized."