A Rental Protection Fund property at 3940 Pender St., Burnaby, B.C. The 41-unit building sold for $11.95-million, or $287,560 a unit.Rental Protection Fund
Some property purchases funded by the province in the name of affordable housing have raised some eyebrows.
A new B.C. program that aims to protect existing affordable rental housing has been criticized by some commercial property brokers who say the property purchases made through the program are not the best use of taxpayer dollars. Others are critical of the location of the acquisitions.
The Rental Protection Fund is an arm’s length initiative that uses a $500-million provincial fund to purchase older apartment buildings in the province to protect them from redevelopment into market-rate units, which displaces existing tenants. Displacement of low-to-moderate income renters has become a major issue in recent years, particularly in urban markets. Nonprofit groups and housing providers make the purchases through the RPF after going through a three-step vetting and due diligence process. After launching 18 months ago, the initiative has acquired 33 properties and used up about half the fund, which is intended as a way for nonprofits to build equity and maintain ongoing self-sufficient operations. Last week, the RPF announced the purchases of a 24-unit building in Vancouver, a 79-unit building in Burnaby and 44 townhouses in Maple Ridge.
Housing researcher Steve Pomeroy is a keen supporter of government-acquired apartment stock to generate affordable housing for the long term. He produced data a year ago that found Vancouver had lost more than 47,000 apartments with rents between $750 and $1,000, during a five-year stretch. The McMaster University professor is a housing policy expert with the Canadian Housing Evidence Collaborative, and adviser to the federal government. A federal housing protection fund currently under discussion envisions $1-billion in loans and $470-million in funds to nonprofits, says Prof. Pomeroy.
He has acknowledged that the B.C. program’s overall impact on the housing system is small. In addition, he says, there is a danger in a taxpayer-funded program that nonprofits might overpay. Given $500-million and a goal of 2,500 units, they might fix on an arbitrary spending target of $200,000 per unit.
“I don’t know that they’re necessarily trying to target properties where they minimize the amount of [money available] and stretch it further … maybe they’re not being forced to be as efficient as they could be.”
Discovery Village, at 275 1st Ave., in Campbell River, B.C., a rental building purchased by the B.C. Rental Protection Fund.Rental Protection Fund
Commercial broker Mark Goodman has publicly questioned the program, taking aim at the RPF-funded purchases of a pair of co-ops at 2860 and 2865 Packard Ave., within walking distance of a Coquitlam SkyTrain station and the West Coast Express. He says the purchases are at cross purposes with the province’s own Bill 47, which set minimum densities around transit hubs. The potential for density in that area is huge, argued Mr. Goodman, who added that he approves of the program’s overall intent.
Purchases that stand out are three apartment buildings that were acquired this year in Port Hardy, owned by the same landowners. In the case of 7340 Highland Dr., the nonprofit purchased the building using the provincial fund, for $7.05-million. The assessed value is $2.628-million. The sellers also sold 7235 Highland Dr., to the nonprofit, for $6-million, which is assessed at $2,422,500. And the same sellers sold 7275 Highland Dr., with an assessed value of $1,602,600, to the nonprofit for $3.36-million.
Land title documents show all three properties were sold by numbered companies, all of which show Mario Morrison of Delta, B.C. as director. The numbered companies had purchased the properties in the last five years for much lower – $3.886-million – than what they then sold them for – $16.3-million. The nonprofit Connective Support Society, also purchased six other buildings from the same sellers, in Campbell River and Duncan.
By way of comparison, commercial broker Chris Hayne has a 71-unit rental building for sale in Port Hardy that is listed for a little more than assessed value, at $4.3-million, or $60,663 a unit. That price compares to roughly $130,000 a unit for the RPF purchases.
Developer Hani Lammam, executive vice-president of Cressey Development, said he has been approached by nonprofits who wanted to acquire some of their apartment buildings via the fund. He said the RPF purchases make sense outside of areas where there’s potential for high-density redevelopment, such as Coquitlam. He said the Port Hardy numbers “seem odd,” but he approves of those purchases.
“If you are purchasing it because it’s uneconomical for the existing landlord to maintain the rents as they are, I think that’s a good purchase,” said Mr. Lammam. “But to prevent redevelopment, that doesn’t seem the best use of funds,” he said.
On LinkedIn, commercial broker Aly Jiwan of Redbrick Properties called the recent acquisitions of three properties “taxpayer money wasted.” Commercial real estate lender Jonah Muzyka said the money is a “ham-fisted subsidy” that benefits a few hundred tenants instead of the broader market.
The property acquisitions must go through an appraisal to determine a purchase price.
Prof. Pomeroy says part of the challenge for a nonprofit is that the asking prices are based on market-rate rents, which are easily 60 per cent higher than what existing tenants are paying. The intention of the RPF is to maintain below-market rents, and the RPF says that, so far, on average they’ve helped buy buildings where rents are about 44 per cent lower.
“The appraisers go out there and because all the other buildings have been selling in the private market at those rates, they justify that price, both from the point of view of replacement costs, from a point of view of comparable sales, and on the capitalized rental scheme. They’ll look at the potential market and they’ll value it on that basis.”
On the upside, the multi-family market has slowed down, so the nonprofits haven’t got the competition.
Katie Maslechko, chief executive officer of the Rental Protection Fund, said that the Port Hardy apartment buildings are an outlier in that their appraised values came in higher than much lower assessed values. The majority of the 33 purchases they’ve made so far are closer to assessments, she said. There had been major renovations done on two of the dilapidated buildings – at least one fire-damaged – that weren’t considered in the assessments. The purchases should be considered as part of a nine-property package, that collectively, came in below assessed value, she said.
“Credit to the nonprofit – they put that deal together entirely themselves and they worked quite hard to do so because, of course, a nine-property portfolio transaction is not easy to find, let alone carry across the finish line,” she said.
“It was an excellent acquisition. It was well leveraged in terms of the Rental Protection Fund’s investment in it. And they were really, really thoughtful about how they were going to take on the properties and scale up their services to meet that demand. And of course, these are communities where not every nonprofit is ready or willing to expand into … but deserve rental protection just as much as anybody else and are losing their stock to all sorts of things. Now they’re fully tenanted and lots of people are calling them home once again.”