Renderings of the purpose-built rental project at 450 Dufferin St., in Toronto.Superkul
If the renderings bear out, the most distinctive feature of an elegant 18-storey building slated for 450 Dufferin St. in Toronto, just north of Queen Street West, will be its very ordinariness. The project, which is expected to break ground in late 2025, has no fussy angular planes or sculptural balconies. It’s a bit squat. And, in contrast to the dozens of very tall glass-clad point towers that now dot the downtown, the exterior façade will be masonry with so-called punch-windows – sort of like the ones in the apartment where your grandparents lived.
It’s not the only such project in the works, says architect Brian Melcher, a principal at Superkül, which is designing 450 Dufferin for Hullmark. “We’re seeing a shift toward simpler, more constructible, better cost-effective design. That project is a good example of where we’re seeing the market kind of pivoting to,” Mr. Melcher says
The 450 Dufferin venture differs from many others in another crucial way: it’s a purpose-built rental apartment that Hullmark expects to own and manage for decades to come.
That single feature has driven a range of architectural choices: standardized floor plates, more spacious units, fewer accessory options and an emphasis on durable, energy-efficient materials and systems. “A lot of what we’re trying to do is about future-proofing the design,” Mr. Melcher says. Developing a rental building, he adds, “really does shift the client’s perspective of where the value is.”
Hullmark executive vice-president Noah Rechtsman points out that 450 Dufferin will be the company’s third purpose-built residential tower – the second, now under construction, is a 17-storey building at King Street West and Sudbury Street.
Institutional and private investors have traditionally sought to add rental properties, with their very stable revenue streams, to their portfolios. And market conditions seem to be providing more investment opportunities. Mr. Rechtsman, like a growing number of others developers, knows that sluggish condo pre-sales have made it exceedingly difficult for builders to launch condo projects at the moment, despite falling interest rates.
“If you look out three years,” he notes, “there’s going to be less and less supply of existing inventory, which means that you can have a bullish perspective on the future of purpose-built rentals. And today, for the first time really in the last 25 or 30 years, we are seeing cost pressures ease from the construction perspective.”
Much larger developers agree: “I think you’ll see fewer condo projects that are launched, especially over the next 12 or 24 months,” Rael Diamond, president and CEO of Choice Properties, said prior to an Urban Land Institute gathering last month. “But there are lots of groups, not only Choice but others, who are well capitalized, who are trying to make purpose built rental work. Lots of developers we speak to are very focused right now on, ‘How do we make purpose built rental work’ because they are pivoting away from condos.”
In fact, Choice, whose largest shareholder is the Weston family, is grappling with that very pivot on one of its signature ventures – the long-delayed redevelopment of a Loblaw’s site at Dundas and Bloor streets. At a public consultation last fall, Choice officials revealed that the massive project – several towers and mid-rises with about 2,000 units, arrayed around a park – will be predominantly rental. “They’ve been pretty transparent that they have shifted to being mostly rental,” says architect Brian Hagood, who represents the Herman, Ritchie, Golden and Silver Community Association, a small cluster of homes just south of the site. “I think it’s over 90 per cent.”
Yet the ongoing evolution from a condo-dominated development sector to one that produces purpose-built rental turns on the behaviour and expectations of real estate investors.
The reason? Condo builders don’t need much of their own equity to get a project started and can recoup their upfront investment, plus profit, within a decade. Most obtain critical construction loans when they’ve presold about 65 to 75 per cent of the units and can then pay them back as soon as the project is completed.
Firms building purpose-built rental, on the other hand, need a lot more equity to secure project financing because they don’t have access to all the preconstruction capital pledged by those who buy units up front. Rather, they’ll be paying down those mortgages for decades.
Rentals, consequently, attract investors with longer time horizons and lower return expectations due to the well-recognized steadiness of the income generated by rental properties. Traditionally, the market was dominated by institutions, real estate investment trusts and high-net worth families or individuals whose companies have owned and operated apartments for generations.
A variation on the theme: a limited partnership fund, dubbed DevCore, that was set up by Fitzrovia Real Estate in 2022, specifically to raise capital for purpose-built rental. When the fund closed in 2023, Fitzrovia had shot past its original $920-million goal, attracting $2-billion, including $460-million from institutional investors, among them Alberta Investment Management Corp.
Renewed investor interest in rental started in the mid-2010s, and focused mainly on luxury projects. The volume of rental deals backed by Canada Mortgage and Housing Corporation has increased sharply since the mid-2010s, partly due to programs geared at spurring rental projects. For example, CMHC’s apartment construction loan program, initiated in 2017 with a $55-billion cap over 15 years, has lent almost $22-billion to date. About 39,000 units are complete or under construction.
Ilan Barda, assistant vice-president commercial financing at First National, which specializes in lending to apartment projects, says his firm has seen its share of CMHC-backed lending activity jump, with commercial mortgages up 14 per cent between 2023 and 2024, largely on the strength of the multi-family rental segment. “The condo groups have come in and are trying to take a bite of that.”
Jonah Brown, managing partner of Oakbank Capital, which brokers various types of building loans, has observed the same trend. “We are seeing a lot of our clients pivot what were condo developments to purpose-built rental project,” he says. The wrinkle, he adds, is that those investors need to drastically reset their profit expectations and timelines. “You’re looking at very low single digit returns for apartment buildings, whereas you were looking at mid-teens and into the twenties of internal rates of return for condo developers.”
Michael Betsalel, JLL’s executive vice-president for capital markets, multifamily, also points to a surge of activity by traditional apartment groups, like Greenwin. “The other thing you’re seeing is that institutions and very high net worth private capital, the owners of older [rental] high rises, are building on their existing density, where the land is free,” he says. “The zoning is there, the infrastructure is there, and they know what they’re doing. And,” Betsalel adds, those new rental towers “just blend in to the to the fabric of the existing property.”
Yet, the continued expansion of the new rental segment isn’t guaranteed, despite the condo downturn and efforts to prime the pump with financial inducements, such as a recent proposal from Toronto city councillor Brad Bradford to entirely waive development charges on purpose built rental projects. Mr. Betsalel notes that when the Ford government eliminated rent controls on rental units in all new buildings, apartment investors moved quickly to capitalize. However, as rents plateaued and have even dropped in the past year or so, investors now aren’t as certain that new apartments will deliver the operating income they need to generate the yield they’re after. “There’s still a tremendous appetite from everybody to own new rental buildings,” he says. “I just think that the inability to increase rents will put pressure on value.”
Some of the newer players in the rental segment bring their own expectations to these financing deals. Jonathan Diamond, principal at Well Grounded Real Estate, which is developing a low-carbon rental project in Scarborough, has been talking to investors about his firm’s next venture. “We have a very specific mandate of what we want to accomplish in the city,” he says. “So the question is, what groups are most aligned with that vision, and who will also give us the flexibility to carry out that vision? We want the capital, but we don’t want to be micromanaged.”
For Mr. Rechtsman, of Hullmark, the transition from speculation-fueled condo development to purpose-built rental speaks to a broader change in Toronto’s housing sector.
“As cities have developed to be more metropolitan,” he observes, “it’s become increasingly more difficult to buy. That’s true of major cities like New York, London, Paris, Tokyo, and obviously many others. If you were to walk into a coffee shop in New York, and ask for a show of hands of who rents versus who owns, you would have the majority of people that rent. We are certainly moving in the direction because there just wasn’t very much rental stock built for the better part of 30 years. Now, in the last 10 years, that’s really changing.”