Canada: How REITs raise rents

Knut UNGER, 2007

Canada introduced REITs in 1994. In March 2005 the market capitalisation of 25 REITs made €12.3 bn.

In June 2002 the “Canadian Centre for Policy Alternatives”1 reported about a substantial rent increase in residential buildings, which had been taken over by REITs. ResREIT, one of the largest Canadian residential REITs, took over apartment buildings with moderate rents and – by using changed legal regulations on rents – systematically implemented substantial rent increases.

“Property developers are taking advantage of policy and program changes by the Harris-Eves provincial government since 1995”, Shacott reported. “They are buying up rental buildings with moderate rents, then using weakened tenant protection laws to drive up the rents and bank the profits, a big chunk of them tax-free.”

In Toronto the rents of a block with 424 dwellings, which was bought by ResREIT in 1999, jumped 22% to $1,021 within two years. “The province’s official rent Profiting from a manufactured housing crisis 3 review guideline was 2.6% in 2000 and 2.9% in 2001”, Shapcott reported. “ResREIT raised the rents four times higher than the guideline amount.” In another 115-unit apartment building bought in 1998, when the rents were an average of $660, ResREIT pushed up the rents 37% over three years to $902, well over four times the official rent review guideline.

ResREIT in 2004 merged with another large Canadian REIT, CAPREIT, “creating one of Canada’s largest multi-family residential property owners, with a national presence from coast to coast”, as their business reports praises2. ”The acquisition effectively doubled the size of CAP REIT’s property portfolio, broadened its geographic diversification and enhanced the portfolio’s quality and composition by adding a number of high-end luxury buildings situated in superior downtown locations in key cities.”

In it’s annual business report even CAPREIT praises itself for having increased the rents from the average $877 to $889 within one year. Rent increase and high occupancy ratios build main strategies for the increase of the net yields. “Through its active property management strategies and proactive capital investment programs, CAPREIT strives to achieve the highest possible average rents in accordance with local market conditions”, the report states.

In 2006 Michael Shapcott reported that in Ontario annually 60,000 tenants get evicted, because they cannot pay the exploding rents any longer. Many become homeless. The numbers of the homeless people on the roads of the Canadian large cities increased substantial. In Vancouver, where the REITs sector and the establishment of expensive condo apartments booms, several thousand homeless people live in the streets of a threatened workers’ neighbourhood. Obstructed, psychologically ill, drug-addicted house in close lanes between rotten pensions.

2006 InterRent International Properties Inc., (« InterRent"or the « Company ») announced a merger of the accounting and finance operations of InterRent and Silverstone Equities Inc., and the proposed conversion of the merged entitiy into a public real estate investment trust. “InterRent is a rapidly expanding, growth oriented real estate company engaged in building shareholder value through the acquisition, ownership and operation of strategically located income producing multi-residential real estate, with 1,209 apartment suites under ownership and an additional 127 suites under contract in Ontario”, a press release stated3. “Silverstone Equities is the General Partner of three Limited partnerships owning 577 apartment units in Mississauga, Stratford, Cambridge and Guelph, Ontario.”

1 Michael Shapcott, Ontario Alternative Budget, A project of the Canadian Centre for Policy Alternatives, Technical paper #5, June 2002

2) CAP REIT, Annual Report 2005

3 CCNMatthews - Aug. 24, 2006