Fitzrovia is out to challenge conventions as a multifamily developer, owner and operator of purpose-built rentals in Canada.
Launched only eight years ago, the company already is closing in on 10,000 units completed, under construction or acquired. It also has almost $10bn of assets under management, with plans in motion to expand into affordable housing.
“We view Fitzrovia as much broader than just a new build, purpose-built rental developer,” Corey Pacht, partner and executive vice president of operations, said in an interview. “We want to own, manage, acquire and develop multifamily housing across the full affordability spectrum.”
Green Street News spoke with Pacht about the company’s vision and national growth ambitions.
Can you talk about your thesis for the rental market in Canada?
Our long-term vision as a company is to be the preeminent multifamily owner-operator-developer. When we founded the business in 2017, we thought the opportunity was most ripe in new-build rental development, and that’s where we started.
Most of our portfolio today consists of new builds, which tend to be priced higher to account for the high costs involved in constructing quality rental housing. That being said, we’re expanding into multiple different verticals; for example, our Maddox brand, which targets 1960s and ’70s multifamily product. These assets are thoughtfully updated through multimillion-dollar capital investment programs to meet the needs of the modern urban dweller.
We also have an affordable-housing strategy in the works. We’re working closely with all three levels of government and CMHC right now to try to find ways to incrementally improve the affordable-housing programs that exist today.
Our general thesis is around population growth and lack of supply – that is at the affordable end, the middle end and the top end of the market – and we think we can provide solutions to all of them.
Another important strategy for us is student housing. We developed a property called Waverley in downtown Toronto close to the University of Toronto which is geared to students, and we plan to roll out a broader student-housing platform across other university markets. We believe the student opportunity today is very similar to what we saw in the [purpose-built rental] market eight years ago.
We’re looking to break ground on our second student-focused building, which will be at the doorstep of [Toronto Metropolitan University] in 2025, located at 412 Church. From there we’d like to roll out a Waverley in Ontario university markets such as London, Kitchener-Waterloo, Hamilton, Guelph and Kingston.
Can you tell me anything more about the timing of that affordable strategy? Will you be launching a new fund?
It’s likely going to be in the form of a fund, similar to the DevCore Fund we announced last year. We are currently market-sounding with investors while parallel-tracking conversations at all three levels of government and CMHC to best understand and underwrite the most appropriate way to unlock the affordable–housing strategy. It’s an active and fluid conversation right now.
“We are currently market-sounding with investors while parallel tracking conversations at all three levels of government and CMHC to best understand and underwrite the most appropriate way to unlock the affordability housing strategy”
If all things go well, it’s an early 2025 launch for the strategy.
We have a two-tower development in Toronto, almost 1,000 units, that’s vacant land and fully zoned and ready to go. The math doesn’t work on a market basis, and we think with the CMHC program and some city incentives, it’s actually the perfect opportunity to kickstart our affordable strategy.
What should governments be doing to encourage the construction of more rentals?
If you look back at when we actually had new supply delivered to this market, it was in the ’60s and ’70s. Why? Because the incentives were really, really strong to build. The reality is that without any meaningful government intervention, the needle is not going to move on new rental supply.
The HST [new housing] rebate was really helpful, and that’s a great example of a clean incentive. No strings attached. If you build a rental building, you will get an HST waiver. We need more of that. It’s a great market mechanism.
Where we need the government to be strategic and thoughtful is staying away from attaching anything such as affordable requirements to new incentives. Those can be dealt with in different programs. The reality is the math doesn’t work today and we need bold action to make a difference.
The biggest changes we need are full waivers for development charges, and a 20- to 30-year abatement of property taxes. Those two items will meaningfully unlock supply, as long as no new requirements are attached to them. We would be ready to go on several sites to start building much needed rental housing to keep up with demand if we got that.
I do think all levels of government understand it’s a supply-driven problem, and that policy will be the solution. Where I’m sympathetic to municipalities is these charges are there because they need money to fund their budgets. I don’t think it’s fair, for example, to expect the city of Toronto to just waive development charges and eat that loss entirely on their own. It’s going to need to be backstopped and shared by other levels of government, and it must be a collaborative effort.
Fitzrovia’s first real estate fund, DevCore, was unveiled last year, with a goal of reaching $920m of equity commitments focused on developing rental housing in the GTA. Did you get to that? How much has been deployed?
We’re over 80% raised, part of which was through a separate account, and the balance of which is in the fund.
The reality of [the fund] is it’s basically a continuation of our existing business, where historically we’ve done separate account deals with individual pension funds. The fund itself takes a couple of key pension fund partners, combines them in one vehicle, and does it all together.
The idea is, rather than needing to rotate with different investors [who gets what deal], it’s just all together. The strategy around what we’re buying, what we’re targeting, what we’re trying to build, and what we’re trying to accomplish is really unchanged.
What’s the next milestone for the DevCore fund?
Next, we’re looking to deploy capital and buy sites in a down market today.
We need more incentives and more collaboration from the government to make the math work, but we’re going to continue to raise capital and continue to deploy it. We will be selective and prudent, but we do think a buying window is opening up.
You recently bought some assets in Québec. Is that part of a broader strategy?
We’re growing in Montréal in a meaningful way. We bought several assets, two as recently as last month: C-Lofts and Le Smith, both in downtown Montréal’s Quartier des Spectacles district. These are both examples of how we are buying newer-build rental and rolling out our award-wining Fitzrovia operating platform there. We’d like to scale up to several thousand units at a minimum in Montréal over the next one to three years.
We’re building out a large corporate office there as well. We would call it a second headquarters in Montréal.
Over the next several years, we really want to get our property management and asset management business flowing in Montréal by hiring a great team, continuing to learn what the market needs, and then we would likely start a development business there as well. I see a lot of growth happening in Montréal and continued sustained growth in Toronto.
Any plans to expand out west?
We’d like to expand to Western Canada in the next two to four years.
We really want to nail Toronto and Montréal over the next couple of years, and once we feel really confident in those markets, we would love to roll out to the west.
I don’t know if that’s Calgary or if that’s Vancouver, or if that’s both. We think there’s some really interesting and attractive markets out there, and we’d look to grow there over time.
One of Fitzrovia’s taglines is, “Think differently and build differently.” Can you give me a couple examples of how you put that into practice?
A lot of the developers in Toronto have been doing the same thing in the same way for decades. And we are obviously a newer business; we’re a younger group of people and are really trying to challenge conventions.
That’s in a bunch of different ways. Firstly, the product that we’re building. Architecture, design, product quality are at the top of the list of importance for us. We’re building to own these assets forever. Most groups are not.
Our property management team is trained by the Disney Institute and Ritz-Carlton Leadership Center, and we offer an unparalleled level of hospitality-based service.
We’re truly a fully vertically integrated company, which means in-house development, construction and property and asset management are done entirely in-house. We are the only group in the country I know of that can truly say this. Even our interior design is in-house. We don’t need to rely on third parties, which means we can build faster, we can learn from our own mistakes, and constantly iterate.
How does new tech and AI improve the economics of building?
Technology is a really big piece. Collectively as an industry, we construct buildings the same way we did 50 years ago. It’s probably one of the only industries where you could say that there’s been very little innovation. There’s a lot of groups in the [industrial, commercial, and institutional] world – outside of Canada more broadly – that have brought a really interesting tack to the construction world. We’re just not seeing it as much in Toronto and in Canada.
We have, for example, a full [building information modeling] team within our construction group. What that means is we 3-D model everything we do before it gets built. This allows us to virtually walk the buildings to get a feel for spacial planning and implement clash detection software early on to avoid change orders and on-site delays.
This leads to less delays and lower costs. We use AI for our structural designs. The software helps reduce and simplify the structural design, thereby reducing cost through less concrete and creating more occupiable space within the building.
