Riz Dhanji, founder of real estate sales, marketing and advisory firm RAD Marketing, has helped lift some of the country’s most prestigious residential condominium projects off the ground.
To name a few, there’s One Delisle, the first Canadian foray from renowned architect Jeanne Gang; Aura, the tallest residential building in Canada; and the under-construction King Toronto, where Sir Elton John is among the unit owners.
But as the condo market began a descent with no end in sight, Dhanji began to hear more from clients about opportunities to pivot to purpose-built rentals. Green Street News spoke with Dhanji about what makes a successful strategy change – and how marketing strategies have to adapt to fill units in today’s oversaturated environment.
When did you first start hearing about developers wanting to swap from condo projects to rentals?
It was at least two years ago when we started to hear about pivoting. Prior to that, the condo market had been doing quite well, so even traditional REITs, who like to keep purpose-built rental as part of their portfolio, were looking to switch to all condos.
But where I started to hear some discussions was in master-planned communities. An institution or a REIT would have, let’s say, six to seven projects in their portfolio on a piece of land, and they would say, “Okay, maybe we need to look at purpose-built rental now, so instead of five towers as condo, we’re going to do two to three towers as purpose-built rental.”
Obviously it takes a lot more than just changing the tenure on paper to rental. Can you explain more of what’s involved to make a successful pivot?
Traditionally what we have seen in Toronto over the past 20 years is we’ve catered our units toward the investor community. Because prices have been going up so rapidly in the GTA, the thought was, “Let’s make these units smaller so the end price point is lower, and then when owners actually go out and rent it, they get a higher per-sq-ft rent for the typical unit.” That changes when you’re looking at purpose-built rentals.
These institutions are looking at this for a 30-, 40-year horizon when they’re keeping this asset that they own, versus a condo that gets turned over to the condo board. They’re looking at what is my unit mix, and how is it going to differentiate from what I did from a condo. So your units would be larger – you probably have more two-bedroom units than you would typically have in a condominium building. Your sizes are going to be larger. The amenity program is also going to be a lot more different – we’re seeing a lot more amenities that are focused on making the building feel like a community.
Do condo developers doing rental want to hold on to the building and manage it, or is the idea to build it and sell it?
There are two sides. The institutional side is looking to keep them as a long-term hold. The private developer, I find, that has traditionally been on the condo side is looking for an exit at some time. It could be in five years or six years. A lot of them are looking for institutions to buy them out. In purpose-built rental, you need to put a lot more equity into the deal so it’s a different metric for them when they want to get their equity out at some point in time.
At the Land & Development Conference, you mentioned the strategies that worked before for new condos and purpose-built rentals won’t work in today’s market. Can you expand on that?
If you look at the condo side, we’ve been spoiled for 20 years. When you launched a project, for the majority, there was no strategy. There was really no thought process of design, placemaking or storytelling for the project. It was really like, how quickly can I get a rendering done? How quickly can I get a building model done? The sales-and-marketing team were average. There was no training on sales. There was no training on how to do unique marketing, social media, so on and so forth. It was just about getting the product out as quickly as possible, because we’re going to sell and the market’s really hot. Those days are pretty much gone.
Now, the thought process is, “I need at least six months before to really strategize about the product, to really strategize about how am I going to differentiate it from everything else that’s in the marketplace? What am I looking at on unit mixes, on sizes, on amenities, on retail, on placemaking, on storytelling,” and everything to that effect. That process needs time. Then you need a really good sales-and-marketing team on board to execute on that strategy and work through what will be a year and a half to two years of the sales process.
The same goes for purpose-built rental. A lot of the work that we’re doing on the purpose-built rental side is relooking at how leasing programs work. Traditionally, you’re hiring someone from, let’s say, a Holt Renfrew who is in a retail service environment. They’re at the sales office, they’re great tour guides, but they can’t really get people to close on a rental. They can’t really get them excited about why they should be leasing here versus next door. That strategy needs to change because there’s so much product that’s coming on the market.
Are any preconstruction condo projects able to reach the 75% of sales needed to get financing right now?
It’s a very big struggle. Luckily for RAD, all our projects are under construction, so we don’t have that at issue. But I think if a project has launched, let’s say in the past year to year and a half, and they’re struggling with 20% to 25% sales, it’s going to be very difficult in this environment to get to them to 75%. I think you’re going to see a lot of changes that are happening in the industry with that, and a lot of sites that wanted to launch are obviously on hold for quite a bit of time until the market starts to return.
Do you think we’ve hit a sales bottom yet?
No, I think we have at least a year to two years before we hit a bottom of that. The problem is we have so many [condo] completions that are happening. We had just over 29,000 last year, approximately 30,000 expected this year, with another 20,000 or so next year. We’re probably going to have 25,000 condos that are unsold in the GTA over the next couple of years, so we need to absorb that product before new product can come in, and we need the resale market to start to pick up.
That projection of two years or so – is that based on the lack of starts that are happening now?
In 2028, the stats right now say there will be 9,000 completions, and with immigration still at a steady pace, we’re going to hit a wall of no supply. I think by ’28 we’re going to be in a rocket-ship market where there’s going to be really strong sales and the market’s going to come back strong. But this resurgence could also start in ’27.
Is there any kind of condo project that’s still doing well?
We have a bunch of projects that are geared toward end users. For instance, we have a condo community with our client at Bayview [Avenue] and Eglinton [Avenue East] in the Leaside neighbourhood, right on the main strip on Bayview Avenue. It’s a midrise building, with only 200 suites – beautiful layouts, larger units, outdoor terraces and a beautiful design. The buyers are end users that are living in the neighbourhood, or they are buying for their kids to go to school because the [Eglinton] LRT is close by.
We see that type of product as doing really well in this current market, but if you’re purely an investor-focused building in the downtown core with small units, you’re going to struggle.
What is lender sentiment like toward condo projects – are they wanting lower loan-to-value ratios?
I’ve heard talk that lenders are looking at a lower loan-to-value ratio, but I don’t see that as commonplace or as a guaranteed solution. You still need to put a lot of equity into the deal. But there still are lenders who want to invest. So I think the larger developers who have a strong track record, who are at their sales threshold or close to it – lenders will want to compete on those deals. I also think deposits are an important element for lenders.
We’ve been in a situation for the past few years where we’re stretching deposits over three to four years, and lenders especially now want to see that the buyer has enough equity in there in order to continue to close on that deal.
