Insider Only Real Estate, Residential

CAPREIT buys Kanata apartment complex for $61M

February 28, 2023
3:25 PM
ET

Organizations: CAPREIT, Ironclad Developments

People: Julian Schonfeldt, Mark Kenney

Constructed in 2021, Eagle Pointe is a “high-quality asset” that fits the company’s long-term strategy to upgrade its holdings by selling older buildings and acquiring new builds, CAPREIT president and CEO Mark Kenney told OBJ on Tuesday.

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Canadian Apartment Properties REIT has acquired a new apartment complex in Kanata’s south end for $61 million as the publicly traded firm continues to replace aging buildings in its portfolio with more modern properties. CAPREIT said this week it has closed a deal to purchase Eagle Pointe, a six-storey, 143-unit rental property at 800 Eagleson Rd., from Manitoba-based Ironclad Developments. Constructed in 2021, Eagle Pointe is a “high-quality asset” that fits the company’s long-term strategy to upgrade its holdings by jettisoning older buildings in favour of new builds, CAPREIT president and CEO Mark Kenney told OBJ on Tuesday. “We’re selling the old and buying new,” Kenney said. “We really want to be part of this new Canadian supply ecosystem. There needs to be buyers for this stuff to keep the developers going. We feel that we’re playing an important role with that.” The transaction comes about a month after CAPREIT sold its stake in three aging Ottawa rental apartment complexes for $136 million. Many of the REIT’s buildings are approaching 50 years old and need extensive upgrades to remain competitive as a wave of new rental supply enters the market. The three Ottawa properties it sold last month were constructed between 1969 and 1981 and require “ongoing capital expenditure to support their current growth profiles,” CAPREIT said. Chief investment officer Julian Schonfeldt said CAPREIT sold the three buildings at a capitalization rate in the “mid-three-per-cent range” and is now reinvesting capital in the new Kanata complex at a capitalization rate of more than four per cent “at a price that is below replacement cost” of the older properties. “Following our successful disposition of three older, value-add assets in Ottawa last month, we paid down higher-interest debt and are now reallocating capital back into Ottawa through this new-build property that has both a strong growth profile and low capital expenditure needs,” Schonfeldt said in a statement. “Renewing (older) assets with new rental stock is at the core of our strategy,” Kenney explained on Tuesday. He described Eagle Pointe, which is 95 per cent occupied, as a “high mid-tier” property that commands rents in the sub-$3-per-square-foot range – a tenant base that’s right in CAPREIT’s sweet spot. “That really is the mass market,” Kenney said. “That’s another key component of our strategy.” The building is also a couple of kilometres east of another rental property, KoL Apartments, that the company purchased last year, providing “economies of scale” in staffing and leasing, Kenney added. The REIT paid $16 million in cash for the property and assumed an existing mortgage worth $42 million. CAPREIT also used a $3-million vendor take-back loan to finance part of the purchase, but said repayment of the five-year, interest-free loan could be waived subject to certain conditions. According to the Canada Mortgage and Housing Corporation’s latest rental market report released in January, Ottawa’s rental housing vacancy rate fell 1.3 percentage points last year to 2.1 per cent, while the average rent for a two-bedroom apartment rose 4.8 per cent. Kenney said Tuesday his firm intends to keep adding to its portfolio in the National Capital Region. “We love the Ottawa market,” he said. “We want to be part of bringing more rental supply to Ottawa.”