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Successful retrofitting strategies

CAIC, retrofits, rent increase

                                                                                                                                              September 20, 2011

By Kim Carlton

At the 2011 Canadian Apartment Investment Conference, held on September 14 at the Metro Toronto Convention Centre, leaders from major companies in the multi-residential housing industry spoke about how they retrofitted their aging properties in order to increase profits and tenant satisfaction. Here are some of the winning strategies they shared on how they  refreshed their properties and made them more profitable.

Daniel Sander, Director, Hollyburn Properties

In British Columbia, landlords can offer a voluntary upgrade program, where if suites are substantially improved, landlords and tenants can agree to a new tenancy agreement, with a rental increase larger than what would normally be allowable. Hollyburn Properties did this for 35 suites in one building, and they are now rolling it out to other buildings in their portfolio.

They started by upgrading a model suite for display which tenants could tour. The suite had condo-quality upgrades, such as new countertops and fixtures. The tenants who agreed to allow the building to renovate their suite with the upgrades entered a new tenancy agreement where their rent was increased from $500-700 per month after the renovations. The total cost of the upgrades of the 35 suites to Hollyburn was $1,200,000, and the building increased its yearly revenue by $314,532.

 

John Lago, President, Conundrum Residential Group

Lago explained how Conundrum’s strategy is to buy and hold properties for five to seven years, while making improvements, reducing operating costs, and lowering vacancy. As an example, one building saw significant improvements when they created seven new suites using repurposed space from the locker and maintenance areas. They upgraded lighting to energy efficient bulbs, with motion sensor operated lighting in the garage. They also renovated units on tenant turnover, improved the building’s common areas and audited parking. They are four years into their strategy with this building, and they plan to sell it in two years, maximizing the return for investors. 
Steven Gross, Vice President, Investment Management, Bentall Kennedy

One strategy this company successfully used was to get rid of underperforming amenities to add value to a building. This building had 48 suites, in a large Canadian city where most of the nearby competition was condos. This building’s laundry and social rooms were connected and the social room was very rarely used. The building owned the laundry machines.

They decided to get rid of the laundry/social room to create another suite, and give tenants ensuite laundry (using closet space in each unit that was near the bathroom’s existing plumbing). They increased each tenant’s rent by $50 a month for the laundry, and rented the new two bedroom suite that they created for $2000 a month. The renovation costs were $133,300, and the company increased the building’s value by $842,000 (calculated using the building’s cap rate, which was increased to five per cent).

Kevin Green, President and CEO, Verdiroc Development Corporation

Green discussed the improvements that have been made to The Oaks in Toronto (which we also discussed here). These improvements not only increased the complex’s value, but also the safety and security of residents. Green described why the buildings were dysfunctional, with crime, dissatisfied tenants and garbage everywhere. He said that the improvements to the building were inexpensive.

Proper management and getting the community on board with the changes were key. They changed the locks on all of the units (as tenants had copied keys and given them out to others). They made environmental changes that made the grounds more desirable and easy to secure: such as installing landscaping, where tenants could get involved in planning perennials, as well as fences and security cameras. The community rooms were underused, however Greenwin turned them into space for a wide variety of social programs with a partnership with Doorsteps Neighbourhood Services.

The complex is now enjoying less turnover, fewer calls to security/police, and more consistent payments by tenants (where previously, approximately 20 per cent of tenants were chronically late on their rent or not paying). Greenwin’s fiscal strategy is to reposition the properties and raise rents on turnover, and they have been successful with their improvements of other similar properties in doing so.

 

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