Firm uses tax breaks to add 170 rental housing in Mississauga and other urban centers
A Canadian residential REIT is moving forward with plans to build 170 new rental homes, leveraging government incentives and low-risk conversion strategies to expand housing supply in key urban markets.
Canadian Apartment Properties Real Estate Investment Trust (CAPREIT) has announced plans to develop approximately 170 new residential rental units through a combination of infill construction and adaptive reuse projects. The initiative includes two infill developments in Mississauga totaling 120 rental suites and the conversion of existing underused non-residential spaces into 50 additional suites across its portfolio.
The company is capitalizing on a series of local, provincial, and federal incentives, along with internal land and operational efficiencies, to generate what it describes as “attractive risk-adjusted returns” while contributing directly to the supply of “missing middle” housing in the Greater Toronto Area (GTA).
“We’re proud to be reinvesting repatriated foreign capital from our portfolio repositioning strategy into the construction of new purpose-built rental housing for Canadians,” said Mark Kenney, CAPREIT President and CEO. “We’re excited to be repurposing this excess density to contribute directly to the resolution of the housing supply and affordability crisis in Canada.”
Government-backed developments
The GTA Development Projects, expected to begin construction in 2027 and complete by 2028, will benefit from several incentives in Mississauga, including enhanced harmonized sales tax (HST) rebates, 100% development charge exemptions on three-bedroom suites, and a 35% municipal property tax reduction for 35 years. CAPREIT projects total development costs of approximately $58 million, or $570 per leasable square foot.
The developments will feature low-rise wood-frame stacked townhomes, which allow for faster, lower-cost construction compared to concrete structures. The absence of elevators and hallways also increases efficiency, while sub-metering utilities like electricity and water will help minimize operating costs.
CAPREIT is also leveraging underutilized parking at the development sites, shared amenities with existing buildings, and existing service contracts to minimize expenses.
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At an estimated capitalization rate of 4.75%, the stabilized value of the developments is projected at $74 million, or $730 per square foot. The company anticipates a post-incentive net operating income (NOI) margin in the mid-80% range and a 6% NOI yield on cost, a 125-basis-point premium above typical market development yields.
“We’re excited to execute on $75MM of relatively low-risk development and conversion projects, which we expect to construct in a fairly tight timeframe at an estimated 6% effective capitalization rate,” CAPREIT chief investment officer Julian Schonfeldt said in a statement. “It’s a ‘win-win’ scenario.”
The City of Mississauga has actively encouraged such projects by reducing development charges and other fees.
“Mississauga’s reduction of fees, including development charges, are having an impact on developers and builders who take pride in serving a need, rather than just maximizing profit,” said Mayor Carolyn Parrish.
Converting offices into homes
In addition to the Mississauga projects, CAPREIT is converting vacant or underused spaces, such as retail stores, offices, storage areas, and amenity spaces, within existing buildings. These Conversion Projects will add an estimated 50 new rental suites, primarily in the Greater Toronto and Vancouver areas, where housing demand is acute.
The conversions involve minimal redevelopment risk and negligible additional operating expenses, as the units will be integrated into existing properties. CAPREIT estimates spending approximately $17 million on these projects, which are expected to generate NOI yields exceeding 6%, with completion timelines ranging from 6 to 18 months depending on location.
“Development is not CAPREIT’s core business; however, we’re operating in one of the worst housing crises in Canada’s history,” Schonfeldt added. “With strong economic returns made possible through incentives, efficiencies and synergies, we’re looking forward to proving out this relatively quick, low-risk development model.”
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