Broccolini is seriously considering a return to its roots by building rental housing for the first time in about 50 years as the condo market continues to slump, says Michael Broccolini, chief investment officer and president of the Montreal developer’s real estate group.
Major projects in Montreal and Toronto would be affected by the move.
“My grandfather did rentals a long time ago,” many of which were in La Prairie on Montreal’s South Shore, notes Broccolini, who joined the family business 14 years ago and is part of the company’s third generation in the industry.
While Broccolini has focused on condos for several decades, it’s now “trying to unlock multifamily apartments,” he says. “We’re looking at trying to figure out how we make the math work for apartments.
“It’s not so easy, so we’re working very hard to try to figure that out.”
Given current interest rates, construction costs and land costs, it’s difficult for rental projects “to have a proper development yield.”
Still, if you have a medium- to long-term view, the right product in the right location, and can lease out units quickly, you should be able to do well, Broccolini says.
In Montreal, he adds, “we think there’s going to be a lot of rent inflation that is going to occur in the next few years,” given the lack of housing starts and growing population.
Sites Broccolini is considering for rentals
Broccolini’s initial reintroduction into rental housing is in a partnership at the Centre RioCan site at Sainte-Marie Rd. and Highway 40 in Kirkland, on Montreal’s West Island. “Once we figure that out, we’re going to try to do that on a much larger scale across the different markets that we operate in.”
The RioCan site, now home to a retail centre and Cineplex movie theatres, will be developed jointly by Broccolini and Riocan REIT into a major mixed-use project that is expected to take 10 years to develop.
Mid-rise apartment towers would be built at the site, in the eight- to 12-storey range or higher. Construction could begin next year, once zoning is finalized with the city of Kirkland, Broccolini says.
Broccolini is also studying to see if it can make rental apartments work at The Riv, originally proposed as a 34-storey, 388-unit condo development at River St. and Labatt Ave. in downtown east Toronto.
Rental housing could be built at 900 Saint-Antoine St. in downtown Montreal, formerly home to the bus terminal for South Shore buses. The city of Montreal has already given a preliminary green light to Broccolini to build an almost 200-metre development at the site.
Initially planned to include condos, “we’re back to the drawing board trying to figure out how to make the project viable.” The mixed-use site could house rentals, a hotel, or even condos and offices, Broccolini says.
Demand for new office space
He says there appears to be demand for new office of scale, with some users seeking brand new office spaces in the 200,000 or 300,000 square foot range.
Office is far from dead, but “we just think it’s going to take quite some time for the market to stabilize, for conversions to reduce supply and for absorption and growth to occur again,” he says. “I don’t see any office development of significance being built near term.”
Although the condo market is in the doldrums, construction is well under way at Broccolini’s Le Sherbrooke condo project at 1528 Sherbrooke St. W. in downtown Montreal, with 25 storeys and more than 500 units.
“Sales have been a little slower than what we had hoped,” with about 35 per cent of units still available. But with “essentially no project launches” downtown, sales should normalize and stabilize as further interest rate cuts are expected during the next year or so, and it “will be one of the only projects in town that has inventory left.”
Broccolini remains busy in industrial sector
Broccolini says almost two-thirds of the company’s volume is now in the GTA and surrounding regions, primarily in the industrial market. On the industrial front, Broccolini is no longer building on spec and is focusing on design builds.
“The market’s slowed down, there’s more vacancy, there’s more pressure on the rents downwards instead of upwards and there’s a little bit of uncertainty in terms of what the final product is going to be worth,” he says.
Broccolini says the company is building a distribution centre of just under 1 million square feet for Michelin in Cornwall, Ont., to be delivered by the end of the year. Michelin has exercised the right to purchase the building once it’s completed.
Broccolini is set to sell land to Amazon in Varennes on the South Shore of Montreal in the coming days, with construction of a facility of a few hundred thousand square feet to follow. Broccolini will be Amazon’s development partner and will hopefully build the site for the retail giant, he says.
The firm is bullish on self-storage and recently entered the business with the Pandora Self-Storage platform with three facilities under construction in Kirkland and Pointe Claire in the West Island and a third in South Shore Brossard, to begin construction next April.
In the short term, Broccolini is focusing on self-storage in Montreal, where it believes there is a supply requirement.
However, with its launch of an open-ended self-storage fund, which will have its first closing this summer, the long-term goal “is to eventually be the largest self-storage operator in Canada.”