Montreal real estate firm Jesta Group has launched a $500 million program to acquire more than 1,000 condominiums primarily in downtown Toronto, capitalizing on the current downturn in the market. The initiative aims to convert unsold units into rental properties, generating positive cash flow through rental income.
Strategic Shift in Investment Approach
Anthony O'Brien, senior managing director at Jesta Group, explained that the key factor driving this decision was the realization that rental income can now cover condo fees, taxes, and debt—a rare occurrence in Toronto's condo market historically. "What really shifted the needle for us was the realization that you can generate enough rental income to cover your condo fees, your taxes, and your debt," O'Brien said in an interview. "Historically, that's never been the case in almost every condo market globally. Especially in Toronto, most people never made positive cash flow on a condo investment; it was more the appreciation factor that brought all the investors in."
Jesta Group, which has real estate investments in Montreal, New York, London, Paris, Miami, and the Mediterranean, expects revenue returns to be "modest, but positive." O'Brien noted that the impending supply cliff—given the five-year timeline from concept to delivery—should drive price growth in the medium term, three to five years from now.
Initial Investment and Market Context
Last month, Jesta invested $30 million in a bulk condominium portfolio near Toronto Metropolitan University, brokered by Jeff Lever of Cushman & Wakefield. Jeff Lever commented, "Jesta Group is moving early and decisively in what we expect to become a significantly more active segment of the Toronto market. Its $500 million commitment signals serious and sustained capital deployment in this city."
The buying spree is expected to unfold over the next year, focusing on existing buildings with leftover inventory. O'Brien highlighted that there are "tens of thousands of unsold units, either available today or will be available over the next 12 to 24 months." He added, "There's absolutely zero demand, and so it's creating a pricing opportunity. From an investment perspective, it feels like the right time to get in on this opportunity."
Impact on Rental Supply
While the initiative does not aim to solve the systemic real estate problem across Canada, converting purchased units into rental stock will improve overall supply. O'Brien stated, "The capital appears to be lining up, and it all comes down to the volume of negotiations we can drive with developers. Historically, there's been too large a gap between buyer and seller. If we can continue driving deals like we just did, then we should be successful within 12 to 18 months."
The focus remains on downtown core units, as O'Brien believes the potential for rebounding prices is stronger closer to the core. Regarding tenants, he noted that most stay one to two years, indicating these are not forever homes.
