Private Equity Circles Canada's Struggling Condo Market
Canada's condominium market is facing significant challenges, with thousands of units sitting unsold in the country's two most expensive housing markets. As developers and potential buyers engage in a standoff, a new player has emerged on the horizon: private equity firms are actively exploring opportunities to acquire distressed condo projects in bulk.
Mounting Inventory in Major Urban Centers
Recent data reveals a substantial inventory buildup in key Canadian cities. In Toronto alone, Urbanation Inc. reported last month that there were just over 3,900 unsold condominium units in the market. Similarly, in Vancouver's Lower Mainland region, industry calculations indicate approximately 3,472 unsold units, with about 80 percent of these located in concrete high-rise towers.
The central question facing the market is who will blink first—buyers or sellers—as this dynamic will ultimately determine whether sales activity picks up in the coming months. Developers currently have some breathing room due to relatively favorable inventory loan conditions, but the pressure is mounting as units continue to sit vacant.
Private Equity's Growing Interest
Mark Goodman, a principal broker at Vancouver-based Goodman Corp., has noted increased interest from major investment players across the country. "I have been approached by some major players across the country who have floated the idea for me to assist them acquiring distressed condo projects that are built and sitting empty," Goodman revealed. "They would come in and buy hundreds, if not thousands of units in one fell swoop."
This interest mirrors strategies employed by corporate buyers during the 2007-2010 U.S. subprime housing crisis, where investors profited from market turnarounds after acquiring distressed properties. Goodman believes the Canadian market may be approaching a similar inflection point, suggesting that "there is going to be wholesale massive acquisitions in the sector at some point."
Market Conditions and Price Realities
Despite the growing interest from private equity, significant hurdles remain before bulk acquisitions become widespread. Greg Zayadi, president of Rennie & Associates Realty Ltd., expressed skepticism about immediate large-scale purchases, noting that "we are just not seeing huge discounts" that would make such deals immediately attractive to investors.
Zayadi explained that while inventory is already priced below replacement cost (the expense required to build new units), developers can afford to carry unsold units for longer periods due to favorable loan conditions. Inventory loans at relatively reasonable rates remain plentiful, and these loans typically require only interest payments rather than full amortization.
The Path Forward for Condo Investors
Goodman, who is one of British Columbia's top sellers of apartment buildings, has observed signals that the market may be "bottoming out." He wouldn't be surprised to see investment groups move in to purchase unsold inventory, whether through his brokerage or others in the industry.
On the rental apartment side, Goodman's group has already been participating in a growing number of court-ordered sales driven by lenders calling loans. "Essentially, there is blood on the streets right now, and it could be a couple of more years of this," he noted, adding that multifamily rental units in the Vancouver area have declined on average 35 to 40 percent in value over the last four years.
Zayadi confirmed that various groups are actively exploring what bulk inventory purchases might look like, stating that "there are a number of groups like us, others who are working in various forms to figure out what bulk inventory purchases would look like." However, he emphasized that the market hasn't experienced the dramatic crash that would typically drive buyers into the sector in large numbers.
For lenders, the current situation presents a relatively secure position. Loans covering even just 50 percent of a builder's inventory value are considered secure and typically short-term, ranging from 12 to at most 24 months in duration.
As Canada's condo market continues to navigate these challenging conditions, all eyes remain on whether private equity will indeed swoop in to capitalize on the growing inventory—and what price points might finally trigger such moves.
