The appetite for investment in multifamily properties remained voracious in Toronto in the first half of 2017, even as prices rose and supply continued to struggle to keep up with demand.

This year has continued where 2016 left off, according to JLL’s multifamily outlook report.

“Investment dollar volumes have remained strong, but the number of units sold has decreased, thereby signifying that prices are moving up and there is less supply in the market for good, quality product,” JLL Capital Markets Research Manager Gaurav Mathur said.

According to the report, 2,200 Toronto units sold in the first half of the year, compared to 3,300 in the first half of 2016. Yet dollar amounts invested remained up from last year with $550M investment in the first half of 2017, compared to $800M in all of 2016. That new figure is still significantly down from 2015, when investment topped $1.4B.

“Despite a tremendous reduction in the overall suite volume traded, the sustained level of dollar volume can be attributed to the cap rate compression that has occurred over the past five years and the voracious appetite for multifamily assets throughout the GTA,” the report concluded.

Most deals in the GTA market were for the older, lower-end B to C class properties, with minimal Class-A buildings trading.

“Very few Class-A [buildings] actually trade in general,” JLL Senior Vice President and Multi Residential Advisor Michael Betsalel said. “They tend to be more long term. It is very unusual for a high-quality asset to trade, especially downtown.”

The report points to a trend away from mom-and-pop investors. Partly due to the escalation in value, the typical investors in properties with more than 50 units tend to be investment funds, pension funds or REITs. Institutional investors were involved in two-thirds of all investments in the first half of 2017.  If an individual investor was involved, it was usually as part of an organization of individuals.

 “The buyers keep getting bigger. That’s been true for two decades. The old lady with an apartment is becoming rare. If you’re not growing at this point, you are selling. It’s all about larger players now,” Betsalel said.

“A lot of investors are being priced out of the market due to more demand, less supply and prices still getting worse.”

According to both Betsalel and Mathur, the typical multifamily investor these days is better educated, investment-wise.

Private investors need to be savvy and organized, they said. Many private players are forming partnerships and joint ventures to take on the larger institutional players.

Competition remains fierce among asset managers and private buyers alike. Toronto’s Starlight Investments was the most active purchaser in 2017 with $120M invested, including the purchases of Scarborough’s 430-unit Silverspring Park complex for $84M and North York's 102-unit The Castilian for $20.8M.

The report concludes the consolidation of multifamily properties into the hands of REITs, and pension and investment funds will continue with new construction underway. According to Betsalel, one possible fly in the ointment may be rent controls.

Earlier this year, the Ontario government removed a rent control exemption for all buildings constructed after 1991. That may be bad news for multifamily investment.

“More legislation means rental business investing is simply more difficult to be in,” Betsalel said.