An investor group that says it is buying six Sackville buildings with a combined 82 units expects to close the deal today.

Some tenants in the buildings have received emails from a new property management company, K Squared Property Management, even though they have not yet been given notice of new ownership.

Local landlord Charles Estabrooks currently owns the six buildings and Sunset Investments is the investor group that claims to be buying them. DJC Properties has also posted on social media, advertising for investors for the deal.

A social media post late last week from DJC Properties says that the “82-unit acquisition is closing earlier at the Banks request.”

An earlier post by Sunset Investments says that building inspections have been completed, and Canada Mortgage and Housing Corporation financing has been approved. The post says all buildings are in excellent condition but for one older 4-unit building.

It’s not clear what the plans are for the buildings. CHMA has reached out to Estabrooks and Sunset Investments for further details on the deal. Estabrooks has not responded to a CHMA interview request, and Rachel Godbout of Sunset Investments says she has no comment since her company does not yet own the buildings.

Earlier this summer, Sunset Investments bought another Sackville building, and proceeded to evict all tenants in the 16-unit building in order to perform renovations. Among other things, Sunset converted 2-bedroom units to 3-bedroom units, and dramatically increased the total rent for each unit. CHMA spoke to one previous tenant of 15 King Street who had been paying $775 to rent a two-bedroom unit before being evicted. In October, converted 3-bedroom units at 15 King Street were being advertised for $1800 per month.

Current tenants in the buildings still owned by Estabrooks are concerned that something like the renovictions at 15 King Street could be repeated, but on a larger scale. However, without the extension of a rent cap into 2023, Sunset Investments would not need to evict tenants in order to dramatically increase rents, it could do so simply by giving notice.

Thursday at the legislature, Service NB Minister Jill Green effectively ruled out an extension of the current temporary rent cap, which limited rent increases in 2022 to 3.8%. Instead, Green introduced a bill to add a phase-in mechanism that could be used by the Residential Tenancies Tribunal on a case by case basis, if landlords raise rents by more than the Consumer Price Index, and if the tenant formally complains about the increase.

The six buildings being marketed to investors by Sunset are still owned by Charles Estabrooks according to Service New Brunswick’s property online website. Service NB data also shows that since 2021, property assessments on Estabrooks’ properties have gone up substantially, between 30% and 40% for 2022, and 10% for 2023.

A REIT by any other name

Julia Woodhall-Melnik is the Canada Research Chair in Resilient Communities, and an Associate Professor of Social Science at UNB in Saint John. CHMA spoke to her last month when news of the 82 unit sale first broke, and asked about the seemingly new phenomenon of investors buying affordable housing stock.

“It’s not a new thing,” says Woodhall-Melnik. “It’s just something that we’re seeing more and more in New Brunswick.”

“In the 90s, when housing was really was shifted out of federal responsibility, and started to be a bit more deregulated in Canada, we started to see more of these pop up everywhere,” says Woodhall-Melnik.

While Sunset Investments and DJC Properties–the two company names advertising for investors on social media–do not specifically call themselves real estate investment trusts, or REITs, they likely are, says Woodhall-Melnik. “Honestly, to me, it sounds like a REIT. They’re looking for investment in their investment firm, right?”

Woodhall-Melnik says REIT investment has become commonplace in Canada, with many pension plans major investors. “There’s a massive amount of global capital involved, washing around the global housing market. And it’s all based on speculation. These guys are called speculators, they also call themselves investors. There’s multiple different things that people call themselves. Because of the bad press surrounding REITs, not a lot of companies directly come out and say ‘we’re a REIT’ anymore.”

In addition to being a “huge problem” in Vancouver and Toronto, REITs are also common in university towns everywhere. Melnik says they are common near campus in Saint John and Fredericton, with Killam Properties being one of the major players. “Again, it’s not new, but it’s likely something that’s a bit of a newer phenomenon in Sackville,” says Woodhall-Melnik. “I’m not surprised that they’d be infiltrating Sackville because of Mount Allison, and the constraints in student rental markets that we have right now. But it’s also, you know, it’s disheartening to hear.”

Having investors buy up housing units means “nothing good” for tenants, says Woodhall-Melnik. “Real Estate Investment Trusts have one mandate, and it is to maximize profit for their investors over everything else,” she says. “It’s not to ensure that people have places to live. It’s not to provide the best quality housing for a reasonable affordable price. Their mandate is to make as much profit as possible for their investors, and that’s what they’ll do. They’ll find ways within their particular projects to optimize capital so they can refinance, and then sort of ‘rinse and repeat’ and get another building.”

Woodhall-Melnik says that banks look at profitability when they are considering refinancing. If REITs can increase rents, “then all of a sudden, their assets are more liquid, because it’s seen as being more profitable than what they purchased it for. So in a very quick time, like within the span of a year, with an increased balance sheet, they can re-mortgage this building for a lot more than what their initial mortgage was for, take that difference in capital, and reinvest it into another building.”

“So what this means for tenants is that, you know, they will try to find ways to increase rents on units,” says Woodhall-Melnik.

Traditional landlords could also raise rents by exorbitant amounts, though Woodhall-Melnik says their motives are often more complex than REITs. “That landlord, who owns 80 units, you know, that’s probably been a big part of his life’s work that puts food on his table and lets him save for retirement, right?”
Charles Estabrooks lives and works in Sackville, which might also come with the onus of neighbourly fair play. “The second you have a REIT step in or a speculative landlord or an investor or whatever it be,” says Woodhall-Melnik, “their number one goal becomes to make as much profit as they can off the unit to reinvest that profit in another unit.”

Woodhall-Melnick says that there are solutions that can help tame the REIT wave that seems to be buying up Sackville’s rental housing. “We need to have other affordable options available and tenant protections that make it less attractive for these REITs to enter the scene.”

Renter protections like caps on increases and bans on renovictions can make purchasing existing housing stock less attractive to REITs. And investing in social housing stock that provides reasonably priced alternatives will also affect the market, says Woodhall-Melnik. “They can’t keep raising rent if the market won’t allow it. If there’s somewhere else for these folks to go that costs less, they’ll go there.”

Rally for a rent cap this Saturday

Supporters of more permanent rental protections are gathering this Saturday at 1pm in Fredericton for a rally on the front lawn of the legislature to demand the permanent extension of the rent cap in New Brunswick. More details are available online here.