GUEST SUBMISSION: In May 2023 Toronto City Council adopted a policy and bylaw amendment to boost housing development throughout the city, a component of its 2023 Housing Action Plan to support the growth of inclusive, sustainable communities.

Despite the green light, our industry has been plagued by a time of high borrowing rates, low adoption rates by municipalities, and a knowledge deficit as it relates to implementing and benefiting from this initiative. With interest rates now on the steady decline however, curiosity is at its peak and it’s begging the obvious question – have we found the missing middle?

While it's reasonable to assume we’re still in the early stages, less friction surrounding development, faster adoption on a municipality front and more available financing means multiplex development is happening.

As it turns out, it could be quite a unique opportunity. 

The multiplex development opportunity 

Compared to other forms of development, building or investing in a multiplex development can be a quick and seamless process to earning capital.

Not only is the construction process quicker than alternative asset types, but with the new zoning in place to streamline production, your investment potential can circumvent at least some of the lengthy permit process, development charges and sales taxes associated with traditional buildings to realize revenue quicker.  

For homeowners

As a homeowner, there exists a large incentive to maximize your floor-space ratio. With rising property taxes and costs of living, there is an upside to considering new ways of downsizing and earning a supplemental revenue stream in the process.

As a potential landlord of a rental property, there are numerous tax advantages to owning this form of real estate, while contributing to a dwindling rental housing supply.

As the baby boomer population continues to explore right-sizing opportunities to move equity from their single-family homes and help their children afford housing, this building solution also poses as a favourable option for intergenerational living. With a triplex, for example, a family can demolish their existing single-family home to build separate lock-off suites.

This concept not only gives their children the chance to live close to home, but can house an elderly parent or become that rental suite to supplement the monthly mortgage payments.

For developers

With condominium and new home development at a near standstill, there are questions as to how our city plans to generate new housing supply. Even with revised immigration plans, Canada is still projected to come up short by 658,000 units by 2030.

If you ask me, the City of Toronto’s revised ‘yellow belt’ strategy to allow multiplexes in all residential neighbourhoods presents an infinite opportunity to up-and-coming developers.

The good news for this class of developer is that mainstream condo developers are preoccupied, battling the headwinds they are facing to finance their current portfolios. With receiverships on the rise, large-scale builders are not interested in new low-rise development ventures and are not going to be quick to capitalize on this niche market.

At this moment, there is a call for smaller, mid-sized developers to attend to the missing middle and solve this piece of the puzzle. 

As a developer, the multiplex model is very attractive. Whether it’s reconstructing one lot or several, building it to rent or developing it to sell, you could be poised to witness a large lift in value in coming years. Driven mostly by its speed-to-market appeal, development projects that would have otherwise taken years can now be built in months due to zoning advantages – music to developers’ ears.

While there are benefits to building this asset type, it’s important to remember that renovation and construction is a real job; you are still victim to risks like cost overruns and oversights. But, if you’re accustomed to this line of work and are detail-oriented enough to build it right, it could be lucrative.

Another consideration is the lack of access to capital developers are currently facing to fund these types of developments. That brings us to the next opportunity. 

For lenders

Institutions are currently reluctant to get involved and fund loans for multiplex developments because they typically look for scale, making this housing type ‘too small’ of a project.

For this reason, the big banks will likely take a wait-and-see approach to fully grasp the opportunity and see how it unfolds before entertaining the idea of financing it. Right now, alternative lenders like us have a small window to support developers and catalyze housing needed for the future.

The multiplex asset allows mid-sized lenders to get involved in ways they previously couldn’t; with large condo projects, for example, firms would traditionally contemplate taking on one big project at a time due to the high amount of risk.

The opportunity to lend on a range of smaller projects makes it much easier for smaller firms to get involved in different product types, support these opportunistic developers, and balance our own risk. Especially because we invest our own capital alongside investors in projects - this can be an important consideration for other investors, and is something they should be aware of when dealing with lenders. 

For investors

Any experienced investor knows good business always means investing in things people need, or solving a problem that exists. Hence, this is why real estate investing has been regarded as a worthwhile venture for many to date.

Now though, with new zoning regulations in effect, a more favourable development charge structure, no sales tax and shortened development timelines, multiplex investing is quickly gaining traction as a substitute to condominium investing. We believe it will lead as the preferred investment strategy in 2025.

Once considered a relatively quick way to turn a profit, the golden years of condominium investing have been abruptly met by higher interest rates, flipping taxes, higher down payments, and because projects are often at risk of being paused due to financing constraints.

An upside to the emerging multiplex asset type is that it is more accessible for entry-level or medium-sized investors. Not only are the allocated sums a lot smaller, but the rise of mortgage funds is making it more accessible to everyday people wanting a piece of the pie. 

While there is excitement surrounding this new housing type and investment opportunities instore for the marketplace, it’s important to remember it’s still an investment. Like anything worth having, there is risk involved.

One of the main considerations surrounding this form of development is its lack of scale, but if you ask me this is exactly what is opening it up to entrepreneurial and smaller investors.

The city has more to gain than to lose.

To get the multiplex development market started, it’s going to take the small- to midsized players including alternative lenders, developers and an entrepreneurial class to move the dial on Ontario’s housing crisis.