Seattle proved small unit demand a decade ago. Chicago proved small unit preservation pays for itself. FCPRET has been quietly running the same play inside our existing buildings, taking oversized older units and, on voluntary turnover, splitting them into multiple smaller ones. Today, why that is the quietest arbitrage in the Southern Ontario rental market.
PV, Mit & Jeff
The most valuable square footage in a Southern Ontario apartment building is the square footage that has not been rented yet. Two American cases plus one Foundation Capital operating playbook explain why.
This week has been mostly about Wellington Towers, the development side, and the government sitting at the table. Today's letter pivots back to the workhorse: FCPRET, our Apartment Building REIT, which has been quietly compounding for years by doing something older Ontario landlords rarely do. We re densify. We take existing oversized units in mid century apartment buildings, and when they turn over voluntarily, we split them into multiple smaller ones. Adaptive reuse of the built environment we already own.
The reason we do this is not clever. The reason is that the demand for smaller affordable units in Southern Ontario cities is a queue, not a hypothesis. Two American cases proved it a decade ago. Every unit we deliver at $980 to $1,500 fills before the paint dries. Today, the outside evidence, and how we run the same play in place.
Seattle amended its land use code to allow small efficiency dwelling units, informally called aPodments, across parts of the city. Between 2009 and 2015, private developers built roughly 3,000 units under the new rules. In 2013 alone, one calendar year, they added roughly 1,800.
The typical unit was between 150 and 250 square feet with a private bath and small kitchenette, plus a shared kitchen and lounge on each floor. The average rent was around $660 per month in a city where a conventional one bedroom was already pushing $1,600. Every one of those units filled almost on delivery.
The tenant profile was not who the critics predicted. Not students. Not transient workers. It was a mix of full time employed single adults in retail, restaurants, healthcare aides, entry level tech, and social services. The people every city needs to function, who had been steadily priced out of the private one bedroom market. Seattle's small unit stock absorbed a wave of working single adults who would otherwise have been forced onto couches, into cars, or into the shelter system.
A neighbourhood backlash eventually got the rules tightened, and construction slowed sharply after 2015. The units that were built are still there. They are still full. And they are still leasing at a fraction of what a conventional Seattle one bedroom costs today.
Different city. Different mechanism. Same result.
Chicago passed its Single Room Occupancy Preservation Ordinance in 2014. The city was losing SRO buildings, small unit rooming houses that historically housed downtown single adults on very low incomes, at a rate of hundreds of units a year to condo conversion and demolition. The ordinance stopped the bleed and put roughly 2,000 low rent single units back into the protected stock.
The downstream numbers on that policy are the more interesting story. Housing First research led by Dennis Culhane at the University of Pennsylvania and by teams at HUD has consistently found that stable low cost housing for previously precarious single adults reduces emergency room use by 40 to 80%, cuts jail and police contact meaningfully, and cuts shelter use to near zero among that population. The financial number the studies keep landing on is that every dollar of housing subsidy delivered this way returns roughly two to three dollars of avoided public spending on hospitals, jails, and emergency response.
There is also a quieter economic story. A working single adult paying $600 to $800 a month in rent instead of 65% of their income to a slumlord, or nothing at all because they are sleeping rough, is a working single adult who actually spends the rest of their paycheque in the local economy. Grocery stores. Transit. Restaurants. Small business services. That capital re-enters the neighbourhood instead of leaking into distressed housing costs. Neighbourhoods with preserved SRO and small unit stock tend to have stronger street level retail vacancy numbers over time. It is not a coincidence.
Read together, Seattle and Chicago answer the same question two different ways.
The Seattle case shows that when a city lets private operators build small affordable units at scale, working single adults absorb them faster than the market can build them. The demand is not theoretical. It is a queue.
The Chicago case shows that once those units exist, the downstream effects on that neighbourhood are measurable and they are net positive. Lower emergency service costs. Lower shelter use. Lower per capita police contact for the housed cohort. Higher local retail spend. Lower street level vacancy. Nothing about that outcome is surprising if you have ever met a landlord who has watched a stable tenant hold a unit for ten years.
The critics tend to argue about the units themselves. The tape shows they should be arguing about the counterfactual, which is the same worker sleeping in a car or the same senior stuck on a waitlist for years while the city pays for the shelter cot instead.
Most Ontario apartment stock was built between 1950 and 1980, when families were bigger, cars were cheaper, and the assumed household was a working father, a stay at home mother, and three or four kids. The typical mid century three bedroom in London, Chatham, or Ingersoll is roughly 1,400 to 1,500 square feet of raw floor plate, wired and plumbed for one kitchen and one bathroom.
The 2026 tenant those buildings were designed for does not exist at scale anymore. Household size has dropped. Single adults, single parents, seniors, and childless couples now outnumber the family unit that plate was drawn around. The oversized three bedroom is systematically the wrong shape for the actual demand curve in a mid market Ontario city.
So FCPRET does what Seattle and Chicago proved works. We wait for a unit to turn over voluntarily, at the tenant's timing, on mutually agreed terms and always with the tenant's full right to say no. When the plate is vacant, we re densify it. A 1,500 square foot three bedroom becomes three well laid out smaller units of roughly 500 square feet each. Same building footprint. Same envelope. Same roof.
The plate did not grow. The building did not grow. The city did not have to approve anything. We are simply matching the interior of the building to the demand curve that Southern Ontario now actually has. Every one of those new smaller units leases before the paint dries. Because the queue for a $1,500 one bedroom, or a $1,200 bachelor, in London or Chatham is exactly the queue Seattle documented in 2013.
Three things stack on top of each other. NOI per building rises meaningfully because the same footprint now generates three rent streams instead of one. Tenant risk falls because three independent single adults are structurally less concentrated a credit than one household in one unit. And the units we deliver are exactly the housing type Ontario cities are structurally short of, which means the leasing risk on each new door approaches zero.
It is also the kind of asset improvement that shows up in the quarterly unit price without requiring a market rent hike on existing tenants. The value creation is in the floor plate, not on the rent roll of any long tenured tenant. That is the compounding engine behind FCPRET's monthly distribution and unit price movement, and it is why the same operating team that is now sitting across from Queen's Park on Wellington Towers is quietly re densifying the Apartment Building REIT portfolio across Southern Ontario at the same time. Different fund. Same discipline.
$10K Minimum · RRSP / TFSA / RESP / LIRA Eligible
Targeted: 15% Annualized (7% cash monthly + 8% appreciation)
Our Apartment Building REIT across Southern Ontario, quietly re densifying floor by floor as units turn over voluntarily. Open to new subscribers.
PV and Jeff on the same operating team that is quietly re densifying the FCPRET portfolio.
Roughly 1,000 Units Across Two Towers · London, ON, On The Wellington Gateway BRT
Tranche 1 closed. Accredited investors interested in Development Fund III should signal now.
Talk soon,
PV, Mit & Jeff
P.S. The re densification playbook is one of the quieter reasons FCPRET has met its target return every year since inception. If you want to own a piece of that compounding engine, subscribe to FCPRET here. $10K minimum, RRSP / TFSA / RESP / LIRA eligible, monthly cash distribution.
