RENX reported yesterday that Toronto developers are redesigning projects to squeeze more rent per square foot. Foundation Capital does the opposite. We chase more doors per square foot, at workforce rent, inside buildings we already own. Today, why that math delivers better returns without pushing tenants out of reach.
PV, Mit & Jeff
Same envelope. More units. Same workforce rent bands. Higher combined NOI. Better returns without pricing anyone out of a home.
RENX ran a piece yesterday titled "Designing for more return per square foot." The gist. Toronto developers are redesigning projects, delaying builds, and reworking pro formas because construction costs are up and lending is tighter, and the only way the numbers pencil is to squeeze more rent per square foot out of each unit.
More rent per square foot means one thing in practice. Higher rent per unit, on the same or smaller footprint, chasing the same top of the market tenant. It is a rational response to construction cost inflation. It is also a return math that fundamentally excludes the tenant Foundation Capital was built to serve.
FCPRET does something structurally different. We do not chase more rent per square foot. We chase more doors per square foot, at workforce rent bands, inside buildings we already own. Same envelope, more households housed, higher combined NOI. Today's letter is why that math works better for both the tenant and the investor.
The FCPRET portfolio serves the working Londoner, the working Chatham household, the working Windsor family. Nurses, warehouse workers, seniors on fixed incomes, single adults earning between $22 and $30 an hour. The rent that tenant can actually pay caps out around $1,500 per month for a workforce one bedroom. We can push a little higher on renovated units. We cannot push into $2,000 to $2,500 rent territory. Not because the operator does not want to. Because the tenant does not have another paycheque behind that rent.
That rent ceiling is not a constraint. It is a decision. It is the entire reason FCPRET's tenant retention is strong, our vacancy is low, and our operating income is durable through cycles. We do not lose a tenant because they got a better deal down the street. There is no better deal at $1,500 down the street.
Which means the operating lever inside our buildings cannot be "raise the rent." It has to be something else.
The operating lever we do have is unit density. Most of our stock was built in the 1960s and 1970s for a family unit that no longer exists at scale. Oversized three bedrooms, 1,400 to 1,500 square feet, on floor plates that could easily hold two or three purpose sized workforce units. When one of those large units turns over voluntarily, we do not relist it. We reconfigure it.
Same building envelope. Same roof. Same envelope of walls. Three households instead of one. Roughly $1,900 in additional monthly rent, without pushing a single tenant into an unaffordable band, and while permanently expanding the amount of workforce housing available in that city.
$10K Minimum · RRSP / TFSA / RESP / LIRA Eligible · Also Cash
Targeted: 15% Annualized (7% cash monthly + 8% appreciation)
Our Apartment Building REIT across Southern Ontario. Every new door added at workforce rent, every existing envelope quietly re densified.
A developer that pushes rent per square foot is depending on the top of the rental market to stay strong forever. The moment that top of the market tenant has more options, or a softer job market, or one bad quarter of layoffs, the rent inflation trade breaks and the pro forma with it.
FCPRET's operating trade is different. Every new door we add through re densification is a door in the exact rent band that has zero substitute in the Southern Ontario market. The workforce tenant has nowhere else to go at $1,400. The waitlist for that unit forms the day we list it. That is not a rent inflation story. It is a supply expansion story, at an income band that is chronically undersupplied and where demand is structurally growing.
The result on the investor side is a NOI that compounds through more doors, not through squeezed tenants. That NOI is what feeds the FCPRET monthly distribution and quarterly unit price. It is also the kind of return that holds up in a downturn, because a $1,400 unit does not lose its tenant in a recession. The $2,500 luxury unit does.
This is why the FCPRET operating thesis is not a compromise between social outcome and investor return. It is the same trade on both sides of the ledger. Every new workforce door houses one more Londoner, one more Chatham family, one more Windsor senior at a rent they can pay. And every one of those doors is a rent stream that adds directly to the NOI our investors earn their targeted distribution and unit price appreciation from.
Toronto developers redesigning for more rent per square foot are solving a different problem, for a different tenant, on a different pro forma. FCPRET is solving the housing supply problem the country actually has, with the same operating discipline that has met our targeted return every year since inception.
Public comments open until August 31.
Roughly 1,004 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. If you want a monthly cash yield backed by the workforce housing supply Southern Ontario is short of, subscribe to FCPRET here. $10K minimum, RRSP / TFSA / RESP / LIRA eligible, and now also open to non registered cash.
