InterRent’s Mass Displacement Strategy
One hundred households from the Stoney Creek Towers, four high-rise apartment buildings in East Hamilton, are currently waging a rent strike against their landlord, InterRent Real Estate Investment Trust (REIT). Tenants are protesting InterRent’s application to increase their rent by nearly 10%.
Tenants are demanding that InterRent cancel this Above Guideline Increase and make longstanding repairs to their units. Tenants are taking a courageous stand against one of the most predatory corporate landlords in Canada and refusing to be pushed out of their homes in service of InterRent’s profit-making. Read on to learn more about this David and Goliath struggle.
A Business Built on Displacement
InterRent creates profits for investors primarily by “select[ing] properties that have untapped value that can be realized through the REIT’s repositioning strategy” (InterRent Annual Report, 2014, p. 3).
InterRent promises investors that every new acquisition will be fully repositioned within three or four years of purchase, rapidly turning an “underperforming” building attracting below-market rents into a “well-performing asset.” While “the bulk of the work is completed within the first 24 months, the full results of the repositioning efforts often take 36–48 months to be fully reflected in the operational performance of a property” (InterRent Annual Report, 2017, p. 19).
In other words, InterRent promises its investors that all of the low-paying tenants inherited upon purchase will be removed within four years, by whatever means necessary, and replaced with higher-paying tenants in order to make a quick, fat dollar.
A unit is considered to be repositioned when the ‘legacy tenant’ moves out, the unit is renovated, and a new, higher-paying tenant moves in. For example, a tenant who has lived in the Stoney Creek Towers for more than ten years pays $750-$800 per month, on average, for a 2-bedroom apartment. A newly renovated 2-bedroom apartment is currently being advertised by CLV Group, InterRent’s in-house property management company, for $1,499-$1650 per month.
“Reposition” and “suite turnover” are simply code words for displacement and renoviction. InterRent’s entire business model is based on the mass displacement of working-class people from their homes.
Like Northview, Greenwin, and other REITs which have recently entered the Hamilton market, InterRent is eliminating the last reservoir of affordable housing from the city.
InterRent’s aggressive displacement strategy includes:
Cutting costs on property management and maintenance by removing on-site superintendents, cutting office hours, and neglecting to make repairs to tenants’ units, in an effort to make living conditions unbearable and force longstanding tenants to move out.
Squeezing ever more money out of tenants through ‘ancillary revenue streams’ by charging extra for parking, hydro and utility fees that were previously included in monthly rent — and monetizing additional services such as laundry, cable and telecom provision and rental insurance.
3. Green Initiatives
InterRent cuts back on utility costs by installing energy efficiency features, purportedly “creating a more environmentally sustainable portfolio of properties” but more importantly, to “provide a higher yield” (InterRent Annual Report, 2017, p. 9). These “green initiatives” include: water saving toilets (that tenants report needing to flush multiple times — so do they really save water?!), high efficiency boilers, energy star appliances, and LED lighting. The cost of these green upgrades can be passed on to tenants as part of an Above Guideline Increase, since upgrades “promoting energy or water conservation” qualify as one of the eligible capital expenditures (Landlord and Tenant Board, Applications for Rent Increases Above the Guideline, Interpretation Guideline, 2018).
InterRent also installs submeters for each of the units they purchase, so that tenants must pay hydro and water in addition to rent, where before it was included. InterRent has the audacity to claim submetering is done because it “heightens awareness about energy consumption with our customers and promotes energy conservation” (InterRent Annual Report, 2017, p. 9), when of course this is only done to cut costs for InterRent and make housing costs more expensive for tenants.
4. Continual Rent Increases
The primary way InterRent repositions buildings in order to “grow the rental revenue base” is “by removing undesirable tenants and implementing policies and processes to attract more desirable tenants” (InterRent Annual Report, 2014, p. 3) by increasing rents beyond what longstanding tenants can afford through a “continued roll-out of guideline increases and AGIs [Above Guideline Increases]” (InterRent Annual Report, 2017, p. 46).
5. Bullying and Bribing
While they don’t like to brag about it openly to investors, InterRent has also relied on dirty bullying and bribing tactics. InterRent tenants frequently report:
being offered financial incentives to move (i.e. cash buyouts to terminate their leases, sometimes as much as $3,000);
being harassed in their homes (with property management staff giving seemingly endless excuses to enter tenants’ units, often failing to give proper notice and forgetting to lock the door when they leave);
frequent interruptions of service with little advance notice from property management staff (water shut offs, laundry room closures, elevators out of service);
receiving bogus legal forms and eviction notices intended to scare tenants who may not know their rights or have a strong command of English; and
InterRent Targets Working-Class Tenants in Gentrifying Neighbourhoods
In the early 2000s, InterRent converted to a real estate investment trust (REIT) and started scaling up, selling off the single homes and mid-rise apartment buildings they owned in Toronto with a view to purchasing large multi-residential properties throughout Ontario.
InterRent has a clearly articulated strategy. When looking at future property acquisitions, they “focus on ‘under managed’ buildings with significant repositioning, or upside potential” in “highly desirable neighbourhood[s]” (InterRent Information circular and plan of arrangement, p. 39, filed asManagement Information Circular, Oct. 25 2006 available at Sedar). The “common elements within all buildings” pursued by InterRent “is the ‘working class’ demographic target market of its tenant profile” but buildings nevertheless “generally located in middle class residential neighbourhoods with good public transportation access” (InterRent Information circular and plan of arrangement, p. 39–40, filed as Management Information Circular, Oct. 25 2006 available at Sedar). Their strategy is clearly to displace these ‘‘working class” tenants in favour of attracting “middle class” tenants.
Riverdale, the East Hamilton neighbourhood where tenants are currently withholding rent from InterRent en masse, fits this profile exactly. Riverdale is a historically working-class neighbourhood that is undergoing rapid gentrification due to large public investment in transit infrastructure.
The Riverdale neighbourhood in East Hamilton, outlined in blue. The four Stoney Creek Towers apartment buildings (11 Grandville Ave, 40 Grandville Ave, 50 Violet Dr, and 77 Delawana Dr) are marked in yellow.
Riverdale has long been a popular destination for poor and immigrant families, with a large stock of affordable rental units; easy access to settlement services like the Immigrants Working Centre as well as ESL programs, adult education, and job training at the St. Charles Centre; walking distance to Lake Avenue public elementary school, Riverdale Park, and Riverdale Recreation Centre; and walking distance to affordable stores like Food Basics, Punjab International Food Market, Value Village, and many others at the nearby Eastgate Square mall.
Riverdale is known as Hamilton’s Arrival City, the neighbourhood with the largest proportion of recent immigrants in Hamilton (Social Planning and Research Council of Hamilton, 2018). In Riverdale, 46% of residents are immigrants and 43% of residents identify with a visible minority group (2016 Canadian Census Statistics, cited in Social Planning and Research Council of Hamilton, 2018).
But East Hamilton is rapidly changing. As rents and home prices skyrocket in Toronto, more and more people are looking to move to Hamilton. The Lakeshore West GO Transit train line is being extended by Metrolinx and a new stop is under construction in Stoney Creek near Centennial Parkway North and Barton Street East. Metrolinx and the City of Hamilton are also building a new Light Rail Transit (LRT) line that will travel the width of the lower city, from McMaster University in the west, through downtown, and terminating at Eastgate Square in the east. This makes East Hamilton, and Riverdale in particular, an attractive option for those looking to commute to jobs in Toronto or downtown Hamilton. These people tend to be higher-income professionals willing to pay more in rent.
These public infrastructure investments and demographic changes make Riverdale an attractive place for landlords, investors, and developers looking to make money. The local ward councillor, Chad Collins, boasted about the “large economic and transit transformation” planned for the area in a February 2018 article in the Stoney Creek News:
Collins points to the Confederation GO transit station near the QEW and the impact it will have within the entire neighbourhood. He says every other new GO station that has been constructed has prompted residential and commercial growth, such as in Burlington and along the Lakeshore transit hubs. “Our area will be no different,” he said. “I’m excited by the plan.”
The Confederation station, which had its ceremonial ground breaking in February, is scheduled to open in 2019–2020, the same time when construction of the light-rail transit system in downtown Hamilton begins.
Collins said there are already applications for residential and commercial developments along Centennial Parkway.
“The secondary plan prepares the area for new investment,” said Collins.
Already, tenants are feeling the pressure as rents climb and vacancy rates plummet. An April 2018 report from the City of Hamilton’s Housing Services Division looks at city-wide rent increases and rapid rent increases in East Hamilton:
Since 2012, city-wide rents have increased annually by an average of 4.1%, a pace twice the rate of inflation. These rent increases far exceed any increases in household income….
Some areas of the city have seen rents increase at an even faster rate. For example, in East Hamilton rents have increased by an average of 6.6% per year bringing the AMR [average market rent] up from $724/mo. in 2012 to $1,009/mo. in 2017. East Hamilton has transitioned from being a relatively affordable area to live to one of the most expensive areas in the city. The average East Hamilton renter household is paying $285 per month more on rent than they were 6 years ago.
When InterRent purchased the Stoney Creek Towers in 2015, they pointed to transit development as the main reason for the purchase:
Currently serviced by several bus routes, the property is ideally located in relation to the recently announced extension of the GO Lakeshore West train to a new stop at Centennial Parkway. The provincial government has indicated that they are also speaking with the city of Hamilton to extend the announced Light Rail Transit project so that it would continue past the last stop, currently planned for Queenston Circle, and continue on to the Eastgate Square.
InterRent CEO Mike McGahan boasted in a press release about the potential to quickly turnover units with tenants paying ‘below market’ rent in order to make money for investors:
We believe the Hamilton market is well positioned for excellent growth and this portfolio is located in a strong rental node. This acquisition is a strong addition to the REIT’s value creation strategy….We believe that our repositioning program for this property will create value for our Unitholders [i.e. shareholders], similar to what we are experiencing with our previous Hamilton acquisitions.
The History of InterRent: From Extracting Gold to Extracting Rents
InterRent was started in 1997 by G. Michael Newman, who began with nine units in single-home conversions in Parkdale and elsewhere in Toronto. In November of 1999, the company acquired Beaufort Hills mining, a reverse takeover of a publicly-listed exploration and extraction company. Beaufort Hills Resources Inc. bought all shares in InterRent’s seven buildings and changed its name to InterRent Properties Ltd., which then became a publicly traded company. The pace of expansion quickened. The houses were sold and larger buildings, in the 20-unit range, replaced them in the portfolio. At the same time, InterRent completed its conversion to a REIT, and combined its assets with those of Silverstone Equities. The combined properties were appraised as having a market value of about 100 million dollars.
InterRent arrived in Hamilton in 2004, with the purchase of the 17-unit Pasadena Apartments in the Durand neighbourhood. This was “the first [building] purchased by InterRent with the intention of undertaking significant capital improvements to reposition the building of a highly desirable neighbourhood and improve management to turn [it] into a well performing asset” (InterRent Information circular and plan of arrangement, p. 39, filed as Management Information Circular, Oct. 25 2006 available at Sedar). The heritage building later went up in flames in a major blaze that “destroyed 17 apartments and left 28 people homeless.” Once units were vacated by this fire, the building was restored and converted into “boutique condos.”
Today, InterRent owns 8,660 units in 72 properties in cities across Ontario and Quebec (InterRent Annual Report, 2017, p. 31) worth approx. $1.7 billion. This includes 1,304 units in Hamilton, nearly half of which (618 units) are at the Stoney Creek Towers, where tenants are currently waging a rent strike.
Average monthly rents for InterRent units have rapidly increased to $1,110 (InterRent Annual Report, 2017, p. 18). 55% of all units InterRent owns are deemed “repositioned.” This means more than half of all tenants living in units purchased by InterRent have been forced to absorb major increases in rent or, more likely, have been displaced from their homes (InterRent Annual Report, 2017, p. 5).
InterRent is a case study of the financialization of rental housing and the growing consolidation of ownership among REITs in Canada, spurring the mass displacement of working-class tenants across the country. To REITs like InterRent, tenants’ apartments are seen as stocks in the sky for investors to park their cash, rather than homes providing shelter.
Mike McGahan’s Ascension to King of Displacement: The Marriage of InterRent REIT & CLV Group
Back in 2009, having expanded into Ottawa and other Ontario cities, InterRent entered into a property management agreement with a company called CLV Group, and floated a share offering to raise $8–14 million, depending on the uptake. Uptake was good, and CLV’s principal, Mike McGahan, bought 5% of the offering for $700,000.
McGahan had recommended himself to the trustees by his performance on the Ottawa portfolio of buildings. By September McGahan was CEO, working with a new board of trustees and intensifying the repositioning strategy, and by the end of 2009, InterRent founder Michael Newman departed. In time-honoured tradition, the mercenary troops, those conducting the day to day operations of squeezing the tenants, had ascended to control of the enterprise.
Today, Mike McGahan is CEO of both CLV Group and InterRent REIT. InterRent is valued at $1.7 billion. McGahan’s personal wealth is estimated to be $70 million. As CEO of InterRent and one of the largest unitholders in the company, he has personally benefited from the displacement of thousands of tenants from apartment buildings acquired by InterRent in cities across Ontario and Quebec. McGahan is chiefly responsible for hastening and expanding InterRent’s aggressive displacement strategy. He exemplifies the predatory nature of financialized landlords in Canada today and should be recognized as one of the main culprits in our national housing crisis.
McGahan presents himself as a socially-conscious philanthropist, donating to charities like the Make a Wish Foundation and the Boys and Girls Clubs of Canada and sitting on the board of directors of the Ottawa Hospital Foundation. He also sponsors food drives and holiday hampers. But working-class tenants see through this progressive veneer. McGahan gives a few dollars towards breakfast programs and youth shelters with one hand, while he takes millions from poor families with the other, charging unaffordable rents that force parents to choose between buying groceries or making rent. Under such pressure, many families are pushed out of their homes and into shelters and food banks. McGahan tosses a few pennies towards charitable causes to mask his underlying strategy to make millions by displacing tenants and exacerbating conditions of poverty.
A Mass Displacement Strategy Enshrined in Law
InterRent’s mass displacement of tenants through repositioning is clearly unethical but is entirely legal, achieved by exploiting loopholes in rent control laws and rubber stamped at the Landlord and Tenant Board. This has become a well-oiled displacement machine for REITs throughout Ontario and a principal part of their business model. The state’s regulatory apparatus does the work and also guarantees the returns, no risk involved, while providing a steady flow of transaction fees to assorted lawyers, investment managers, and the like.
In their recent report on the expansion of REITs in the Greater Toronto and Hamilton Area, Martine August (University of Waterloo) and Alan Walks (University of Toronto) explain how state withdrawal from affordable housing production and the erosion of tenant protections and rent control in the late 1990s created the conditions for REITs to flourish in the 2000s and 2010s.
In 1997 a new Tenant Protection Act was introduced, replacing the 1992 Rent Control Act. A central feature of the new Act was the introduction of ‘vacancy decontrol,’ which gave landlords new powers to raise rents on a vacant unit by any amount. Vacancy decontrol provided an enormous incentive for landlords to capitalize on the ‘rent gap’ that had emerged between lower rents paid by sitting (often long- standing tenants), and the potentially much higher rents that could be achieved from higher-income renters, particularly in areas where gentrification had pushed up property values and rent levels. Furthermore, the Act allowed landlords to pass along certain costs to tenants by applying for an ‘Above-Guideline-Increase’ (AGI), so that even in if a unit is not vacated, certain investments allow for substantial rent increases for sitting tenants. August and Walks, 2018, p. 126
In theory, there is rent control in Ontario. AGIs show this is not the case in reality. AGI legislation allows landlords to increase rent beyond the guideline set by the government to pass on the cost of “capital expenditures” to tenants. For 2018, the guideline is 1.8%. Landlords can submit AGI applications to the Landlord and Tenant Board to increase rent an additional 3% each year, three years at a time. This means a tenant’s rent could increase by as much as 15% every three years. And this would be perfectly legal.
Who does the Tenant Protection Act (since renamed the Residential Tenancies Act) protect, tenants’ right to shelter or landlords’ bottom line? Whose interests does the Landlord and Tenant Board serve, bringing justice to tenants or profits to landlords?
Stoney Creek Towers Tenants on Rent Strike to Protest AGI and Demand Repairs
Since May 1, 2018, more than one hundred households from the Stoney Creek Towers in East Hamilton have been withholding rent. They will pay the rent they owe when InterRent agrees to cancel the AGI proposed for their buildings and when InterRent promises to make repairs to their apartments.
InterRent has applied for a total rent increase of approx. 10% (guideline increases + 6% in above guideline increases) for 2018 and 2019 at the Stoney Creek Towers — the first of many AGIs InterRent will likely propose for these buildings. InterRent wants to pass on the cost of the $3 million worth of upgrades they have spent on the buildings to the tenants. These upgrades are mostly cosmetic (painting the building exterior, renovating the lobbies, new landscaping, etc.) done in order to beautify the buildings to attract new, higher-paying tenants. Tenants are angry that they are being asked to pay for these cosmetic upgrades, meanwhile necessary repairs to their units go ignored.
InterRent is a multi-billion dollar company that could easily afford to pay for this themselves. Instead, they want poor tenants to pay, just so InterRent can make some extra money for its investors. InterRent knows many Stoney Creek Towers tenants cannot afford a nearly 10% rent hike and many households would be forced to move. InterRent wants the tenants paying lower rents to be forced to move out, so they can rent out empty units to new tenants at twice the rent.
Tenants understand InterRent’s displacement strategy, and are unwilling to play their game. Tenants want homes they can afford and homes in a good state of repair. We want homes for need, not homes for greed.
Landlords like InterRent and Mike McGahan may have money and the law on their side, but they should never underestimate the strength of working-class people coming together to collectively fight for something of utmost importance: their homes.