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THE KG

T

he KG Group has been shaping Toronto’s rental housing landscape for the last 40 years. The private real estate company laid the foundation for building and managing multi-residential rental properties, and currently owns and manages more than 1,500 rental units throughout the GTA. It is also responsible for taking the rental property concept to the next level, with the development of two condo-quality apartment buildings that are making the industry take notice.


GROUP

Although Marvin Katz and Sam Goldband, founders of The KG Group, knew each other in high school, they took different paths to their ultimate partnership. Marvin left university before graduating to start a business in constructing, managing and selling low-rise rental properties with street-level retail. Sam drove cabs before learning about building construction from the ground up by working in his father-in-law’s business. Marvin and Sam eventually crossed paths in the early 1970s and formed the partnership.


[ The KG Group ]

The founders of The KG Group Sam Goldband (left) and Marvin Katz (right) “We discussed different names and came up with The KG Group, which sounded right to both of us,” said Marvin. “After the successful completion and sale of one small commercial/residential project, we decided to continue working together on larger projects.” The founders believe that The KG Group’s strength is in its people, many of whom have been with the firm for almost 20 years. The founders have a passion for the rental housing business, and that passion has spread to management and staff. The company brought in talented people early in their careers so that they could grow into their roles as the business grew. Marvin and Sam have instilled their hands-on approach and willingness to provide personal support into their management team and employees, which has enabled them to deliver at a level that meets the founders’ expectations. Building the foundation The KG Group started out in the early 1970s by buying older buildings, gas stations and corner lots along the subway line and near major thoroughfares in downtown Toronto. They developed buildings that had street-level retail stores and two to three apartment units above. The company would then either rent the units out or sell them after legally subdividing the building into individual retail and residential units. After several years of following this strategy, The KG Group met Ian Nichol, an English architect, who worked with them to create more efficient and better-designed buildings. The company developed mixeduse properties that made more appropriate use of space by reducing the number of stairwells, accesses and egresses. This enabled them to maximize efficiency per building and make better use of unit space. The KG Group also included features that were uncommon at the time, such as elevators in low-rise rental properties and underground parking.

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In the early 1980s, The KG Group purchased a commercial property from Petrofina (Petro-Canada) at the northwest corner of Yonge and Davisville. The company assembled the adjacent residential properties and developed the prime space into a combined office, retail and residential complex. As it was located on the subway line with direct access to Davisville subway station, it became an ideal location for their anchor tenant, the Toronto Transit Commission (TTC). “The Davisville complex and surrounding property was heavily commercial with a residential component,” said Marvin. “It was one of the first agreements in the city that involved demolishing existing rental housing that would be replaced with new rental stock. We added 110 residential rental units to the development, which was more than what we removed from the property.” Through the 1980s and 1990s, The KG Group continued to build commercial and retail properties in addition to its rental developments. By the end of the 1990s, its portfolio included more than one million square feet of commercial space. However, ownership decided to divest themselves of the commercial and retail properties to focus on building, owning and managing multi-residential rental and condominium properties. As of 2003, The KG Group had sold off its entire commercial portfolio. Harrison – Condo-style rental living In the late 1990s, The KG Group purchased Oakburn Properties, which owned more than 12 acres of land near Yonge and Sheppard. The property included 26 low-rise apartment buildings that were originally built to house troops coming home after World War II. More than two thirds of the buildings were vacant and derelict. Besides its central location, the parcel was appealing because it was adjacent to a large tract of land on which sat the Maclean-Hunter printing plant.


[ The KG Group ]

Far left John Amaral, Maintenance Manager, Dianna Attar, Director Leasing and Marketing, Rosalyn Dubins, Leasing Manager, Jeff Goldband, Director - Maintenance

The KG Group knew that the neighbouring site would eventually be redeveloped. As a result, they decided to upgrade, overhaul and retrofit the existing rental buildings on their land. The owners relied on their experience in developing commercial and residential properties to create high-quality, low-rise residential properties to add much-needed rental stock to the city’s inventory. When the Maclean-Hunter site was redeveloped with high-end condominiums in the early 2000s, The KG Group decided that it was time to redevelop their site. They realized that the land had become too valuable to remain low-rise walkups, so they engaged in an extensive and costly five-year rezoning process. Several prominent developers approached the company to purchase or jointly develop the property for condominiums. The KG Group recognized the clear choice of choosing Tridel, the largest condominium developer in Canada, as a joint venture partner to redevelop the property. The end result was Avonshire, a master-planned, multiple-phased community with four condominium towers of about 1,000 units, condominium townhomes and a community park. It also replaced the 280 existing rental units with the Harrison (located at 105 Harrison Garden Boulevard), a multi-residential rental property with 332 units. The company partnered with Deltera, part of the Tridel Group of Companies, to serve as general contractor for the Harrison development. “We were contracted early in the project so that we could provide input from the design process right into construction, which enabled us to provide value engineering throughout the design process,” said Mario Cimicata, Senior Project Manager, Deltera. “We believe that early involvement from the construction management team in the project is key to its success and to the development of the relationship.” The KG Group did its research, looking into CMHC statistics and condo rental vacancy rates, which were below 2%. They saw that the market was changing, and decided to take advantage of the opportunity

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by developing a multi-residential rental property with condo design features. During construction, they took a road trip to Chicago to check out rental properties in that market for design insight. “Chicago has a very similar climate to Toronto, so the buildings often have the same design needs,” said Marvin. “Due to the market collapse a few years ago, many condo properties moved into the multiresidential rental market. With so much competition for tenants, the buildings offered a lot of great features to attract potential renters. It was quite an eye-opening trip.” As a result, The KG Group made a number of significant changes to the Harrison during construction to move it closer to the level of a condo than a traditional rental property. They removed the largest units to create several smaller ones (thereby increasing the overall number of units), and redesigned the building’s ground floor amenities, including a Wifi - equipped lounge, fitness area, recreational facilities and a business centre. The KG Group also upgraded the features and finishes in individual units to make them more like high-end condos. “The Harrison has become the model for other rental properties to follow, and the industry has come to recognize that it is one of the best apartment buildings in all of Canada,” said Sam. “Our property gets regular visits from building developers and property managers, as well as members of CMHC and FRPO, who want to see what is going on in the building. They are often surprised by the level of luxury and service that is available to our tenants.” The KG Group went beyond design to create a condo-style environment in the Harrison. The building offers a number of high-end amenities, including concierge services, a resident service coordinator to organize events, a shuttle bus to the nearby subway, complimentary fitness classes and 24-hour maintenance response. Tenants can also partake of eco-friendly features, such as climate controls and ENERGY STAR appliances.


[ The KG Group ]

“We brought in industry professionals and experts in various fields to train our management and staff on providing a high level of service to our tenants,” said Dianna Attar, Director, Leasing and Marketing. “We want to ensure that we provide a high level of customer service, as it’s all about our tenants’ satisfaction.” Note: The Harrison has been so well received that it was featured as part of this year’s CFAA’s Building Innovation Tour, which led off its annual Rental Housing Conference. Roehampton – Another jewel in the crown In the mid-1980s, Cadillac Fairview divested itself of all of its rental properties, which consisted of more than 25,000 units. From this sale, The KG Group purchased a group of rental properties known as Hampton House, located at Mount Pleasant and Eglinton. The parcel consisted of two towers and a group of seven townhomes with more than 500 rental units. It represented a seminal change in the company’s direction, as they purchased and took over the eventual management of a large-scale residential high-rise property. “Cadillac Fairview remained as the property manager for six months prior to the closing, and the prolonged closing enabled us to carefully study and learn their property management strategies,” said Marvin. “We subsequently adopted a number of their management philosophies.” The Hampton House site offers many positive opportunities, as it is located adjacent to a future LRT station in a high-density area near numerous amenities. The company engaged in discussions with city councilors, the Housing Department and the surrounding community to determine what would best suit the neighbourhood. The KG Group decided to replace the townhomes with a 16-storey tower with 220 rental units. The KG Group took what they learned from the Harrison to build a new multi-residential rental property called the Roehampton.

Far left Mark Gallow, Vice President - Finance, Jacqueline Chan, Controler, Steven Waxman, Strategy Planning Officer, Nathan Katz, Vice President Property Development

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“Since the Roehampton is in an established area, we designed it to best fit the site and cause the least amount of intrusion,” said Sam. “Terracing ensures that the building’s shadowing is not obtrusive, and we moved the building back to avoid overshadowing the nearby school’s football field. We also reinforced the street level by building garden villa townhomes with front yards.” The KG Group brought in many elements from the Harrison to design the Roehampton, which will be completed in 2015. However, the new rental property will have many features not found in its predecessor. In addition to a recreation centre, the building will also have an indoor pool, and amenities will be upgraded wherever possible. The company is also pursuing LEED certification and achievement of Toronto Green Standards (Tier 2) for the building, relying on modern technology to reduce its operating costs. “Based on my experience with the rental market, I am quite pleased with The KG Group’s endless efforts to deliver a rental product with the highest level of finishes and amenities available to them,” said Mario. “The end product speaks for itself and clearly demonstrates a market product that is second to none. Both the suite and amenity finishes are of the highest level and can compare to any condo in their immediate market place.” Overcoming the challenges The KG Group faced many challenges with building new multiresidential rental properties in a market that is as condo-centric as Toronto, such as zoning requirements and lack of market experience. Due to the imposition of rent control in the 1970s, there has been relatively little multi-residential development over the last 40 years. As a result, there are few developers, consultants, engineers and financiers who have experience with developing these types of


[ The KG Group ]

properties. The KG Group had to educate service providers on design choices, allocation of amenities, recreational space and other issues central to rental properties. “There is both a lack of comfort and a lack of experience in developing large-scale multi-residential rental projects in the GTA,” said Marvin. “Architects and engineers tend to focus on condo-centric concepts, such as gross floor area, whereas rental properties tend to focus on the number of units. You have to understand the nuances of rental design to know where to economize or spend your money.” Financing has been another significant challenge in building the properties. The KG Group did its due diligence to get CMHC certification, such as conducting market surveys, rental surveys, cost consulting, land appraisals and construction build-out. Even with its experience and track record, the owners found that they had to educate potential financial partners to help them understand what was involved in constructing multi-residential rental buildings. As there was little to compare in the rental market (with most products being much older), The KG Group had to compare its properties to condos. Both the Harrison and Roehampton are condo-quality buildings, and they offer benefits that condo rentals do not (such as knowledgeable, tenantfocused staff, and long-term tenure with no risk of a 60-day notice to vacate from a condo owner). The company demonstrated how they run and manage their buildings, how tenants interact with each other and the community, and how their product outperforms expectations. “We brought in lenders who are used to dealing with older rentals, and have educated them on a variety of issues,” said Mark Gallow, Vice President, Finance. “We demonstrated that we have a lower operating expense ratio and pay a lower property tax rate than older rental properties. Since our buildings are newer and have better energy usage, our level of profitability is much higher than what they see from older buildings.” Dealing with the city and its housing policies has been a challenge. The KG Group engaged with various city departments, as well as the community, before engaging in planning and zoning so that they could address different parties’ questions and needs. The company kept lines of communication open and prepared extensive information packages to ensure that relevant stakeholders had the answers they needed. Dealing with various zoning and development bylaws, especially with respect to new multi-residential rental properties, produced its own difficulties. The KG Group relied on its experience and background to address all issues as closely as possible. For example, with the Harrison project, the company developed and dedicated substantive acreage of parkland to the city to meet its green space requirement for new developments. New technology also introduces issues with respect to maintenance. Both new buildings are (or will be) equipped with electronic monitoring equipment, energy efficient components and other new technology to help with tracking and reducing energy usage. As a result, The KG Group had to rethink how it dealt with repair issues, and developed building-wide processes to maintain efficiencies.

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“We have to learn how to stay on top of maintenance requirements for the new technology in this development,” said Jeff Goldband, Director, Maintenance. “Also, instead of sending repair requests out for service, we employ a 24-hour work completion policy, so we had to learn how to do certain things ourselves.” Design is a science, not an art The KG Group’s market research led to a change in the Harrison’s suite design. For example, they found that there was less demand for the largest unit types, so they replaced two of their largest two-bedroom units with a combination of a smaller two-bedroom unit and two one-bedroom units on each floor. This reduced the average unit size to approximately 700 square feet, and in a more even split in one and two-bedroom units (55 to 45); the same formula will be applied to the Roehampton. The KG Group also employed its knowledge of building rental properties to ensure that contractors addressed issues not found in condos. “For example, most condos have nine-foot ceilings, so bulkhead placement is not an issue,” said Jacqueline Chan, Controller. “However, since apartments typically have eight-foot ceilings, bulkheads must be placed to minimize their impact. We carefully reviewed bulkhead location to ensure that units were well designed.” Beyond the consideration of aesthetics, a lot of thought goes into the design of individual units and common areas in The KG Group’s buildings. Their design choices enable them to maximize the amount of rent that they can get for each unit, and to minimize the long-term costs associated with maintaining them. Durability is a key concern, which is why the company makes certain design decisions. For example, most countertops consist of quartz composite, which is more durable and stain resistant than other materials. Many units have laminated flooring rather than hardwood because it is easier to maintain and clean for turnover purposes. “Unit and common area design is a science, not an art,” said Jacqueline. “Design and leasing go hand in hand, as what you put into an individual unit affects your leasing numbers.” Conclusion The KG Group is currently occupied with managing the development of the Roehampton, and has no immediate plans for new projects. Marvin and Sam believe in incremental development, and maintaining an elite management team, and want to continue to be hands-on in all aspects of the operations. The company manages its own properties, and has no intention of bringing in third-party management or pursuing management of other owners’ properties. “Our focus is on owning, developing and managing our own multiresidential properties, and growing at a rate with which we are comfortable,” said Marvin. “We are currently focused on managing our existing properties, including the Harrison, and completing the Roehampton development, which is a significant undertaking. We plan to continue raising the bar and changing the way people in the industry think about multi-residential rental housing.” RHB

THE KG GROUP  
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