I met this developer years ago at a conference. We exchanged cards, had a brief conversation, and I remember thinking we were unlikely to cross paths professionally again.
He was doing large condo projects and I run a small architecture firm. From his side (from also my side), I doubt he saw much reason to stay connected, and honestly I felt the same way leaving that first conversation.
I did not see much of connections and he probably was feeling the same.
Fast forward a dacade. As part of my effort to reconnect with people in my network, I reached out to him without expecting much. The response I got was not just a yes but an enthusiastic one, which caught me off guard.
It was a change I did not expect. Something had clearly shifted on his end, and I had a feeling I knew what it was before we even got on the call.
He spent most of our conversation talking about purpose built rental. The condo market had slowed, the government incentives looked promising, and he was thinking about smaller projects, a different scale than what he had been doing.
He was optimistic, doing his research, and genuinely excited about the direction. I listened, asked a few questions, and found myself thinking less about his opportunity and more about the term he kept using, Purpose Built Rental.
These days, the name comes up constantly, in policy announcements, financing programs, industry conversations, and every time it does, it carries this tone of clarity, optimistic sentiment, as if the path has been carefully laid out and all you have to do is walk it.
But the more I have looked at what that path actually involves for small and mid-size builders, the more I think the name is doing more work than the system behind it.
It is not a solved problem, but rather a rebranded name.
So What Does “Purpose Built Rental” Actually Mean?
If you assumed the term referred to a specific building type with particular standards or requirements, you are not wrong to be confused.
It mostly means a building constructed specifically for long term renting rather than individual unit ownership, as opposed to condo conversions or investors renting out units they could not sell.
That is the distinction. There is no specific design standard attached to it, no performance benchmark, no particular requirement that makes it meaningfully different from what we used to just call a rental building.
The term earns distinction in policy and financing conversations. It signals permanence and intention, which matters when governments are trying to justify bylaw changes or create new financing streams.
For builders and renters though, it describes a business model more than a building type. Worth keeping that in mind the next time you read about how well supported and straightforward the path forward is supposed to be.
The Cash Flow Problem Nobody Draws on the Whiteboard
In architecture and construction, conversations about financial risk almost always start with construction cost.
That is where the conversation starts, and it is where most of my talks with builders start too, with calculator in hand.
With Purpose Built Rental, construction cost is not where the real pressure lives.
The structural problem is timing.
With condos, pre-sale revenue comes in during construction and offsets your carrying costs as you build. With purpose built rental, you collect nothing until the building is finished, occupied and stabilized, which is a minimum of two to three years of carrying the full debt load with zero revenue coming back.
CMHC’s MLI Select program offers better financing terms, lower interest rates and longer amortization periods, but it does not solve the timing gap. It makes the debt cheaper, not shorter. You are still carrying it alone for years before the building starts paying you back.
For small and mid-size builders without large financial reserves, the margin for error is thin. One unexpected delay, from approvals, supply chain or anything else, creates pressure that larger developers absorb without much difficulty and smaller ones feel immediately.
The six-plex bylaw looks like a more accessible entry point, but the cash flow problem does not shrink proportionally with the building. On a smaller project your buffer actually tightens.
Then there is the question of accessing MLI Select in the first place. The program has eligibility criteria, affordability benchmarks, energy efficiency requirements and timelines that do not always align with how smaller builders actually operate.
For architects, this is not unfamiliar territory. Small firms know what it feels like to read through an RFP with fifteen pages of requirements and realize the process was essentially written for larger offices. The criteria are not impossible, but they systematically favour those with more resources, more staff and more experience going through institutional processes.
MLI Select has a similar dynamic. Many builders end up spending money on consultants just to determine whether they qualify, before a permit is filed or a drawing is produced.
You Cannot Easily Get Out
Small and mid-size builders rely on flexibility.
With condos, each unit is a sellable asset and if the market shifts mid-project or after completion, you have options. You can adjust pricing, move inventory, make decisions unit by unit. The project has multiple exits built into its structure.
Purpose built rental does not work that way.
You own the whole building or you sell the whole building, and the buyer pool for an income producing rental property is much smaller and more sophisticated than individual condo buyers.
Investors will look hard at your cap rate, vacancy history, tenant profile and lease terms. If any of those numbers seem weak, your options get uncomfortable quickly.
But the harder shift is not really about the exit. It is about what you become while you are holding the building.
You are no longer a builder who finishes a project and moves on. You are now a landlord, which is a different business with different demands: tenant relations, property management, maintenance reserves, vacancy periods.
The government incentives are structured around the assumption that you want to hold the building long term, which suits large developers who already have property management operations running.
For a builder whose entire model has been build and move on, that assumption glosses over a significant change in how you spend your time and what keeps you up at night as people say.
The Market Expects Better Buildings, and That Cost Is Yours to Carry
The rental market has changed.
With more purpose built supply entering the market and more people renting longer, whether by choice or by cost, tenants are comparing buildings the way condo buyers used to.
Layouts, natural light, storage, amenity spaces that people actually use. The bar has moved up, and builders who do not meet the standard, they will feel it in vacancy rates and tenant turnover before they feel it anywhere else.
For small and mid-size builders this creates a real contradiction. You need to invest in better design and better specifications to compete, but you cannot recover that investment through a sale price the way a condo developer can.
Rent has a ceiling in any given neighbourhood, so higher quality becomes a cost you carry rather than a value you can fully cash out at the end.
This is where I want to be clear on what better design actually means, because it is not about aesthetics or anything you would put on an award submission.
It is about material selection, building envelope performance, mechanical and electrical systems, and specification decisions that determine what your operating costs look like for the next 30 years.
A poor specification decision on a condo project gets handed off to the unit owner. A poor specification decision on a rental building is your problem indefinitely. The wrong cladding system, an undersized mechanical room, finishes that need replacement in year eight: these decisions compound over time in ways that most condo and low-rise residential projects never expose.
This is also where working with an architect who understands long term building performance pays for itself most concretely. At my architecture firm, the work we do on small to mid-size residential and mixed-use buildings is not just about aesthetic decisions. It is also about helping builders make the right decisions before construction starts, the ones that keep operating costs manageable over decades and avoid the premature renovations or system failures that erase your return.
Most small and mid-size builders come from a background where these decisions either mattered less or belonged to someone else. Purpose built rental changes that theory entirely, and realizing it mid-project is a very expensive time to figure it out.
Final Thoughts
My developer contact’s enthusiasm made more sense by the end of our conversation.
The condo market had slowed, the incentives looked real, and smaller projects meant potentially working with smaller firms, which is probably part of why he responded to my email in the first place. I appreciated the honesty in that.
What I kept thinking about afterward was how much of his confidence came from the term itself. Purpose built rental sounds like something that has been thought through, resourced and made ready for people to build.
And in some ways it has been, but mostly for developers operating at a scale where the cash flow gap is manageable, the exit options are possible and the financing process available.
For small and mid-size builders, the incentives are genuine but the system around them was not exactly purpose built for them…which, given the name, is a little ironic 🙂
Life Outside of Design Studio 