Tara Perkins – The Globe and Mail

This week, Toronto wit­nessed the unveil­ing of the condo to end all con­dos. Backed by the­atre impre­sario David Mirvish and designed by Frank Gehry, a giant in his field – known locally for the lat­est incar­na­tion of the Art Gallery of Ontario, and glob­ally for a stun­ning ros­ter of build­ings in places rang­ing from Bil­bao to Prague – the new three-tower devel­op­ment was announced to much fanfare.

“I am not build­ing con­do­mini­ums. I am build­ing three sculp­tures for peo­ple to live in,” said a proud Mr. Mirvish of his new project, which will rise from the cur­rent foot­print of the Princess of Wales The­atre. Even in a city accus­tomed to scores of cranes dan­gling over the sky­line, cit­i­zens took notice. These were big names, yes, and even big­ger ambitions.

But behind the project’s blind­ing star power, there is a darker out­look. No project, not even one cre­ated by one of the world’s most famous archi­tects, is immune to laws of eco­nom­ics. And right now, tens of thou­sands of new condo units are being built in a mar­ket with fewer buyers.

Com­ment: Yes, but “land­mark” projects such as this can suck buy­ers away from other devel­op­ments. Peo­ple want to be a part of some­thing big, they want to buy into his­tory. That is why One Bloor sold so well, or Aura at Col­lege Park.

There were a record 196 condo projects under con­struc­tion in the Toronto cen­sus met­ro­pol­i­tan area at last count (the end of June). Sales of newly built high-rise units down­town this August were about half what they were a year ago, accord­ing to Real­Net, a real estate research firm. Prices are slip­ping – in August they were about 4% lower than the year before – and many econ­o­mists believe that a glut is form­ing that will cause prices to drop further.

Com­ment: Peo­ple have been say­ing that for 10 years now. We are just down from a record year. New condo sales went from around 16,200 in 2006 to 22,654 in 2007 back down to 14,469 in 2008. That was a swing of +40% to –36% in just 24 months. And yet, here we are, just fine.

Mr. Mirvish’s tower unques­tion­ably offers poten­tial res­i­dents a unique oppor­tu­nity. Not every condo offers the brag­ging rights that come with liv­ing in a Frank Gehry build­ing. But as the mar­ket sags, the project’s pro­mot­ers may also have to respond as other devel­op­ers have – by going to great effort to offer poten­tial buy­ers some­thing more than just a box in a tower. With perks such as access to TIFF par­ties or tick­ets to sports games, condo devel­op­ers not just sell­ing a piece of real estate; they are sell­ing a lifestyle.

Mr. Mirvish seems to have taken a page from their books. In addi­tion to offer­ing buy­ers the oppor­tu­nity to live in a “sculp­ture,” res­i­dents of his new 2,600-unit project will have spe­cial priv­i­leges at its art gallery and access to exhi­bi­tions, he said.

But will that be enough?

Com­ment: Sure counts for a lot.

The num­bers sug­gest that even a stel­lar special-interest project will only get a project so far. Accord­ing to Urba­na­tion, a mar­ket research firm, the num­ber of unsold condo units in the Toronto area in June hit a high of 18,123 (a fig­ure that includes projects that are not yet com­pleted). “With plenty of poten­tial resale condo sup­ply com­ing over the next year, Toronto is quickly head­ing for buy­ers’ mar­ket ter­ri­tory for the first time (depend­ing on your def­i­n­i­tion) since the reces­sion,” econ­o­mists at Bank of Mon­treal wrote this week.

Com­ment: Absolute num­bers aside, that fig­ure is in line with the his­tor­i­cal 20% inven­tory lev­els we have seen for decades. Just the num­ber gets larger as total sales get higher. And higher prices with less inven­tory is surely not the recipe for a buy­ers’ market.

“It’s an extremely crowded mar­ket,” said Urbanation’s Ben Myers. “They have to some­how dif­fer­en­ti­ate them­selves from the com­pe­ti­tion if they want to make sales.”

Of late, devel­op­ers have begun to do that by exper­i­ment­ing with prac­ti­cal incen­tives, such as free fur­ni­ture or a year with­out main­te­nance fees or prop­erty taxes, which are prov­ing to be more of a draw for buy­ers than the thrill of liv­ing near key sports or cul­tural sites.

Michael Bodsworth, 27, bought a unit in Maple Leaf Square in 2010, a condo project near the Air Canada Cen­tre. He, like other res­i­dents, said it was neat that some Toronto Rap­tors lived in the build­ing, and he ate numer­ous din­ners at the Real Sports Bar and Grill. “The building’s atmos­phere was fun,” he said.

But a lit­tle more than a year later, he moved to a dif­fer­ent loca­tion where he could get more space for his money.

“If you think of the num­ber one and num­ber two rea­son why peo­ple buy it’s prob­a­bly price and loca­tion, or loca­tion and price, depend­ing on who is buy­ing,” said Hunter Mil­borne of Mil­borne Real Estate Inc. “Incen­tives that relate to some­thing that’s a neces­sity, like free com­mon expenses for a year, are prob­a­bly more valu­able than the­atre tickets.”

Barry Fen­ton, the chief exec­u­tive offi­cer of Lanterra Devel­op­ments, one of the com­pa­nies behind Maple Leaf Square, says its sports theme was such a draw that it enabled it to charge sig­nif­i­cantly higher prices. “We mar­keted our project at $100 more per square feet than any­body else in the area, and lit­er­ally it was because of the them­ing,” he said.

But res­i­dents weren’t that inter­ested in access to games at the ACC. The builders had leased pri­vate boxes in the arena that res­i­dents could use for a fee, “but the funny thing is, hardly any­body used them,” Mr. Fen­ton said. “I could never fig­ure it out. What I think was more suc­cess­ful was that we pro­vided TTC passes to every­body for a year. We were one of the first devel­op­ments to do that.”

Geeta Saini, a res­i­dent of Fes­ti­val Tower, which sits atop the TIFF Bell Light­box on King Street, said the movie-themed perks had noth­ing to do with her deci­sion to move in. “It was loca­tion,” she said.

Indeed, bro­kers and real­tors say that devel­op­ers would be wise to focus on the things that take some pres­sure off of buy­ers’ pock­et­books, rather than other perks.

A cou­ple of build­ings in the city have been offer­ing as much as $30,000 worth of free fur­ni­ture, some of it cho­sen by design­ers to take the has­sle out of shop­ping. It’s an appeal­ing idea, but not one that will woo peo­ple who already have their own fur­ni­ture, agents said.

“I’ve only had one client this sum­mer that took advan­tage of that fur­ni­ture pack­age, every­body else has essen­tially said, ‘I don’t want the fur­ni­ture but if they can give me a dis­count instead, I’d take that,’” said Oliver Baumeis­ter von Bret­ton, a bro­ker with Re/Max 2000 Realty Inc. Incen­tives such as zero clos­ing costs are more entic­ing to buy­ers, he said.

The heavy use of incen­tives to sell units may be a sign that devel­op­ers are sens­ing trouble.

Com­ment: But they have been offer­ing incen­tives for years and years now. From free appli­ances to gran­ite coun­ters, you name it. Devel­op­ers have always offered some­thing to get buy­ers to buy. This is not new!

As the mar­ket heated up over the past decade, and really soared in the last five years, devel­op­ers sought to cash in with a wave of new projects. There are large up-front costs involved in devel­op­ing condo build­ings, which tend to take at least three years to plan and con­struct, but once the units are sold and the keys handed over, the devel­oper no longer bears the risk that the mar­ket will drop. So as long as it looked like the mar­ket would hold up for the next three years, the build­ing frenzy kept going.

But now some devel­op­ers are tak­ing projects off the mar­ket after find­ing sales dif­fi­cult. Mat­tamy Homes has aban­doned what would have been its first real condo project down­town Toronto because it became wor­ried about the amount of money it would have to spend up front, given the damp­en­ing out­look for the mar­ket in the com­ing years. The com­pany recently backed out of a deal to buy the prop­erty sur­round­ing the Globe and Mail’s head­quar­ters near Front Street and Spad­ina Avenue, an unusu­ally large site that Mat­tamy had planned to build as many as seven or more build­ings on.

Com­ment: That is a big project, not just a sin­gle build­ing. And do we have sources, do we know for sure why they pulled out?

“That’s not a call on a mas­sive decline in the mar­ket, it’s more, ‘Let’s be a lit­tle bit care­ful here, let’s not go all in on a big site like that in a mar­ket that’s trend­ing lower in vol­umes if not prices,’” said Mat­tamy chief oper­at­ing offi­cer Brian John­ston. “We sort of felt, why stub your toe on the way out of the start­ing gate? I think in any real estate endeav­our you’re going to go through cycli­cal highs and lows, but why start at a cycli­cal low?”

Com­ment: So they took the pru­dent route and did not try a quadru­ple lutz their first time on the ice.

But sources involved in the sale of the site say it is back up on the block and there is as much inter­est from devel­op­ers now as there was when it was first on the mar­ket. And other devel­op­ers are plow­ing ahead, includ­ing Mr. Mirvish, whose mega-project would encom­pass three tow­ers stretch­ing as high as 85 storeys.

Com­ment: Maybe some­one with more expe­ri­ence, like Monarch or Trib­ute or Con­cord Adex, will develop the site.

In the cur­rent envi­ron­ment, they will have to work hard to make their build­ings sell out – no mat­ter how much name recog­ni­tion they have.

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Con­tact the Jef­frey Team for more infor­ma­tion – 416−388−1960

Lau­rin & Natalie Jef­frey are Toronto Real­tors with Cen­tury 21 Regal Realty.
They did not write these arti­cles, they just repro­duce them here for peo­ple
who are inter­ested in Toronto real estate. They do not work for any builders.
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