By Garry Marr, Financial Post

It was heralded as another perk for condominium owners, but when the City of Toronto created a new rule this year that required developers to provide 12 months of free transit to buyers, Monarch Corp. saw another cost.

“It will be added on [to the price]. It’s like the cost of lumber or concrete,” says Brian Johnston, president of Monarch, whose 25-storey tower The Legacy includes a one-year Toronto Metropass for all 330 owners.

Transit passes and green roofs, which require condominium developers plant a certain amount of vegetation on their buildings, are just the latest wrinkles that cities are adding to the cost of building.

While politicians see these levies as the cost of increasing density in their urban areas, builders see them as development charges by another name.

“You add them all up and at some point a high-rise condominium unit becomes uneconomical,” Mr. Johnston says.

Then there’s public art. Publicly, developers are for it and get involved in a process that, in Toronto, means they could end up contributing 1% of their construction costs if looking for rezoning on a project.

In Vancouver, private developers requesting rezonings greater than 100,000 square feet were required in 2009 to contribute $1.81 per buildable foot to a public art process approved by the city.

And in Halifax, developers are “encouraged” to allocate 1% of capital costs to art projects for developments more than 25,000 square feet. They get their zoning if they come up with the cash.

Karen Mills is a public art consultant in Toronto and works on behalf of Monarch Corp. She has been in the field for 25 years. She says developers have a history of adding some type of art to their projects.

“It started in the late 1980s in Toronto, encouraging developers to contribute 1% of the their costs to art. But it really started in the U.S. in the 1960s. There was a reaction against stripped-down modernist buildings. The public started saying they didn’t like these empty barren plazas in front of office towers,” Ms. Mills says.

While developers are happy to participate in such programs, Ms. Mills agrees all of them see it as a cost of doing business. But there is a payback, she argues.

“Developers who have done multiple projects and been successful know if you want to increase density you have to come through some type of negotiation to get this opportunity to make more money on your development. You have to pay one way or another,” she says.

“Anything that makes a building more distinctive gives it higher recognition value,” she adds. “Public art can be a positive from that perspective, unless of course you hate the art and then it’s a negative.”

Certainly, the condo boom has been a boom for artists. On a $50-million project, 1% of construction costs would amount to an art installation worth about $500,000.

“It’s employment and it’s employment in my area of expertise. Isn’t that great?” says Barbara Astman, the artist behind a project at The Murano, a development on Bay Street, just north of Toronto’s financial district. Her project incorporates colour photographic imagery on 217 exterior windows surrounding the building.

She notes the architect told her at the condo’s opening that she had made the building even better. “That’s what you want to do, add value. You don’t want to be someone who just decorates a building. It will now be a signature for people who live in that building,” Ms. Astman says.

Jane Perdue, public art co-ordinator with the City of Toronto, says public art only affects a small percentage of rezoning applications, but the big projects are targeted. “It’s a minority of buildings, but probably the ones that have the biggest impact,” Ms. Perdue says. “Ultimately, it’s about density exchange,” she says, adding, “if the public art is interesting, the building probably is too.”

Public art may not be required on every project, but that doesn’t mean the developer seeking rezoning is off the hook. Sometimes the developer will be asked to contribute that 1% to another project in the ward where they are building.

For the condominium buyer, the public projects are not supposed to add to their long-term maintenance fees. In the case of Toronto, developers are encouraged to include a maintenance endowment as part of the 1% levy.

Mark Mandelbaum, chairman of Lanterra Developments, says Toronto developers typically want input into the art projects being added to their buildings, but probably wouldn’t participate in such projects if they were not required.

“When you have 1% of your hard costs, that’s a lot of money,” Mr. Mandelbaum says. “A developer typically looks at public art as another development charge, like cash in lieu for parks. It is a municipal charge, but at the very least if you use it wisely, you can make the building more valuable with [the money].”

Developers point to other charges — land transfer taxes, the July 1 harmonized sales tax in British Columbia and Ontario — as all contributing to rising condo prices.

“Ultimately, what prices are to the end consumer is a combination of all the costs of bringing a product to market and whatever reasonable profit expectation that developer wants, given the risk of a project,” Mr. Mandelbaum says.

Peter Simpson, chief executive of the Greater Vancouver Home Builders Association, likens some of the negotiations between cities and developers to “creative arm twisting.”

“Of course it raises prices. A builder is not like any other manufacturer of a product. If there’s a cost associated with the manufacturing process, it gets added on and the user ends up paying the bill. Art is just another thing in a long list of charges. It’s a way to extract money from an easy target. But the target is really the homebuyer.”

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Contact the Jeffrey Team for more information  -  416-388-1960

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