[vultur]

Urban scrawl: Sherry Cooper



BMo economist Sherry Cooper says the explosion in ultra-luxe condos in downtown Toronto is helping turn the city into a worldwide financial and economic capital. The following commentary will appear in tomorrow's National Post:

There is a stealth influx of foreign capital changing the face of downtown Toronto from the waterfront to Yorkville, and no one is measuring it.
Statistics Canada reports a decline in net foreign direct investment and portfolio investment in Canada; however, there is an enormous volume of ‘silent’ foreign capital inflow to Toronto that escapes the purview of StatsCan’s data collection. This ‘silent’ money is coming via the reportedly large numbers of foreign purchases of the ultra-luxe new condos in Toronto—those selling for more than $1,000 per square foot.
This demand is helping to spur the explosion in five-star-hotel residences and other ultra-deluxe condos in downtown Toronto. With limited land, developers are building upwards and soon there will be no remaining outdoor parking lots on Toronto’s busy thoroughfares. Even two-storey buildings could be headed for extinction.
Some of these foreign purchasers are investors, but apparently many more are non-residents who will use these condos only occasionally for business or pleasure trips to Toronto or as jumping-off points to the rest of North America. Statistics Canada does not track these inflows, but anecdotal industry data suggest the phenomenon is meaningful.
In my view, Toronto is becoming a world-class financial and commercial centre on the order of New York and London.
While these condos are going for $1,300-to-$1,800 a square foot, they are cheap by international standards. Donald Trump — at the Toronto ground breaking of Trump Tower Toronto’s construction at Adelaide and Bay, pictured above — recently declared that comparable property would sell for $5,000 a square foot in New York and even more in London.
For decades, wealthy foreigners have seen Canada as a safe haven to educate their children. Hong Kong Chinese and other Asians took residence in Toronto and Vancouver in the ‘80s and ’90s, driving up real estate prices and spurring the development of high-end retail stores, spas, restaurants, theatre — increasing the demand for luxury goods and services. This also raised the average house price in Vancouver, now at nearly $600,000, well beyond the reach of average first-time buyers.
Foreigners are anxious to diversify their assets away from U.S.-dollar dominance. Wealthy foreigners are diversifying their real estate holdings as money pours in from Russia, the Middle East, Asia and Europe. Arguably, Toronto is less at risk of terrorist attack or at least perceived so. No where is the new wave of foreign money more evident than on Bloor Street — Toronto’s version of the Big Apple’s Fifth Avenue with its mixed-use high-end residential, office and retail space. New designer stores are opening and existing ones are expanding. Canada’s-own Holt Renfrew’s flagship store has expanded and remodeled, becoming even more decidedly upscale; as well, designer boutiques such as Chanel, Gucci, and Escada have expanded. High-priced trendy restaurants are popping up city wide and the remodeling and expansion of the ROM, the Gardiner Museum and the Art Gallery of Ontario are enhancing this urban renewal. We are observing the gentrification of Bloor Street west of Avenue Road and east of Yonge Street as downscale commercial properties are replaced by upscale residences and boutiques. For example, the 16-storey ultra-luxury Museum House condominium development will take the place of the Pizza Hut opposite the ROM’s new Crystal and it will be accompanied by other luxury condos on that same strip of Bloor. Even the seamier side of Yonge St. south of Bloor will change with the coming (in 2011) 80-storey hotel/residential/retail tower of 1 Bloor, touted as the tallest residential tower in Canada by its Kazakhstan-based developer. This five-star boutique hotel will join the other five larger five-star hotels opening in Toronto in the next few years, taking us from not a single five-star hotel in all of Canada to six and counting in Toronto alone.
Bottom Line: this is a fascinating and important economic development, bearing with it enormous portent. On the positive side, it will be a boost to the revenue base of the beleaguered city government and certainly increase the economic growth of the city and no doubt encourage the rise of the Canadian dollar. On the negative side, it will reduce the affordability of the city for current residents, potentially displacing low-income residents. It puts additional strain on public services and adds to the de-industrialization of the inner city. Historical preservation has become an issue as we have seen with the saving of the old fire house and the frontage of the first site of Mt. Sinai hospital on Yorkville Avenue. We run the risk of creating concrete caverns that block the sun and increase gridlock on already-busy city streets. It is an opportunity and a challenge, and it is happening faster than most people realize.
National Post
• Dr. Sherry Cooper is Executive Vice-President, Global Economic Strategist, BMO Financial Group and Chief Economist, BMO Capital Markets & BMO Nesbitt Burns
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[AndreaPalladio]

If I had a dollar for every time Sherry Cooper screeched "THE SKY IS FALLING" I'd be rich.

 

[Observer Walt]

She should stick to macroeconomics and stay out of areas that she seems to know little about.

"De-industrialization" of the city? This may in fact be happening to some extent, but it's for reasons other than the Shangri-La and Ritz Carlton setting up shop. These residential developments are not located on anything resembling industrial land. And in fact all of these luxurious developments together would occupy <1% of the city's residential land base. Hardly enough to shift the overall picture of land use. It's a long-standing fact of land economics that higher-order uses will gradually drive out lower-order uses, and in the central city, there really isn't much space any longer for industrial uses. They do remain alive and well in the inner burbs, not to mention the 905. If steps to preserve them are needed, which may well be the case, the city's policy of taxing industrial properties at an unreasonably high rate would be a good place to start looking for a solution.

"Reducing the affordability of the city for current residents"? Again, this has been somewhat of a trend for years, and, again, can't be blamed on a few luxury developments. But we are a long way from becoming Manhattan, or central London. The middle class can still live almost anywhere in Toronto (perhaps not on specific streets or blocks, but in virtually any neighbourhood).

Much ado about nothing.

 

[Hydrogen]

If Sherry means manufacturing, then the inner city is already deindustrialized.

So there are a bunch of condos for the uber rich going up, and many of the uber rich will rent their digs to other uber rich. It must be a pretty limited market. As for the run-up on five star hotels, I hope they all can find the clients to book the rooms.

Odd that Sherry would be concerned about the expensive piles eating up all the available building space, as they are only a small segment of the market. It's all the other stuff going up that is making great strides in swallowing up the parking lots of downtown.

 

[vultur]

My take on the story is that speculation is rampant in the higher-end condo projects and that our market is headed for a fate similar to Miami and Las Vegas where ghost buyers are nowhere to be found upon completion as overall weakness due to the over supply of units pushes prices down dramatically.

In Vegas they are auctioning off condo/hotel projects as we speak. Who says it can't happen here in this bastion of international money laundering?

Btw, if affordability is an issue perhaps the city should consider allowing the conversion of rental buildings to condos to create the largest source of affordable housing the city has ever seen? Guess that wouldn't be consistent with its socialist principals.

 

[yyzer]

funny you mention that, I just noticed a rental conversion to condo the other day, on the west side of Bathurst, just north of Eglinton, and it struck me that we don't see too many of those...

 

[Urban Shocker]

It'd be interesting to see more large houses converted to three or four condos each, as well. That would increase population density, without new construction, and would allow the city to adopt positive models that work in other cities, such as the dreaded London.

I agree that we need to avoid the sort of social dislocation that has taken place in places like London as a result of the invasion of the super rich. But their property-buying binges are remaking Britain - even here in quiet rural Norfolk, which has become known as Chelsea-on-Sea in the past twenty years, and property prices have skyrocketed. Some villages in Cornwall and the south west are dead in the winter because most of the houses have been bought up by Londoners as holiday homes; young local people can't afford to buy first homes in the villages where they were born and the local economies have died.

 

[AndreaPalladio]

It'd be interesting to see more large houses converted to three or four condos each, as well. That would increase population density, without new construction, and would allow the city to adopt positive models that work in other cities, such as the dreaded London.

There are already several of these in Rosedale.

 

[vultur]

It'd be interesting to see more large houses converted to three or four condos each, as well. That would increase population density, without new construction, and would allow the city to adopt positive models that work in other cities, such as the dreaded London.

I agree that we need to avoid the sort of social dislocation that has taken place in places like London as a result of the invasion of the super rich. But their property-buying binges are remaking Britain - even here in quiet rural Norfolk, which has become known as Chelsea-on-Sea in the past twenty years, and property prices have skyrocketed. Some villages in Cornwall and the south west are dead in the winter because most of the houses have been bought up by Londoners as holiday homes; young local people can't afford to buy first homes in the villages where they were born and the local economies have died.

Shock,

Fees (legal, municipal, consultants) burn through any profit margin associated with a small conversion. The key to successfully converting a property is to have a large enough project to absorb the fixed costs associated with it. Some have/will do it no doubt, but it is more of a cottage industry. You can't deploy large buckets of capital at such a venture.

To the person who saw the Bathurst and Eglinton conversion, that is a Co-Ownership project, not a condo. Until this year Co-Ownership conversions were far simpler to pass through the socialist regime on queen but alas even that gimme has no been taken away by comrade Miller and crew.

 

[Hydrogen]

Btw, if affordability is an issue perhaps the city should consider allowing the conversion of rental buildings to condos to create the largest source of affordable housing the city has ever seen? Guess that wouldn't be consistent with its socialist principals.

That's a very good point. I doubt it will be heard in the right places, though.