Developer bringing the bling to King
Cheapest unit on block near Bathurst: $1.5 million
Toronto Star, Mar 04, 2008
Tony Wong
Business Reporter
When Peter Freed started building his first condominium in a seedy Toronto warehouse district, some people thought he was eccentric.
Now they may think he's just plain crazy. In what is seen in the development community as something of an audacious move, Freed is marketing a boutique luxury condominium development in the King Street West and Bathurst Street areas – with the cheapest unit starting at $1.5 million.
If the project sells out – it officially goes on sale on Thursday – Freed will be seen as a visionary, for creating a new market in a rough-and-tumble part of town where it would have been unheard of to spend that kind of money only a few years ago.
If he fails, it will be because he pushed the market too far, too fast – a symbol of this market's excess.
Freed's development is a commentary on the state of the exploding Toronto condo market that some analysts feel is overbuilt and ready for a fall, but is still chugging along despite a housing collapse south of the border.
It is also lucid testimony to Toronto's fast-changing neighbourhoods, driven by a strong economy and years of good fortune on Bay Street.
"I'm always worried every year I do this. You're dealing with less than 1 per cent of the market who can afford this," the developer said in a candid interview. "But we're going to find out soon enough."
While Toronto has no shortage of million-dollar condos, they are usually located in blue-chip neighbourhoods like Yorkville and Harbourfront, not in a once decrepit district in a rundown building that is now the site of a welding shop.
But Freed is banking on the gentrification effect: one day you're a warehouse in a Meat Packing district in New York City, the next you're a club selling thousand-dollar bottles of Cristal. In that sense, the King and Bathurst area of Toronto is perhaps our closest approximation.
Condominium developers of course, are flush with success after a decade of price appreciation. According to Toronto condominium research firm Urbanation, 2007 was the best year on record for condo sales, with about half of the entire real estate market being high-rise units.
In downtown Toronto, average prices are now $427 a square foot, up 15 per cent from a year ago.
But that's a stretch from the average prices of $650 to $700 a square foot that Freed is seeking in that neighbourhood.
"The wealth effect has certainly been good for the luxury segment, but that's peaked in this market," said Derek Holt, assistant chief economist at the Royal Bank of Canada. The bank is forecasting a miserly 0.9 per cent economic growth rate for Ontario this year.
"I think there will still be a lot more pain coming, especially in certain sectors."
In the Toronto market, Freed is competing against 24 other projects – including a new Trump, Ritz Carlton and Four Seasons residences – with prices between $600 and $1,650 per square foot, according to figures by Urbanation.
"We have seen the highest number of luxury projects come on the market ever last year," said Jane Renwick, executive vice-president of Urbanation. "There's simply a lot of competition out there."
Freed is also building at a time when some analysts are wondering whether the luxury market is saturated moving into 2008. Sales in the total condo universe are forecast to fall by as much as 30 per cent, coming off the phenomenal highs of last year, when 23,234 condos were sold.
Analysts expect about 16,000 sales this year – still a respectable figure, but well off the peak. But analysts have been wrong before. They have anticipated a correction in the market over the last two years, and it hasn't materialized – yet.
Freed is no stranger to risk. When he started his first project, 66 Portland, in 2004, his biggest worry was the crack houses in the neighbourhood and the constant break-ins at his sales office.
But he persevered, bringing in designers such as Philippe Starck for one project, and attracting New York's Thompson hotel chain for another. Certainly, no one has been as responsible for the gentrification of the King Street West area as Freed. His six projects since 2004 have sold 1,000 units worth $250 million.
The area is already home to hip clubs and fine restaurants such as Susur and Le Select Bistro.
Freed said he got the idea for the building after selling about two dozen units in the $1 million to $2 million range in his earlier properties.
"I would have been able to sell more if I could guarantee the buyer a more exclusive property," Freed said.
With that in mind, Freed purchased the one-block site of a former manufacturing company at 500 Wellington St., a building framed by nearby parks.
So far, the developer says, the reception has been good. Freed said he received more than 100 calls about the project before opening day. "I thought I would get maybe 25."
And he already sold a $4 million unit to a buyer last week, before the official opening of the project.
"If I had known this place would take off, I would have bought some properties in the area myself," lamented shop manager Joe Calabria, who has worked in the building for the last two decades. "But when I first started it was all junk – you were surrounded by junk. It's hard to believe sometimes what it's worth today."
Still, analysts warn that 2008 will not be a stellar year for the Toronto Stock Exchange – in which case, luxury properties would be the first to suffer. And economist Holt says, while the "uber rich won't necessarily feel the pain right away, they're not insulated from the market."
Holt said a "trickle up" effect from front-line layoffs will eventually end up impacting the piggy banks of investors. "You can still have a decent year this year, but it catches up to you."
One thing Freed knows for certain is that he has already staked himself out a new home on the 10th floor. A 4,200-square-foot pad, surrounded by a 2,000-square-foot balcony is reserved.
But first he has to sell the rest of the project.
