[scarberiankhatru]

The report compares the Airport Corporate Centre with the Consumers area...what's the fundamental problem in land at a Mississauga office park being worth more than another office park that happens to have a 416 area code? If Consmuers was right next to the airport, or was closer to the States and other SW Ontario cities, or wasn't across the street from Scarborough, or was served by rapid transit, or didn't have gridlocked local roads, or had multiple vacant sites left to build upon, or...then maybe it could overcome any tax disadvantages and have land values comparable to a better site like the airport office park.

 

[Glen]

You might want to have a look at page 12.

 

[scarberiankhatru]

And you might want to have a look at page 84...your 55% figure is arrived at by comparing land in the Airport Corporate Centre with the Consumers office park.

There's more to the locational strategies of offices than land cost. I'll ask again, what's the problem with one office park in Mississauga having higher land values than one in Toronto? Lately, one has clearly been more desirable than the other. Land in the 416 could be free and some companies still may not be interested in locating there.

 

[Glen]

And you might want to have a look at page 84...your 55% figure is arrived at by comparing land in the Airport Corporate Centre with the Consumers office park.

Hemson did their due diligence in choosing the comparisons. They certainly were not random. The Consumers Rd. location was chosen as it is very comparable to the Airport CC. Both are located by intersecting highways and are served by transit. The Consumers Rd. location, with taxes being equal, should be worth at least as much, as it is better served by transit and located in a denser area. Are there any reasons that you can think of that would place such a premium on the Mississauga location ?

As the chart shows on page 12, compare the land appreciation values for even south Mississauga to those in Toronto. Some people here use the excuse that all large cities face a flight of jobs/development to out lying regions. What differs in Toronto's case is that they pay more for land to do so.

 

[Skeezix]

While most of the 905 region owes its existence to their proximity to Toronto they are no longer reliant on it. Toronto is the sick man of the GTA and the 905 areas could survive fine without it.

No metropolitan area could survive suddenly losing almost half its population, its centre and a good chunk of its infrastructure and economy.

 

[taal]

Glen can you please explain this to me:

"What differs in Toronto's case is that they pay more for land to do so"

So you're saying the initial cost of development is more in Mississauga then Toronto. What about the taxes / rental rates afterwords, are they also more in Mississauga?

If that's the case what decision is leading companies to build office buildings on sites in Mississauga as opposed to Toronto. Using that logic I can't think of any.

Unless you're implying that the initial cost is more but then the rental/tax rates in Toronto are higher removing any competitive advantage?

If that's the case then the cost for doing business is higher ... as is the case in other NA cities.

Hemson did their due diligence in choosing the comparisons. They certainly were not random. The Consumers Rd. location was chosen as it is very comparable to the Airport CC. Both are located by intersecting highways and are served by transit. The Consumers Rd. location, with taxes being equal, should be worth at least as much, as it is better served by transit and located in a denser area. Are there any reasons that you can think of that would place such a premium on the Mississauga location ?

As the chart shows on page 12, compare the land appreciation values for even south Mississauga to those in Toronto. Some people here use the excuse that all large cities face a flight of jobs/development to out lying regions. What differs in Toronto's case is that they pay more for land to do so.

 

[Glen]

I'll ask again, what's the problem with one office park in Mississauga having higher land values than one in Toronto?

The problem is that it defies normal market dynamics and signifies problems. In the proformas, it shows that building such an office in the city is not feasible. In Mississauga, despite paying far more for land and an additional 800,000 in development fees, a developer is can make a profit. Conversely in Toronto with cheaper land and development fees, such an office would be worth less (~4 million less) and not be profitable.

If water front condos in Barrie were more expensive than those in Toronto I would also say there is problem.

 

[scarberiankhatru]

Hemson did their due diligence in choosing the comparisons. They certainly were not random. The Consumers Rd. location was chosen as it is very comparable to the Airport CC. Both are located by intersecting highways and are served by transit. The Consumers Rd. location, with taxes being equal, should be worth at least as much, as it is better served by transit and located in a denser area. Are there any reasons that you can think of that would place such a premium on the Mississauga location ?

As the chart shows on page 12, compare the land appreciation values for even south Mississauga to those in Toronto. Some people here use the excuse that all large cities face a flight of jobs/development to out lying regions. What differs in Toronto's case is that they pay more for land to do so.

The problem is that it defies normal market dynamics and signifies problems. In the proformas, it shows that building such an office in the city is not feasible. In Mississauga, despite paying far more for land and an additional 800,000 in development fees, a developer is can make a profit. Conversely in Toronto with cheaper land and development fees, such an office would be worth less (~4 million less) and not be profitable.

If water front condos in Barrie were more expensive than those in Toronto I would also say there is problem.

I've already listed a half dozen reasons why the Consumers site may not be seen as desirable or premium, and it was hardly a comprehensive list. I wonder what the vacancy rate is in Consumers. I know another phase of the Atria complex has been proposed...will they have trouble filling it? Consumers isn't just competing with the Airport park, it's competing with Yonge & Eglinton, Yonge & Sheppard, STC, Beaver Creek, and a dozen other employment sites.

Normal market dynamics don't exist to many people other than economics professors and their true believing hangers-on. Things aren't always what they "should be worth" in real estate.

 

[Glen]

So you're saying the initial cost of development is more in Mississauga then Toronto. What about the taxes / rental rates afterwords, are they also more in Mississauga?

Yes, more in Mississauga than Toronto.

The comparison is for developing a 10 story , 100,000 sq. ft. office on 3.8 acres of land. The hard construction cost are the same for each location. The largest differentials are land and development fees. In Mississauga, the land is 250,000 more and the development fees are 800,000 more. The net cost per sq. ft. to develop is $164.06 in Toronto vs. $186.34 in Mississauga. Net rental rates (before TMI) are $13/per sq. ft. in the Toronto vs. $17 in Mississauga. Gross rents are not listed but are probably close to one another.

The taxes are an interesting matter. Despite Toronto's rate being much higher, nearly twice the amount, it does not generate twice the revenue. The higher taxes get capitalized into the value of the building. Toronto's higher rates are applied on lower assessment values. Which is why, despite the savings in developing in Toronto, the market value of the building is less. It might also explain why there is a difference in the gross rents. In Toronto they must be lower so as the tenant can afford the higher taxes. Leaving net rates about the same.

So developers look at it from this perspective, even though land and development fees cost more in Mississauga, the cost can be recuperated and a profit can be made. Not so in Toronto.

Now these types of comparisons are not for AAA type office space. Those types of buildings have tenants whom need to be located in the core. Close to the courts, city hall, hospitals, or UofT. I would argue, though, that the types of development that the report looks at are a better indication of the city's health.

 

[Glen]

Normal market dynamics don't exist to many people other than economics professors and their true believing hangers-on. Things aren't always what they "should be worth" in real estate.

Sigh, it has nothing to do with theory. This is Toronto's reality. The markets have spoken. There is nothing academic about it. If you have a tax rate that stymies development it will.......stymie development. If you tax above a certain threshold values will be impacted. The loony left at city hall are not lowering commercial taxes on ethical grounds. Even they can see it, unlike some.

PS. If you really think that being a few KM closer to the US, for an office nonetheless, explains such a differential in value, then there is really no point in discussing this.

 

[taal]

Alright, so what's the solution?

Lower taxes and increase development costs?

 

[Glen]

Alright, so what's the solution?

Lower taxes and increase development costs?

Short term : Move to 905 average tax parity within 5 years.

Long term : A complete equalization of property tax rates between all classes. At which point the LTT should be applied equally to all classes.



The short term goal can be achieved without much effect on residential taxes. Halving the rate will not half the tax revenue. As much as high taxes diminish values, lower taxes increase them. It would probably translate to an increase of 15-20% on the residential class.

The long term goal is based on lessening the dependence on property tax. New revenue streams (parking, income, gas etc. taxes) from other levels of government need to be in place for this to work. I also believe that the city can find substantial cost savings.

Between 1998 and 2000, a period when assessments were frozen, the Business Education Tax rate in Toronto fell about 10 per cent -- equivalent to a 5-per-cent cut in overall business taxes. But when Ontario properties were revalued in 2001, it turned out that commercial assessments in Toronto had increased by about 40 per cent.

By comparison, commercial assessments in the rest of Ontario, without the benefit of steep BET cuts, only increased 14 per cent over the same time period.

Even if the Toronto tax cuts were responsible only for a fraction of the huge gain in property values, they were self-financing -- just as supply-side theory predicts.

Over the same two-year period, Toronto gained an impressive 100,000 new jobs -- the sharpest growth in employment since the mid-1980s. Was that a coincidence? I don't think so. Nor does coincidence seem to explain why employment immediately levelled off and began to decline when the tax cuts stopped.

http://www.theglobeandmail.com/servlet/story/LAC.20061108.BARBER08/TPStory/National/HYOntario

 

[scarberiankhatru]

Sigh, it has nothing to do with theory. This is Toronto's reality. The markets have spoken. There is nothing academic about it. If you have a tax rate that stymies development it will.......stymie development. If you tax above a certain threshold values will be impacted. The loony left at city hall are not lowering commercial taxes on ethical grounds. Even they can see it, unlike some.

PS. If you really think that being a few KM closer to the US, for an office nonetheless, explains such a differential in value, then there is really no point in discussing this.

Remove the influence of differing tax rates and the Airport Corporate Centre would *still* be more desirable than Consumers, which could cause higher land values...there's no "problem" with that.

There's no point in discussing this if you think I think being closer to the US is the determining factor (nevermind the fact that I was talking about being closer to the US and other Ontario cities...few people would say that the eastern half of the GTA has better current or future prospects). Good job cherry-picking, at least.

 

[Glen]

There's no point in discussing this if you think I think being closer to the US is the determining factor (nevermind the fact that I was talking about being closer to the US and other Ontario cities...few people would say that the eastern half of the GTA has better current or future prospects). Good job cherry-picking, at least.

The point is just as worthless with the inclusion.

If gross rents are equal but net rents are lower in the Consumers Rd. area, arguing for lessened demand as an explanation of lower value is ill conceived. Tenants are willing to pay the same for either area. The same goes for all the potential explanations you offered. For ex. why is being closer to the airport a premium in this comparison when, within Mississauga itself, MCC garners a premium over ACC? If ACC's potentially better transit service adds to the premium then why are net rents lower in NYCC which is served by two subways?

There was no cherry picking, just a summary dismissal.

 

[CDL.TO]

For ex. why is being closer to the airport a premium in this comparison when, within Mississauga itself, MCC garners a premium over ACC?

Do you have a source for this? I was under the impression that ACC was more expensive than the MCC, where there is currently a shortage of office demand.