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Recently UrbanToronto had the opportunity to talk with Gil Blutrich of Skyline Developments. The conversation focused on Skyline's entry into the Canadian market, its recent acquisitions of Deerhurst Resort, Horseshoe Resort, waterfront property at Port McNicoll, Toronto projects, the company's growth, and a soon to be repatriated piece of Canadian marine heritage.
Gil, how did you get your start in the real estate/development industry?
I actually studied hotel management as I really wanted to be a hotel manager. It was during my university studies that a friend suggested to me to try a brokerage, to be an agent. I started in my home town back in Israel many years ago [laughs]. Since the first day I understood immediately that I love real estate, I love this area, and since then I focused only on real estate. Part of our vision is more holistic real estate.
How do you describe holistic real estate?
In my mind, holistic real estate is not just the specific location and the four walls that you buy into. It's the amenities within the project, it's the connectability, it's the entire lifestyle. Today we see a big movement of buyers from the suburbs buying into Downtown, and they can afford to buy Downtown because they don't need their car anymore. They're saving on fuel, they're saving on maintenance and lease costs, so they can pay the mortgage for Downtown. This is holistic - so the decision is not just location and exposure of the unit and what's the view - it's the entire lifestyle. What we are trying to develop at Skyline is the connectability between our resorts and hotels north of the city, and Downtown. Once you buy from us in one of our resort destinations, it's not just that you've bought a condo at Deerhurst - you've bought into a whole local community - but also a community of members that allow you as an user/owner not just to enjoy your immediate ammenities at Deerhurst, but you can access our special lounges in our hotels Downtown. You have full connectability between ski areas, boating and golfing areas, and Downtown, so it's a whole lifestyle. For us, it's something that is more holistic of a lifestyle, a way of life for the real estate buyers.
What attracted you to moving to Ontario? Was it a personal or business decision? How did you decide 13 years ago to set up shop here?
I actually did the move around 13 years ago, but the decision was even earlier, around 15 years ago. I was looking for a destination to diversify my portfolio. Until then most of my real estate activities were in the centre of Israel, and I decided not to put all of my eggs in one basket. I truly believe the way to do that is not just signing cheques and sending them across the ocean. We are dealing with real estate; you actually need to be physically there. When I arrived to Toronto 13 years ago, the decision was that this was the right place. I analyzed the Canadian economy, where we were on the graph for real estate. In 1998 the market was already in a clear movement upwards. I prefer to buy in a market that is rising than in a market that is dropping and you never know where the floor is. So for me it was the decision to come to Canada, and I also came with kids. From an education point of view and to raise a family in Toronto, it was very convenient. It was both personal and professional factors, and when you blend them all together, I found that Toronto was the right place to go, and since then I've never looked back.
And in that time you've become one of the most ambitious property developers in the city, starting with hotels, and expanding to condos and recreational properties. What inspires you, and how do you manage your company's growth?
Actually let's start with today [November 8th], there is news from Skyline: yesterday we got the first major institutional investment at Skyline. Ned Goodman and Dundee Corporation invested $10 Million in Skyline as equity. Alongside Dundee Corporation, Scotiabank through their Dynamic Funds invested $10 Million, so starting this morning we have major institutional investment partners that did not just cut the cheque. They are physically going to participate on our board and help me to facilitate the growth of Skyline. So Ned Goodman himself is on our board of directors. Oscar Belaiche, who is the main investment manager of Dynamic Funds, is also on our board, and earlier this year we added [former Premier] Mike Harris. He can help us understand the complexities from a policy and governmental point of view, and we have Dynamic Funds and Dundee Corporation to assist us and facilitate the growth of the company for years to come.
So talking about facilitating growth and how you're doing that; in the beginning it was my money, my personal money. Later on when I took my private company public in Israel, on the Tel Aviv Stock Exchange, I utilized Mishorim. Later on I bought in as a 25% partner in INDC, which is the oldest company in Israel, established in 1903, 45 years before Israel was established. After I bought them, we continued to utilize investors money, our own money, and the public company's money. We are very happy that as of today we have not just foreign investors, but we have investors that are from the forefront of the Canadian capital market. The capital market players understand our business plan and understand our vision, and like what we are doing, and are willing to participate physically in the group and in the decision making process. It's phenominal news for Skyline, and phenominal news for me.
I'd like to ask about activities north of the city. You recently bought Horseshoe Valley Resort and Deerhurst Resort. You hired the same people who planned the highly successful Intrawest resorts of Whistler and Mont Tremblant. Tell us about those purchases. What are you looking to accomplish there that differentiates Skyline from other resort operators?
First from a real estate point of view, it's a completely different proposition to offer condos at the King Edward Hotel, or condos at Deerhurst, than just a green field or an empty site. We are bringing amenities and lifestyle that nobody else can offer. For example at Deerhurst, if you compare the two other developers that tried or are doing development up north, they are buying a green field. They need to spend money on the land, then they need to spend money on the planning, then they need to spend money on amenities, golf courses or whatever. It costs $20 Million dollars for a golf course and if you want to do something right, even more. They are going to the market to sell, but when we are buying the resort, we are looking at the resort on cash flow. We are buying based on cash flow from the existing operation, and we have this platform of development land that basically we are getting for a very low price. So it's not just that we are getting that for a low price, we are getting that fully serviced. We are getting that with dozens of amenities and activities, so it's not just like another golf course development. We have in each of our resorts two golf courses, we have brand history, we have restaurants, we have waterfront, we have ski hills, we even have a landing strip. So all of that at the prices that we are buying the properties at is very attractive. I think that there are opportunities in Canada - nationwide - because of this moment of the world economy, where it's very hard to get financing for resorts. Many resorts are really struggling from a cash flow point of view, so this is a once in a generation opportunity for a company to consolidate all these great assets under one club of owners and users, and this is what Skyline is trying to do. We are not a typical developer that we build a building as beautiful as it is, give the keys and go away to the next building. We will stay in the building, we are managing our hotels, we are making cash flow from our hotels, and we see our new residents as a fantastic addition to the mosaic of income producing and development activities in our properties. In the hinterland of the city it is more resorts, like Horseshoe or Deerhurst. Inside the city, it's mixed use properties like the King Edward.
So you're more interested in acquiring existing assets?
Only cash flowing assets which access development rights. In this industry we are quite a unique hybrid because most of the developers that I know, when they see a property that combines with some kind of hospitality, they get very worried. They don't understand hospitality, they're concerned about hospitality, they're concerned about some kind of a black hole, and they are totally right. On the other hand, operators of hotel and resorts, they don't understand the development at all. They don't know how to look at that, they don't know how to develop their properties, they are focusing only on creating cash flow. We are a unique hybrid. The right side of our brain is looking at the cash flow and the resort and let's make it better, and the left side of our brain has a strong understanding in development and community building, and this is what makes us unique, and we are working in a landscape where competition is very shallow. We are controlling so much real estate, and less competition, and each of these resorts that we are adding to this club lifestyle which we are offering our purchasers, to our residents, and to our users, is what makes us unique. So if tomorrow Skyline buys another property, we are adding for you as an owner who bought from us at the King Eddy, additional destinations where you feel at home, and which you have full accessibility to.
Ontario's Cottage Country has typically been the domain of large lakeside summer homes and hotels. How do you see condo ownership changing what people have come to expect from a big city getaway in Ontario?
I think that something changed in the economy in general. We think that people are coming down right now to expect much more reasonable sizes. We'll see less of these magnificent huge mansions up north, but people still have the need to go to refresh and enjoy our province. I think they will go to a smaller place, and the price tag for that is very, very important.
What will urbanites come to expect from a condo purchase at this location? Do you see your resorts opening up the Cottage Country nature retreat experience to a wider socio-economic demographic?
Absolutely. We went to the market very successfully at Deerhurst, fully renovated, brand new, basically a conversion of all the condos at an average price of $169,000. So we actually opened Deerhurst and Huntsville and Muskoka to a much lower price bracket than was there. Even now we are selling cottages and lots around the golf course at Deerhurst, and in the immediate area. Developers are selling in the $700,000 to $1.5 Million range; we are selling $400,000 to $600,000. We are taking advantage that we bought this land cheap, with servicing in place, and our concern right now at this stage is not to maximize the profit, but is to create the volume and to create many ambassadors of our resort and concept, so if you bought right, and you made money and enjoy it, it's the perfect marriage between F-U-N and R-O-I.
I think this is the people we want. We need a core of a few hundred users who will rave about the service and the price and about the deal. This is basically what Skyline is doing in the next few years here. We are taking an existing property that we already paid for, and it's like a resources based economy. We have a big well with all the density and rights, and we need to go and dig it out and build it. We have all this land which is superior land, because the debt is against the old purchase, it's against the income producing properties, the cash flow from the hotel and resorts. Basically we got all this land for a very, very affordable price, and that allows us to take this great deal and move it forward to users and investors. This is the concept that we are using, and we've had success in our marketing campaigns in the last year and a half, proving that we are marching in the right direction.
Do you believe that is the key to turning around what is otherwise underperforming properties? Or is there anything else?
We are offering a vast package which you can buy from us at a very fair price. Then, if you are not using it, you can turn it in to our rental program, and we have rental management which we provide easily for you. So we spoke about the location, we spoke about the rental program, and then management – it's all headache free. In most of Cottage Country, to own a second home is a big headache. You have to take care of cutting the grass, changing the light bulbs, all of that. In Skyline's world, you can send an email to our resort concierge and say 'I want to come to my condo on this and this day. Start the fireplace on this date, stock the fridge, clean it, cut the grass' and you will pay the direct cost plus 15%, but the fact that this service is there for you, it's reducing stress, and when you arrive at the resort - your second home - you immediately start to enjoy it, instead of having to do the shopping, fill the fridge, fix this here… you know this doesn't work. With homes there is always something to fix. I designed our system almost for myself, because I have two left hands [laughs], so this is tailor made for genuine, normal people, not the super rich. I call it affordable luxury basically. Add to that the management – headache free – the rental program, the resort and the location with all these amenities. Add to that the Skyline memberhsip that allows you as an owner of a condo or a cottage at Deerhurst or Horseshoe to also enjoy in Downtown Toronto; that is a fantastic add-on!
With these four factors, I don't think that there are many companies that can offer all of them together. Very little competition. And another thing that is very positive for Skyline is that we know our buyers, we already have a relationship with our future buyers because they are already registered in our hotel and resort database. They are families who are going again and again to enjoy Deerhurst or Horseshoe, or even the King Eddy over the years, so they like it, they are fully emotionally connected to it. So you offer them this kind of a unique deal; we don't need to put out big advertisements, marketing, brokers. The 100 condos that we sold was without brokers. That savings is going to the pocket of the investors. If we are saving money and we are very well priced, basically the buyers - the end users - are enjoying it.
Talk to us from a policy point of view. What kind of assistance if any is Skyline looking for from the government in the development and re-branding of the Georgian Valley as a premier vacation destination?
Skyline is one of the largest employers in northern Cottage Country. We have around 1,500 employees, and everything that we are doing is a big boost for the local economy, and I think that it would be very appropriate if we see assistance from different governmental agencies. We are not looking for cheques, but just for upgrades to existing municipal infrastrucure. Another thing that is very important to explain regarding Skyline from a planning point of view is that we are not just going up there to the wild north to find a location to build there. We have a property in Port McNicoll, which is a neighbourhood of Midland, which is a mature city. We are only 2 km from the main street. Horseshoe is already a very good suburb of Barrie, so all the backup of the mature city is there. Deerhurst is a great neighbourhood of Huntsville. So we are dealing with the extension of exiting cities. We are not reinventing the wheel. We are not going somewhere in the bush. It's just an extension of what we are doing and we are trying to do that as best as we can.
I recently read about your efforts to repatriate a piece Canadian Heritage, the SS Keewatin, a steamship which used to serve Port McNicoll. Tell us a little more about that.
We purchased in Port McNicoll five years ago. It used to be one of the main ports for the Canadian Pacific to facilitate rail transportation traffic between Eastern Canada and Western Canada. Immigrants came from Europe by ship, and by train through Eastern Canada to Downtown Toronto, and then they arrived in Port McNicoll which has a huge beautiful port. At certain times, if you do some research, they called Port McNicoll 'Chicago on the water'. The fathers of this province envisioned Port McNicoll to be 'the' place. It did not happen, but in 1964 it was still a very bustling and very nice port town.
They built a direct rail connection between Eastern and Western Canada, so there were no more trips with a train, a big boat, and then a train again, so they closed the port of Port McNicoll in 1965. Until now when we just re-opened it, it was deserted. 11 km of prestigious shoreline, man made deepwater port 1 mile long 600 feet wide, that in today's money just to build this - if you can get the approvals which are almost impossible - it is in the hundreds of millions of dollars. So they had this huge piece of land and nobody touched it for years. The small town behind it started to decline, because a town on Georgian Bay without access to the water, there is not any real benefit to this kind of town. So we purchased it and decided to do the renaissance of their beautiful port. I did the research myself and tried to figure out what happened to the beautiful steamers from the Edwardian era of the early 1900s, what basically happened to them. Some of them sank, some of them caught fire, but we found one, the SS Keewatin, which an American entrepreneur took from Port McNicoll in 1966. All these boats were fully operational, but because of the big fire that was in Toronto harbour [SS Noronic, 1949], they took them out of service completely. There were over 100 people killed in the fire because when they built these ships in the early 1900s there was no real attention paid to fire regulation. After that they changed the fire regulation, and basically the new regulation made these ships too expensive to adjust. The guy who bought it towed it to Saugatuck, Michigan, to his marina, and for the past 44 years it's been sitting there in phenomenal condition. It's a ship that is seven years older than the Titanic, with the same engines from the same factory that produced the engines of the Titanic.
Five years ago I contacted the entrepreneur and we created a big celebration for 100 years for this boat. Skyline printed gold coins for this boat, and Canada Post stamps. We went there with Canadian Ministers, we met with US Congress people, and we started to talk back then that this ship, which is so Canadian, should go back home. It's standing there in Saugatuck, Michigan under huge American flags, but if you go inside, even in the Captain's room, you will see Queen Victoria. It's so Canadian. The big dining room is all mahogany, and the silverware is all Canadian Pacific, so let's bring it back home. It took us some time to negotiate, but a month and a half ago we signed the contract to purchase it. Skyline is buying that, and we are working with different private people that have emotional attachment to this ship, and we will create a not-for-profit organization. I do not believe that any company has the right to own - even if it's a big company - the right to own history. History is for the people of Canada and it should come back to use as a floating museum for Ontario's maritime history, and I think it will be a great addition to the three attractions already in the immediate area, all of them less than 1 km away. We are planning on putting it in the centre of our new marina.
Tomorrow at 10 AM we have a groundbreaking ceremony for our yacht club and marina which hopefully will be able to open next June for the 2012 summer. It's going to be a marina second to none on Georgian Bay. Add to that the deep water harbour that we have, I think we will get many boaters to join our marina. If the boaters are there they will bring the energy, then boaters will buy because they want to be able to put their boat just beside their lots, so I think it's very positive. In all of our properties we are giving lots of respect to the history, if it's King Edward, Deerhurst, Horseshoe, and the history of Port McNicoll. We are going to do a replica of the park that was the Canadian Pacific Gardens; and a replica of the Port McNicoll train station. This is the kind of design line that we took. It's going back 100 years all the time, to glorify the past, but I think for the baby boomers, it will be a phenomenal gem just in front of the 30,000 islands of our province, our nation's natural treasures.
When I'm asking Torontonians if they've visited the 30,000 islands, "do you know that the 30,000 islands is one of the top boaters' havens on earth?", if you go to National Geographic and check that, but very few have been there. Port McNicoll is just the base camp for exploration of the 30,000 islands which is a UNESCO biosphere for the world. It's wild - so beautiful - but very few have accessability there, and this is what we are viewing Port McNicoll as the base camp for all of this exploration of Georgian Bay.
I've heard you speak before about how you feel that you have a bit of an 'outsider' perspective to real estate development in Ontario. Tell us more about how you think that perspective differs from more domestic developers, and can you give us a few specific examples of where it's had a positive effect on the outcome of a particular project?
When I arrived in Toronto 13 years ago I spoke with developers and investors and active people in the real estate market Downtown. One of the things they told me was that everything that was east of Yonge was not good, and everything west of Yonge was good. This was how Torontonians were thinking. In the first three months that I started to do business here, I was cycling the downtown and walking every street because I needed to feel the city at the street level. I was looking west and I was looking east, and I saw the same people – maybe because they were crossing the street [laughs] – but the same people! Beautiful buildings on the west, nice buildings on the east, why is there a difference? I couldn't get it and I did not agree with that, because I came with the perspective of looking at the big picture, and I think most of the investments since then that Skyline did were on the east side of Yonge Street, and we did very well.
I'm very happy to see that the east side is getting better and better, and more beautiful structures, and I think the lifestyle on the east side is slightly different from the west side, but I think the east side is great. I was involved in partnership with Sam Crignano with London on the Esplanade, so we did that. King Eddy, Cosmopolitan, and Pantages are east, so all these properties are east of Yonge and I'm very happy that we went there. The first purchase that Skyline did was 120 condos in a building at 109 Front Street in 1999 from David Feldman's company Camrost 2000. We bought a building just beside the St Lawrence market which is a charming, great location just beside downtown, the beautiful market, the flatiron building, it's a fantastic area to live. Back then when you're looking 13 years ago it was a different mindset.
Where do you see Toronto 20 years from now, and how do you think it will stack up against other world cities, from your perspective?
I see many many good trends and processes that are happening as we speak, and I think Toronto in the next few decades will establish and cement its status as one of the financial centres of the world. I think that the Canadian economy has outperformed many other western economies, so we see more and more investors from all over the world - financial investors and banks – coming and looking to have a Toronto address. I think that we have the third largest stock market in North America, capital, and this centre of the Canadian ecomony - which is a resources based economy - distilled in Downtown Toronto. Add to this since 2008, Canada has actually gained points as an economic leader among the major economic leaders in terms of stability, and investors are looking all over the world for stability. Thinking in the mindset of the carpet traders or retailer in Tunisia, he wants to take some of his life savings and where will he put it when everything is unstable all over? So I think Toronto is a big beneficiary of that. Add to that in the past decade I was witness - all of us were witnesses - to a phenomenal infrastrucure investment by the provincial and city authorities, and the private sector. I think the city is not the same city to which I came to 13 years ago. It's looking much better, much more beautiful buildings, and the dynamic now is really positive and I hope that it will continue. I think that the mass transportation system, the ethnic diversification, and the mosaic of the society, the economic leadership, and the physical investment in infrastructure will result in Toronto getting stronger and a more sought after destination. Mainly I'm talking about the downtown area. The plans for the extension of the underground PATH system, I think it's huge. I think that the City has terrific planners, very strong leaders, councillors in their own districts, and I have the perspective because I see how things are happening in Israel in Tel Aviv, which is growing too, but so much better the way that the system here is working. It's mature.
In Canada what I found out, at least in the places where Skyline is working, the municipalities view us as community builders. Leaders of the community are working with us for the benefit of the community - immediate and long term - while in Israel the mindset is completely different. I'm very happy and proud to be part of how our city is evolving. The fact that Downtown Toronto is getting more and more residential, with more and more activities - it's not like most North American cities where after 5 everyone is running away - I think that it's fantastic. It shows vision and execution from the City officals. This is the perspective because I see how it's done in other places. The history of other cities that went in the other direction is proof that they are not working. You don't want to create a district that will go dark after 5 because there is no vacuum in life. If it's going dark, some other elememts are coming in, and this is not what we want. I think that the smart mixing of having places for the people who are actually working downtown to live there, the city is still in my view affordable compared to other westernized cities - especially of the magnitude of Toronto - so I think that we are set to go for a few more decades hopefully of good planning.
Do you think that volume of development helps keep that affordability level manageable.
I think so, absolutely. I think the market shows, and I'm sometimes amazed, but I believe that there will be a time when good infill projects will be rarer and rarer. I don't think - if you're asking me 10 or 20 years down the road - that you will see the amount of supply in downtown that you see today.
Do you think that the supply will begin to diversify and move to other parts of the inner suburbs or the outer suburbs.
I think eventually there will be more movement into the suburbs, when the supply of infill land will vanish or diminish, and we are actually doing that. Land owners are understanding that and are becoming much more selective and agressive. In the past developers could choose as there was lots of supply. You can see already that supply is shrinking and once this wave fades away, and I think in a few years from now it will be harder and harder for the big developers to find a prime site, at least between say City Hall and the lakefront, from Bathurst to Jarvis. It will be harder to find good sites for development, which will reflect on the price of land, it will reflect eventually on the price of real estate.
What about the purchase of say, small 10 storey towers to facilitate the construction of taller buildings. Do you maybe see that in the next 20 years?
Absolutely, but again even there the supply is limited, and to take a 10 storey active building, there is the opportunity cost that you will have to add to the value of the land, and the building itself. For example Concert Properties at Wellington and Scott Street [88 Scott Street], are taking a beautiful office building, so we will see more and more of these like that. But again, even there it's more complex to do. The city will eventually face major supply issues which will affect the price, regardless of the market conditions. Just the supply side is very limited.
In 2007 Skyline purchased the Sapphire Tower property, and last December you made news again with a proposal for a 54-storey hotel/condo tower. Can you update us with your plans for this site? Is this site on Skyline's short term or more long term horizon?
Skyline right now is super busy in development of Cottage Country. This is part of our future Skyline inventory, and like I say the supply of land is getting smaller and smaller, I'm not worried about this project since we purchased it. It's gone up nicely in value. We are talking with the City and it seems that the City is really positive about turning the building completely residential without the hotel component because of demand, and I think that we can offer more affodable prices because we don't need the condos to subsidize the construction of the hotel. So this is the idea that we are working right now with the City planners, and when we will have any more news we'll love to tell you!
UrbanToronto thanks Gil Blutrich for taking the time to talk with us!
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