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Today we present another guest post from Dean Macaskill, Senior Vice President at Lennard Commercial Realty. Dean has worked as a commercial realtor since 1980 and has years of industry insight into the Toronto real estate market. Having been through three cycles in the business, he has seen the highs and lows. He shared some of his insider information and insights with UrbanToronto on a semi-regular basis.
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In my fourth quarter Q Report for 2017, I mentioned a number of sales of condominium sites that exceeded $250 per square foot buildable, with one as high as $379 per square foot buildable in Yorkville.
In a meeting last week with a good client we discussed where things were going in the high-rise sector. He said that in the past few weeks, he has been offered sites in downtown west with asking prices over $400 per square foot. Here’s the issue: The sites selling for over $250 per square foot in the last quarter were OMB-approved development sites with site density approved, and there was no risk being undertaken by the buyer other than whether there was buyer demand for the units. The sites being offered to my client in the past month were for sites with no OMB approval, and were not on the waiting list for OMB approval, but were sites that had the potential for future high-rise residential development.
The above is a classic example of the joy of working in commercial real estate; how potential vendors miss/ignore a key piece of information on valuing their properties. If you’re not in the queue for the OMB at this point, you will be facing LPAT, the newly created Local Planning Appeal Tribunal which is replacing the OMB. LPAT will be a whole new process with a lot of unknowns at startup. Who will be the first Guinea Pig that will go through the process seeking 80 storeys on Yonge Street, knowing that the neighbour received that height through the OMB. Will LPAT see it that way? There is a new sheriff in town, ladies and gentlemen.
So with such uncertainty, how can an owner suggest that its holding is now worth $400 per square foot buildable? A prudent developer would be wise to step back for the moment and see where this plays out.
As the first quarter of 2018 is coming to a close, I took a quick look at the results to date in the high-density residential sector on RealNet. Nothing overwhelming came up. It’s not fair to say that buyers are holding off on acquisitions at the moment but many of the trades appear to be housekeeping acquisitions, such as adding to an assembly, for example. Many of these assemblies have been working their way through the OMB already.
I sense this sector will police itself. Vendors will seek unrealistic values while buyers will not rush in at these inflated pricing levels so stagflation may intercede in this sector for some time to come. Inasmuch as there appears to be an enormous amount of proposed developments throughout the city, are we going to end up with supply issues if the market stands still for the next 9 to 12 months waiting to see the reviews on the LPAT premier? If such occurs, will we have the government on all three levels shouting that something has to be done to the housing crisis?
Let us know what you think using the comments section provided below.
