Dean Macaskill, Senior Vice President at Lennard Commercial Realty, is our guest columnist again. 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 shares insider information and insights with UrbanToronto on a semi-regular basis.

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I thought I’d look at high rise residential sale activity for this quarter to see how things are going. In the past year or so, I’ve noted approximately 45 to 50 high-rise land sales per quarter. So I checked today, May 23rd, to see how this quarter is faring. In a few words—not so good. Only 18 deals have closed and we might discount that to 16 if you remove two land purchases in Mississauga by the University of Toronto, as part of an ongoing assembly that I will assume is for future student housing. So, unless there are a lot of sites that are firm and planning to close in the next 5 weeks, this could be big news in this sector, confirming that there has been a shift in the market.

Toronto, real estate, sales, Lennard Commercial RealtyDevelopment in Toronto, image by Forum contributor Rascacielo

So has there been a shift? We can always argue that the supply of opportunities is dwindling and, frankly, what is left to buy? Yet in quarters past, that was the same question and I’m astounded each quarter by the number of transactions that occurred. 

Where I do note a problem is vendor expectations. Over the past month, I have made off-market offers on two properties within the city. In one case the owner would not provide pricing guidance so I did some research on the area and found a deal that had closed in the neighbourhood, five months prior, at a price of $42 per square foot buildable. My client felt they could afford to pay $50 per square foot buildable so the LOI was prepared and presented. The meeting lasted 10 minutes. The owners looked at the price and told us to leave. Our offer price was around the same number as they had received a few months prior, often a good gauge of market value when the offers are similar. The owner’s wanted $110 per square foot buildable. Please understand, this is not King West, this is a relatively new frontier with the hope that SmartTrack gets approved as this site is within walking distance to a proposed stop.

The second property had a similar result. It is located nowhere near rapid transit and the land sits in a challenged neighbourhood with no high-rise development in the area. More than likely, the incomes are not there to support the price you would have to pay to move forward with development, although rental might be an option. The market for this site is likely in the $30 per square foot buildable range while the owner is seeking closer to $60 per square foot. Ah yes, another deal down the toilet.

I could go on and on about other similar situations over the past 12 months, including one site in the east end of the core that the owner initially wanted $60 million for, and then decided on $100 million once we made an offer. Are you getting a sense why it might be tough getting a deal done these days?

As we also know, the OMB is no more, replaced with LPAT or Local Planning Appeal Tribunal. In discussion with a valued client, they mentioned that shift to LPAT has led to developers being more cautious about closing deals without approvals in place as we are heading into the great unknown. But when I read the updates on development approvals from another worthy publication, it indicates that LPAT is putting approvals through at very close to the “ask” of the developer, so let’s rejoice. Not so fast. 

Turns out that LPAT isn’t really up and running but, given that we can’t say the OMB word anymore, LPAT is named as the agency that approved the deal even though the approval is still being handled by the OMB as they work through a backlog of proposed developments that made it to their roster before it was shut down. So a bit of sleight of hand is being used thus giving market participants a sense that it’s business as usual… but it’s really the “Artist Formerly Known as the OMB” that is handling the cases being approved today. Confusing, isn’t it? 

Owners take heed; I suspect the winds of change are upon us. 

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