A Whole Lot of Nothing
by Richard Poplak
[Toronto Life - June.09]
One of the biggest, priciest, most-hyped condo projects in Toronto history has turned Yonge and Bloor into a windswept reminder of our financial insanity. Is the empty lot a sign of the times or of something more troubling?
It was the lineup that did it: on a chilly November day in 2007, 100 salivating condo zombies queued in front of the sales office of One Bloor East, and the spectacle entrenched the $500-million tower (its name shortened, with Hollywood action-movie panache, to 1BE) in the public imagination. Many of them were hired by real estate agents for as much as $2,000. They huddled in the cold for over a week, determined to claim one of 612 luxury units gussied up with Miele appliances and lanais (Hawaiian for covered balcony). The hysteria was as inflated as the prices: newspapers reported that an unnamed Hong Kong businessman had offered $25 million for a two-storey penthouse suite with an infinity pool gazing out over Lake Ontario.
At the time, the real estate market was as fat and smug as a Wall Street hedge fund manager, and 1BE’s developer, Bazis International, milked the frenzied crowd accordingly. As people waited in line, staff came outside and changed a sign displaying unit prices, hiking the range of $300,000 to $2 million up to $500,000 to more than $8 million. According to Andrew La Fleur, a real estate agent and an active blogger who was there that day, when the prices were raised the crowd let out an exasperated “Come on!†Still, 80 per cent of the units were sold in a matter of weeks.
One Bloor East was by no means the only condo project to inspire such fervour during the boom. The Shangri-La hotel and condos at University and Adelaide, the Aura condo at Yonge and Gerrard and the Trump Tower at 311 Bay all garnered their share of excitement and controversy. But there was something special about 1BE. It cast its spindly shadow over the entire industry. Roy Varacalli, the in-house architect for Bazis International, described the Yonge-Bloor intersection as “the crossroads of the city and the country.†The tower promised to transform a moribund jumble of low-rise retail into a bustling urban nexus. Its 78 luxurious storeys would perch atop a three-level, gilded podium of retail; celebrity chef Gordon Ramsay was reportedly approached to run the restaurant of a five-star Sofitel Hotel. No aspect of the project went unhyped: an e‑vite depicting a backhoe scooping up a clump of oversized gems asked people to “come and be a part of demolition†on May 29, 2008. Yet since the demolition, One Bloor East has been as quiet as a mausoleum. The project has become an emblem of our collective financial insanity. The questions of industry watchers, condo purchasers and curious passersby are twofold: what stalled the tower’s heavenward march? And will it go up at all?
Toronto is home to the most active condo industry in North America. One reason for this is our greenbelt legislation, which has encouraged developers to build up rather than out. Another is that most of the city’s apartment buildings were constructed in the ’50s, ’60s and ’70s, and little purpose-built rental accommodation has been added since. The condo market has become our rental market.
In 2007, at the height of the boom, the number of new condo units sold in Toronto was 22,654, up a whopping 40 per cent over 2006. There were 103 new condo projects launched that year in the census metropolitan area (or CMA, which accounts for most of the GTA). In 2008, sales of new condos dropped to 14,469, with the number of new projects reduced to 78. This year, by the end of the first quarter, only one project had been launched. If the market doesn’t improve, the current supply of new condos (i.e., those already or nearly built) could be quickly absorbed over the next couple of years, and there won’t be enough supply to meet the demand of a growing population and a changing demographic.
Jane Renwick, executive vice-president of the real estate consultancy Urbanation, projects there will be a further 45 per cent fall-off in new condo sales this year. For developers, it’s a vicious circle: new condos rely entirely on pre-sales (in Canada, projects can’t qualify for financing until 70 per cent of units are sold), and when consumer confidence is low, buying a property before it’s built seems like an especially risky proposition. You are essentially buying a promise.
“Overall, things are not in irredeemable shape,†says Renwick. But the spotlight is on one or two mega-projects, and their fate has the power to chill an entire buying population. That spotlight, once carefully cultivated and guarded by eager developers, has now become an inconvenience. Companies are learning that there’s no off switch when things go awry.
Bazis International is new to the Toronto condo scene, with three other developments currently in the works: Crystal Blu at 21 Balmuto, the stalled Emerald Park at the southwest corner of Yonge and Sheppard, and the proposed Exhibit opposite the ROM Crystal on Bloor. Loquacious to a fault when its projects debuted, Bazis has lately gone quiet; its only recent contact with buyers was a notice of extension informing them that, in accordance with standard purchase contracts, digging at 1BE would be delayed until June 15.
This sudden coyness has not ingrati-ated Bazis with One Bloor East buyers or industry watchers. Real estate blogs are rife with scuttlebutt on the seeming complexity of the project’s financing. “We’re freaking here. What’s going on?†wrote one person on the UrbanToronto forum. “We’ve waited for decades for something to replace the eyesores on that corner,†wrote another. “If this doesn’t get off the ground, it could be a decade before anything gets built there.†One poster, bemoaning the lack of com*munication from Bazis, said they’d written the local councillor instead. “It’s better than nothing.†To date, there are at least 3,550 posts related to One Bloor East.
Bazis comes to us by way of Kazakhstan, an oil- and gas-rich nation nestled between Russia and China, once a favoured location for gulags and hydrogen bomb testing. At first glance, it seems baffling that a Kazakh company would choose Toronto as a location for a half-billion-dollar mixed-use tower. But the reasons aren’t hard to discern. Through the boom times, Kazakhstan, like other commodities-jacked insta-countries, grew at twice the average rate of the world economy, and the wealth needed somewhere to spread. Toronto represented the relative stability of the western world at a massive discount. Even at the height of the bubble, prices here were extremely low compared with those in other major North American centres, to say nothing of London and Paris. For a signature plot of land at the city’s vital axis point, Bazis dropped a mere $78 million. Michael Gold, Bazis International’s 45-year-old president, still thinks Toronto is the best city in North America in which to invest. “This is not the United States, where the leverage situation was out of control. We are politically and economically stable,†he says.
Though Bazis International is based in Concord, Ontario, it’s directly linked to economic conditions in Kazakhstan. Bazis‑A, its sister company, is headquartered in the former capital city of Almaty. It has also been actively involved in the Dubai-like renaissance taking place on a stretch of the Kazakh steppe that president Nursultan Nazarbayev designated the country’s new, post-Communist capital. He called it Astana, and it’s a jaw-on-the-floor hallucinatory mind trip. Buildings rear up into the sky, glinting like costume jewellery on an ugly debutante. There are towers with gold domes, skyscrapers housing hanging gardens, a glass pyramid designed by the architect Sir Norman Foster. On a clear day, Astana looks like something dreamed up by George Lucas.
Recently, thanks to the drop in commodity prices and Kazakhstan’s loose banking regulations, the country has been walloped by the financial crisis. Its biggest bank, BTA, has been nationalized; the chairman, a one-time opposition leader, is on the run. And Bazis has not gone unscathed. Its biggest development, the three-skyscraper Emerald Towers in Astana—which was designed by Roy Varacalli and was the inspiration for the project at Yonge and Sheppard—has been halted mid-construction. The rest of Astana is scarred by open foundations, abandoned scaffolding and the stumps of towers. A place of promise is now an example of a city in collapse. It is a warning.
Will One Bloor East share the Emerald Towers’ fate? There is one glaring problem with the project’s financial situation: Lehman Brothers is on the title. The plot was assembled over the years by Kolter Group, a real estate investment firm that left Toronto to concentrate on its holdings in now financially decimated Florida. In December 2006, Kolter sold over 40,000 square feet of the site to a limited partnership between Bazis International and Lehman Brothers for $62,812,670. The southwest corner of the lot was owned by Scotiabank, who sold it to the same limited partnership for $13,750,000; the city sold the lane running off Hayden Street for about $1.7 million. (Lehman Brothers is also on the title of Emerald Park.)
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