from business edge magazine...
Toronto entertainment project nears reality
Developer's decade-long project will open in March
By David Hatton - Business Edge
Published: 12/14/2007 - Vol. 7, No. 25
--------------------------------------------------------------------------------
Executives at PenEquity Management Corp. will breathe a sigh of relief next March when the major tenant of their 500,000-sq.-ft. retail entertainment complex opens at one of Toronto's busiest downtown intersections - the development process for Toronto Life Square began back in 1996.
"Development is a risky business," says Leger Xavier, PenEquity's vice-president of marketing and leasing. "It's not easy and it's not for everyone. There were some setbacks that we didn't anticipate, or even could have anticipated for that matter."
Back in 1996, Toronto politicians expropriated several business properties just north of Yonge and Dundas out of concerns the area was developing a bad reputation.
The $24-million Yonge Street Regeneration Project called for buying the properties and fixing them up in order to attract better-quality tenants.
Illustration courtesy of PenEquity Management Corp.
An artist's concept of how Toronto Life Square will look upon completion (the billboards are not indicative of actual advertisers).
"It had become a dangerous, violent area," Toronto city councillor Kyle Rae explains. "It was a drug dealership and nobody wanted to come down here."
The city began a formal process inviting developers to submit ideas for what to do.
PenEquity sent the winning proposal with a large-scale movie theatre run by its U.S.-based client, AMC Theatres, family restaurants and mixed retailers.
Disney Corp. later announced plans to include DisneyQuest, a 100,000-sq.-ft. indoor theme park also slated for Chicago, Philadelphia and Florida.
Virgin Records signed on to the project soon afterward as a third anchor tenant with a 25,000-sq.-ft. megastore. The building was being compared to areas such as Times Square in New York City, Piccadilly Circus in London and Shibuya in Tokyo.
As part of the same project, city council approved funding for construction of a public square beside PenEquity's development with fountains and a stage for outdoor concerts. Local taxpayers would pay the $10.3-million bill in annual operating costs.
Rae couldn't resist pointing out Yonge-Dundas Square opened on schedule in November 2002. "I'm forever hearing people complain about the public sector not completing things on time like the private sector.
"Now here, you have the public sector waiting for ages on the private sector to finish their end of the deal. Needless to say, I'm very proud."
It was clearly the high-traffic area coveted by large retailers - according to PenEquity's website, 56 million people live in or visit the area every year to shop, eat, work and play. That includes an annual 18 million pedestrians and 14 million vehicles.
Everything looked great. The project was approved by city council for construction in 1998 and originally scheduled for completion by 2000.
But market conditions were about to change, causing the prospective anchor tenants to become nervous. After 18 months of negotiations and a signed letter of intent, Disney pulled out of the project in May 2000.
"That was a huge setback for us at the time," says PenEquity's Xavier. "We had to structure a lot of space for that one anchor tenant, so it had to all be redesigned.
"We heard they were pulling out practically the same day as all the steel arrived for underground work."
Virgin Records cancelled its planned store afterward and a chill went through the movie theatre industry after four large chains either filed for bankruptcy protection or indicated they would file.
AMC Entertainment Inc. reported third-quarter losses for 2000 totaling US$29.1 million, up from $19.1 million for the same period a year before. Many analysts blamed the losses on companies building multiplex movie theatres in a frenzy during the mid to late 1990s, leading to an oversupply.
Xavier says local competitors heard about AMC's plan for stadium-like seating with digital sound and quickly renovated their own theatres, adding to the developer's concern about the original main anchor tenant. AMC, however, said it was staying put.
Asked if PenEquity ever considered giving up, Xavier admitted the company had thought about it.
"This is a business, sure. There were a few times that someone suggested we give up, but at the end of the day we were always confident we could deliver. We can't help market conditions. We can concentrate on putting together a quality project, though."
The company had already built Toronto's Maple Leaf Gardens and about 15 to 20 theatre sites in Canada for AMC.
There was also a deal negotiated with neighbouring Ryerson University.
Ryerson students would be allowed to use the AMC movie theatres as a lecture hall weekday mornings, similar to an arrangement at the University of Southern California's Berkeley campus.
As part of the exchange, PenEquity was given "air rights" above part of the Ryerson parking garage to build parking of its own.
"I'm actually looking out at (Toronto Life Square) right now from my office window," says David Amborski, director of Ryerson's school of urban and regional planning.
"It's absolutely a strong fit in the downtown core. I think it will be very successful and your nearby merchants will certainly enjoy spinoff effects with their businesses."
He noted Ryerson is not the only university to have its main campus in a city's central downtown area. NYU holds most of its classes in Greenwich Village, close to downtown New York City.
The Toronto Eaton Centre, located on the southwest side of the intersection, was one of the first downtown shopping malls in North America.
When developer Cadillac Fairview went to a meeting of the International Council of Shopping Centers, other cities couldn't believe they were building right in the downtown core.
Rae says he's getting calls already from other realtors and business owners along Yonge Street asking when they are getting a makeover.
"It's really having a great effect on the downtown. I mean, it's hard to come up with a superlative when Yonge-Dundas Square is a superlative in itself," he adds.
"I have to laugh when I hear people say they don't like it. You should have seen what the street looked like before."
Electronics retailer Future Shop was the first tenant to open last month while AMC Theatres will be holding its grand opening next March and other tenants will gradually open three or four months after that, says Xavier.
