Project Essentials / dataBase – detailed project information, floor plans, renderings
Projects & Construction Thread  I  Real Estate Thread
Exhibit Residences  
200 Bloor Street West, Toronto
Developer: Bazis Group, Metropia, Plaza


Exhibit Residences | 100m | 32s | Bazis | Rosario Varacalli

Joined
Apr 22, 2007
Messages
24,814
Likes
10,843
Location
Toronto
#1
CHEAP RENT
McDonald's enjoys sweet deal with city
DAVID COOPER/TORONTO STAR
McDonald’s on Bloor, near Avenue, pays the city $1,250 a month rent.
Nov 30, 2007 04:30 AM
Paul Moloney
CITY HALL BUREAU

Imagine paying only $1,250 a month in rent for a prime spot on the Bloor St. W. retail strip.

That's exactly what a McDonald's restaurant has been paying for 35 years on land owned by the City of Toronto directly across from the ROM, thanks to a 99-year lease.

The lease, which had no provision for rent increases, came up for renewal after 33 years in 2004. City staff have been in talks since to hike the rent to $16,250 – or $195,000 a year – for another 33 years.

But McDonald's balked at the new rent and instead wants to buy the site, with 40 feet of frontage on Bloor and 150 feet deep, for $3.38 million, said Joe Casali, the city's director of real estate services.

Casali believes that's a fair deal. It does not include the building, which is owned by McDonald's Restaurants of Canada Ltd.

But area Councillor Adam Vaughan isn't impressed.

"The city owns land on Bloor St. in the most expensive stretch of real estate in the country and they're going to sell it for $3 million?" Vaughan said. "This is a one-storey building on Bloor St. but you could build probably a 20-storey condo tower and sell each one for $2 million."

The restaurant is heavily patronized by U of T students and a stone's throw from the museum's new Crystal addition and the upscale Yorkville neighbourhood. Earlier this month, people camped out for more than a week for a chance to buy a condo just down the street, at 1 Bloor St. E.

The 99-year McDonald's lease was negotiated after the former Metro government obtained the site back in December 1960, as part of the land acquisition program needed to build the Bloor-Danforth subway. The current offer is equivalent to about $25 million an acre, higher than other recent transactions, Casali said.

"We think we've done our homework on it. We feel comfortable with it," he said, adding there are 15 other long-term leases along the subway line coming up for renewal. "I think we have enough supporting documentation to say realistically we do have a good value for this transaction."

He said the proposed deal includes a provision that the city will get half of any gain in value if McDonald's sells anytime within the next 10 years.

"I do want to protect the city with any future value generated if McDonald's decided to either sell the property or up-zone the property," he said.

"So we're trying to protect the city where, if they go to flip it in the next 10 years, we'll get 50 per cent of any increased value."

McDonald's does not wish to discuss the matter in the media, said Louis Payette, the company's national media relations manager.

"We're following due process," he said.

"It will be discussed at the meeting next week. Right now, I can't provide more details on this."

Councillor Paul Ainslie, a member of the government management committee studying the matter, said he would prefer to see the city continue to own the property so taxpayers could reap 100 per cent of future gains in value.

"We own it now. It's at Avenue Rd. and Bloor. Ten years from now, if we decided to sell it, we could get 100 per cent of the value. Well, call me stupid, but 100 per cent makes a lot more sense to me."

Vaughan said he also favours continuing to rent the property but he's not convinced $195,000 a year is enough. He plans to press his case for continuing the lease, at much higher rent, at a city council committee meeting on Monday.

He says Metro Council "made a very, very curious decision" back in 1972.

"The issue is we signed a bad deal for the past 33 years – and for the next 33 years, how hard are we bargaining?

``It's 33 years later and we should get smarter," Vaughan said.

"Why isn't there an escalator to cover inflation? It sounds to me like we're not being very aggressive on this piece of property.

``The city's got a financial problem and giving away land like this doesn't solve it, and undercharging for rent isn't going to solve it.

"We should either get better rent, or if they don't want to pay, they can surrender their lease."

Casali said seeking more than $195,000 in annual rent could force the matter to a costly, time-consuming arbitration process.

"The worst-case scenario is we get into arbitration, we spend a lot of money on both sides and we end up at their rent level.

"The best-case scenario is we get into arbitration, we spend a lot of money and we end up at the top of our range.

``But it's not going to be much more than this, I wouldn't think."
__________________________________________________________________________________________

Much rather see the city terminate the lease and sell the land immediately. Why should the McDonalds get a sweet deal for such a prime site? It's in the business for profit, not any form of community service.

AoD
 
Joined
Apr 24, 2007
Messages
2,734
Likes
398
#3
Yes. It's even worse with new tenants. They can be in possession of the premises for years under the terms of the offer to lease while lease negotiations drag on and on.
 

Observer Walt

Senior Member
Joined
Apr 23, 2007
Messages
1,860
Likes
0
Location
East Mississauga
#4
According to the article, it's a 99-year lease, so the City can't just turn around and sell it now. McDonalds has the property for many more years, unless it is mutually agreed that it be sold. McDonalds would almost certainly not agree that it be sold to any party other than themselves, unless they were offered a pretty substantial buy-out.

Really the only question outstanding now is how much the new lease rate should be for the coming term. That will be negotiated between McDonalds and the city. If an agreement can not be negotiated, it would be arbitrated.

Land leases which I have seen usually establish the rental rate at about 5% or 6% of the value of the land, per year. The rate of $195,000 per year which has been suggested would imply, at 6%, a land value of:
195,000 / .06 = $3,250,000, which is equivalent to $541.67 per square foot. My own quick opinion, off the cuff, is that this figure seems a bit low, but not outrageous.

Escalations have to be built in. The mistake that was apparently made 35 years ago is that some extremely negligent city negotiator forgot to build in escalations.
 

Fad225

Active Member
Joined
Apr 22, 2007
Messages
143
Likes
0
#5
since they pay so little in rent I would have the thought that they would have done a better job making that McDonald's look better..
 

Filip

Senior Member
Joined
Apr 24, 2007
Messages
3,500
Likes
841
Location
Београд
#6
since they pay so little in rent I would have the thought that they would have done a better job making that McDonald's look better..
That McDonald's is the epitomy of early 90's architecture. I've never seen anything that reminded me of 1994 so much.
 

Glen

Senior Member
Joined
Oct 12, 2007
Messages
1,305
Likes
0
#7
Land leases which I have seen usually establish the rental rate at about 5% or 6% of the value of the land, per year. The rate of $195,000 per year which has been suggested would imply, at 6%, a land value of:
195,000 / .06 = $3,250,000, which is equivalent to $541.67 per square foot. My own quick opinion, off the cuff, is that this figure seems a bit low, but not outrageous.
You would have to know the MPAC assessment and account for the burden of taxation on cap values.
 

Observer Walt

Senior Member
Joined
Apr 23, 2007
Messages
1,860
Likes
0
Location
East Mississauga
#8
Glen, with all respect the assesssed value as established by MCAP would have nothing to do with the lease rate. The assessed value is used to establish the realty taxes, which would be paid by McDonalds, under the terms of a net lease, entirely separately.
 

Jonny5

Senior Member
Joined
Nov 23, 2007
Messages
2,491
Likes
210
#9
The increase the city is asking for is equivalent to 7.6%/year for the past 35 years. I'm sure no one would agree to those terms for Av/Bloor property in 1962.

If the increase were matched to inflation, which was 4.7%/year per the BOC website, that would mean the rent would today be $6,250/month. They would still be looking at a $10,000/month increase!

What a difference a few decades makes. Location, location, location.
 

Filip

Senior Member
Joined
Apr 24, 2007
Messages
3,500
Likes
841
Location
Београд
#11
It's older than that--at least late 70s or so. (Spaceframed gaping maws were all the rage then.) In fact, the accompanying photo in the Star was surprisingly flattering.

One thing left unsaid is what that particular outlet's most famous for...
Seriously?!?! Wow! I never would have guessed. The neon and the exposed ducts, the waviness.. All of it just screamed early 90's. Anyway, good to know it's a bit older than that;)

I always thought that McDonald's would make a beautiful midrise 12 or so storey condo, with luxury retail at the base. I assume fronting the ROM sells.
 
Joined
Apr 22, 2007
Messages
24,814
Likes
10,843
Location
Toronto
#12
I wonder if the City can set forth an arbitarily high and unreasonable rent increase legally, with the implicit goal of having the other party terminate the lease?

AoD
 
Joined
Apr 22, 2007
Messages
24,814
Likes
10,843
Location
Toronto
#13
From the Star:

`Hard look' urged for city's deal with McDonald's
McDonald's Bloor St. `premium location' is worth more than proposed $3.38 million, says developer
Dec 01, 2007 04:30 AM
Paul Moloney
Jim Byers
Tony Wong
Staff reporters

The City of Toronto should get an independent review before making a deal on a prime lot on what's been called Canada's Fifth Avenue, says Brian Ashton.

The city councillor doesn't like the sound of a proposed deal to sell the land, directly across Bloor St. from the Royal Ontario Museum, to leaseholder McDonald's for $3.38 million.

Prominent developer Sheldon Esbin agrees. He says he'd pay $5 million for the site "without even thinking about it."

"I had a chuckle when I heard the price. That's not just a great deal. That's for nothing," he said in an interview yesterday. "I'd offer more, but that's without even doing any due diligence or inspecting the property."

Several doors from the McDonald's site, Esbin is building MuseumHouse, a 26-unit ultraluxury condo building where prices range from $1.7 million to $10 million. It's already more than half sold.

"This is a premium location. You have the museum across the street, you have the University of Toronto philosopher's walk, and some of the best retail in the country," says Esbin, who also owns 208 Bloor St., a small medical building with the same footprint and 40-foot frontage as the McDonald's site, recently valued at more than $10 million.

"If I were the city I would certainly have an appraiser take a hard look at the area," said Esbin. "As a developer I'd certainly love to make a ($3.38 million) deal like that."

Councillor Adam Vaughan agreed that "something is strange" about the suggested price. "There are condos around the corner going for $1 million to $3 million and we're selling the entire site for this?

"You could put a billboard on top of the friggin' roof and you'd make more than $3.38 million."

The Star reported yesterday that McDonald's, which owns the actual building, had been paying just $1,250 a month for the land for 35 years. It has balked at the city's proposal to increase the rent to $16,250 per month and instead wants to buy the site.

Senior city staff have recommended the deal be endorsed at Monday's meeting of the city's government management committee. The sale would include a provision giving the city half of any gain in value should McDonald's resell the property in the next 10 years.

Council members are baffled that Metro Toronto Council gave McDonald's the deal it did in 1971.

"It was prime real estate even in those days," said Ashton. "I'd say this deal scores a 10 for Ronald McDonald and a zero for the city."

Minutes of Metro Council's Dec. 14, 1971, meeting show that the municipality wanted to sell the land in 1969, but the highest bid was just $156,000. They got $15,500 per year in the lease two years later, but that was for 99 years and contained no clause providing for an inflation-related increase in value. The deal was set up so that leasing terms could be reviewed every 33 years.

"I can't believe there wasn't an escalator clause," Ashton said. "There wasn't even a stairwell." Inflation was 2.9 per cent in 1971. By 1974, it was galloping at 10.7 per cent.

Mayor David Miller said he hasn't had a chance to look at the lease.

"I kind of wish I was mayor 33 years ago," said Miller, resisting the temptation to point fingers at his predecessors. "There are anomalies like this that happen because of history. Obviously there's an economic advantage for the city that we have to take advantage of, and we'll find a way to do that."

Vaughan is uneasy because he's been told a developer with property next door wants to do a large land assembly, which could push up the lot's value. "Somebody's not telling the city what they're up to," he said. "McDonald's needs to come clean about what their plans are for the site. If something's going to happen there, the city's interests need to be protected first and foremost."

According to a Cushman & Wakefield LePage report released this month, Bloor St. tied with Robson St. in Vancouver as the country's most expensive area to rent retail space. Space on Toronto's "mink mile," which houses stores such as Prada and Gucci, goes for an average $198 per square foot.

But Esbin says he wasn't shocked at McDonald's $1,250-a-month deal. It was a "different situation in the `70s," and a big company came along offering to put a nice building on a piece of surplus land, he said.
_______________________________________________

Smells fishy! But it does suggest more redevelopment is in the pipeline...

AoD
 

PukeGreen

Active Member
Joined
Apr 24, 2007
Messages
414
Likes
0
Location
Toronto
#14
Seriously?!?! Wow! I never would have guessed. The neon and the exposed ducts, the waviness.. All of it just screamed early 90's. Anyway, good to know it's a bit older than that;)
It's definitely older than the 90s. I remember eating lunch there on an elementary school field trip to the ROM in the mid-80s, and I'm pretty sure the the building looked much as it does today. Uncultured children that we were, we all thought the McDonald's lunch was the highlight of the trip. Oh, how things change.
 

wyliepoon

Senior Member
Joined
Apr 22, 2007
Messages
2,011
Likes
2
#15
I always thought that McDonald's would make a beautiful midrise 12 or so storey condo, with luxury retail at the base. I assume fronting the ROM sells.
... with a revolving McDonald's restaurant at the top. Would that be a world first?