Toronto MaRS Centre Phase 2 | 112.77m | 20s | Alexandria | B+H

Most of the office buildings will be well beyond the 30-40% when they're completed ... RBC (the next to complete) is at about 85% fully leased ..
 
TOareaFan said:
Here we have a spec office building going up (no pre-leasing at all...the tenants there came along after construction started) and got 100% financing of the construction costs.......and the government gave them a grant to buy the land.
...
it is going to be used for standard government offices.
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I have no problem with government covering the financing cost of a project such as this one - what I do have a problem is using the space not for labs but for government offices. It's a waste of resources.

AoD
 
Tuscani01 said:
Because some people feel that government should not be in this position. They would like to see the private sector take up all of the government's role in projects like these since they will not put the public at risk should these ventures fail. If it goes bankrupt, it means it was not needed/in demand, so it shouldn't have been built to begin with.
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What a horrifying point of view. It's the kind of lunacy that gets guys like Rob Ford elected. ha ha

There's only one thing to fear more than the "government"...and it's unrestrained capitalism deciding the fate of everything.
 
Actually it is a fairly reasonable position - the public sector in general should not be providing real estate to the private sector - i.e. it really shouldn't be in the development business. The government don't build malls, office towers, and it surely shouldn't be building lab space for established companies. Now the case for building it for budding companies as an incubator space is different - but that needs to be articulated. And you really can't provide a product that your target demographic can't afford - it defeats the purpose.

AoD
 
AlvinofDiaspar said:
I have no problem with government covering the financing cost of a project such as this one -
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In theory perhaps......but real estate finance is a pretty well developed discipline and we do it pretty well in the GTA and any lender that ignores fairly well developed ratios and practices does so at their peril. We should not be using government/taxpayer money to prove why lenders like/need a combination of equity and market acceptance (pre-sales on residential pre-leasing on commercial) before putting money out the door. If (and that is a very big if) any lender was going to take on this zero equity zero pre-sale 100% financed deal they should be very well compensated for the risk.....anyone know if IO charged large fees and very high rates for putting public money into this very high risk venture?
 
TOareafan:

If there is an area of endeavour uniquely suited to government, it is projects with a higher risk/low or no return. But one better have Plan B and C for when things doesn't quite turned out as planned.

AoD
 
AlvinofDiaspar said:
TOareafan:

If there is an area of endeavour uniquely suited to government, it is projects with a higher risk/low or no return. But one better have Plan B and C for when things doesn't quite turned out as planned.

AoD
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There may be something in that.....but I really get the sense they did not view it as high risk and, certainly, did not paint it as such in any public discussions.

The biggest question would be why combine the risks? If equity was not available but it was seen as a "great idea" that just needed 100% financing (professionally i have a hard time putting the word "just" in front of 100% financing) why not take that risk but say "let's get out in the market, let the prospective tenants know there is a guaranteed public financing of 100% but we just need to get to 40/50/60 (pick a number) percent pre-leasing"

Why compound the no-equity risk with no-market acceptance risk?
 
the public sector in general should not be providing real estate to the private sector
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I don't think that is the motive here....just an unintended temporary solution for the greater good of the MaRS project....a means to an end. I'm not saying it's the best solution, but a much better one than the free market chaos theory one proposed.
 
Hot off the wire:

Province Creates a More Sustainable Future for MaRS Property

September 23, 2014

Ontario Government to Acquire an Interest in MaRS Phase 2 Building

The provincial government has entered into a conditional agreement to acquire an interest in the MaRS Phase 2 Building in Toronto.

The government engaged an expert panel, which recommended that Alexandria Real Estate's interests be purchased. The panel consists of two highly experienced individuals; Michael Nobrega, former CEO of OMERS and the Chair of the Ontario Centre of Excellence; and Carol Stephenson, retired Dean of the Ivey School of Business.

The agreement, which will undergo further review for value by the expert panel, will allow greater flexibility on lease rates, and the terms and types of tenants for the MaRS building. This will increase occupancy revenues and create long-term financial stability.

The conditional agreement is between Infrastructure Ontario and the building's developer, Alexandria Real Estate. This is the first step in the process, and the details and conditions of the agreement will take several months to finalize, pending substantial due diligence.

Infrastructure Ontario's due diligence to this point, including a third party appraisal from Ernst & Young (EY), confirms that the government's investment of $308.81 million is less than the fair market value.


QUICK FACTS

In 2011, Infrastructure Ontario provided a $224 million loan to MaRS Phase 2 for the construction of a medical lab building at the southeast corner of University Avenue and College Street in Toronto.
With this purchase, Ontario will have invested $308.81 million (as of September 24, 2014 debt service guarantee payments), which includes a $224 million loan for Phase 2 and a debt service payment that has cost to date $3.61 million; $16.2 million that MaRS used to initially purchase the land; and a $65 million interest that the developer had in the property.
MaRS is located at the heart of Toronto’s Discovery District, a two square kilometre area of the city that includes Canada’s largest research university and nine affiliated, world-renowned hospitals ranked second in the world for research output.
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^remember back when I was suggesting that the simpler method for the province was to let this default....expose the building to the market and get the best price for it?

They have it appraised for $304 - $331 millon.....ARE is walking away from this with $65 million for their equity position. That means the power of sale/foreclosure would only have to bring in anything over $243 million for the taxpayer to get out whole without losing any money.....but know, we are putting more money in!
 
Why are we so concern about empty office building .. give time all will be sold out ans specialty mars.. best location and as a research center will be need it later on.. as they will fine a way..
 
vini007 said:
Why are we so concern about empty office building .. give time all will be sold out ans specialty mars.. best location and as a research center will be need it later on.. as they will fine a way..
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This article does a pretty good job of explaining it.

http://www.theglobeandmail.com/news...for-mars-real-estate-bailout/article20741417/

globeandmail said:
The bailout appears to run counter to the government’s plan to sell assets to raise cash for new infrastructure. Earlier this month, for instance, Mr. Duguid put the Toronto headquarters of the LCBO up for sale.

Coincidentally, the more than $300-million the government has spent on MaRS is a little more than it expects to generate from selling the LCBO lands.

“This is a government that’s trying to divest public assets and at the same time acquire them out of an act of desperation, because of a bad business deal,” New Democrat finance critic Catherine Fife said.
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TOareaFan said:
This article does a pretty good job of explaining it.

http://www.theglobeandmail.com/news...for-mars-real-estate-bailout/article20741417/
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Except the part where he/she states bailing out MaRS runs contrary to the government's strategy of selling off assets...The comparator of the LCBO is a joke. If the author can't see the difference between new, biotech space next to U of T, Queen's Park and hospital row and rapidly aging assets ripe for redevelopment like a corporate HQ on the waterfront then he/she can't see the forest for the trees. In the end the government will end up more heavily subsidizing this than they wanted to, but as is often the case from roads to education, the government eats the cost and the private sector benefits in the long run.

In fairness to the author I suppose, Duguid did a pi$$ poor job of articulating the rationale...perhaps intentionally somehow hoping the issue would go away.
 
What I don't understand.... seem to recall that Phase 1 was basically fully leased from opening day. There were articles in the newspaper talking about Toronto's burgeoning research sector, etc...

Why the complete reversal of fortune with phase 2?
 
yyzer said:
What I don't understand.... seem to recall that Phase 1 was basically fully leased from opening day. There were articles in the newspaper talking about Toronto's burgeoning research sector, etc...

Why the complete reversal of fortune with phase 2?
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Well it would seem that Infrastructure Ontario's lending department has not learned a basic lesson that all other commercial real estate finance shops in the city have long ago.......spec lending is very risky. Just because the building next door is fully leased is no reason to assume that if you build another building right next to it with the same target market that it too will be successful.

MaRS II was likely not cheap to build....which probably meant that the lease rates needed to make it feasible were high(er) so that would be a factor in attracting startups. Also there is the concept of satisfying demand and low hanging fruit....when Phase I was built there would have been an unsatisfied pent up demand for this space.......perhaps all that Phase II does is show that the market (on the demand side) was not as deep as they thought....again, something that a pre-leasing requirement in the loan would have shown.

What could protect a lender, though, is the notion of margin. Their loan appears to be about 2/3 of property value......in the "real world" the loan should be safe because as the building did not meet its projection the lender could force a sale, get the first funds out to repay the loan and whatever is left would go to the equity guys. What we (as a province) have done is increase our loan to pay out $65 million to the equity guys first and taken on an inordinately increased risk.

Coming up on 30 years making real estate loans ....and I have never seen a lender make this sort of payment to increase their own risk profile.
 
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