UrbanToronto sat down recently with Brad Carr, newly appointed as President of Monarch Corporation.
Few development companies have been around as long as Monarch. Take us back in time and give us a quick history of the company. When and where was it founded? How has it evolved over the decades?
It’s a long story. I’m in my eleventh year here, and I’m still a rookie around this place, which is kind of interesting for an organization in a fast moving industry. Monarch was founded in 1917 by a group of lawyers from a firm called MacMillan’s, and the reason they founded it was to buy second mortgages! So they were buying and selling second mortgages right through until the mid-30s when they realized that maybe there was an opportunity to do more than just trade the paper, but to also create the product. That started the home-building side of the business. From then until 1993 we focused specifically on lowrise housing, and that was all there really was other than on the rental side. 1993 saw us create our first highrise building, which was at Finch and McCowan, and called the Windsor Collection. It was a couple high density sites which were part of one of our lowrise communities in that area.
Paint a picture for our readers of Monarch's lowrise work.
Probably Monarch’s strongest legacy is in Scarborough as that’s where we did a lot of our lowrise building. We’ve been there for a very long time, and when you think back to what it was through the 40s and 50s, the little wartime bungalow style houses row on row, street after street, literally built thousands and thousands of them. From there we migrated to Markham where probably to this day we have our strongest brand recognition. We created a lot of Bridle Trail, Bridle Walk, Heritage at Victoria Square; a lot of really strong communities there that were particularly appealing to the Asian community. Monarch’s had a very strong and healthy relationship with the Chinese buyers and we’ve had a very loyal following. Everywhere we go we try to take the Monarch brand first and everything that the brand stands for, and create a community, or 'building-vision', around that. Markham’s been very strong for us, and as we head further west to Burlington and Mississauga, we have very exciting communities there. Millcroft, which is probably one of the biggest communities that Monarch ever built, sits off of Appleby Line. It’s got a golf course, and probably 3200 homes that we’ve built, out there right from the late 80s through to the mid 2000s.
Does Monarch prefer to do smaller niche communities or larger master planned communities?
Larger master planned communities have definitely been the hallmark of what’s really made us what we are, and that again goes to those brand values of trying to create community. A builder alone can’t create community. A builder can only plant the seeds that allow the residents to create that community. Whether it be in our lowrise communities or our highrise buildings, all we’re trying to do is put in place all the seeds that allow community to grow.
Can you give us some specific examples of those kinds of seeds you plant?
With as much experience as we’ve had over the years, it’s really understanding Community, History, Service. We talk about those three words all the time and what we can do as a builder-developer to make sure that all of those are being respected and understood right from day one. When you’re going up to the middle of a place like we have - a new community in Caledon called Strawberry Fields - the day that the first people arrive, there are some model homes, a sales centre, and then there are a whole bunch of farmers' fields and you say, 'What can you do to make this feel like it’s going to be a community?', so it’s understanding where parks go, where community centres go… The whole community up there is linked through a series of linear parks which is different than most: we got into the habit of building these big square rectangles in the middle of communities and said 'There’s your park'… but creating a set of linkages through trails and green spaces? Well, now you have some people moving through the communities outside of their cars.
Is that a reflection of New Urbanism values?
A little bit. I think that the New Urbanism has some great theories and ideas to it. The one that had the most difficult time translating to a Canadian climate was the rear lanes and the rear lane garages where suddenly you had twice as many streets to plow and you had nowhere for the snow to be put. Also you drive into your garage in January and then you have to get out of your car, grab your groceries, go outside, and back in your house. What works in Seaside Florida is ideal; in minus-20 degree weather it may not quite be the same. But, coming back to what did work, like you say, some of those linkages, how do you pull houses back to the street, how do you put in porches and all of those details.
You mentioned that Monarch got into highrise around '93. What was the impetus for that then, and was it mostly rental or condos?
It was condos, and to be honest like so many good decisions, we stumbled upon it. We had a piece of land, we didn’t know what we wanted to do with it, so we were going to sell it. The best offer we got was one of those where we said 'Why are we doing this? Surely we can do this ourselves if that’s all we’re going to get for it', and from there it grew. Again, by understanding what creates community, whether it’s vertical or horizontal, we really found another space where Monarch could compete, and compete very well.
Tell us a bit about your background. How did you get your start in the industry? What attracted you to development?
Well, I grew up going to construction sites like so many people in my position [laughs]. My father was a trim carpenter all his life, and we lived in Waterloo County in a small community, so I guess we are all a product of what we see and experience when we are young. I definitely loved the construction site and all that stuff! Fast forward to when I went off to university. I was accepted into three schools for theatre and one for architecture, and quickly my father talked me out of three for theatre and sent me on my way towards architecture. I knew that I didn't want to be an architect, but I did know that I wanted to do something in the construction industry. One of the things that my dad always said was that anytime these guys from head office show up, they really don’t know much about how things go together, so he said 'go learn how they go together, and then you can learn the business later'. I studied architecture and went down a building-science direction as opposed to a building-design direction at Ryerson, which turned out to be great. When I got out of there I worked for a small developer and architectural firm called The Heinrichs Group which focused on retirement communities throughout southern Ontario. I spent a number of years there, and just through a friend I got recruited to come to Monarch. That was a bit of a change of direction because what they were looking for here was someone who could really help them grow their land bank.
Your inventory of developable land?
Yes, we're always concerned with what’s in our land bank, how much product do we have to sustain our company, because really, we have two raw materials in a construction company, and that’s land, and people. We try to invest heavily in both, and we try to make sure that we have enough in the system all the time to keep us in a good position. Growing the land bank was very important to the company back in early 2000, and so they created a new position called Manager of Land Acquisitions, and that’s what I joined to do.
How far in advance of a project launching does a company typically do an assessment on a particular piece of property and say 'I want to buy that', or 'it’s not quite ready for what we’re looking to accomplish?'
It’s really good question, and it’s a tricky one right now. A lot of our competitors are looking further and further out for their land bank, owing to the fact that almost all of our competitors are privately held companies that are basically family-wealth driven, as opposed to real-estate-return driven. They are looking at it and saying 'They’re not making any more land, we still have a growing community, upmarket or downmarket, the long term future of Toronto is a bright one, and it’s going to be a growing city for a very long time, so we’ll just keep buying land further and further out [in time]’. In a recent conversation with one of my competitors I was saying 'How can you possibly make those numbers work? That piece isn’t going to be ready for 20 years.' And his answer was very quick: 'I don’t care; that one’s for my grandkids'. How as a business leader do you compete against that when real return on money is not as important as sustaining family wealth through generations? That’s a tricky one.
Is that a unique situation in Toronto, to have so many developers that are privately owned?
In Canada it’s fairly typical. A lot of real estate development has been done through families, but if you go south of the border where our parent company is located, everyone is public. When we respond to our masters, we’re responding in what they perceive is a very disciplined and public company approach to return on investment, and margin and all of that, yet we’re doing it in an environment where our competitors don’t quite think the same. It’s basically a challenge to think differently and be unique, and the way in which we have responded is that we’re probably one of the most active in terms of creating joint ventures. What we do in our land acquisitions strategy is bring the strength of the brand, the history, and the people of Monarch to a land vendor and say 'You know what? Don’t sell us your land: partner with us.' In creating these joint ventures whereby the land seller actually becomes our partner, that leaves the land sitting still while we get it through the planning and development stages, and then we really only actually close on that land when it’s time to start the project. If you go the other way - buy land and pay cash - or even if you do a Vendor Takeback Mortgage, it's five years before you’re ready to go. You can imagine what it does to your returns. This is a way that we have used the brand to try and create a unique opportunity for ourselves, and it’s worked very well both in the lowrise and the highrise side of the business. The majority of our assets are now dealt with through joint ventures.
You joined Monarch at the start of the current building boom, and you spent a part of that working on lowrise operations. How have you seen the industry change over this decade? How has it adapted to the changes in the sales environment with how buyers buy product these days?
I think the biggest challenge - and it came with a couple lessons learned - has been sticking to the fundamentals of good location. We talk about it so often - 'location, location, location!' - but I think as a cycle matures and as it gains more momentum, people start moving further and further from what really drives good location, and in the highrise industry we know that anything on the subway or anything on the waterfront is ideally located. The further you move from those two spines, the more challenging the project is. There’s a lot of media right now about the challenges that the industry is facing - sometimes companies have overpaid for B or C properties, they’ve gone too far afield, and they're trying to sell them as if they were A locations - but the reality is that the good locations that are valued and well priced are still selling very well.
Similarly on the lowrise side, the greenbelt created a natural line around the GTA. The government was very specific in what it wanted to do with the greenbelt. The development industry, because of it’s insatiable desire for land, said 'well if you’re going to freeze that area, we’re going to jump over that and build houses beyond it.' As much as the industry has been very good to people who stayed within the greenbelt, life outside of the greenbelt hasn’t been all a bed of roses. You think it’s just that much further out, but when you’re going 25 minutes further than a location that’s already an hour from downtown, that’s a lot. When you’re dragging infrastructure through that greenbelt, that’s a lot of expense. These municipalities are not quite yet setup to handle all this growth. On both the lowrise and highrise side we have not become the biggest as we have not chased growth for growth’s sake. We have stuck to our core philosophy to keep to triple-A locations, and that will serve us well, upmarket or down. The reality is that prices may come off slightly if the market plateaus a bit here, or even turns down, but your best locations will always sell: there’s demand. We have positive immigration. We have employment. We have good fundamentals for a housing market. Maybe not 28,000 units per year like we sold last year in highrise, but 16,000-18,000 a year is a healthy market from where we were even 5 years ago.
Has the cycle peaked? Has it matured, or do you think it still has some room to grow?
I like your second word, I think it has matured. Plateauing at a healthy level is not bad for the industry, and particularly we feel that plateauing at a healthy level is not bad for the Monarchs, the Tridels, and the Daniels of the world. Going back to my earlier point, the individuals and the entities who are looking to enter the highrise market particularly with no brand other than a building logo, I think it’s going to be challenging for them. I think the strong-brand, established developers, who know their cost base very well, who have been very disciplined in their land acquisition strategies, will do fine. Again, I think a matured market plateauing at a strong, healthy level, that’s supported by real fundamentals, for actual supply need, as opposed to 'I can’t make money in the stock market, let’s go make money in real estate'… well, that gets ahead of ourselves to the point where we have to get back to a need-based demand for housing as opposed to one that’s just fueled by speculation.
Let’s talk about your Legacy, Ultra, and Yorkland projects, right here in your backyard. This project is the first major masterplaned condo development on this stretch of Sheppard. What attracted Monarch to this location, and how was it working with the City on Monarch’s vision?
What attracted us was that we were already there! That was our head office. We were located on that site since the early 70s, and going back to that triple-A location strategy of subway or waterfront, when we first saw the subway making it’s way over to Fairview Mall, we said 'You know what, there suddenly may be an opportunity'. Through a very lengthy negotiation with the City, and to be honest with the Ontario Municipal Board, we got them to start to understand that density along that new spine of Sheppard Avenue was going to be very important. You look out here you see a lot of commercial. The reality was that we could prove through very thorough surveys that there was a lot of office vacancy in the area, so removing our four storey little commercial building to create a thousand residential units in an ideal location made a lot of sense. We were definitely the pioneers out in this area. Since then Tridel has created the Atria project and it’s also selling well. We would have loved to see the subway carry on.
Any concern for you at all that we’ve been flip-flopping between one transit vision and another for this area?
I know it’s a very divisive point. I know all things being equal, subways are the prefered mode of transportation, but it’s a cost issue. As a developer we prefer subways all day long. The fact that this site is still close enough to the existing station across the 404, people can access it. We do offer in the peak hours a private shuttle that takes them over there and it seems to be working well.
What is your buyer base like here compared to your other projects. What kind of demographic are you attracting to a project like this?
We’re still not seeing a tremendous amount of variance between our projects. The only time we get much variance is when we get to more of a niche based end-user projects. We have a brand new site at Dundas and Prince Edward where we’ll be bringing an 8-storey, more empty-nester-specific building to that market. We expect a more upper-end down-sizing buyer there. Legacy, Ultra and Yorkland are very eclectic buildings. They’re a reflection of the city that we live in. They don’t tend to be singular focused in either age or culture. At least we haven’t seen any.
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