The role that real estate plays in shaping the look and feel of cities is an obvious one. The built form of urban centres has a profound impact on the way people use the city. The designs of individual buildings, their interior spaces, and the surrounding public realm can encourage transit use, walkability, and a strong cultural fabric. But real estate is also inherently connected to the prosperity of startup companies, who may be seeking different building typologies than more established businesses. On Thursday night, several important movers and shakers in the real estate industry participated in an Urban Land Institute event titled 'Startup City: Is Toronto's Real Estate Environment Healthy for Entrepreneurs?"
Hosted at the University of Toronto's Rotman School of Management, the discussion was moderated by Nicole MacAdam, Senior Editor of the Financial Post. The distinguished panellists came from a breadth of backgrounds: Founder and CEO of WealthSimple, Michael Katchen; Director of Operations at the MaRS Discovery District, Nina Gazzola; President and CEO of Allied Properties REIT, Michael Emory; Managing Director of Cadan Inc. Real Estate Development, Lana Sherman; and Director of Intelligent Communities for Waterfront Toronto, Kristina Verner.
Although Toronto is Canada's central hub for startups, the markets south of the border remain more favourable. San Francisco's South of Market neighbourhood, home to the headquarters of LinkedIn, Salesforce.com, IGN, Uber and Airbnb, is an innovative magnet for tech and internet companies. On the other side of the country, Boston's Seaport neighbourhood is similarly becoming a major mixed-use destination. Both of these districts rose from their industrial pasts, reimagining old warehouse spaces as cozy new workspaces and residences.
The panel discussed how—partly in response to the successful startup conditions in many United States cities—Toronto's newest commercial real estate properties can adapt to the complex and often flexible needs of budding businesses. The importance of small businesses is evident: they employ nearly 70% of people who work in the private sector and comprise 27% of Canada's GDP. Recognizing this, the general outlook expressed by the panel was a positive one. They were each excited to see how Toronto has matured and continues to grow in global importance. Michael Katchen, who spent several years in California building a startup company, wanted to return home to Toronto and do the same. "There's something very special happening here," he said, noting that Toronto had a "cohort" of unique companies that he wanted to be a part of.
Lana Sherman recalled Cadan's investment in the former Lang Leather Tannery building in Kitchener, a once decrepit symbol of Ontario's declining manufacturing base. Protecting the heritage features of the building, it now provides dynamic office space to many digital media companies. "Generally, the people that move into old brick-and-beam buildings are people who are unique and unusual and they're looking for space that is unusual," said Sherman. "It's difficult to find that 'cool' character in brand new buildings." She continued: "Underlying all of this is the need to attract and retain really great people. So whatever building you create, whatever space you create, there has to be services around that. People don't want to work nine to five anymore, they want to be able to work flexibly, and change their work environment to fit their life, so employers need to adapt to that."
Allied's development portfolio is filled with these brick-and-beam buildings, including the recently completed Queen Richmond Centre West, which merges the benefits of old and new office spaces. Michael Emory agreed, stating that "people desperately want environments with natural light in them. Interestingly, the old brick-and-beam buildings afforded that, because they were built before the advent of electricity in many cases, so they were designed to get as much light into the core of the floor plate as possible." The other important workspace elements are good-quality air and "something that permits an open plan." Commenting on what the future holds, Emory believes "the workplace is moving steadily to an open plan. Offices are becoming a thing of the past and for good reason, because they trap all the light on the perimeter, so the poor souls having to work in the inner component of the floor plate are really deprived of natural light." Echoing Sherman's statement, brick-and-beam also provides "authenticity, a sense of community, and a human rather than a monumental scale."
Nina Gazzola agreed that flexibility of spaces has been one of the primary concerns with startup companies she has dealt with. Kristina Verner added that there is a general desire for people, especially youth, to be located near green spaces. Sustainable, environmentally-friendly buildings have become popular with young companies, who Verner believes are more inclined to be socially conscious and promote stewardship of the planet. Waterfront Toronto has attempted to capitalize on these demands by establishing numerous policies and plans, including the Minimum Green Building Requirements, an important tool which fosters the creation of high-performance structures.
The topic then shifted to a discussion on commercial real estate affordability. To help make office space more economical, MaRS tailors its pricing according to the stage of development for the company, with discounts being afforded to young businesses just getting off the ground. "When you're in the earliest stage of development and in your most need of support, that's when you get your deepest discount," said Gazzola. There was a general consensus among panellists however who, in their experiences, had not thought rent to be a major roadblock for startup companies. "I've never met a tenant who ran into trouble because of the rent, it's the revenue side of the equation that's the problem," said Emory. Katchen echoed the comment, stating that he has "never heard of a startup founder telling me that the price of real estate is the reason why their business isn't growing." Sherman reverberated these statements, adding that "rent is often not a significant chunk of the operating cost for a startup." Katchen was happy to hear the panellists shared similar experiences with him, pointing out that it "validates the ecosystem we're building here."
"I've never met a tenant who ran into trouble because of the rent, it's the revenue side of the equation that's the problem," said Emory, who recalled a planning move by the Barbara Hall administration in 1996 that continues to have a transformative impact on the way older structures are used today. "The City opened up the zoning west of University Avenue and east of Yonge Street for buildings and land that at the time were restricted to light-industrial use. That created the opportunity to adaptively reuse those buildings and that land for any socially acceptable use." Allied has made an effort to cluster their properties, many of which are located in the King-Spadina area, "so if a tenant needs to expand, we may not be able to accommodate them in the building they're in, but we likely will be able to accommodate them in a building nearby."
Gazzola indicated that one of the major challenges facing the Toronto startup environment is global competition. As the economies of China and India boom, fuelled in part by low-cost labour, the goal to keep talent here will continue to be a struggle. It's that educated workforce and the deep concentration of talent though that Emory believes is one of the most impressive things about Toronto, adding that City Hall's zoning changes in 1996 let the private sector determine where businesses should go, rather than being told where to set up shop. "They listened to the demand being expressed by the businesses to be accommodated. I would give a great amount of credit to Barbara Hall and her administration and successive administrations for allowing the business people, the creators, to determine in large measure, where they wanted to be and how they wanted to occupy space."
Questions were then opened up to the audience, one of which pondered the changing definitions of the city core, and whether Liberty Village, as an example, could be considered to be a "fringe" area. Emory answered: "Really since 1996, the core has been expanding westward and eastward at different rates. The core is not a static concept at all." Emory doesn't consider areas like Liberty Village or the Distillery District to be "fringe", but rather, the outer limit of the downtown core. Emory describes the neighbourhood's railway track as being a major physical impediment that poses problems for certain office users.
The high cost of housing was an issue raised by one member of the audience, who asked whether it was a constraint for new businesses. "The explosion of dwelling units in Downtown Toronto has facilitated the economic transformation massively," said Emory. "The condo boom that we all love to hate, and all love and hate, has done a lot to facilitate the formation of successful businesses downtown." Emory pointed to the revitalization of Regent Park as an example of an affordable housing initiative that is conducive to capital and commercial growth in the downtown core.
On some of the challenges they have personally faced, Gazzola recounted the several well-documented issues MaRS has had to tackle in recent years. Talking about the lessons learned from the second phase, west tower development, Gazzola remarked: "The rates required at the time were quite astronomical, set by partners who were not MaRS. So that adjustment and reduction to make them more in line with what the market would bear has turned this into a success," said Gazzola, who announced that the building was now 84% leased, with Facebook moving in.
Another question asked what areas not currently succeeding in attracting startups could do to invite them in. Katchen explained that cities need time, talent and capital to attract businesses. Municipalities with vibrant university or college campuses, such as Kitchener-Waterloo, can serve as magnets for a talented workforce. Transit and ease of transportation are key factors as well. "Most of our team lives on the subway lines," remarked Katchen.
Sherman said that while Toronto is steadily evolving, Europe remains years ahead in regards to sustainability and a work-life balance. She explained that buildings in Europe are increasingly self-sustaining, featuring rooftop solar panels and irrigation measures to conserve water. But Sherman acknowledges "it's very complicated to do that in a heritage building. You can retrofit a lot of systems, but you're not going to make them as green as modern construction." Emory explained that the best way to take advantage of expensive land and capture its full value is to include a mix of uses. "It's actually the wave of the future; having a combination of retail, office and residential uses that are actually mutually reinforceable. The City is very supportive of it, as are the users of the space. You're actually seeing real estate organizations collaborate with one another in an effort to make mixed use environments, not so much because they need each other's capital, but because they need one another's expertise. We're really good at office space. We're okay at retail. But we don't know a thing about residential."
All panellists expressed optimism about Toronto's entrepreneurial future, which continues to be driven by a desire for urban living. As MaRS adds contemporary office space to the core, Waterfront Toronto creates a brand new smart community, and development trendsetters Allied and Cadan reinvigorate storied spaces, Toronto is becoming a progressively more healthy and livable city.
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