The City of Toronto is making a bet on the waterfront’s high-rise condo boom, predicting it can make more than $40-million by investing in a proposed 75-storey tower development on a vacant sliver of city land.
Build Toronto, the city-owned company charged with selling surplus property, is teaming up with residential developer Tridel to invest in a new skyscraper on a pie-shaped city lot at York and Harbour Streets. If approved as planned, the project will join a cluster of nearby skyscrapers, part of a wave of development on land south of the railway tracks and will rival a new building at College Park as the city’s tallest condo tower.
The joint venture – a first for Build Toronto – is designed to boost profits from real estate sales by giving the city a portion of the returns from development. It’s a model that the fledgling company, charged with generating revenue for the cash-strapped city, plans to use on future deals, said Build Toronto’s chief executive Lorne Braithwaite.
“The market is hot as a pistol and we are about to generate funds for the city and create a fantastic new development,” he told reporters Tuesday. “From Build’s perspective, pardon me for saying it, this is one hell of a deal.”
Councillor Doug Ford, the mayor’s brother and vice-chair of Build Toronto, said the investment will allow the city to increase its return ninefold compared with the money it could collect through a simple land sale. “I’ll take that any day. When there is that much profit sitting on the table, we wouldn’t be very prudent business managers if we turned our head on this opportunity,” he said.
Under the deal, Build Toronto will use proceeds from the land sale to become a 20-per-cent partner in the development, with Tridel holding the remaining stake. The city will receive its first payment next year and is expecting to collect more than $40-million over four years.
Architect Rudy Wallman expects the project will be completed in six years.
Local councillor Adam Vaughan agrees the site is suited to a tall structure, but said the joint-venture model turns the city into a real estate speculator and creates a conflict of interest as the building goes through planning approvals.
Preliminary designs, he said, includes a floor plan that is bigger than city standards and the project exceeds height restrictions for the site. Plans for aboveground parking also require zoning changes, all measures, he said, that will see the city negotiating with itself as regulator and developer. Any changes requested by staff could affect the city’s potential returns, said Mr. Vaughan, a frequent critic of the Ford administration.
“It’s not my job to guarantee investment,” he said. “It’s up to us to negotiate what is in the best interests of the neighbourhood.”
Tridel president Leo DelZotto said the joint venture allows the city to share in the profits of a growing real estate market. “This is a very important step for the city,” he said. “An outright sale is a one-time gain that day that you close the deal.”
Sharing in the profit also means the city is exposing itself to risk if the condo boom goes bust. But Mr. Braithwaite said the deal’s structure limits the city’s risk. The estimated value of the property, once the city’s impound lot, is just under $5-million, he said, making the potential returns very attractive.
Build Toronto returned $12-million to the city last year and has closed four deals this year, with five more in the works, not including Tuesday’s announcement, he said.
With more than $16-billion worth of real estate on the books, Doug Ford said the new joint venture represents a creative way of solving the city’s financial problems. He praised Build Toronto, an organization he has criticized in the past for not moving quickly enough, for getting value out of the site, which is just over half an acre.
“They turned a lemon into lemonade, and what great lemonade, to the tune of $40-million for the city’s coffers,” he said.