A few weeks before the tumult at Toronto’s MaRS centre exploded into public view, Ryerson University approached the Liberal government with a request: Was there anything the province could do about the lease rates at the MaRS tower, the gleaming monument to innovation sitting near-empty across from Queen’s Park?
Ryerson’s science department was searching for 25,000 square feet of specialized lab space near its Yonge and Dundas campus, making the tower, known as MaRS phase II, an ideal fit. But the school couldn’t afford to move there.
“The cost structure of MaRS was going to be very challenging,” Julia Hanigsberg, the vice-president of administration and finance at Ryerson, said. “If it was challenging for a university, it was obviously going to be very challenging for a start-up.”
Ms. Hanigsberg was told the government was working on the issue, but what she didn’t know at the time was the Liberals were quietly preparing a $317-million bailout of the MaRS tower, which, unable to lure enough tenants, was in danger of defaulting on the $235-million government loan that had made the innovation centre’s second phase possible.
Now, with another election looming, the Liberals are under fire for extending the loan in the first place, and for proposing in secret a plan to purchase the MaRS tower, buy out an American developer’s remaining interest in the project, and convert at least 10 floors of the tower to office space for bureaucrats.
Ryerson’s experience illustrates why whoever forms the next government could have a problem on its hands with MaRS, a private-public project founded by Toronto’s scientific and business elites in 2002 as a way to commercialize the eureka moments in the city’s thriving basic research sector.
MaRS is saddled with a unique 20-storey tower outfitted for labs and office space, a complex-to-engineer combination that has helped make the space too expensive for even a publicly funded university to rent, let alone newborn companies. Undisclosed terms with a U.S. developer have further restricted MaRS’s freedom to lower lease rates at the tower, which is finished and home to a handful of recently moved-in tenants.
The empty floors at phase II and the proposed taxpayer bailout have also raised questions about MaRS itself, and whether its model of bringing together public money and private players in a showpiece building is the best way to create and grow innovative companies.
When the main MaRS centre opened inside the old College wing of Toronto General Hospital in 2005, its focus was transforming life-sciences research into money-making products and companies. (MaRS stood for Medical and Related Sciences, a file name that stuck.)
The organization has since widened its ambitions, supporting companies in info-tech, communications, social innovation and “cleantech” through below-market rents in its incubator space, entrepreneurship classes, mentorship programs, seed funding and other services.
There were early signs that the phase II tower could be difficult to fill, according to interviews with people familiar with the expansion plans, but the Liberals backed the project nonetheless, buoyed by the apparent success of MaRS’s first phase.
One source with a long history in health-related real estate said that when MaRS was searching for a developer for phase II in 2007 his company contacted more than 80 players in the private life-sciences sector and found most had no desire to be at College and University. Those that did couldn’t justify the cost.
“We couldn’t find one single tenant or even a prospect that said, ‘Yeah, if you guys do this, I’d be interested.’”
MaRS CEO Ilse Treurnicht remembers it differently. In her first interview since the Progressive Conservatives released confidential government documents detailing the proposed bailout last week, Dr. Treurnicht said that, with the main MaRS facility bursting at the seams, the organization was sure there would be demand for the second phase.
She still believes that. “We’re absolutely confident that once we complete these current negotiations [with the government and a U.S. developer,] these tenants that are in our pipeline and are ready to proceed will come into the building and phase II will mirror the success we’ve had in phase I.”