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An aerial photo looking south showing Bombardier's Downsview site.BPimaging/Bombardier

Public Sector Pension Investment Board has struck the one of the richest land deals in Canadian history, acquiring Bombardier Inc.’s Downsview Airport property. But it’s not just the dirt that is commanding top dollar.

The investment arm of the pension plan for federal public servants and the Canadian Forces is set to pay about US$635-million ($817-million) to take control of 371 acres of largely vacant land in northwest Toronto. Although the property is zoned for employment uses such as manufacturing, and some local politicians are opposed to changing that, the price indicates PSP expects to be able to redevelop it into a business and residential hub north of Toronto.

Such a plan would be a huge undertaking for the pension fund, which is not well-known for commercial real estate development in Canada. It will also demand patience. “They are paying for the redevelopment potential, to use it as more than what it is now,” said Bill Argeropoulos, head of research at commercial realtor Avison Young.

Read more: Bombardier sells Downsview assembly site to pension fund in major makeover

It could take a decade or more for PSP to get city approvals, win over residents and overhaul the land. “They are going to have quite an uphill battle to be able to develop it to extract the value out of it,” Mr. Argeropoulos said. In the meantime, Bombardier has the option to lease back the land for up to five years to run its aerospace manufacturing plant alongside a test runway.

PSP said in a statement that it is too early to comment on the project or discuss zoning. “We purchased the site on an ‘as is’ basis. Bombardier will remain on site for a minimum of three years, therefore it is business as usual at this point.“

The Downsview land sale is the largest by price on record in Canada, even topping residential land sales that have historically commanded much higher prices than sites categorized as “industrial, commercial, investment.” Until now, the highest-valued land deal was the $440-million sale of a Vancouver bus depot in 2016 that was zoned for residential building, according to data from Avison Young.

Other developers were also interested, drawn to the potential to build new homes and shops near Toronto’s subway line.

The pension fund, which is headquartered in Ottawa but largely runs its investment operations from Montreal, has been building up its holdings in private market assets such as real estate in recent years. The fund had $20.6-billion − or 15.2 per cent of its portfolio − tied up in real estate as of its 2017 annual report released nearly a year ago.

PSP chief executive Neil Cunningham said in a statement that the purchase supports the fund’s long-term real estate strategy, which includes increasing its investments in Canada, particularly in the Greater Toronto Area. “We have a stellar track-record in working with large, complex projects across our entire investment portfolio,” said Mr. Cunningham, who was global head of real estate and natural resources at PSP until February.

Some large Canadian funds, including the major pension plans and Brookfield Asset Management Inc., have become bigger land developers in recent years. Many of these projects are undertaken with investment partners, or sold fully or partly to other investors.

PSP may be challenged to persuade the city to let it rezone the area. Employment lands are taxed at a much higher rate and need fewer services than residential zones.

In anticipation of this sale, Toronto Mayor John Tory told reporters recently that preserving the employment lands was a priority. He added that this area has ample residential space and people need places to work. On Thursday, Mr. Tory said the city was not involved in Bombardier’s decision and that its policy would be to keep the current zoning.

One of the most vocal opponents of the sale, city councillor Maria Augimeri, said she did not approve of the secretive process, which did not involve the community, but was “cautiously optimistic.” The fact that the buyer is a pension fund “signals to me that they are probably in this for the long-term,” she said.

The future is also uncertain for the 1,500 people who work at the site on Q400 turboprop planes and the Global series of business jets.

The key for Unifor, which represents workers in the factory, is that Q400 production will continue, said Jerry Dias, president of the union and a former employee of the plant. “The biggest fight for us was keeping the Q400, because Bombardier had every intention of selling it and was selling it,” Mr. Dias said on Thursday. “We’ve got five years to figure out what’s happening with the Q400, but the bottom line is I’m keeping it for five years.”

With a report from Jeff Gray