All retailers, in their own ways, are going through significant changes, and so are real estate people who serve retail. Ten years ago, we started seeing two major trends. The first was that online retailing was growing by leaps and bounds, so retail was changing dramatically. It was a little slower in Canada, happily—the U.S. is, in many ways, five, 10, 15 years ahead of us.
On top of that, the vast majority of population growth was happening in big centres: Vancouver, Edmonton, Calgary, Toronto, Ottawa and Montreal—what they call VECTOM. Municipalities with, say, a couple hundred thousand people or less weren't growing anymore and were actually starting to diminish. And the really small towns were, at best, flatlining. Plus, in all the major cities, no new roads were being built, particularly in Toronto. You can't move around easily by car anymore.
So we took a hard look at, what are RioCan's real assets? Yes, we own all these buildings, but the assets are these wonderfully located pieces of land. Because most shopping centres are at major intersections. The first change we made was to start selling off our assets that weren't in VECTOM, which left us with 225 properties. Then we looked at what was missing in cities like Toronto, and that was purpose-built rental housing. So we decided to pick the top 25 properties and start to rezone them into what appears to be the most viable type of real estate today, which is mixed use—primarily residential, with a little bit of office and retail thrown in.
We were fortunate that this major strategic change aligned with what is required on both the government and the people side of the equation. Every city has to densify, because with the population growth we’re seeing, you won’t have places for them to live if you don’t build up. It’s as simple as that. And people want to live where there’s action, transit, services. Because getting in the car in the city is aggravating. We find the parking spots don’t get used. What younger tenants want—other than a gym—is a locker off the lobby so FedEx can leave their packages when they’re not home. We’re even putting in cold storage so you can have your groceries delivered without the ice cream melting.
I did have some reluctance from my own executives, but then they realized there was huge opportunity in purposebuilt rentals, because none had been built for 40 or 45 years. Probably the most skeptical was the investment community and some of our shareholders. That skepticism wasn’t based so much on the strategy, because once they understood it, they liked it. It was a question of execution: Can you guys, who’ve been doing nothing but retail for 20 years, can you really do this? We had a few years where our stock underperformed, but now that we’re starting to have tenants move in, it’s slowly being accepted.
A couple of my own directors told me: ‘Eddie, you’re turning around a big ship. You could fail.’ I said, ‘Yeah, absolutely. But there will also be failure if we do nothing.’ Is there a risk in changing strategy? Of course. But it’s a risk well worth taking. So far, so good. And the good news for my successors is that we’ve got 25 years of work left yet—at least.
Interview by Dawn Calleja