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Many economists fear that too many condo units have been built in Toronto, but developers of office space have grown more bullish of late.Peter Power/The Globe and Mail

Two real estate investments trusts are in talks to buy a large piece of property that is the current home of The Globe and Mail, in a sign that retail and office developers remain optimistic about projects in downtown Toronto despite a slowdown in the condominium market.

RioCan REIT and Allied Properties REIT are negotiating to buy the land for a new development that would include office, retail and residential space, according to sources familiar with the plans. The office and retail space would anchor the site, while the residential component would be secondary.

The talks come after Mattamy Homes pulled out of an agreement to buy the land for a price that sources said was about $150-million. Mattamy, the largest builder of new homes in Canada, had planned to put as many as seven or more condo towers on the property, which sits near Front Street and Spadina Avenue. (The Globe will be moving to a new building on an adjacent site.)

The development was to be Mattamy's first major push into condos, but it would have taken a long time to complete, and the company was nervous about making such a large investment at a time when it appears the market is softening. Many economists fear that too many units have been built in the country's most populous city, and that prices are inflated. In contrast, developers of office space have grown more bullish of late, with rents now back up to the levels that they were at prior to the recession. And RioCan chief executive Ed Sonshine told investors on a conference call Tuesday that things are looking up in the retail space.

"We're looking at the next two years with quite a bit more confidence in the stability of the retailers in Canada than we did for 2012," he said, adding that he thinks the number of retail tenants who might close stores or not renew leases is waning. RioCan has not lost one tenant in the last four weeks, the longest stretch it's had without losing a tenant in three years, executives said on the call.

RioCan and Allied signed a joint venture deal this summer to team up on mixed-use downtown developments in cities such as Toronto, Montreal and Calgary, with Allied providing its expertise in office space and RioCan working on the retail side of the projects. Sources say that the two are also working with a fund managed by Diamondcorp PLC, which will lend its expertise in zoning and in residential developments.

The talks are ongoing and could still fall through, sources emphasized. The land is owned by Osmington Inc., one of the largest private commercial real estate investment companies in Canada. David Thomson is the majority owner of Osmington. The Thomson family holds a controlling 85-per-cent interest in The Globe and Mail through Woodbridge Co. Ltd.

Mixed-use projects are becoming more common, as developers and planners seek to optimize urban intensification.

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