Peter Munk says he's largely out of the real estate game these days, but he is putting his money in one surprising spot – Toronto condos.
The 85-year-old founder and chairman of Barrick Gold Corp. – and former head of real estate giant Trizec Properties, which was sold to Brookfield Properties Corp. in 2006 for more than $5-billion – is now spending some of his personal wealth on financing condo projects in Canada's most populous city.
It's a contrarian move. Policy makers in Ottawa, including Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney, have been worried about Toronto's condo market and suggested that they think too many condos are being built in Toronto's core.
Research firm Urbanation Inc. said Monday that 2,728 new condos were sold in the city during the first three months of this year, down 29 per cent from the prior quarter and 55 per cent from the first quarter of 2012. Some developers have shelved project plans amid the sales downturn, and the number of new buildings that opened in the first quarter of this year was the lowest since the third quarter of 2009. The number of unsold units in projects that are going ahead has climbed to 18,845, up 21 per cent from a year ago.
But Mr. Munk, who believes in Toronto's long-term future, is unfazed.
"That's the wonderful thing about the markets; if all of us had the same view, we couldn't afford to buy anything," Mr. Munk said in an interview. "It's wonderful to have opposing views."
"I'm not particularly investing in condo projects, I'm investing with a man who I think is absolutely tops," he added.
The developer that Mr. Munk is backing is CD Capital, headed by Todd Cowan and Jordan Dermer. CD Capital's projects include the 300-unit Sixty Colborne project near the St. Lawrence Market, which is yet to be built but launched last year, and 155 Redpath, near the intersection of Yonge Street and Eglinton Avenue, which is just launching. CD Capital has teamed up with Freed Developments and more projects are on the way. Mr. Munk is one of a number of wealthy individuals providing financing for the buildings.
Mr. Cowan and Mr. Dermer were both previously executives at Trizec Properties and went on to be top executives at a joint venture it created, TriGranit Development, whose major shareholders included Mr. Munk and British financier Nathaniel Rothschild. Mr. Cowan became CEO of TriGranit, which developed more than 10 million square feet of properties in Central and Eastern Europe from 1997 to 2006, when he and Mr. Dermer left the company and returned to Canada to start CD Capital.
Mr. Munk declined to say how much he has invested in CD Capital buildings. "For me, it's a significant amount of money for real estate," he said. "I'm not really a real estate investor."
"I can't recall having met a young executive with the potential and track record, at his age, of Todd Cowan," Mr. Munk added. "When he says condo, I invest in condo."
Mr. Cowan was 28 when he moved from Canada to Budapest in 1996 to help get TriGranit off the ground. The company continues to be one of the largest fully integrated real estate firms in Europe. Mr. Cowan, who took a year off when he moved back to Canada, said he and Mr. Dermer wanted to raise their families in this country, and felt that they could put their experience to use – along with the relationships they had developed with people such as Mr. Munk and the Rothschilds – to work at home.
"The vision is to turn CD Capital into one of Canada's greatest developers over the next 10 to 20 years," Mr. Cowan said.
While Toronto condo buildings are no longer selling out overnight, the market's long-term prospects are strong, he and Mr. Dermer said. "We think the city is backed by a very strong rental market and continued inward migration," Mr. Dermer said. He added that the Yonge and Eglinton area, which will be served by a new light-rail transit line, is ripe for development.
But other investors are increasingly reluctant to make the bet that Mr. Munk is making. Toronto has more high-rise real estate buildings on the go than any other city in North America and with nearly 60,000 units under construction, activity is at a record high, said Canadian Imperial Bank of Commerce economist Benjamin Tal.
He estimates that about 31,000 households will form annually in the Greater Toronto Area over the next few years; if that's the case, then the projected increase in homes in the region would suggest overbuilding, he said.
Mr. Tal expects that the market will face its real test in 2014, when as many as 35,000 units could be completed, up from the average over the past decade of about 15,000. That would be uncharted territory, he said.
However, he expects that many projects in the city will wind up being delayed. That's in part because "financing is becoming an issue with the rapid pace of development causing many lenders to think twice before extending credit."
He estimates that condo developers are currently facing a $2-billion to $3-billion financing gap, one that's mainly having an impact on second-tier players and luxury condo developers. "The biggest risk that we are facing is that those investors that have been buying condominiums, given the fact they won't be able to see the same increase in rent, maybe they will bail out," Mr. Tal said.
For his part, Mr. Munk, a jet-setter who is behind the development of the world's largest superyacht marina at Porto Montenegro, said he also believes in Toronto's future.
"Look at Beijing, look at all the money. I've got friends who have got kids there, tremendous job opportunities, and the kids will come back because they can't breathe the air," he said. "You go to London – one of my daughters lives there, and it's so overpriced that it's sick-making. New York has got tremendous attractions, but it's also got a hell of a lot of problems. Look at the traffic – I have an office there and you can't go across.
"Toronto is absolutely unique. It's not flawless, but it's so much better than the possible alternatives … "I will die here."
CD CAPITAL'S PROJECTS
A 470-unit residential condominium project located in the Yonge-Eglinton neighbourhood.
A 300-unit residential condominium project, with retail space on the ground level, located in the historic St. Lawrence Market area adjacent to the downtown business core.
A 150-unit residential condominium project located between two green spaces 10 minutes from downtown Montreal and served by two Métro stations.
Victoria City Centre
A 350,000-square-foot shopping centre in northwest Bucharest with direct subway access; it also has 1,900 parking spaces.
HUNGARY AND ROMANIA
2,000-unit, self-storage facilities that CD Capital says have "set the standard for self-storage in Hungary and Romania."
Source: CD Capital