Toronto Under Construction – Episode 58 with Leor Marguiles from Robins Appleby, Greg Gilbert from Fitzrovia and Danya Gilbert from Forum Asset Management

TUC 58: Leor Marguiles of Robins Appleby, Greg Gilbert of Fitzrovia and Danya Gilbert of Forum Asset Management

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In episode 58 of the Toronto Under Construction podcast, host Ben Myers welcomes Leor Marguiles from Robins Appleby, Greg Gilbert from Fitzrovia and Dayna Gilbert from Forum Asset Management to join a roundtable discussion on the current Toronto real estate market.

Jumping right into the episode, Ben reads an article from the Robins Appleby’s blog on BILD’s Market Outlook Breakfast saying “George Carras of R-LABS emphasized the urgent need for the housing industry to embrace innovation and efficiency in the 21st century. Developers need to innovate and he’s calling on the government to support and initiate a drive for meaningful change.” Ben goes on saying Benjamin Tal, Deputy Chief Economist at CIBC World Markets also spoke quoting “that Benjamin feels the Bank of Canada should reconsider its inflation targets and hold rates steady until mid-2024. He suggests a more selective immigration policy that prioritizes construction workers to address labor shortages in the industry, and a greater focus on getting rental apartments built. He went on to say, “the Bank has to understand that we are in a recession, they have caused it already. Inflation has been beaten and the Bank of Canada has to recognize it. Prices are rising at a level that is less than half of what they were last year and dropping.” Ben asks Greg to comment on the first half of that, asking him if Fitzrovia is spending time researching how to improve how buildings are built? Tune in at 5:56 to hear Greg’s answer. Next, Ben turns to Leor and asks, how are your clients thinking about interest rates moving forward, and is there anything written in the contracts you’re working on that can protect them against these unforeseen increases? Tune in at 8:12. Ben then asks Dayna about their pipeline and whether Forum is ready to bring any of their projects to market. Tune in at 11:36.

Discussing flexibility in terms of financing, Ben reads an article from RENx on The One Receivership; “The One, an 85-storey luxury development at the corner of Yonge and Bloor in Toronto, is in receivership. Co-owned by Sam Mizrahi and Jenny Coco, this project has had multiple challenges since its inception in 2015. 

The development carries almost $1.7 billion in debt, with a substantial portion owed to senior secured lenders such as IGIS Asset Management Co., 

The Ontario Superior Court of Justice has appointed Alvarez & Marsal Canada Inc. as the receiver and manager of The One. The project was initially estimated to cost $1.4 billion and was expected to be completed by December 2022. These estimates have been modified to a cost of $2 billion, with completion in March 2025. These issues are further complicated by Mizrahi and Coco being embroiled in a lawsuit over its development, further litigation from China-East Resources Import & Export Co, and Apple terminating a lease for a flagship store in The One. 

The One’s future remains uncertain, showcasing the challenging landscape of high-end real estate development in Toronto.”

Ben mentions that Leor wrote on his LinkedIn that Mizrahi will remain on as the general contractor and asks him to comment on that. Tune in at 17:05 for his response. The group discusses the issues surrounding the project and we hear insights from both Greg and Dayna as well.

Ben touches on another article that mentions another developer that is having some issues and Ben turns to Leor saying, in 2020, you put out a press release stating that “Robins Appleby LLP has assembled a seasonal, multidisciplinary commercial “Real Estate Workout + Enforcement Team” to help solve the shared problems of lenders, developers, contractors, landlords, and tenants suffering from the effects of COVID-19”. Is that team still in place, and what type of issues are you seeing in 2023? Tune in at 22:18 for Leor’s response on how is starting to see cracks and that land sellers are having a hard time finding buyers. Ben turns to Dayna and asks if her firm is looking to capitalize on the land sales that are coming through? Tune in at 25:38 to hear Dayna talk about Forum’s current buying strategy.

Next up, Ben turns to Greg, reading another article from RENx on rental housing, reading, “In an Urban Land Institute Toronto webinar, a group of experts felt removing GST from purpose-built rental housing construction and several provinces removing their share of the harmonized sales tax was a positive step. Although unanimously, they felt more has to be done as rising construction costs, increasing interest rates, and difficulties in securing equity investment make developing this housing type challenging. 

The panel noted for Canada to produce more much-needed purpose-built rental units, more immigration was needed, particularly construction workers and the inclusion of skilled immigrants in the labour force, as well as, municipalities to provide tax incentives and grants for purpose built rentals. These measures are required to increase the PBR stock and protect existing projects from receivership. Private and public collaboration is essential.” Ben asks Greg, how big of an impact will the Federal government’s changes to HST have on your business? Tune in at 29:04 for Greg’s response on how the changes to HST will impact his business and hear Ben discuss rental numbers from some of the key locations Greg mentions outside of the GTA like Barrie, Newmarket, St Catherines and more.

Ben moves on to discuss the unintended consequences of Planning Policy, another article from RENx, reading “The primary goal of urban planning is to serve the public’s best interests in how our cities develop. So, what could be more beautiful and well-intentioned than consulting with our communities every step of the way, right?

And it is truly amazing that we managed to make the community consultation an integral part of our planning process. What’s the concern, then?

Well, like any other democratic process that shapes our society for generations, meaningful participation of a diverse range of voices is crucial. Unfortunately, our community consultation process, the way it is currently structured, falls short in this regard.

It not only fails to effectively engage more marginalized groups, but also allows the louder voice of a smaller but more privileged group to disproportionately influence how our cities should (or should not) evolve, often prioritizing their short-term interests over a prosperous future for everyone else.”

Ben also quotes a CBC article where Leor says “the longer the approval time, the greater the costs of carrying the property.” And “If you can shrink the approval process down from five years to two years, that’s savings of big dollars.” Ben continues to read that Margulies said there is tremendous NIMBYism in Toronto, where 75 per cent of the city is low-rise. The ward system is a huge impediment to development.” Ben asks Leor, Do you think there is any value in these public consultations, or are they just a platform for NIMBYs to rant? Tune in at 34:28 where he says it’s both. Turning to Greg, Ben says your firm has notoriously purchased several approved development sites, but now appears to be willing to take some entitlement risk, why did you have that change in philosophy? Tune in to 37:08 to hear Greg discuss. Ben then asks Dayna, Does your team get involved in development approvals, or do you leave that exclusively to your development partners? Tune in at 39:34 to hear her response. Leor and Greg also chime in on the discussion of public consultation and why it’s important to the development process.

Moving on from the entitlement process, Ben reads a piece from an interesting article written by Leor in 2022 from Building Excellence saying “Numerous allegations were made in the Notice of Proposal to Revoke License and Impose Conditions on License by HCRA, regarding the conduct of the Adi Group. As a result of a recent settlement, the only issue raised by HCRA that was admitted and dealt with was the delay in returning deposits to buyers whose Purchase Agreements had been cancelled. All other allegations of improper conduct were dropped.

Most developers by now should be aware that the regulation passed in April 2022, which increased the interest payable on all deposits, whether for cancelled agreements or closed agreements, from Bank of Canada (BoC) rate minus two per cent, to BoC policy rate (0.25 per cent below the BoC rate) without the two-per-cent reduction, has been repealed and replaced.” Ben asks Leor, do you have any additional comments on this situation, and do you think the HRCA was overstepping its bounds, trying to make an example out of Adi? Tune in at 47:15 for his response.

Next Ben says he wants to talk about a press release that came out in March 2023 reading, “Forum Real Estate Income and Impact Fund invests principally in institutional-quality, multi-family rental apartments, purpose-built student accommodations (PBSA), and co-living communities located in supply constrained markets in Canada. The Trust also strives to deliver a sector-leading impact and ESG-driven portfolio that will enhance yields and total returns while future-proofing the portfolio to ensure diversity and resiliency of income.” He says there were a couple things I found interesting in that single paragraph, the first being that there is an emphasis on supply-constrained markets. He asks Dayna, what metrics are you using to try to assess the degree in which a market is constrained? Tune in at 55:21 for her response where she says all markets right now are constrained and discusses more about Forum’s focus.

Ben reads another press release from February 2023 saying “Fitzrovia is pleased to announce the initial closing of its first real estate fund, Fitzrovia DevCore Fund LP (“DevCore” or the “Fund”), focused on the development of purpose-built rental housing across the Greater Toronto Area (“GTA”). The Fund has a target size of $920 million of equity commitments, with over half of the target commitments secured to date.

DevCore’s investment mandate is to acquire well-located lands across the GTA in close proximity to public transit and major employment hubs for the purposes of developing rental housing. The Fund’s ultimate capitalization represents over $2 billion of purchasing power which will be used to help alleviate the GTA’s lack of rental supply.” He asks Greg to comment on who is investing in this fund and why? And secondly, the press release specifically mentions your goal of alleviating the rental supply problem, but doesn’t that restrict future rent growth? Tune in at 1:01:23 to hear his response and the group discuss affordable housing.

Reading another except from the Robins Appleby Blog, Ben says, “Robins Appleby represented the Bank of Montreal on the $40 million dollar land financing of a proposed high-rise condominium development site located at 552-570 Church Street and 64-66 Wellesley Street East, Toronto, involving an Alberta developer making its first entry into the GTA condominium market. This project was just recently approved by Toronto planning.” He asks Leor, what are your thoughts on out-of-town developers coming into Toronto? We’ve seen several of the Vancouver developers like Concord Adex and Pinnacle have tremendous success, but Onni seems to have come and gone, and the Chinese developer Greenland hasn’t done anything on their waterfront project in years. Is real estate development in Toronto a local game? Tune in at 1:11:09 to hear whether Leor thinks out of town developers can be successful in Toronto and Greg shares some details of Fitzrovia’s expansion into a new market. Lastly, Ben mentions that Forum has investments in Toronto, Ottawa, Vancouver and Winnipeg, and asks Dayna, do you always have local partners, or do you have comfort in going into new markets without the obligatory “man on the ground” as they say? Tune in at 1:14:27.

As the episode comes to an end, Ben asks the group some Rapid Fire questions including “Do high-profile international architects help Toronto developers get approvals faster?”, “Should Toronto have a congestion tax on vehicle travelers into the City? ”Are you buying into the co-living trend?”, “Which of these three things will rise in 2024: Land Prices, New Condo Prices, Construction Costs”, “Should real estate lawyers pay referral fees?”,”Do developers purposefully underestimate the condo fees when marketing a pre-construction project?” and more!

Tune in now to episode 58 of the Toronto Under Construction podcast.

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