The Market Realities of Smart Growth

1
The Market Realities of Smart Growth

• May 9, 2003
• Scott Chandler, Vice President
• Royal LePage Advisors Inc.

2
Royal LePage Advisors

• Consulting arm of Royal LePage Commercial
• Leading real estate professional firm in Canada
• Market analysis, due diligence and appraisal
• Major clients include
• Ontario Realty Corporation, Canada Lands, Region
  of York, City of Vaughan, City of Kitchener,
  School Boards
• Borealis, Sun Life, Penreal, Summit REIT, Riocan
  REIT, GWL, Cadillac/ONTREA, Dundee, First Pro
  Shopping Centres, etc

3
The York Region Study

• Multi-faceted analysis
• Land use policy
• Market realities
• Fiscal impact
• Transportation implications
• Case study review

4
The Context

• The concept of centres and corridors is widely
  accepted
• Structure is already enshrined in planning
  documents
• The achievement of higher density development has
  been slow to materialize
• The playing field between intensified development
  and greenfield development is not level
• York Region is not alone

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The Case for Centres Corridors

• Greater housing diversity
• Better image/amenity
• Enhanced accessibility
• Efficient and cost effective
• Improved environmental sensitivity
• Enhanced economic
• competitiveness

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HIGHER DENSITY HOUSING STARTS
Share of Starts that are Row and Apartment Units
City of Toronto
905 Region
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HIGHER DENSITY HOUSING LOCATIONS
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OFFICE BUILDING COMPLETIONS
Mns sf
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Factors Frustrating Centres Corridors

• Substantial greenfield development opportunities
• Financial feasibility for higher density not
  there
• No higher-order transit
• No established urban environment

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Commitment to Transit

• Commitment to major investment in transit
• Requires supporting land uses, at higher
  densities and good urban design
• Vaughan example

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What is Urban Development?
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DEVELOPMENT PRAGMATICS

• Competitive market-driven
• Relative cost and return decision
• Achievable rents/sales price
• Demand (absorption)
• Development cost (inc. municipal fees)
• Required return/relative risk (after tax)

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OFFICE BUILDING PROFORMA
psf
Municipal fees 1 0.5
Development charges 4 2
Land purchase 18 8
Tenant/leasing costs 25 10
Underground Parking 27 11
Soft construction costs 30 12
Hard construction costs 135 56
TOTAL 240 100
Required Net Rent 24 psf
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ECONOMIC RENT REQUIREMENT - OFFICE
per sf
Avg. Net Rent Required
Avg. Net Rent Required With No Municipal
Fees/Charges
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OFFICE RENTS
Asking Net Rent (psf) Class A Space
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APARTMENT CONDO PROFORMA
Municipal fees 2 .5
Development charges 14 6
Land purchase 18 7
Builder profit 23 9
Underground Parking 27 11
Soft construction costs 31 13
Hard construction costs 135 54
TOTAL 251 100
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ECONOMIC PRICE REQUIREMENT - CONDO
per sf
Avg. Sale Price Required
Avg. Sale Price Required With No Municipal
Fees/Charges
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APARTMENT CONDO PRICES
Average Asking Sales Price ( psf)
200-250 Economic Sale Price Required
Source Urbanation
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MUNICIPAL FEES AS OF COST
per sf
6.9
4.6
2.3
2.8
7.6
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Financial Considerations

• Underground parking is a considerable cost
• Development charges and other municipal fees
  impact developer profit and feasibility on the
  margin
• Demand is a key issue how do you attract an
  investor/user/resident willing to pay feasible
  rents/sale prices to centres and corridors?
• Higher-order transit
• Urban environment and amenities
• Demand generators (e.g., civic uses)
• Public education/awareness of urban benefits

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Tools to Influence Change
Tools to Influence Change Planning
Policy Financial Policy Affordable
Housing Building Infrastructure / Public
Realm Other Tools
Potential Impacts Enhance Demand Reduce
Private Sector Costs Reduce Risk
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Real Estate as a Tool

• Private Sector
• Footloose Flexible
• Shorter-Term
• Leverage
• Risk Threshold
• Measured Results

• Public Sector
• Legislative Process
• Longer term
• Annual Budget
• Public Good Consideration

• Common Ground
• Stakeholder Interest
• Operational Efficiency
• Cost Control
• Real Estate as a tool

Real Estate