One Bloor East before the wrecking ball
The promised land: One Bloor East has been sitting empty since the old buildings were demolished a year agoA Whole Lot of Nothing
by Richard Poplak
[Toronto Life - Jne.09]
One of the biggest, priciest, most-hyped condo projects in Toronto history has turned Yonge and Bloor into a windswept reminder of our financial insanity. Is the empty lot a sign of the times or of something more troubling?
It was the lineup that did it: on a chilly November day in 2007, 100 salivating condo zombies queued in front of the sales office of One Bloor East, and the spectacle entrenched the $500-million tower (its name shortened, with Hollywood action-movie panache, to 1BE) in the public imagination. Many of them were hired by real estate agents for as much as $2,000. They huddled in the cold for over a week, determined to claim one of 612 luxury units gussied up with Miele appliances and lanais (Hawaiian for covered balcony). The hysteria was as inflated as the prices: newspapers reported that an unnamed Hong Kong businessman had offered $25 million for a two-storey penthouse suite with an infinity pool gazing out over Lake Ontario.
At the time, the real estate market was as fat and smug as a Wall Street hedge fund manager, and 1BE’s developer, Bazis International, milked the frenzied crowd accordingly. As people waited in line, staff came outside and changed a sign displaying unit prices, hiking the range of $300,000 to $2 million up to $500,000 to more than $8 million. According to Andrew La Fleur, a real estate agent and an active blogger who was there that day, when the prices were raised the crowd let out an exasperated “Come on!” Still, 80 per cent of the units were sold in a matter of weeks.
One Bloor East was by no means the only condo project to inspire such fervour during the boom. The Shangri-La hotel and condos at University and Adelaide, the Aura condo at Yonge and Gerrard and the Trump Tower at 311 Bay all garnered their share of excitement and controversy. But there was something special about 1BE. It cast its spindly shadow over the entire industry. Roy Varacalli, the in-house architect for Bazis International, described the Yonge-Bloor intersection as “the crossroads of the city and the country.” The tower promised to transform a moribund jumble of low-rise retail into a bustling urban nexus. Its 78 luxurious storeys would perch atop a three-level, gilded podium of retail; celebrity chef Gordon Ramsay was reportedly approached to run the restaurant of a five-star Sofitel Hotel. No aspect of the project went unhyped: an e‑vite depicting a backhoe scooping up a clump of oversized gems asked people to “come and be a part of demolition” on May 29, 2008. Yet since the demolition, One Bloor East has been as quiet as a mausoleum. The project has become an emblem of our collective financial insanity. The questions of industry watchers, condo purchasers and curious passersby are twofold: what stalled the tower’s heavenward march? And will it go up at all?
Toronto is home to the most active condo industry in North America. One reason for this is our greenbelt legislation, which has encouraged developers to build up rather than out. Another is that most of the city’s apartment buildings were constructed in the ’50s, ’60s and ’70s, and little purpose-built rental accommodation has been added since. The condo market has become our rental market.
In 2007, at the height of the boom, the number of new condo units sold in Toronto was 22,654, up a whopping 40 per cent over 2006. There were 103 new condo projects launched that year in the census metropolitan area (or CMA, which accounts for most of the GTA). In 2008, sales of new condos dropped to 14,469, with the number of new projects reduced to 78. This year, by the end of the first quarter, only one project had been launched. If the market doesn’t improve, the current supply of new condos (i.e., those already or nearly built) could be quickly absorbed over the next couple of years, and there won’t be enough supply to meet the demand of a growing population and a changing demographic.
Jane Renwick, executive vice-president of the real estate consultancy Urbanation, projects there will be a further 45 per cent fall-off in new condo sales this year. For developers, it’s a vicious circle: new condos rely entirely on pre-sales (in Canada, projects can’t qualify for financing until 70 per cent of units are sold), and when consumer confidence is low, buying a property before it’s built seems like an especially risky proposition. You are essentially buying a promise.
“Overall, things are not in irredeemable shape,” says Renwick. But the spotlight is on one or two mega-projects, and their fate has the power to chill an entire buying population. That spotlight, once carefully cultivated and guarded by eager developers, has now become an inconvenience. Companies are learning that there’s no off switch when things go awry.
Bazis International is new to the Toronto condo scene, with three other developments currently in the works: Crystal Blu at 21 Balmuto, the stalled Emerald Park at the southwest corner of Yonge and Sheppard, and the proposed Exhibit opposite the ROM Crystal on Bloor. Loquacious to a fault when its projects debuted, Bazis has lately gone quiet; its only recent contact with buyers was a notice of extension informing them that, in accordance with standard purchase contracts, digging at 1BE would be delayed until June 15.
This sudden coyness has not ingrati-ated Bazis with One Bloor East buyers or industry watchers. Real estate blogs are rife with scuttlebutt on the seeming complexity of the project’s financing. “We’re freaking here. What’s going on?” wrote one person on the UrbanToronto forum. “We’ve waited for decades for something to replace the eyesores on that corner,” wrote another. “If this doesn’t get off the ground, it could be a decade before anything gets built there.” One poster, bemoaning the lack of communication from Bazis, said they’d written the local councillor instead. “It’s better than nothing.” To date, there are at least 3,550 posts related to One Bloor East.
Bazis comes to us by way of Kazakhstan, an oil- and gas-rich nation nestled between Russia and China, once a favoured location for gulags and hydrogen bomb testing. At first glance, it seems baffling that a Kazakh company would choose Toronto as a location for a half-billion-dollar mixed-use tower. But the reasons aren’t hard to discern. Through the boom times, Kazakhstan, like other commodities-jacked insta-countries, grew at twice the average rate of the world economy, and the wealth needed somewhere to spread. Toronto represented the relative stability of the western world at a massive discount. Even at the height of the bubble, prices here were extremely low compared with those in other major North American centres, to say nothing of London and Paris. For a signature plot of land at the city’s vital axis point, Bazis dropped a mere $78 million. Michael Gold, Bazis International’s 45-year-old president, still thinks Toronto is the best city in North America in which to invest. “This is not the United States, where the leverage situation was out of control. We are politically and economically stable,” he says.
Though Bazis International is based in Concord, Ontario, it’s directly linked to economic conditions in Kazakhstan. Bazis‑A, its sister company, is headquartered in the former capital city of Almaty. It has also been actively involved in the Dubai-like renaissance taking place on a stretch of the Kazakh steppe that president Nursultan Nazarbayev designated the country’s new, post-Communist capital. He called it Astana, and it’s a jaw-on-the-floor hallucinatory mind trip. Buildings rear up into the sky, glinting like costume jewellery on an ugly debutante. There are towers with gold domes, skyscrapers housing hanging gardens, a glass pyramid designed by the architect Sir Norman Foster. On a clear day, Astana looks like something dreamed up by George Lucas.
Recently, thanks to the drop in commodity prices and Kazakhstan’s loose banking regulations, the country has been walloped by the financial crisis. Its biggest bank, BTA, has been nationalized; the chairman, a one-time opposition leader, is on the run. And Bazis has not gone unscathed. Its biggest development, the three-skyscraper Emerald Towers in Astana—which was designed by Roy Varacalli and was the inspiration for the project at Yonge and Sheppard—has been halted mid-construction. The rest of Astana is scarred by open foundations, abandoned scaffolding and the stumps of towers. A place of promise is now an example of a city in collapse. It is a warning.
Will One Bloor East share the Emerald Towers’ fate? There is one glaring problem with the project’s financial situation: Lehman Brothers is on the title. The plot was assembled over the years by Kolter Group, a real estate investment firm that left Toronto to concentrate on its holdings in now financially decimated Florida. In December 2006, Kolter sold over 40,000 square feet of the site to a limited partnership between Bazis International and Lehman Brothers for $62,812,670. The southwest corner of the lot was owned by Scotiabank, who sold it to the same limited partnership for $13,750,000; the city sold the lane running off Hayden Street for about $1.7 million. (Lehman Brothers is also on the title of Emerald Park.)
On September 15, 2008, the world woke up to learn that one of the largest investment banks on the planet had collapsed, sending tens of billions of dollars into the economic ether. Lehman’s unravelling had a double impact on the 1BE project: not only did it sink the financing already in place, but it also froze credit markets around the world. Bazis, like everyone else, was caught off guard. “In 2007, if you said that Lehman Brothers would go bankrupt, people would have laughed at you,” says Gold. “It was bigger than all the Canadian banks combined. How could we have known?” For the development to continue, Lehman Brothers will have to be removed from the 1BE title. The process has been dragging through the U.S. court system. On June 15, Bazis will enter a 31-day period during which it can notify buyers that it is cancelling construction and returning their deposits (currently held in trust by a law firm). If the company doesn’t cancel construction during that period, the purchase agreements become binding. Beyond the 31 days, the longer the construction is delayed, the more difficult it becomes for buyers to recover their money. Gold says the company will consider its options come June, but that he’s confident 1BE will go ahead. “It’s a great plot,” he says. “It’s just that the rules have changed on us.”
If One Bloor East fails, there will be significant ramifications for the city. Toronto has become addicted to the tax dollars generated by condo developments, especially luxury ones. Cash-starved municipalities dream of million-dollar homes piled on top of each other, which explains Yorkville’s transformation from low-rise coziness to high-rise haven. Fully occupied, One Bloor East would generate millions of dollars for the city on an annual basis. It would also create four to five thousand jobs—a miniature economic universe at Yonge and Bloor.
Hersh Litvak, an agent with RE/MAX Realtron Realty who was first in the infamous lineup, is resolute about the building’s future. Litvak has sold 50 condos to a host of clients. “They aren’t nervous; they just want to know when it will be built. I’m telling them that Bazis doesn’t have a financing problem. It has a legal problem.” But the legal problem becomes a financial problem: the dormant site is an enormous money drain. There are architects, consultants, lawyers and contractors to pay, and a $78-million dust bowl can run up a hefty property tax bill.
Frustrated though they may be, buyers have no recourse at this point. Bazis is well within its rights. “The company is going to do everything it can to get this going,” says Litvak. “It’s at the mercy of the courts and the litigation system in the U.S. Anyone in their right mind will do the financing.”
However, lending has become a lot more complicated in the past six months. Regulations are tighter, and each bank is limiting the amount of money it’s willing to throw at a project. So instead of dealing directly with one deep-pocketed institution, developers must now appeal to a consortium of lenders. Gold confirms that Bazis is in conversation with eight to 10 financial institutions, including European pension funds. “It’s better than it was six months ago,” he says, “when none of the banks trusted each other.” He’s hoping to have financing arranged for the moment Lehman Brothers is off the title, and construction plans in place this month. Despite all the uncertainty, the company continues to peddle its remaining units: the tiny Life 690, a one-bedroom, is currently listed at $569,900; the expansive Dream 2580 (two bedrooms with a library and family room) will run you a tidy $4.2 million.
Toronto has been lucky. It has not suffered the partially built towers that litter the Astana skyline and creep ever closer to home: Chicago’s Waterview has stalled at 20-plus floors, and Vancouver has several gaping holes that will be there to greet Olympics spectators next February. Nonetheless, One Bloor East has been a lesson in pre- and post-crisis real estate development. The global embrace that defined the boom’s mega-deals—where a company originating in Kazakhstan could get American financing for a Canadian skyscraper—are now recalled with nostalgia. Until all the deals are inked—and perhaps for sometime after—the spectral 1BE teeters like a jury-rigged hut. It has yet to be built, but it is already a relic of another time.
1 Bloor East Buyers to Regain Deposits
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Biggest Real Estate Losers
In 2003, Dubai announced it was building the world's largest theme park around the world's largest shopping mall. No one batted an eye. By mid-decade, real estate speculation was so rampant that every other television show demonstrated how to "flip" houses to turn a quick profit. No longer. With global economies reeling and banks taking few risks, financing for ambitious real estate ventures has all but disappeared. In March, 126,000 U.S. construction jobs were lost, and a recent report by Emporis found that construction has stalled on 142 of 1,324 skyscrapers around the world. Five-star hotels and luxury condominiums are particularly vulnerable in this new era of frugality, as are many Persian Gulf projects that were green-lighted when oil was still $100 a barrel.
And what about all the "starchitect"-designed buildings that aspired to be the tallest on their continents? They seem more hubristic than optimistic in 2009. In a fitting metaphor for the stunted market, buildings designed by the likes of Frank Gehry and Norman Foster are being downsized to more modest heights.
Here's a look at 20 ventures that have suffered setbacks, or even frozen completely, in this new real estate Ice Age.
Chicago SpireLocation: Chicago
Architect: Santiago Calatrava
Developer: Shelbourne Development
Financial Backers: Garrett Kelleher (Shelbourne Development), Anglo Irish Bank
This spiraling tower on Lakeshore Drive was set to be the tallest structure in the Western Hemisphere. Currently, it's a pit—110-feet wide and 7-stories deep. Developer Garrett Kelleher (pictured) sank $180 million of his own funds into the venture, stalled since January, and Spanish architect Santiago Calatrava filed a lien claim against the project for the millions he is owed. With few other financing prospects, Kelleher is reportedly in talks with the AFL-CIO, which may loan the funds in exchange for the thousands of union construction jobs it would generate.
Waterview TowerLocation: Chicago
Architect: Thomas Hoepf (Teng & Associates)
Developer: Teng & Associates
Financial Backers: Ivan Dvorak (Teng & Associates), LaSalle Bank (now owned by Bank of America), Export-Import Bank of China
Construction on this Wacker Drive high-rise came to a screeching halt in summer 2008 when a $400 million loan from the Export-Import Bank of China was suspended. The mixed-use building, which was scheduled for completion in 2010, was to house residential condominiums and a five-star Shangri-La Hotel. But the Hong Kong-based hotel chain pulled out in March, and the sad concrete frame is stalled at 26 stories—out of a planned 90 floors.
XanaduLocation: Meadowlands, N.J.
Architect: Rockwell Group
Developer: Meadowlands Development
Financial Backers: Colony Capital, Dune Capital Management, Credit Suisse, KanAm, Xanadu Mezz Holdings
Xanadu, one of the largest commercial real estate ventures in the U.S., was extravagant even in boom times. The sprawling mall, which sits on 4.8 million square feet of land, was to contain more than 200 stores, an indoor ski hill, a Ferris wheel, and a chocolate waterfall. However, the $2.2 billion project, originally scheduled to open in 2007, has been plagued by delays and vacancies. Some tenants have filed for bankruptcy or backed out of their leases, while others are negotiating with the developer to delay their openings. In March, a non-bankrupt Lehman Brothers affiliate defaulted on its loan, jeopardizing the mall's completion and leading a New Jersey state senator to dub it the "Mistake at the Meadowlands."
Harmon HotelLocation: Las Vegas
Architect: Foster + Partners
Developer: MGM Mirage/CityCenter Holdings
Financial Backers: CityCenter Holdings, Dubai World
The Harmon Hotel is part of a $9 billion mixed-use development being built by the MGM Mirage on the Vegas Strip. The hotel's opening has been postponed to 2010, and the future of the whole glitzy complex, dubbed CityCenter, is in question. MGM Mirage, controlled by billionaire investor Kirk Kerkorian, is hemorrhaging money and venture partner Dubai World is suing over the project's busted budget. Now the builder has decided to shrink the Harmon Hotel by half, eliminating the residential portion. The developer is blaming a construction flaw for the change of plan, but less than half of the condos had been sold and the new blueprint is expected to save CityCenter at least $600 million.
Trump International Hotel and TowersLocation: New Orleans
Architect: Adache Architects and Harry Baker Smith Architects
Developer: Poydras, Trump Organization
If anyone is vulnerable to the violent swings of the high-end property market, it's Donald Trump. His $400 million luxury hotel, which will be the tallest building in the Big Easy if it's ever built, has been put on ice until the credit market rebounds. The hotel has been plagued by bad timing from the onset, having been announced just days before Hurricane Katrina made landfall. And it's not the only venture bearing the Trump name to suffer setbacks. Construction on the Trump Tower in Dubai was suspended in 2008; Trump Tower Tampa never got off the ground; and the colossal Trump Tower in Chicago remains largely vacant.
56 LeonardLocation: New York
Architect: Herzog & de Meuron
Developer: Alexico Group
The Swiss architects' fame quotient rocketed during last summer's Beijing Olympics thanks to their acclaimed Bird's Nest Stadium, and 56 Leonard was to be their first residential high-rise. This TriBeCa skyscraper (image taken from the construction's flashy Web site) was to feature glass cubes stacked in a precarious-looking cantilevered tower, with the least expensive units priced at $3.5 million. The foundation was laid in November and occupancy was scheduled for fall 2010, but work has been shut down temporarily.
ICON BrickellLocation: Miami
Architect: Philippe Starck
Developer: Related Group
Financial Backer: HSBC Realty Credit Corp.
The Sunbelt has been hit hard by the real estate bust, and no region has seen as dramatic a reversal of fortunes as South Florida, where the once-hot housing market is now languishing. Jorge Perez, the "Condo King" of Miami, knows this better than anyone. ICON Brickell, his three-tower luxury complex in Downtown Miami, threatens to be the undoing of the Cuban billionaire. The sprawling development is shaping up to be the $1.3 billion embodiment of mid-decade excess. By the end of 2008, only 55% of the 1,646 luxury condos were sold, and many buyers are attempting to wriggle out of their contracts. Perez's company is facing nearly $2 billion in debt and recently implored banks for more time to repay loans.
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You Should Have Bought 2 Months Ago
[truecondos.com - May 09]
The Toronto condo market is hot right now. No seriously, it is.
After months of writing to my readers about how slow the market has been, there has been a fundamental shift in the marketplace over the past 4 weeks. Multiple offers are back with a vengeance. The best properties are selling over asking and in less than 1 week. Buyers are feeling the pinch and I am starting to get used to the phrase ’sorry, that property is sold’ when I go to book appointments for my buyer-clients.
The stats for April should be released by the Toronto Real Estate Board any day now, and they will almost certainly reveal that sales are up and prices are up beyond what anyone was anticipating for this month.
Why? What happened? Has Barrack Obama worked some kind of magical spell over our economy? Are things not nearly as bad as everyone thinks they are? Are we all just living in denial and making things worse on ourselves by buying up all this real estate?
My thoughts on what has caused this recent upswing in the market:
1. Affordability. Prices have come down about 10% overall since the peak about a year ago. Interest rates have been basically cut in half since about 18 months ago.
2. Spring Fever. Every year at this time the market is at its hottest. This is always the busy season, so in that sense this upswing shouldn’t surprise us.
3. Changing Attitudes. Sellers are more realistic on their asking prices, and buyers are more aggressive as many have been waiting to buy for 6 months or more.
4. Canadian Pride. People are starting to see and believe that maybe it’s true - things here in Canada are not nearly as bad as they are in the rest of the world. Where is the best place for your money to be long-term? Many are thinking once again the answer is real estate.
5. The Investor Equation. For the past couple years, it was very difficult to find a cash-flow positive condo in Toronto with 25% down. Now, due to lowered interest rates and lowered prices, with rents staying pretty flat, it is.
All this is leading many people to wonder if the bottom of the market was back in January or February. Certainly there were some great bargains had during those months compared to what we are seeing today.
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