October 2nd, 2023

Three experts on the future of real estate

On Wednesday, September 27th, some of our clients, friends and neighbours from the Yorkville area gathered at Cumberland Private Wealth to hear three leading experts share their diverse viewpoints as investors, developers and visionaries in the Canadian real estate market.

Who’s buying and where? Which way is the market going? Is the office market doomed? These questions and more are on the minds of many these days, and we were honoured to have some of the best real estate minds in Canada on our stage. Cumberland partner, Alex von Schroeter, kicked off the evening with an introduction, then gave the podium to Chairman and co-founder, Gerry Connor, who lead a lively discussion with our panel of experts.

First up was Julie Di Lorenzo, CEO Mirabella Corp, who fielded some tough questions around the Canadian housing crisis. She noted that the supply shortage is severe, and that part of the problem is a lack of qualified developers:

“There’s a shortage of people that take the projects from start to finish, which is what legacy developers used to do. So the solutions are there, but there’s going to be a long runway to accomplish where we need to go. We’re falling further and further behind. I think CIBC says that we’re 350,000 units short today. In the past, we were producing 85,000 units a year, but we’re going to be down to 30,000 or 40,000 units. We should be doubling the housing supply, but we’re going in the other direction.”

However, Julie pointed to a few reasons for optimism. Among them, a younger cohort of engineers who are increasingly looking to apply their skills to industrial engineering and building materials, which may help accelerate innovation for developers.

She also sees the potential for new finance tools to assist the housing industry, such as having CMHC underpin construction loans so that more projects can get off the ground, and the introduction of US-style mortgages with much longer terms that match the amortization of the mortgage with the long term nature of the asset and provide greater financial security to homeowners.

Julie believes that many of the finance tools and other solutions that would be helpful already exist, but just need to be made a higher priority at the political and regulatory levels. She says that now is “actually the first time that [housing] is on the radar screen of policymakers.”

The next panelist was Morris Kansun, President of Sierra Communities, who described one of the key dynamics that he sees in the Toronto condominium space:

“In the majority of new condo sales in specific GTA areas in which we are developing our condos, the typical buyer is someone like a plumber from Brampton. He’s got a couple hundred thousand dollars and he might not understand the stock market, so he goes and puts a deposit down for a new condo. He puts a mortgage on it and rents it out. If he can make a few bucks after paying the mortgage, great, but if he doesn’t, he doesn’t really care, because 25 years from now, he’s got a condo worth a couple million dollars with no mortgage on it, and that’s his retirement.”

The panel agreed that that this scenario and others like it account for a large number of Toronto’s rental stock today. There was also discussion around some of the dynamics happening around the condo market, including the opportunity to snag deals that arise when overstretched buyers can’t close on new construction units in today’s high-rate environment, and the opportunity for developers to pivot towards more purpose-built rental projects.

Next, Michael Emory, Chair of Allied REIT, was confronted with “the elephant in the room,” which is the future of office real estate in the work-from-home era.

As a pioneer of transforming old industrial buildings into some of the hippest workspaces across Canada, he said that he is certain that, “The urban core will continue to expand, to grow, become deeper, richer, more mixed use, and more vital to our life as a nation and to our lives as human beings. So, with that as a foundation, there isn’t the slightest concern on my part.”

He went on to outline some of the innovative ways that developers can reshape the urban core to keep pace with changing expectations. He used the recent Allied project, The Well at 470 Front St West in Toronto, as an example:

“The Well addresses the underlying realities of urban transformation, which is that people want to live, work, recreate and learn in the same environment. It makes for safer streets and more amenities. Everybody is attracted to restaurants, theaters, and places that address our desire for human culture. So the basis for the success of The Well, in my opinion, is that it is a large-scale, mixed use development in what is probably the most desirable urban neighborhood in Toronto. The great thing is there are many similar neighborhoods across Canada.”

In summary, the current real estate environment is one with a unique set of challenges, from higher interest rates and input costs to declining productivity, financing hurdles and glacial regulatory regimes. However, it is also a time of opportunity, with rising demand from an unprecedented influx of new Canadians, regional pockets of compelling value spanning from London to Barrie and beyond, and promising new strategies, whether that means building new rental stock, or finding creative ways to blend multiple uses in a single development.

This article is just the tip of the iceberg of a discussion that lasted about 90 minutes, including a dynamic Q&A with the audience members. For a more detailed content and takeaways from the event or for access to a video replay, please contact your Cumberland Portfolio Manager.